U.S.
SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-K




(Mark
One)


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


For
Fiscal Year Ended: December 31, 2008


OR


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




For the
transition period from _______________ to _______________




Commission
file number:  333-140148




La
      Cortez Energy, Inc.(Exact
      name of registrant as specified in its
charter)





Nevada
                  
                  20-5157768(State
      or other jurisdiction of
                    incorporation
      or organization)
                  
                  (IRS
      Employer Identification
No.)





Calle
      67 #7-35 Oficina 409
                    Bogota,
      Colombia
                  
                  None(Address
      of principal executive offices)
                  
                  (Postal
      Code)




Registrant’s
telephone number:  (941)
870-5433




Securities
      registered under Section 12(b) of the Act:
                        
                        None




Securities
      registered under Section 12(g) of the Act:
                  
                  None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes ̈Nox




Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Exchange Act. YesxNo ̈




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




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company.  See the
definitions of the “large accelerated filer,” “accelerate filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.   (Check
one):




Large
      Accelerated Filer  ̈
              Accelerated
      Filer  ̈Non-Accelerated
      Filer  ̈
              Smaller
      reporting company x(Do
      not check if a smaller reporting company)




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes  ̈
  No x




As of
March 26, 2009, there were 18,935,244 shares of the registrant's common stock,
par value $0.001, issued and outstanding.  Of these, 12,735,244 shares
are held by non-affiliates of the registrant.  The market value of
securities held by non-affiliates is $35,021,921, based on the closing price of
$2.75 for the registrant’s common stock on June 30, 2008.  Shares of
common stock held by each executive officer and director and by each shareowner
affiliated with a director have been excluded from this calculation because such
persons may be deemed to be affiliates. This determination of officer or
affiliate status is not necessarily a conclusive determination for other
purposes.




DOCUMENTS
INCORPORATED BY REFERENCE


None.





TABLE
OF CONTENTS


Item Number and Caption
                    
                    PageForward-Looking
      Statements
                    
                    3PART
      I
                    
                    41.
                    Business
                    
                    41A.
                    Risk
      Factors
                    
                    211B.
                    Unresolved
      Staff Comments
                    
                    402.
                    Properties
                    
                    403.
                    Legal
      Proceedings
                    
                    434.
                    Submission
      of Matters to a Vote of Security Holders
                    
                    43PART
      II
                    
                    445.
                    Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                    
                    446.
                    Selected
      Financial Data
                    
                    457.
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    
                    458.
                    Financial
      Statements and Supplemental Data
                    
                    489.
                    Changes
      in and Disagreements with Accountants on Accounting, and Financial
      Disclosure
                    
                    489A.[T]
                    Controls
      and Procedures
                    
                    489B.
                    Other
      Information
                    
                    50PART
      III
                    
                    5510.
                    Directors,
      Executive Officers, and Corporate Governance
                    
                    5511.
                    Executive
      Compensation
                    
                    6112.
                    Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                    
                    6713.
                    Certain
      Relationships and Related Transactions and Director
      Independence
                    
                    7014.
                    Principal
      Accountant Fees and Services
                    
                    71PART
      IV
                    
                    7215.
                    Exhibits
      and Financial Statement Schedules
                    
                    72


2


FORWARD-LOOKING
STATEMENTS





Some of the statements contained in
this Annual Report on Form 10-K that are not historical facts are
“forward-looking statements” which can be identified by the use of terminology
such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,”
“intends,” or the negative or other variations, or by discussions of strategy
that involve risks and uncertainties. We urge you to be cautious of the
forward-looking statements, that such statements, which are contained in this
Annual Report, reflect our current beliefs with respect to future events and
involve known and unknown risks, uncertainties and other factors affecting
operations, market growth, services, products and licenses. No assurances can be
given regarding the achievement of future results, and although we
believe that the expectations
reflected in these forward-looking statements are based on reasonable
assumptions, actual results may differ materially as a result of the risks we
face, and actual events may differ from the assumptions underlying the
statements that have been made regarding anticipated events. Factors that may
cause actual results, performance or achievements, or industry results, to
differ materially from those contemplated by such forward-looking statements
include without limitation those discussed in the sections of
this Annual Report titled “Business” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and those set forth
below:





●
              Changes
      in the political and regulatory environment and in business and fiscal
      conditions in South America, and in Colombia and Peru in
      particular;


●
            Our
      ability to attract and retain management and field personnel with
      experience in oil and gas exploration and
  production;


●
            Our
      ability to identify corporate acquisition, farm-in and/or joint venture
      opportunities in the energy sector in Colombia and
  Peru;


●
            Our
      ability to successfully operate, or influence the operator of, exploration
      and production blocks where we have participation interests, in a cost
      effective and efficient way;


●
            Our
      ability to raise capital when needed and on acceptable terms and
      conditions;


●
            The
      intensity of competition;


●
            Changes
      and volatility in oil and gas pricing;
and


●
            General
      economic conditions.





You
should carefully review the risks described in this Annual Report and in other
documents we file from time to time with the Securities and Exchange Commission
(the “SEC”).  You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this Annual
Report.





All
written and oral forward-looking statements made in connection with this Annual
Report that are attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Given the
uncertainties that surround such statements, you are cautioned not to place
undue reliance on such forward-looking statements.





All
references in this Form 10-K to “La Cortez Energy,” the “Company,” “we,” “us” or
“our” or similar terms are to La Cortez Energy, Inc. and its wholly owned
subsidiaries.


3


PART
I





ITEM
      1.
            BUSINESS





For
definitions of certain oil and gas industry terms used in this annual report on
Form 10-K, please see the Glossary appearing on page 18.





Overview
of Our Business





We are an
international, early-stage oil and gas exploration and production company
focusing our business in South America. We have established an operating branch
in Colombia, we have entered into two initial working interest agreements, with
Petroleos del Norte S.A. (“Petronorte”), a subsidiary of Petrolatina Plc. (AIM:
PELE), and with Emerald Energy Plc Sucursal Colombia (“Emerald”), a branch of
Emerald Energy Plc. (AIM: EEN) (discussed below), and we are currently
evaluating additional investment prospects, companies and existing exploration
and production opportunities in Colombia and Peru, while keeping alert for
opportunities in other South American countries.





We were
incorporated in the State of Nevada on June 9, 2006 under the name La Cortez
Enterprises, Inc. to pursue certain business opportunities in Mexico. (We were
originally formed to create, market and sell gourmet chocolates wholesale and
retail throughout Mexico, as more fully described in our registration statement
on Form SB-2 as filed with the Securities and Exchange Commission (the “SEC”) on
November 7, 2006 (the “Legacy Business”).) In early 2008 after the Legacy
Business terminated, our new Board of Directors decided to redirect the
Company’s efforts towards identifying and pursuing business in the oil and gas
sector in South America. As a reflection of this change in our strategic
direction, we changed our name to La Cortez Energy, Inc.





We expect
to explore investment opportunities in: oil and gas exploration and development
and investments in infrastructure associated therewith (e.g., storage tanks,
processing facilities and/or pipelines). The scope of our activities in this
regard may include, but not be limited to, the acquisition of or assignment of
rights to develop exploratory acreage under concessions with government
authorities and other private or public E&P companies, the purchase of oil
and gas producing properties, farm-in and farm-out opportunities (i.e., the
assumption of or assignment of obligations to fund the cost of drilling and
development), and/or the purchase of debt or equity in, and/or assets of,
existing oil and gas exploration and development companies currently conducting
activities in Colombia and Peru.





We are
currently evaluating ways to optimize our business structure in each
jurisdiction where we conduct and where we intend to develop our business, in
order to comply with local regulations while optimizing our tax, legal and
operational flexibility. To this end, we have recently established an operating
branch in Bogotá, Colombia where we will engage in our initial business
ventures.


4


Recent
Developments





In
February 2008, Nadine C. Smith became the Chairman of our Board of Directors
(sometimes referred to hereinafter as the “Board”). In February 2008, Ms. Smith
also became our Vice President and in June 2008, our Interim Chief Financial
Officer.  Ms. Smith most recently served as a director of another
publicly traded oil and gas exploration and production company, Gran Tierra
Energy, Inc. (“Gran Tierra”), which also operates in South America.





On
February 7, 2008 we increased our authorized capital stock from 75 million
shares consisting of 75 million shares of common stock, $0.001 par value per
share (the “Common Stock”), to 310 million shares, consisting of 300 million
shares of Common Stock and 10 million shares of preferred stock, $0.001 par
value per share.  On that date, our Board of declared a five for one
(5 for 1) forward stock split (the “Stock Split”) on each share of our Common
Stock issued and outstanding at the close of business on February 21, 2008, in
the form of a stock dividend. The payment date and the effective date for the
Stock Split were February 26, 2008 and February 27, 2008,
respectively.





On March
14, 2008, we closed a private placement of our Common Stock (the “Private
Placement”) at a price of $1.00 per share pursuant to which we raised
$2,400,000, or $2,314,895 net of offering expenses. On September 10, 2008, we
closed a private placement (the “Unit Offering”) of 4,784,800 units (the
“Units”) at a price of $1.25 per Unit, for an aggregate offering price of
$5,981,000, or $5,762,126 after offering expenses. Each Unit consisted of (i)
one share of our Common Stock (the “Shares”) and (ii) a common stock purchase
warrant (the “Warrant(s)”) to purchase one-half share of Common Stock,
exercisable for a period of five years at an exercise price of $2.25 per
share.





On June
1, 2008, Andres Gutierrez Rivera became our President and Chief Executive
Officer and a member of our Board of Directors. Mr. Gurierrez recently served as
the senior executive officer of Lewis Energy Colombia Inc. and a vice president
of Hocol, S.A.  Both of these companies operate in the oil and gas
sector in South America.





We have
been using the funds raised in the Private Placement and Unit Offering (net
after offering expenses) to begin the building of our administrative and
operations infrastructure in South America and have taken the following
additional steps in this ramping-up process:





●
            Added
      on July 1, 2008, Jaime Ruiz Llano, a former Colombian senator and a member
      of the Board of Directors of the World Bank; on July 23, 2008, Jaime Navas
      Gaona, an experienced oil industry executive, and Richard G. Stevens, an
      “audit committee financial expert”; and on October 15, 2008, Jose Fernando
      Montoya Carrillo, a 27-year veteran of the oil industry in South America
      and former President of Hocol, S.A., as members of our Board of Directors,
      each as an independent director;




●
            Established
      a wholly owned subsidiary in the Cayman Islands, La Cortez Energy
      Colombia, Inc., to own our operating branch in
  Colombia;


5


●
            Established
      and organized a branch office in Colombia to conduct local operations and,
      to this end, opened and began staffing our offices in Bogota,
      Colombia;




●
            Hired
      an Exploration Manager in July 2008, Carlos Lombo, and a Production and
      Operations Manager in January 2009, William Giron, as well as business
      development and administrative
personnel;





●
            Signed
      a memorandum of understanding with one oil and gas exploration and
      production company in Colombia in December 2008 and a farm-in agreement
      with another in February 2009, as further discussed below;
    and





●
            Begun
      identifying and investigating other oil and gas investment opportunities
      in Colombia and Peru.





Also, in
the coming months, we expect to:





●
            Appoint
      one additional independent director to our Board of
    Directors;





●
            Hire
      a Chief Financial Officer, additional geologists and a petroleum engineer,
      to form a strong technical team, as well as additional finance and
      administrative personnel; and





●
            Enter
      into one or more additional agreements to acquire oil and gas exploration
      and/or production rights in Colombia and/or Peru. (Although we have not
      yet finalized decisions to pursue any such particular opportunities, we
      have begun to identify and evaluate potential
  prospects.)





Our
principal executive offices are located at Calle 67 #7-35, Oficina 409, Bogota,
Colombia, and our telephone number at our principal executive offices is (941)
870-5433. Our website address is www.lacortezenergy.com.





Split-Off
of Legacy Business




In
connection with the discontinuation of our Legacy Business, we decided to sell
all of the assets and liabilities of the Legacy Business (the “Split-Off”) to
Maria de la Luz, our founding stockholder.





As of
August 15, 2008, we assigned all of our assets and property and all of our
liabilities relating to the Legacy Business, accrued, contingent or otherwise to
our newly organized, wholly owned subsidiary, de la Luz Gourmet Chocolates,
Inc., a Nevada corporation (“Split-Off Sub”). Additionally, we sold all the
outstanding capital stock of Split-Off Sub to Ms. de la Luz in exchange for the
9,000,000 shares of our Common Stock previously surrendered by Ms. de la Luz and
all of our Common Stock that Ms. de la Luz then owned, an additional 2,250,000
shares.





Pursuant
to the terms of the Split-Off, Ms. de la Luz agreed to indemnify us and our
officers and directors against any third party claims relating to the Legacy
Business.


6





As of
August 15, 2008, Ms. de la Luz is no longer a stockholder of the
Company.





In
conjunction with the Split-Off Agreement and effective as of August 15, 2008, we
entered into a General Release Agreement with Split-Off Sub and Ms. de la Luz,
whereby Split-Off Sub and Ms. de la Luz pledged not to sue us from any and all
claims, actions, obligations, liabilities and the like, incurred by Split-Off
Sub or Ms. de la Luz arising from any fact, event, transaction, action or
omission that occurred or failed to occur on or prior to August 15, 2008 and
related to the Legacy Business.





Agreement with Petroleos del Norte
S.A.





On
December 22, 2008, we entered into a memorandum of understanding (the “MOU”)
with Petronorte that entitles us to a 50% net working interest in the Putumayo 4
block located in the south of Colombia (the “Putumayo 4
Block”).  Petronorte was the successful bidder on the Putumayo 4 Block
in the Colombia Mini Round 2008 run by theAgencia Nacional de
Hidrocarburos (the “ANH”), Colombia’s hydrocarbon regulatory
agency.  According to the MOU, we will have the exclusive right to a
fifty percent (50%) net participation interest in the Putumayo 4 Block and in
the exploration and production contract (the “E&P Contract”) after ANH
production participation, and it is expected that we will execute an assignment
agreement and a joint operating agreement (the “Definitive Agreements”) with
Petronorte relating to the Putumayo 4 Block by no later than April 30,
2009.   Petronorte signed an E&P Contract with the ANH on February
23, 2009.  Petronorte will be the “operator” of the E&P
Contract.




The Block
covers an area of 126,845 acres (51,333 hectares) located in the Putumayo Basin
in southern Colombia and has over 400 Km of pre-existing 2D seismic through
which we and Petronorte have identified promising leads.  We and
Petronorte plan to reprocess any relevant seismic information before conducting
our own seismic campaign to better direct the positioning of our seismic program
within the block. During this initial stage, we and Petronorte plan to begin
environmental and community consultations to expedite some of these timely
processes.





Under the
proposed terms of the E&P Contract, Petronorte will shoot 103 Km of 2D
seismic and will drill an exploratory well in the first three years of our work
program in the Block. The E&P Contract will consist of two three-year
exploration phases and a twenty-four year production phase.





As
criteria for awarding blocks in the 2008 Mini Round, the ANH considered proposed
additional work commitments, comprised of capital expenditures and an additional
production revenue payment after royalties, called the “X Factor.”  We and
Petronorte offered to invest US $1.6 million in additional seismic work in the
Putumayo 4 Block and to pay ANH a 1% of net production revenues X Factor.


7





The
Definitive Agreements are expected to provide that each of La Cortez and
Petronorte will have a fifty percent (50%) working interest in the Putumayo 4
Block, responsible for fifty percent (50%) of the costs incurred under the
E&P Contract, and a fifty percent (50%) revenue interest entitling us to
fifty percent (50%) of the revenues originated from the Putumayo 4 Block, net of
royalty payments to the ANH, except that we will be responsible for paying
two-thirds (2/3) of the costs originated from the first 103 kilometers of 2D
seismic to be performed in the Block, in accordance with the expected Phase 1
minimum exploration program under the E&P Contract. If a prospective Phase 1
well in a prospect in the Putumayo 4 Block proves productive, Petronorte will
reimburse us for its share of these seismic costs paid by us with production
from the Putumayo 4 Block.





Provided
that we have satisfactorily complied with payment requirements relating to our
share of all costs incurred to the date of our request, Petronorte will submit a
request to the ANH to assign a 50% interest in the E&P Contract to us and
will assist us in obtaining such assignment through reasonable
means.





Emerald
Farm-In Agreement





On
February 6, 2009, La Cortez Energy Colombia, Inc., our wholly owned Cayman
Islands operating subsidiary (“La Cortez Colombia”), entered into a farm-in
agreement (the “Farm-In Agreement”) with Emerald for a 20% participating
interest (the “Participating Interest”) in the Maranta exploration and
production (“E&P”) block (“Maranta”) in the Putumayo Basin in Southwest
Colombia.





Emerald
signed an exploration and production contract (the “E&P Contract”) for the
Maranta block with the ANH, Colombia’s hydrocarbon regulatory agency, on
September 12, 2006.  La Cortez Colombia expects to execute a joint
operating agreement (the “JOA”) with Emerald with respect to the Maranta block
once it has met its Phase 2 payment obligations described below (Phase 1
reimbursement payment already made) and the ANH has approved Emerald’s
assignment of the Participating Interest (the “Assignment”) to La Cortez
Colombia (see below).  Emerald will remain Operator for the block
under the JOA and the E&P Contract.





The
Maranta block covers an area of 90,459 acres (36,608 hectares) in the foreland
of the Putumayo Basin in southwest Colombia. Emerald completed the first phase
exploratory program for the Maranta block by acquiring 71 square kilometers of
new 2D seismic and reprocessing 40 km of existing 2D seismic, identifying
several promising prospects and leads. Emerald has identified the Mirto
prospect, namely the Mirto 1 well as the first exploratory well scheduled to
spud in the second quarter of 2009 to an approximate depth of 10,800 ft.
Furthermore, Emerald has begun civil works, environmental licensing, community
relations, and other processes necessary for the development of the block and
the Mirto 1 well. The Maranta block is adjacent to Gran Tierra’s Chaza block and
close to both the Orito and Santana crude oil receiving stations, allowing
transportation by truck directly to either station (depending on going rates and
capacity), and consequently tying into the pipeline to Colombia’s Pacific Ocean
port at Tumaco.


8





As
consideration for its 20% participating interest, La Cortez Colombia reimbursed
Emerald US $0.948 million of its Phase 1 sunk costs.  This amount was
paid to Emerald on February 12, 2009.  Additionally, La Cortez
Colombia will bear 65% of the Maranta block Phase 2 costs, of which exploratory
well drilling costs1
are currently estimated at approximately US $4.875 million, US $2.433 million of
which La Cortez Colombia paid to Emerald on February 18, 2009 and US $2.433
million of which La Cortez Colombia will pay to Emerald no later than 12 days
after the start of mobilization of the drill rig for an exploratory well to be
drilled on the Mirto prospect in the Maranta block.  If Emerald
determines that the exploratory well should be completed and La Cortez Colombia
agrees with this decision, La Cortez Colombia will pay 65% of the completion
costs, that is, La Cortez Colombia will pay an amount currently estimated at
approximately US $1.17 million required to complete and test the exploratory
well, no later than five days after the decision to complete the well has been
made by Emerald.  65% of any additional Phase 2 costs will be paid by
La Cortez Colombia as needed, following cash calls by Emerald.  If La
Cortez Colombia does not agree with Emerald’s decision to proceed with
completion of the exploratory well, its obligations under the Farm-In Agreement
will cease and the Farm-In Agreement will terminate.





After the
Phase 2 work is completed, La Cortez Colombia will pay 20% of all subsequent
costs related to the Maranta block.





Once La
Cortez Colombia has completed paying all of its Phase 2 commitments on the
Maranta block (its Phase 1 reimbursement commitment was already completed),
Emerald will assign and transfer to La Cortez Colombia the Participating
Interest in the Maranta block, subject to ANH approval.  If the ANH
does not approve the Assignment, Emerald and La Cortez Colombia have agreed that
they will use their best endeavors to seek in good faith a legal way to enter
into an agreement with terms equivalent to the Farm-In Agreement and the JOA,
that shall privately govern the relations between the Parties and which will not
require ANH approval.





Capital
Needs





As
further discussed below under “Management’s Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources,” we will need to obtain additional capital to meet our
financial commitments to Emerald and Petronorte, and to continue to execute our
business plan, build our operations and become profitable.




1.  These
are the costs that will be required to drill the exploratory well to the abandon
(“dry hole”) or complete


9


The
Oil and Gas Industry





The oil
and gas industry is a complex, multi-discipline sector that varies greatly
across geographies. As a heavily regulated industry, operating conditions are
subject to political regimes and changing legislation. Governments can either
induce or deter investment in exploration and production, depending on legal
requirements, fiscal and royalty structures, and regulation. Beyond the
political considerations, exploration and production for hydrocarbons is an
extremely risky business with countless perils, both endogenous and exogenous to
the core business. Exploration and production wells require substantial amounts
of investment and are long-term projects, sometimes exceeding twenty to thirty
years. Regardless of the efforts spent on an exploration or production prospect,
success is difficult to attain. Even though modern equipment including seismic
and advanced software has helped geologists find producing sands and map
reservoirs, they do not guarantee any particular outcome. Early oil and gas
explorers relied on surface indicators to find reservoirs. Drilling is the only
method to determine whether a prospect will be productive, and even then many
complications can arise during drilling (e.g., those relating to drilling
depths, pressure, porosity, weather conditions, permeability of the formation
and rock hardness). Typically, there is a significant probability that a
particular prospect will turn-up a dry-well, leaving investors with the cost of
seismic and a dry well which during current times can total in the millions of
dollars. Even if oil is produced from a particular well, there is always the
possibility that treatment, at additional cost, may be required to make
production commercially viable.Furthermore, most
production profiles decline over time, which hinders any cost-benefit analysis.
In sum, oil and gas is an industry with high risks and high entry barriers but
significant potential for success.




Oil and
gas prices determine the commercial feasibility of a project.  Certain
projects may become feasible with higher prices or, conversely, may falter with
lower prices. Volatility in the pricing of oil, gas, and other commodities has
sharpened during the last few years, and particularly in the last year,
complicating the practicability of a proper assessment of revenue
projections.  Most governments have enforced strict regulations to
up-hold the highest standards of environmental awareness, thus, holding
companies to the highest degree of responsibility and sensibility vis-a-vis
protecting the environment. Aside from such environmental factors, oil and gas
drilling is often conducted in populated areas. For a company to be successful
in its drilling endeavors, working relationships with local communities are
crucial, to promote its business strategies and to avoid any repercussions of
disputes that might arise over local business operations.





Global
Recession, Volatility and Crude Oil Prices





Aside
from operational and regulatory issues that affect E&P companies, every
major market has been affected by the global recession during the past year. The
energy sector is no exception. West Texas Intermediate (“WTI”) crude prices, the
standard oil benchmark for the western hemisphere, have tumbled from a peak of
$145 per barrel in July 2008 to a low of $31 in December 2008, before recovering
somewhat to around $50 per barrel today. The new price threshold makes many
previously economically viable opportunities completely
unfeasible.  We are currently re-evaluating opportunities to reflect
this new market environment. Furthermore, the volatility in crude oil prices
increases the risks involved. We cannot be sure that the projections we use in
evaluating investment opportunities will be valid and in effect as conditions in
the oil markets rapidly change. We compensate for this uncertainty by increasing
the range of values for our assumptions and by working with numerous
sensitivities that might be in line with the situation in the
marketplace.


10





One-Year
Daily Spot Price of WTI at Cushing (U.S. Dollars per Barrel)*











Twenty-Year
Monthly Spot Price of WTI at Cushing (U.S. Dollars per Barrel)*








*     Source:
U.S. Energy information Administration


11


Additionally,
under current economic conditions, financing activity in both the equity and
debt capital markets, the most common financing vehicles for E&P companies
like ours, has virtually disappeared. Companies are struggling to find
investors, forcing them, in some instances, to abandon risky ventures and, in
other, to sell their companies in distressed sales. Nonetheless, companies that
are able to secure financing from existing and financially sound investor bases
are in a privileged position to take advantage of the crisis affecting most
companies.





Our
Business Strategy





We plan
to build a successful oil and gas exploration and production company focused in
select countries in South America. We will concentrate our efforts initially in
Colombia and Peru, where, we believe, good E&P opportunities exist with
straightforward oil and gas contracting terms and conditions. At a later stage,
we plan to turn to opportunities in other South American countries if we deem
the relevant considerations (see list of factors below) to merit our investment.
Within the spectrum of the oil and gas business, we plan to focus on a blend
between exploration and production of hydrocarbons through a variety of
transactions. Our initial plan is to acquire oil and gas production and to start
to build a reserves base.





Acquisition
Strategy





We intend
to acquire producing oil and gas properties (and/or fields) where we believe
significant value exists or where additional value can be created. Our senior
management is primarily interested in developmental properties where some
combination of the following factors exist:





(1)
            Opportunities
      for medium to long term production life with clear understandings of
      production mechanisms and output
levels;


(2)
            Geological
      formations with multiple producing
horizons;


(3)
            Substantial
      upside potential; and


(4)
            Relatively
      low capital investment and production
costs.





We will
also pursue joint ventures or farm-ins in exploration ventures with limited
risk, in areas where nearby oil discoveries have been found.





Phased
Approach





•
            Phase 1 –
      We will concentrate our initial efforts in Colombia and Peru where
      opportunities as well as operating terms and conditions are perceived in
      the industry to be appropriate for small, early stage oil and gas E&P
      companies. In these markets we will
pursue:





–
            Acquisitions
      of established oil and gas exploration and production fields and/or
      companies, which will enable us to establish base production with upside
      potential;


12


–
            Joint
      ventures and farm-ins on exploration projects with up to a 25% to 50%
      maximum participation interest; and





–
            Participation
      in bidding processes for property operator opportunities, in conjunction
      with established E&P companies or independently, if allowed under
      local regulations.





•
            Phase 2 –
      Once we have established our business in Colombia and Peru, we will turn
      our attention to new opportunities in other South American countries. We
      intend to take advantage of promising opportunities in these additional
      markets while we consolidate our E&P activities in our Phase 1
      countries. In these markets, we intend to search for the following market
      environments and types of projects:





–
            Frontier
      exploration areas (Joint ventures with up to a 25% ownership
      participation) where limited competition
exists;


–
            Acquisitions
      with significant upside potential;


–
            Political
      stability; and


–
            Supportive
      local oil and gas industry regulatory
  environments.





The
following is a list of some of the factors we take into account when we consider
potential investments in any particular country:





·
            Stable
      political regimes:


o
              Countries
      that exhibit a desire to uphold stability and progress in their
      legislation, striving towards open markets and a global approach to best
      business practices.


·
            Clear
      fiscal/taxation/royalty terms.


·
              Manageable
      security in and around production and exploration areas and
      facilities.


·
            Openness
      to foreign direct investment.


·
            Good
      oil and gas E&P prospects:


o
              Where
      despite the presence of large multi-national integrated oil companies,
      there are open acreage opportunities as well as farm-in, joint venture,
      and direct block negotiation opportunities, as well producing fields
      and/or company acquisition possibilities, with some access to local
      capital.


·
              Potential
      for underexploited hydrocarbon formations with promising upside
      potential:


o
              We
      are searching for investment opportunities in countries where there are
      regions with limited seismic coverage within hydrocarbon prospective
      areas.





La Cortez Energy can engage in any of
the following types of transactions to achieve our strategic
goals:


13


l
            Exploration
      and Production (E&P):



            Direct
      government concessions in blocks with specific exploration and development
      plans.


l
            Technical
      Evaluation Agreements.


l
            Farm-ins
      and Farm-outs:



            The
      assumption of or assignment of obligations to fund the cost of exploration
      and/or drilling and/or development for a participating interest in a
      particular block.


l
            Corporate
      Transactions:



            Acquisitions
      of producing fields;



            Acquisitions
      of exploration acreage;



            Corporate
      acquisitions; and



            Asset
      based acquisitions (e.g., blocks and concession
  rights).


l
            Joint
      Ventures:



            Partnering
      with other established oil and gas companies will allow us to access
      certain government concession rounds, benefit from technical and market
      expertise from our potential partners and provide liquidity to our
      partners.





Role
of Our Board of Directors





Our Board of Directors will be an
essential component of our successful operation and growth, serving in various
support capacities.  Because our Board of Directors is comprised of
senior industry executives and experienced capital market professionals, we
believe that our directors have the experience and skills necessary to
effectively assist our management in the execution of our
strategy.  We expect that our Board of Directors will be able to
provide an informed view as to the commercial, technical and financial viability
of our business prospects.





Through
the establishment of relevant committees (Audit and Evaluation and Reserves, to
date), the Board of Directors will provide an independent view into all of our
operations, providing feedback and guidance on the quality of the projects we
may invest in.  Additionally, our Board of Directors will regularly
confer with senior management to help us ensure that all relevant and required
controls are in place and operating appropriately. Our Board of Directors will
serve as a means of confirming the integrity of senior management's estimates
with respect to valuations, reserve estimates and other crucial components of
our business.





Aside
from the functions enumerated above, we believe that our Board of Directors will
serve as an integral element of our business development efforts. We expect that
our Board of Directors will provide both invaluable insight and access to their
business relationships in the region, as well as augment the technical,
financial, accounting and other expertise of our management
team.


14





Personnel





An
integral part of our business strategy is our focus on continuing to build an
experienced leadership team of energy industry veterans with direct exploration
and production experience in the region combined with an efficient managerial
and administrative staff, to enable us to achieve our strategic and operational
goals.  We have hired experienced personnel including technical
specialists (e.g., geologists, geophysicists and petroleum and facilities
engineers, as required by the scope of our operations), administrators and
financial experts and we plan to hire functional specialists in fields such as
environment, industrial protection and community relations, to encompass the
different areas that are critical to our business. Because the focus of our
business is South America, the majority of our staff will be hired locally and
will live in the region.  This will provide us with a significant base
of relevant oil and gas business experience in the region.





We intend
to maintain a highly competitive assembly of experienced and technically
proficient employees and motivate them through a positive, team oriented work
environment and an incentive stock ownership plan. We believe that employee
ownership, which is encouraged through our 2008 Equity Incentive Plan (the “2008
Plan”), is essential for attracting, retaining and motivating qualified
personnel.





Governmental
Regulation





The oil
and gas industry in Colombia and Peru is broadly regulated. Rights and
obligations with regard to exploration, development and production activities
are explicit for each project; economics are governed by a royalty/tax regime.
Various government approvals are required for acquisitions and transfers of
exploration and exploitation rights, including, meeting financial, operational,
legal and technical qualification criteria.  Oil and gas concessions
are typically granted for fixed terms with opportunity for
extension.




Colombia





In
Colombia, state owned Ecopetrol S.A. (“Ecopetrol”) was formerly responsible for
all activities related to the exploration, production, refining, transportation
and marketing of oil for export. Historically, all oil and gas exploration and
production was governed by agreements granted to local and foreign operators,
under association or “shared risk contracts” with companies and joint ventures
which generally provided Ecopetrol with back-in rights that allowed for
Ecopetrol to acquire a working interest share in any commercial discovery by
paying its share of the costs for that discovery.  Alternatively,
exploration and production or certain areas and of those areas relinquished by
operators, were operated directly by Ecopetrol.





Effective
January 1, 2004, the regulatory regime in Colombia underwent a significant
change with the formation of the Agencia Nacional de Hidrocarburos - ANH. The
ANH is now exclusively responsible for regulating the Colombian oil industry,
including managing all exploration areas not subject to a previously existing
association contract and collecting royalty payments on behalf of the Colombian
government. The former state oil company, Ecopetrol, maintains title to
agreements executed before January 1, 2004 and its own operated exploration,
production, refining and transportation activities across the
country.  It also continues to internationally market its oil related
products and has become a direct competitor of private operators in E&P
projects.


15





Ecopetrol
is a Mixed Economy Company (private and public equity), established as a stock
corporation, with a commercial orientation.





In
conjunction with this change, the ANH developed a new exploration risk contract
that took effect during the first quarter of 2005. This exploration and
production contract has significantly changed the way the industry views
Colombia. In place of the earlier association contracts in which Ecopetrol had a
direct co-management of the contract together with the associate and an
immediate back-in to production, the new ANH agreement provides full risk/reward
benefits for the contractor. Under the terms of the contract, the E&P
operator retains the rights to all reserves, production and income from any new
exploration block, subject to an existing royalty (variable royalty from 8% to
25% depending upon daily production rates) and an additional royalty for the
ANH, payable beginning when total production reaches 5 MBBLS.





E&P
companies have to comply with certain minimum requirements (legal, operational,
financial, and technical) to become eligible to be granted an ANH Exploration
and Production contract. Companies can also apply for Technical Evaluation
Agreements (TEA).  Domiciled and non domiciled oil companies may
participate in the various bidding rounds for E&P contracts on and offshore
in Colombia. In a bidding round, the companies that offer greater investment
programs in the initial exploration phase (Phase 1) and, in some cases, that
provide ANH with a higher participation in production will be the ones to be
awarded E&P contracts.





Colombia,
in the last few years has become very attractive to foreign oil, gas and mining
investors as a result of political and regulation stability, perceived good
contract terms and conditions and improved security. It is, therefore, a
competitive environment for us, with good business opportunities
available.





Peru




The hydrocarbon industry in Peru is
regulated by the Organic Hydrocarbons Law # 26221 (the “Hydrocarbon Law”) dated
August 20th, 1993,
modified by Law 27391 of 2000.  The Hydrocarbon Law serves as the
basis for regulation although other laws exist for specific components of the
hydrocarbon industry (e.g., transportation and refining).  In general,
under the Hydrocarbon Law, concessions are open to any person or institution
that establishes a domicile in Lima with a Peruvian chief executive officer and
that meets certain financial and technical criteria. Concessions are tailored in
Peru to promote responsible E&P activities.





Hydrocarbons in Peru are regulated by
the Ministry of Energy and Mines (“Ministerio de Energía y Minas” or “MEM”)
through the OSINERG (“Organismo Supervisor de la Inversiónen Energía y
Minería”), the supervising entity for investment in energy and mines, which
handles hydrocarbon investment and financial matters.  More
importantly, the industry is regulated through Perupetro S.A., the state-owned
company formed in 2000, regulated by private law and owner of the nation’s
hydrocarbons, whose purpose is to promote investment in E&P projects,
negotiate, administer and supervise most aspects of granted concessions, grant
and oversee Technical Evaluation Agreements, and maintain a central database for
all oil and gas technical and production figures. Concession holders must keep
Perupetro S.A. informed of every material aspect of their operations. The
Ministry of Energy and Mines is responsible for the legislative component
pertaining to the hydrocarbon industry in Peru. The hydrocarbon industry in Peru
is heavily regulated in part because all hydrocarbon reserves are owned by the
national government. As a result of this regulatory environment, numerous
reports, technical evaluations, work programs, work updates, time-lines, and
other requirements are mandatory and must be prepared on a frequent basis.
Violations of the regulations may result in fines, contract terminations and/or
other legal actions.


16





Petroperu formed in 1969, is a
state-owed company under private law originally engaged in the operation and
maintenance of oil facilities.  Presently, Petroperu engages in
transportation of fuels and other petroleum derived products, refinery,
distribution and trading.





Exploration contracts in Peru have a
term of up to seven (7) years and production contracts have thirty (30) year
terms, with the possibility for extension. Royalties in Peru are calculated
based on a sliding scale related to daily production. In general, for a daily
production equal to or less than 5,000 barrels of petroleum per day (“BOPD”), a
5% royalty applies while production above 100,000 BOPD requires an up to 25%
capped royalty.  Peru produced an average of 113,869 BOPD in 2007.
(Source: Peruvian Ministry of Energy and Mines Production Yearbook
2007.)





See “Risk Factors” for information
regarding the regulatory risks that we face.




Environmental
Regulation – Community Relations





Our
activities will be subject to existing laws and regulations governing
environmental quality and pollution control in the foreign countries where we
expect to maintain operations. Our activities with respect to exploration,
drilling and production from wells, facilities, including the operation and
construction of pipelines, plants and other facilities for transporting,
processing, treating or storing crude oil and other products, will be subject to
stringent environmental regulation by regional, provincial and federal
authorities in Colombia and Peru. Such regulations, for example, relate to
environmental impact studies, permissible levels of air and water emissions,
control of hazardous wastes, construction of facilities, recycling requirements
and reclamation standards. Risks are inherent in oil and gas exploration,
development and production operations, and we can give no assurance that
significant costs and liabilities will not be incurred in connection with
environmental compliance issues. There can be no assurance that all licenses and
permits which we may require to carry out exploration and production activities
will be obtainable on reasonable terms or on a timely basis, or that such laws
and regulations would not have an adverse effect on any project that we may wish
to undertake.





In some
countries in South America, it is usually required for oil and gas E&P
companies to present their operational plans to local communities or indigenous
populations living in the area of a proposed project before project activities
can be initiated. Usually, E&P companies try to benefit the community in
which they are operating by hiring local, un-skilled labor or contracting
locally for services such as workers’ transportation. For La Cortez Energy,
working with local communities will be an essential part of our work program for
the development of any of our E&P projects in the region.


17


Competition





The oil
and gas industry is highly competitive. We face competition from both local and
international companies in matters such as acquiring properties, contracting for
drilling equipment and securing trained personnel. Many of these competitors
have financial and technical resources that exceed ours, and we believe that
these companies have a competitive advantage in these areas. Others are smaller,
and we believe our technical and managerial capabilities give us a competitive
advantage over those companies.





Research
and Development





We have
not spent any amounts on research and development activities during either of
the last two fiscal years.





Employees




We
currently have eight full time employees, all of whom, including our Chief
Executive Officer, Andres Gutierrez, our Exploration Manager, Mr. Carlos Lombo,
and our Production and Operations Manager, William Giron, are based in our
executive offices in Bogota, Colombia.





Glossary
of Oil and Gas Terms





The
following are definitions of some of the oil and gas industry terms used in this
annual report on Form 10-K.





2D seismic
data:(two-dimensional seismic data) Geophysical data that
depicts the subsurface strata in two dimensions. A vertical section of seismic
data consisting of numerous adjacent traces acquired
sequentially.





ANH:  National
Hydrocarbon Agency of Colombia (Agencia Nacional de Hidrocarburos)





API gravity
scale:a gravity scale devised by the American Petroleum
Institute.





association
contract:  Prior to 2003, the type of contract in association
with Ecopetrol in Colombia, regulating the exploration, production and
development of hydrocarbons. Association contracts give Ecopetrol the right to
back-in into any block. After 2003 with the creation of the ANH, Colombia
adopted an international E&P (exploration and production)
contract.





basin:A depression of the
earth's surface into which sediments are deposited, usually characterized by
sediment accumulation over a long interval; a broad area of the earth beneath
which layers of rock are inclined, usually from the sides toward the
center.





block:  Subdivision
of an area for the purpose of licensing to a company or companies for
exploration/production rights.





BOPD:  Abbreviation
for barrels of oil per day, a common unit of measurement for volume of crude
oil. The volume of a barrel is equivalent to 42 US
gallons.


18





completion:The
installation of permanent equipment for the production of oil or natural gas, or
in the case of a dry hole, the reporting of abandonment to the appropriate
agency.





concession:Usually
used in foreign operations and refers to a large block of acreage granted to the
operator by the host government for a certain time and under certain government
conditions which allows the operator to conduct exploratory and/or development
operations. The Concession Agreement assures the holder of certain rights under
the law.





crude oil:A general term for unrefined petroleum or liquid petroleum.





dry
hole:A well found to be incapable of producing hydrocarbons
in sufficient quantities such that proceeds from the sale of such production
would exceed production expenses and taxes.





E&P:Exploration
and production.




Ecopetrol: The Colombian
state-controlled oil company.




exploration:The
initial phase in petroleum operations that includes generation of a prospect or
play or both, and drilling of an exploration well.  Appraisal,
development and production phases follow successful exploration.





exploratory
well:A well drilled to find and produce oil and gas reserves
that is not a development well.





field:An
area consisting of either a single reservoir or multiple reservoirs, all grouped
on or related to the same individual geological structural feature and/or
stratigraphic condition.





formation:  An
identifiable layer of rocks named after the geographical location of its first
discovery and dominant rock type.





hydrocarbon:  A
naturally occurring organic compound comprising hydrogen and carbon.
Hydrocarbons can be as simple as methane [CH4], but many
are highly complex molecules, and can occur as gases, liquids or solids. The
molecules can have the shape of chains, branching chains, rings or other
structures. Petroleum is a complex mixture of hydrocarbons. The most common
hydrocarbons are natural gas, oil and coal.





lead: a possible
prospect.





operator:The
individual or company responsible for the exploration and/or exploitation and/or
production of an oil or gas well or lease.





participation
interest:  The proportion of exploration and production costs
each party will bear and the proportion of production each party will receive,
as set out in an operating agreement.





Perupetro:The Peruvian hydrocarbon
agency.


19





play:  An
area in which hydrocarbon accumulations or prospects of a given type
occur.





production:  The phase that
occurs after successful exploration and development and during which
hydrocarbons are drained from an oil or gas field.





prospect:A
specific geographic area, which based on supporting geological, geophysical or
other data and also preliminary economic analysis using reasonably anticipated
prices and costs, is deemed to have potential for the discovery of commercial
hydrocarbons.




reservoir:A subsurface, porous,
permeable rock formation in which oil and gas are found.




royalty:  A
percentage share of production, or the value derived from production, paid, in
cash or kind, from a producing well.




seismic:  Pertaining
to waves of elastic energy, such as that transmitted by P-waves and S-waves, in
the frequency range of approximately 1 to 100 Hz. Seismic energy is studied by
scientists to interpret the composition, fluid content, extent and geometry of
rocks in the subsurface. "Seismic," used as an adjective, is preferable to
"seismics," although "seismics" is used commonly as a noun.




spud,
to:  To commence drilling operations.




sunk
costs:  Costs that cannot be recovered once they have been
incurred.





West Texas
Intermediate (“WTI”):Light, sweet crude oil with high API
gravity and low sulfur content used as the benchmark for U.S. crude oil refining
and trading.  WTI is deliverable at Cushing, Oklahoma to fill NYMEX
futures contracts for light, sweet crude oil.




working
interest:The operating interest that gives the owner the
right to drill, produce and conduct operating activities on the property and to
receive a share of production.





X factor:Thepayment to the ANH of
a percentage of net production revenues over and above the standard
royalties.


20


ITEM
      1A.
            RISK
      FACTORS





THIS
ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN STATEMENTS RELATING TO FUTURE EVENTS
OR THE FUTURE FINANCIAL PERFORMANCE OF OUR COMPANY. YOU ARE CAUTIONED THAT SUCH
STATEMENTS ARE ONLY PREDICTIONS AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT
ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS,
YOU SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED IN THIS ANNUAL
REPORT ON FORM 10-K, INCLUDING THE MATTERS SET FORTH BELOW, WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING
STATEMENTS.





RISKS
RELATED TO OUR BUSINESS AND FINANCIAL CONDITION





We
are a Development Stage Company With No Operating History for You to Evaluate
Our Business. We May Never Attain Profitability.





We are a
development stage company and have not yet begun any oil or natural gas
operations. We have been a shell company with no operating history and no assets
other than cash and we have just recently begun to redirect our business focus
towards the oil and gas industry in South America.  We do not have a
full management team in place and we are still building our Board of
Directors.  As an early stage oil and gas exploration and development
company with no operating history, it is difficult for potential investors to
evaluate our business. Our proposed operations are therefore subject to all of
the risks inherent in light of the expenses, difficulties, complications and
delays frequently encountered in connection with the formation of any new
business, as well as those risks that are specific to the oil and gas industry
and to that industry in South America, in particular. Investors should evaluate
us in light of the delays, expenses, problems and uncertainties frequently
encountered by companies developing markets for new products, services and
technologies. We may never overcome these obstacles.





Our
Senior Management Team is New to Our Company and May not be Able to Develop and
Execute a Successful Business Strategy.




Although
our Chief Executive Officer is experienced in the oil and gas industry in South
America, he is new to our Company which itself is new to this
business.  Our Chief Executive Officer is in the process of developing
a business strategy for the Company including, for example, the possible
acquisition of oil and gas resources or the participation in joint exploration
and production ventures. If our Chief Executive Officer is not able to develop a
business strategy that is appropriate for our Company and which we can execute
in a successful manner, our business could fail and we could lose all of our
money.





We
May Be Unable to Obtain Development Rights That We Need to Build Our Business,
and Our Financial Condition and Results of Operations May
Deteriorate.





Our
business plan focuses on international exploration and production opportunities
in South America, initially in Colombia and Peru. Thus far, we have not acquired
any properties for exploration and development in Colombia and have signed only
two preliminary participation agreements which are in the process of becoming
operational. In the event that we do not succeed in negotiating property
acquisitions, our future prospects will likely be substantially limited, and our
financial condition and results of operations may deteriorate.


21





Our
business is speculative and dependent upon the implementation of our business
plan and our ability to enter into agreements with third parties for the rights
to exploit potential oil and gas reserves on terms that will be commercially
viable for us.





Our
Lack of Diversification Will Increase the Risk of an Investment in Our Common
Stock.





Our
business will focus on the oil and gas industry in a limited number of
properties, initially in Colombia, with the intention of expanding elsewhere in
South America. Larger companies have the ability to manage their risk by
diversification. However, we will lack diversification, in terms of both the
nature and geographic scope of our business. As a result, factors affecting our
industry or the regions in which we operate will likely impact us more acutely
than if our business were more diversified.





Strategic
Relationships Upon Which We May Rely are Subject to Change, Which May Diminish
Our Ability to Conduct Our Operations.




Our ability
to successfully bid on and acquire properties, to discover reserves, to
participate in drilling opportunities and to identify and enter into commercial
arrangements with customers will depend on developing and maintaining close
working relationships with industry participants and on our ability to select
and evaluate suitable properties and to consummate transactions in a highly
competitive environment. These realities are subject to change and may impair La
Cortez Energy’s ability to grow.




To
develop our business, we will endeavor to use the business relationships of our
management and our Board of Directors to enter into strategic relationships,
which may take the form of joint ventures with other private parties or with
local government bodies, or contractual arrangements with other oil and gas
companies, including those that supply equipment and other resources that we
will use in our business. We may not be able to establish these strategic
relationships, or if established, we may not be able to maintain them. In
addition, the dynamics of our relationships with strategic partners may require
us to incur expenses or undertake activities we would not otherwise be inclined
to in order to fulfill our obligations to these partners or maintain our
relationships. If our strategic relationships are not established or maintained,
our business prospects may be limited, which could diminish our ability to
conduct our operations.


22




Competition
in Obtaining Rights to Explore and Develop Oil and Gas Reserves and to Market
Our Production May Impair Our Business.




The oil
and gas industry is extremely competitive. Present levels of competition for oil
and gas resources in South America, and particularly in Colombia and Peru, are
unprecedented.  Significant amounts of capital are being raised
world-wide and directed towards the South American markets and more and more
companies are pursuing the same opportunities.  Other oil and gas
companies with greater resources than ours will compete with us by bidding for
exploration and production licenses and other properties and services we will
need to operate our business in the countries in which we expect to
operate.  Additionally, other companies engaged in our line of
business may compete with us from time to time in obtaining capital from
investors. Competitors include larger, foreign owned companies, which, in
particular, may have access to greater financial resources than us, may be more
successful in the recruitment and retention of qualified employees and may
conduct their own refining and petroleum marketing operations, which may give
them a competitive advantage. In addition, actual or potential competitors may
be strengthened through the acquisition of additional assets and
interests.  Because of some or all of these factors, we may not be
able to compete.





We
May Be Unable to Obtain Additional Capital that We Will Require to Implement Our
Business Plan, Which Could Restrict Our Ability to Grow.




Our
current capital and our other existing financial resources may not be sufficient
to enable us to execute our business plan.  We may not have funds
sufficient for any initial investments we might want to
undertake.  Currently we are not generating any revenues although we
have sufficient working capital to continue our start-up operations for the near
future. We will require additional capital to continue to operate our business
beyond the initial phase, and we may need additional capital to acquire initial
properties in Colombia or Peru, and to develop and expand our exploration and
development programs. We may be unable to obtain the additional capital
required. Furthermore, inability to obtain capital may damage our reputation and
credibility with industry participants in the event we cannot close previously
announced transactions.





Our
independent registered public accounting firm has included an explanatory
paragraph in their report on our consolidated financial statements relating to
the uncertainty of our business as a going concern, due to our limited operating
history, our lack of historical profitability, and our limited funds. This
statement could have a negative impact on our ability to obtain additional
capital.




Once the
Definitive Agreements are signed with Petronorte, we expect to require
approximately US $2.3 million for Phase 1 seismic reprocessing and acquisition
activities in the Putumayo 4 Block during the remainder of
2009.  Regarding our commitments to Emerald, we have already made
payments to Emerald of US $0.948 million and US $2.433 million and we are
required to make an additional Phase 2 payment to Emerald in the amount of
approximately US $2.433 within 12 days of the start of mobilization of the drill
rig for the Maranta exploratory well, which we expect to be some time before the
end of the second quarter of 2009.  We will need an additional US
$1.17 million for exploratory well completion costs shortly
thereafter.  We do not, at present, have the funds to make these
additional payments to Emerald or the payments to Petronorte.  If we
are not able to raise the required funds for these expenditures, we will not be
able to meet our funding commitments to Emerald and Petronorte and, as a result,
we may lose a portion of our interest in the Emerald project and our entire
interest in the Petronorte project and all previously invested
capital.


23





Because
we are an early stage company with limited resources, we may not be able to
compete in the capital markets with much larger, established companies that have
ready access to large sums of capital.





Future
acquisitions and future exploration, development, production and marketing
activities, as well as our administrative requirements (such as salaries,
insurance expenses and general overhead expenses, as well as legal compliance
costs and accounting expenses) will require a substantial amount of additional
capital and cash flow.




We will
require such additional capital in the near term and we plan to pursue sources
of such capital through various financing transactions or arrangements,
including joint venturing of projects, debt financing, equity financing or other
means. We may not be successful in locating suitable financing transactions in
the time period required or at all, and we may not obtain the capital we require
by other means. If we do succeed in raising additional capital, the capital
received may not be sufficient to fund our operations going forward without
obtaining further, additional capital financing. Furthermore, future financings
are likely to be dilutive to our stockholders, as we will most likely issue
additional shares of our Common Stock or other equity to investors in future
financing transactions. In addition, debt and other mezzanine financing may
involve a pledge of assets and may be senior to interests of equity
holders.




Our
ability to obtain needed financing may be impaired by such factors as conditions
in the capital markets (both generally and in the oil and gas industry in
particular), our status as a new enterprise without a demonstrated operating
history, the location of our prospective oil and natural gas properties in
developing countries and prices of oil and natural gas on the commodities
markets (which will impact the amount of asset-based financing available to us)
and/or the loss of key management. Further, if oil and/or natural gas prices on
the commodities markets decrease, then our potential revenues will likely
decrease, and such decreased future revenues may increase our requirements for
capital. Some of the contractual arrangements governing our operations may
require us to maintain minimum capital, and we may lose our contract rights
(including exploration, development and production rights) if we do not have the
required minimum capital. If the amount of capital we are able to raise from
financing activities, together with our revenues from operations, is not
sufficient to satisfy our capital needs (even to the extent that we reduce our
operations), we may be required to cease our operations.




We
May Be Unable to Meet Our Capital Requirements in the Future, Causing Us to
Curtail Future Growth Plans or Cut Back Existing Operations.





We will
need additional capital in the future, which may not be available to us on
reasonable terms or at all. The raising of additional capital may dilute our
stockholders’ interests. We will need to raise additional funds through public
or private debt or equity financings in order to meet various objectives
including but not limited to:





·
            compliance
      with the funding obligations of our existing contractual
      commitments;





·
            pursuing
      growth opportunities, including more rapid
  expansion;


24





·
            acquiring
      complementary businesses;





·
            making
      capital improvements to improve our
  infrastructure;





·
            hiring
      qualified management and key
employees;





·
            responding
      to competitive pressures;





·
            complying
      with licensing, registration and other requirements;
  and





·
            maintaining
      compliance with applicable laws.





Any
additional capital raised through the sale of equity may dilute stockholders’
ownership percentage in us. This could also result in a decrease in the fair
market value of our equity securities because our assets would be owned by a
larger pool of outstanding equity. The terms of securities we issue in future
capital transactions may be more favorable to our new investors, and may include
preferences, superior voting rights, the issuance of warrants or other
derivative securities, and issuances of incentive awards under equity employee
incentive plans, which may have a further dilutive effect.





Furthermore,
any additional financing we may need may not be available on terms favorable to
us, or at all. If we are unable to obtain required additional financing, we may
be forced to curtail our growth plans or cut back our existing
operations.





We may
incur substantial costs in pursuing future capital financing, including
investment banking fees, legal fees, accounting fees, securities law compliance
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities we
may issue, such as convertible notes and warrants, which will adversely impact
our financial condition.





We
May Not Be Able To Effectively Manage Our Growth, Which May Harm Our
Profitability.





Our
strategy envisions building and expanding our business. If we fail to
effectively manage our growth, our financial results could be adversely
affected. Growth may place a strain on our management systems and resources. We
must continue to refine and expand our business development capabilities, our
systems and processes and our access to financing sources. As we grow, we must
continue to hire, train, supervise and manage new employees. We cannot assure
you that we will be able to:





·
            expand
      our systems effectively or efficiently or in a timely
    manner;





·
            allocate
      our human resources optimally;





·
            identify
      and hire qualified employees or retain valued employees;
  or


25





·
            incorporate
      effectively the components of any business that we may acquire in our
      effort to achieve growth.





If we are
unable to manage our growth and our operations our financial results could be
adversely affected by inefficiency, which could diminish our
profitability.





Our
Business May Suffer If We Do Not Attract and Retain Talented
Personnel.




Our
success will depend in large measure on the abilities, expertise, judgment,
discretion integrity and good faith of our management and other personnel in
conducting the business of La Cortez Energy. We are in the process of building
our management team which currently consists of Andres Gutierrez, our President
and Chief Executive Officer, Nadine C. Smith, our Chairman, Vice President,
Interim Chief Financial Officer and Interim Treasurer, Carlos Lombo, our
Exploration Manager, and William Giron, our Production and Operations Manager,
as well as an accountant, one business development analyst and an administrative
assistant. We need to hire a Chief Financial Officer.  The loss of any
of these individuals or our inability to hire a professional Chief Financial
Officer or attract suitably qualified staff could materially adversely impact
our business. We may also experience difficulties in certain jurisdictions in
our efforts to obtain suitably qualified staff and retaining staff who are
willing to work in that jurisdiction. We do not currently carry life insurance
for our key employees.




Our
success depends on the ability of our management and employees to interpret
market and geological data correctly and to interpret and respond to economic
market and other conditions in order to locate and adopt appropriate investment
opportunities, monitor such investments and ultimately, if required,
successfully divest such investments. Further, our key personnel may not
continue their association or employment with La Cortez Energy and we may not be
able to find replacement personnel with comparable skills. We have sought to and
will continue to ensure that management and any key employees are appropriately
compensated; however, their services cannot be guaranteed. If we are unable to
attract and retain key personnel, our business may be adversely
affected.




If
We Are Unable To Hire A Chief Financial Officer With Public Company Experience,
Our Ability To Adequately Manage The Company’s Finance Function May Be
Compromised.





Nadine C. Smith is currently serving as
our interim Chief Financial Officer.  Although Ms. Smith has
experience as a private company chief financial officer and qualifies as an
“audit committee financial expert”, she needs to dedicate a considerable portion
of her time and energy to her functions as Chairman of our Board of
Directors.  We intend to hire a new Chief Financial Officer as soon as
possible but if we are not able to do so, the Company may not be able to comply
with ongoing regulatory internal financial control and reporting
requirements.  Additionally, without an experienced public company
Chief Financial Officer, the Company may not be able to adequately manage its
finance function with respect to capital management, cost control and cash flow
and as a result, its financial performance may suffer.


26





Our
Management Team Does Not Have Extensive Experience in U.S. Public Company
Matters, Which Could Impair Our Ability to Comply With U.S. Legal and Regulatory
Requirements.





Although
our management team has senior management experience with companies based in
Colombia, which were subsidiaries of large, foreign public reporting E&P
entities, it has had limited U.S. public company management experience or
responsibilities, which could impair our ability to comply with legal and
regulatory requirements in the U.S., such as the Sarbanes-Oxley Act of 2002 and
applicable federal securities laws including filing required reports and other
information required on a timely basis. Our management may not be able to
implement and affect programs and policies in an effective and timely manner
that adequately respond to increased legal, regulatory compliance and reporting
requirements imposed by such laws and regulations. Our failure to comply with
such laws and regulations could lead to the imposition of fines and penalties
and further result in the deterioration of our business.





The
Potential Profitability Of Oil And Gas Ventures in South America Depends Upon
Factors Beyond Our Control.





The
potential profitability of oil and gas properties in South America 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
and greater competition among unprecedented numbers of market participants, the
availability and cost of funds for production and other expenses have become
increasingly difficult, if not impossible, to project. These changes and events
may materially affect financial performance.





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 national and local laws in South America 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 national and local laws
and regulations in South America which seek to maintain health and safety
standards by regulating the design and use of drilling methods and equipment.
Environmental standards imposed by national 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, because we have had no
operations, we have not been required to spend any amounts on compliance with
environmental regulations. However, we may be required to expend substantial
sums in the future and this may affect our ability to develop, expand or
maintain our operations.


27





Any
Change To Government Regulation/Administrative Practices May Have A Negative
Impact On The Ability To Operate And Profitability.





The laws,
regulations, policies or current administrative practices of any government
body, organization or regulatory agency in Colombia or Peru or any other
jurisdiction where we might conduct our business activities, may be changed,
applied or interpreted in a manner which will fundamentally alter the ability of
our company to carry on our 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 profitably.





We
May Not Be Able To Repatriate Our Earnings.





We will be conducting all of our
operations in South America through branches or subsidiaries of one or more
wholly owned, offshore subsidiary that we will establish for this
purpose.  Therefore, we will be dependent on the cash flows of our
South American branches (or subsidiaries, as the case may be) and our offshore
subsidiaries to meet our obligations.  Our ability to receive such
cash flows may be constrained by taxation levels in the jurisdictions where our
branches (or subsidiaries) operate and by the introduction of exchange controls
and/or repatriation restrictions in the jurisdictions where we intend to
operate.  Currently there are no such restrictions in Colombia on
local earnings or foreign entities but we cannot assure you that exchange or
repatriation restrictions will not be imposed in the future.





RISKS
RELATED TO OUR INDUSTRY AND REGIONAL FOCUS




Current
Volatile Market Conditions and Significant Fluctuations, Generally Downward, In
Energy Prices May Continue Indefinitely, Negatively Affecting our Business
Prospects and Viability.





Commodities
and capital markets have been under great stress and volatility during the past
few months in part due to the credit crisis affecting lenders and borrowers on a
worldwide basis. As a result of this crisis, crude oil prices have tumbled from a peak
of $145 per barrel in July 2008 to a low of $31 in December 2008, before
recovering somewhat to around $50 per barrel today , causing
companies to re-think existing strategies and new business ventures. We are
vigilant of the situation unfolding and are adjusting our strategy to reflect
these new market conditions. Nonetheless, we will not be immune to lower
commodities prices and significantly more restrictive credit market
conditions.  Our ability to enter into exploration and production
projects may be compromised, and in a continuing environment of lower crude oil
and natural gas prices, our future results of operations and market value could
be affected negatively.


28





Difficult
Conditions in the Global Capital Markets may significantly affect Our and Our
Strategic Partners’ Ability to Raise Additional Capital and Begin
Operations.





The
ongoing worldwide financial and credit crisis may continue
indefinitely.  Because of severely reduced market liquidity, we may
not be able to raise additional capital when we need it.  Because the
future of our business will depend on the completion of one or more investment
transactions for which, most likely, we will need additional capital, we may not
be able to complete such transactions or acquire revenue producing
assets.  As a result, we may not be able to generate income and, to
conserve capital, we may be forced to curtail our current business activities or
cease operations entirely. Our strategic partners may not be able to raise
required capital either.  If this happens our participation interests
could be damaged and our business would suffer.





Our
Exploration for Oil and Natural Gas Is Risky and May Not Be Commercially
Successful, Impairing Our Ability to Generate Revenues from Our
Operations.




Oil and
natural gas exploration involves a high degree of risk. These risks are more
acute in the early stages of exploration. Our expenditures on exploration may
not result in new discoveries of oil or natural gas in commercially viable
quantities. It is difficult to project the costs of implementing an exploratory
drilling program due to the inherent uncertainties of drilling in unknown
formations, the costs associated with encountering various drilling conditions,
such as over pressured zones and tools lost in the hole, and changes in drilling
plans and locations as a result of prior exploratory wells or additional seismic
data and interpretations thereof. If exploration costs exceed our estimates, or
if our exploration efforts do not produce results which meet our expectations,
our exploration efforts may not be commercially successful, which could
adversely impact our ability to generate revenues from our
operations.





We
May Not Be Able to Develop Oil and Gas Reserves on an Economically Viable
Basis.




To the
extent that we succeed in discovering or acquiring oil and/or natural gas
reserves, we cannot assure that these reserves will be capable of production
levels we project or in sufficient quantities to be commercially viable. On a
long-term basis, our viability depends on our ability to find or acquire,
develop and commercially produce oil and gas reserves. Our future reserves will
depend not only on our ability to develop then-existing properties, but also on
our ability to identify and acquire additional suitable producing properties or
prospects, to find markets for the oil and natural gas we develop and to
effectively distribute our production into our markets.




Future
oil and gas exploration may involve unprofitable efforts, not only from dry
wells, but from wells that are productive but do not produce sufficient net
revenues to return a profit after drilling, operating and other costs.
Completion of a well does not assure a profit on the investment or recovery of
drilling, completion and operating costs. In addition, drilling hazards or
environmental damage could greatly increase the cost of operations, and various
field operating conditions may adversely affect the production from successful
wells. These conditions include delays in obtaining governmental approvals or
consents, shut-downs of connected wells resulting from extreme weather
conditions, problems in storage and distribution and adverse geological and
mechanical conditions. While we will endeavor to effectively manage these
conditions, we cannot be assured of doing so optimally, and we will not be able
to eliminate them completely in any case. Therefore, these conditions could
diminish our future revenue and cash flow levels and result in the impairment of
our oil and natural gas interests.


29





Estimates
of Oil and Natural Gas Reserves that We Make May Be Inaccurate and Our Future
Actual Revenues May Be Lower than Our Financial Projections.




With
respect to any oil and gas properties that we may acquire, we will make
estimates of oil and natural gas reserves, upon which we will base our financial
projections. We will make these reserve estimates using various assumptions,
including assumptions as to oil and natural gas prices, drilling and operating
expenses, capital expenditures, taxes and availability of funds. Some of these
assumptions are inherently subjective, and the accuracy of our reserve estimates
relies in part on the ability of our management team, engineers and other
advisors to make accurate assumptions. Economic factors beyond our control, such
as interest rates and exchange rates, will also impact the value of our
reserves. The process of estimating oil and gas reserves is complex, and will
require us to use significant decisions and assumptions in the evaluation of
available geological, geophysical, engineering and economic data for each
property. As a result, our reserve estimates will be inherently imprecise.
Actual future production, oil and natural gas prices, revenues, taxes,
development expenditures, operating expenses and quantities of recoverable oil
and gas reserves may vary substantially from those we estimate. If actual
production results vary substantially from our reserve estimates, this could
materially reduce our revenues and result in the impairment of our oil and
natural gas interests.




A
Shortage of Drilling Rigs and Other Equipment and Geophysical Service Crews
Could Hamper Our Ability to Exploit any oil and gas resources we may
Acquire.





Because
of the increased oil and gas exploration activities in South America and in
Colombia in particular, competition for available drilling rigs and related
services and equipment has increased significantly and these rigs and related
items have become substantially more expensive and harder to
obtain.  If we do acquire properties and related rights to drill
wells, we may not be able to procure the necessary drill rigs and related
services and equipment, or the cost of such items may be
prohibitive.  Our ability to comply with future license obligations or
otherwise generate revenues from the production of operating oil and gas wells
could be hampered as a result of this and our business could
suffer.  Additionally, a shortage of crews available to shot and
process seismic could cause us to breach our obligations to Petronorte with
respect to the Putumayo 4 Block.





Drilling
Wells Could Result in Liabilities, Which Could Endanger Our Interests in Our
Prospective Properties and Assets.




There are
risks associated with the drilling of oil and natural gas wells, including
encountering unexpected formations or pressures, premature declines of
reservoirs, blow-outs, craterings, sour gas releases, fires and spills. The
occurrence of any of these events could significantly reduce our future revenues
or cause substantial losses, impairing our future operating results. We may
become subject to liability for pollution, blow-outs or other hazards. We will
obtain insurance with respect to these hazards as appropriate to our activities,
but such insurance has limitations on liability that may not be sufficient to
cover the full extent of such liabilities. The payment of such liabilities could
reduce the funds available to us or could, in an extreme case, result in a total
loss of our properties and assets. Moreover, we may not be able to maintain
adequate insurance in the future at rates that are considered reasonable. Oil
and natural gas production operations are also subject to all the risks
typically associated with such operations, including premature decline of
reservoirs and the invasion of water into producing formations.


30





Decommissioning
Costs Are Unknown and May be Substantial; Unplanned Costs Could Divert Resources
from Other Projects.




We may
become responsible for costs associated with abandoning and reclaiming wells,
facilities and pipelines which we may use for production of oil and gas
reserves. Abandonment and reclamation of these facilities and the costs
associated therewith is often referred to as “decommissioning.” We have not yet
established a cash reserve account for these potential costs because currently
we do not own any properties or facilities.  We may establish such an
account, however, for properties in which we have a participation interest. If
decommissioning is required before economic depletion of our future properties
or if our estimates of the costs of decommissioning exceed the value of the
reserves remaining at any particular time to cover such decommissioning costs,
we may have to draw on funds from other sources to satisfy such costs. The use
of other funds to satisfy such decommissioning costs could impair our ability to
focus capital investment in other areas of our business.




Our
Inability to Obtain Necessary Facilities Could Hamper Our
Operations.




Oil and
natural gas exploration and development activities are dependent on the
availability of drilling and related equipment, transportation, power and
technical support in the particular areas where these activities will be
conducted, and our access to these facilities may be limited. To the extent that
we conduct our activities in remote areas, needed facilities may not be
proximate to our operations, which will increase our expenses. Demand for such
limited equipment and other facilities or access restrictions may affect the
availability of such equipment to us and may delay exploration and development
activities. The quality and reliability of necessary facilities may also be
unpredictable and we may be required to make efforts to standardize our
facilities, which may entail unanticipated costs and delays. Shortages and/or
the unavailability of necessary equipment or other facilities will impair our
activities, either by delaying our activities, increasing our costs or
otherwise.




We
May Have Difficulty Distributing Our Production, Which Could Harm Our Financial
Condition.




In order
to sell the oil and natural gas that we may produce in the future, we would have
to make arrangements for storage and distribution to the market. We will rely on
local infrastructure and the availability of transportation for storage and
shipment of our products, but infrastructure development and storage and
transportation facilities may be insufficient for our needs at commercially
acceptable terms in the localities in which we operate. This could be
particularly problematic to the extent that our operations are conducted in
remote areas that are difficult to access, such as areas that are distant from
shipping and/or pipeline facilities. These factors may affect our ability to
explore and develop properties and to store and transport our oil and gas
production and may increase our expenses.


31





Furthermore,
future instability in one or more of the countries in which we will operate,
weather conditions or natural disasters, actions by companies doing business in
those countries, labor disputes or actions taken by the international community
may impair the distribution of oil and/or natural gas and in turn diminish our
financial condition or ability to maintain our operations.




Prices
and Markets for Oil and Natural Gas Are Unpredictable and Tend to Fluctuate
Significantly, Which Could Reduce Profitability, Growth and the Value of La
Cortez Energy.




Oil and
natural gas are commodities whose prices are determined based on world demand,
supply and other factors, all of which are beyond our control. World prices for
oil and natural gas have fluctuated widely in recent years. The average price
for West Texas Intermediate oil in 1999 was $22 per barrel. In 2002 it was $27
per barrel. In 2005, it was $57 per barrel, in June 2008, it was $133 per
barrel, and in January 2009, it was $41 per barrel. We expect that prices will
fluctuate in the future. Price fluctuations will have a significant impact upon
our revenue, the return from our reserves and on our financial condition
generally. Price fluctuations for oil and natural gas commodities may also
impact the investment market for companies engaged in the oil and gas industry.
Although during 2008 market prices for oil and natural gas have risen to record
levels, these prices may not remain at current levels. Future decreases in the
prices of oil and natural gas may have a material adverse effect on our
financial condition, the future results of our operations and quantities of
reserves recoverable on an economic basis.




Increases
in Our Operating Expenses will Impact Our Operating Results and Financial
Condition.




Exploration,
development, production, marketing (including distribution costs) and regulatory
compliance costs (including taxes) will substantially impact the net revenues we
derive from the oil and gas that we may produce. These costs are subject to
fluctuations and variation in different locales in which we will operate, and we
may not be able to predict or control these costs. If these costs exceed our
expectations, this may adversely affect our results of operations. In addition,
we may not be able to earn net revenue at our predicted levels, which may impact
our ability to satisfy our obligations.




Penalties
We May Incur Could Impair Our Business.





Failure
to comply with government regulations could subject us to civil and criminal
penalties, could require us to forfeit property rights, and may affect the value
of our assets. We may also be required to take corrective actions, such as
installing additional equipmentor taking other actions,
each of which could require us to make substantial capital expenditures. We
could also be required to indemnify our employees in connection with any
expenses or liabilities that they may incur individually in connection with
regulatory action against them. As a result, our future business prospects could
deteriorate due to regulatory constraints, and our profitability could be
impaired by our obligation to provide such indemnification to our
employees.


32





Environmental
Risks May Adversely Affect Our Business.




All
phases of the oil and natural gas business present environmental risks and
hazards and are subject to environmental regulation pursuant to a variety of
international conventions and federal, provincial and municipal laws and
regulations. Environmental legislation provides for, among other things,
restrictions and prohibitions on spills, releases or emissions of various
substances produced in association with oil and gas operations. The legislation
also requires that wells and facility sites be operated, maintained, abandoned
and reclaimed to the satisfaction of applicable regulatory authorities.
Compliance with such legislation can require significant expenditures and a
breach may result in the imposition of fines and penalties, some of which may be
material. Environmental legislation is evolving in a manner we expect may result
in stricter standards and enforcement, larger fines and liability and
potentially increased capital expenditures and operating costs. The discharge of
oil, natural gas or other pollutants into the air, soil or water may give rise
to liabilities to foreign governments and third parties and may require us to
incur costs to remedy such discharge. The application of environmental laws to
our business may cause us to curtail our production or increase the costs of our
production, development or exploration activities.




Managing
Local Community Relations Where We and our Partners Operate Could be
Problematic.





We or our
operating partners may be required to present our operational plans to local
communities or indigenous populations living in the area of a proposed project
before project activities can be initiated. Additionally, working with local
communities will be an essential part of our work program for the development of
any of our E&P projects in the region.  If we or our partners fail
to manage any of these community relationships appropriately, our operations
could be delayed or interrupted and we or our partners could lose rights to
operate in these areas, resulting in a negative impact on our business, our
reputation and, possibly, our share price.





Our
Insurance May Be Inadequate to Cover Liabilities We May Incur.




Our
involvement in the exploration for and development of oil and natural gas
properties may result in our becoming subject to liability for pollution,
blow-outs, property damage, personal injury or other hazards. Although we will
obtain insurance in accordance with industry standards to address such risks,
such insurance has limitations on liability that may not be sufficient to cover
the full extent of such liabilities. In addition, such risks may not, in all
circumstances be insurable or, in certain circumstances, we may choose not to
obtain insurance to protect against specific risks due to the high premiums
associated with such insurance or for other reasons. The payment of such
uninsured liabilities would reduce the funds available to us. If we suffer a
significant event or occurrence that is not fully insured, or if the insurer of
such event is not solvent, we could be required to divert funds from capital
investment or other uses towards covering our liability for such
events.


33




Civil
Liabilities May Not Be Able To Be Enforced Against Us.





Substantially
all of our assets and certain of our officers and directors will be located
outside of the United States.  As a result of this, it may be
difficult or impossible to enforce judgments awarded by a court in the United
States against our assets or those of our officers and directors.




Our
Business is Subject to Local Legal, Political and Economic Factors Which are
Beyond Our Control, Which Could Impair Our Ability to Build and Expand Our
Operations or Operate Profitably.




We expect
to operate our business in Colombia and other South American countries. We
believe that Colombia’s legal system is sufficiently developed, its political
environment is sufficiently supportive and its economic condition is
sufficiently stable to enable us to plan and implement our operations, and we
expect that these conditions in other countries in which we plan to conduct
business will be hospitable to us.




However,
there are risks that economic and political conditions will change in a manner
adverse to our interests. These risks include, but are not limited to,
terrorism, military repression, interference with private contract rights (such
as privatization), extreme fluctuations in currency exchange rates, high rates
of inflation, exchange controls and other laws or policies affecting
environmental issues (including land use and water use), workplace safety,
foreign investment, foreign trade, investment or taxation, as well as
restrictions imposed on the oil and natural gas industry, such as restrictions
on production, price controls and export controls. Any changes in oil and gas or
investment and tax regulations and policies or a shift in political attitudes in
Colombia or other countries in which we intend to operate are beyond our control
and may significantly hamper our ability to build and expand our operations or
operate our business at a profit.




For
instance, changes in laws in the jurisdiction in which we operate or expand into
with the effect of favoring local enterprises, changes in political views
regarding the exploitation of natural resources and economic pressures may make
it more difficult for us to negotiate agreements on favorable terms, obtain
required licenses, comply with regulations or effectively adapt to adverse
economic changes, such as increased taxes, higher costs, inflationary pressure
and currency fluctuations.





Additionally,
Colombia has been the site of South America’s largest and longest political and
military insurgency and has experienced uncontrolled criminal activity relating
to drug trafficking. While the situation has improved dramatically in recent
years, there can be no guarantee that the situation will improve further or that
it will not deteriorate.  Any increase in kidnapping and/or terrorist
activity in Colombia may disrupt our operations in that country, hamper our
ability to hire and keep qualified personnel and hinder or shut off our access
to sources of capital.  Any such changes are beyond our control and
may adversely affect our business.


34





Local
Legal and Regulatory Systems in Which We Operate May Create Uncertainty
Regarding Our Rights and Operating Activities, Which May Harm Our Ability to do
Business.




We are a
company organized under the laws of the State of Nevada and are subject to
United States laws and regulations. The jurisdictions in which we intend to
operate our exploration, development and production activities may have
different or less developed legal systems than the United States, which may
result in risks such as:





·
            effective
      legal redress in the courts of such jurisdictions, whether in respect of a
      breach of law or regulation, or, in an ownership dispute, being more
      difficult to obtain;





·
            a
      higher degree of discretion on the part of governmental
      authorities;





·
            the
      lack of judicial or administrative guidance on interpreting applicable
      rules and regulations;





·
            inconsistencies
      or conflicts between and within various laws, regulations, decrees, orders
      and resolutions; and





·
            relative
      inexperience of the judiciary and courts in such
  matters.





In
certain jurisdictions the commitment of local business people, government
officials and agencies and the judicial system to abide by legal requirements
and negotiated agreements may be more uncertain, creating particular concerns
with respect to licenses and agreements for business. These licenses and
agreements may be susceptible to revision or cancellation and legal redress may
be uncertain or delayed. Property right transfers, joint ventures, licenses,
license applications or other legal arrangements pursuant to which we operate
may be adversely affected by the actions of government authorities and the
effectiveness of and enforcement of our rights under such arrangements in these
jurisdictions may be impaired.




Our
Business Will Suffer if We or Our Strategic Partners Cannot Obtain or Maintain
Necessary Licenses.




Our
operations will require licenses, permits and in some cases renewals of licenses
and permits from various governmental authorities. Our ability to obtain,
sustain or renew such licenses and permits on acceptable terms is subject to
change in regulations and policies and to the discretion of the applicable
governments, among other factors. Our inability to obtain, or our loss of or
denial of extension to any of these licenses or permits could hamper our ability
to produce revenues from our operations.  In some cases, including in
our relationships with Petronorte and Emerald, our strategic partners will be
responsible for acquiring and maintaining licenses and permits.  If
these partners are unable to fulfill this role successfully, our ability to
generate revenues from such relationships will be impacted
negatively.


35





The
ANH May Not Approve Emerald’s Assignment of Rights to Our Colombia Operating
Subsidiary Under the Farm-In Agreement and, as a Result, Our Operating
Subsidiary May Not Be Able to Legally Protect its Rights Under the Farm-In
Agreement.





Once La
Cortez Colombia has completed paying all of its Phase 2 commitments on the
Maranta block (its Phase 1 reimbursement payment was already made), Emerald will
assign and transfer to La Cortez Colombia the Participating Interest in the
Maranta block, subject to ANH approval.  If the ANH does not approve
the Assignment, Emerald and La Cortez Colombia have agreed that they will use
their best endeavors to seek in good faith a legal way to enter into an
agreement with terms equivalent to the Farm-In Agreement and the JOA, that shall
privately govern the relations between the Parties and which will not require
ANH approval.  If Emerald and La Cortez Colombia are not able to do
this, La Cortez Colombia may not be able to legally protect or enforce its
rights under the Farm-In Agreement, resulting, possibly, in capital and income
losses to us.





Foreign
Currency Exchange Rate Fluctuations May Affect Our Financial
Results.




We expect
to sell any future oil and natural gas production under agreements that will be
denominated in United States dollars and foreign currencies. Many of the
operational and other expenses we incur will be paid in the local currency of
the country where we perform our operations. As a result, fluctuations in the
United States dollar against the local currencies in jurisdictions where we
operate could result in unanticipated and material fluctuations in our financial
results.




Local
operations may require funding that exceeds operating cash flow and there may be
restrictions on expatriating proceeds and/or adverse tax consequences associated
with such funding.




We
Will Rely on Technology to Conduct Our Business and Our Technology Could Become
Ineffective Or Obsolete.





We will
rely on technology, including geographic and seismic analysis techniques and
economic models, to develop reserve estimates and to guide our planned
exploration and development and production activities. We will be required to
continually enhance and update our technology to maintain its efficacy and to
avoid obsolescence. The costs of doing so may be substantial, and may be higher
than the costs that we anticipate for technology maintenance and development. If
we are unable to maintain the efficacy of our technology, our ability to manage
our business and to compete may be impaired. Further, even if we are able to
maintain technical effectiveness, our technology may not be the most efficient
means of reaching our objectives, in which case we may incur higher operating
costs than we would were our technology more efficient.


36




RISKS
RELATED TO OUR SECURITIES





There
Is Not Now, And There May Not Ever Be, An Active Market For The Company’s Common
Stock.




There currently is a limited public
market for our Common Stock.  Further, although our Common Stock is
currently quoted on the OTC Bulletin Board (the “OTCBB”), trading of our Common
Stock may be extremely sporadic.  For example, several days may pass
before any shares may be traded.  As a result, an investor may find it
difficult to dispose of, or to obtain accurate quotations of the price of, our
Common Stock.  Accordingly, investors must assume they may have to
bear the economic risk of an investment in our Common Stock for an indefinite
period of time.  There can be no assurance that a more active market
for the our Common Stock will develop, or if one should develop, there is no
assurance that it will be sustained.  This severely limits the
liquidity of our Common Stock, and would likely have a material adverse effect
on the market price of our Common Stock and on our ability to raise additional
capital.





We
Cannot Assure You That The Common Stock Will Become Liquid Or That It Will Be
Listed On A Securities Exchange.




Until our Common Stock is listed on a
national securities exchange such as the New York Stock Exchange or the Nasdaq
National Market, we expect our Common Stock to remain eligible for quotation on
the OTCBB, or on another over-the-counter quotation system, or in the “pink
sheets.” In those venues, however, an investor may find it difficult to obtain
accurate quotations as to the market value of our Common Stock.  In
addition, if we fail to meet the criteria set forth in SEC regulations, various
requirements would be imposed by law on broker-dealers who sell our securities
to persons other than established customers and accredited
investors.  Consequently, such regulations may deter broker-dealers
from recommending or selling our Common Stock, which may further affect the
liquidity of the Common Stock.  This would also make it more difficult
for us to raise capital.





Common
Stock Is Subject To The “Penny Stock” Rules Of The SEC And The Trading Market In
The Securities Is Limited, Which Makes Transactions In The Stock Cumbersome And
May Reduce The Value Of An Investment In The Stock.





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





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


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




37


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





●
            Obtain
      financial information and investment experience objectives of the person;
      and


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





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





●
            the
      basis on which the broker or dealer made the suitability determination;
      and


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





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





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





The
Price Of Our Common Stock May Become Volatile, Which Could Lead To Losses By
Investors And Costly Securities Litigation.





The trading price of our Common Stock
is likely to be highly volatile and could fluctuate in response to factors such
as:





·
            actual
      or anticipated variations in our operating
  results;




·
            announcements
      of developments by us or our
competitors;




·
            announcements
      by us or our competitors of significant acquisitions, strategic
      partnerships, joint ventures or capital
  commitments;




·
            adoption
      of new accounting standards affecting our Company’s
    industry;




·
            additions
      or departures of key personnel;




·
            sales
      of our Common Stock or other securities in the open market;
      and




·
            other
      events or factors, many of which are beyond our
  control.




38


The stock market is subject to
significant price and volume fluctuations. In the past, following periods of
volatility in the market price of a company’s securities, securities class
action litigation has often been initiated against the company. Litigation
initiated against us, whether or not successful, could result in substantial
costs and diversion of our management’s attention and resources, which could
harm our business and financial condition.





We
Do Not Anticipate Dividends To Be Paid On Our Common Stock, And Investors May
Lose The Entire Amount Of Their Investment.




Cash dividends have never been declared
or paid on the Common Stock, and we do not anticipate such a declaration or
payment for the foreseeable future. We expect to use future earnings, if any, to
fund business growth. Therefore, stockholders will not receive any funds absent
a sale of their shares. We cannot assure stockholders of a positive return on
their investment when they sell their shares, nor can we assure that
stockholders will not lose the entire amount of their investment.





If
Securities Analysts Do Not Initiate Coverage Or Continue To Cover Our Common
Stock Or Publish Unfavorable Research Or Reports About Our Business, This May
Have A Negative Impact On The Market Price Of Our Common Stock.





The trading market for the Common Stock
will depend on the research and reports that securities analysts publish about
our business and the Company. We do not have any control over these analysts.
There is no guarantee that securities analysts will cover the Common Stock. If
securities analysts do not cover the Common Stock, the lack of research coverage
may adversely affect its market price. If we are covered by securities analysts,
and our stock is the subject of an unfavorable report, our stock price and
trading volume would likely decline. If one or more of these analysts ceases to
cover the Company or fails to publish regular reports on the Company, we could
lose visibility in the financial markets, which could cause our stock price or
trading volume to decline.





You
May Experience Dilution Of Your Ownership Interests Because Of The Future
Issuance Of Additional Shares Of The Common Stock.





In the
future, we may issue our authorized but previously unissued equity securities,
resulting in the dilution of the ownership interests of our present stockholders
and the purchasers of Common Stock offered hereby.  We are currently
authorized to issue an aggregate of 310,000,000shares of capital stock
consisting of300,000,000 shares of
Common Stock and 10,000,000 shares of preferred stock with preferences and
rights to be determined by the our  Board of Directors.  As
of December 31, 2008, there were18,935,244 shares of our
Common Stock and no shares of our preferred stock outstanding, and as of
November 7, 2008,4,000,000 shares of our
Common Stock reserved for issuance under our 2008 Plan2.  These
numbers do not include shares of our Common Stock issuable upon the exercise of
outstanding warrants.  We may also issue additional shares of our
Common Stock or other securities that are convertible into or exercisable for
our Common Stock in connection with hiring or retaining employees, future
acquisitions, future sales of its securities for capital raising purposes, or
for other business purposes.  The future issuance of any such
additional shares of our Common Stock may create downward pressure on the
trading price of the Common Stock.  There can be no assurance that we
will not be required to issue additional shares, warrants or other convertible
securities in the future in conjunction with any capital raising efforts,
including at a price (or exercise prices) below the price at which shares of the
Common Stock is currently traded on the OTCBB.





2.
                The
      2008 Plan, originally adopted and approved by our Board of Directors and
      majority stockholders on February 7, 2008 to enable grants to issue up to
      2,000,000 shares of our Common Stock, was amended and restated by approval
      of our Board of Directors on November 7, 2008 to, among other things,
      increase the number of shares that may be issued under the 2008 Plan to
      4,000,000.  Our stockholders have not yet approved this
      increase.


39




ITEM
      1B.
            UNRESOLVED
      STAFF COMMENTS





None.





ITEM
      2.
            PROPERTIES





Executive
Offices





Our executive offices are located at
Calle 67 #7-35, Oficina 409, Bogota, Colombia.  At this location we
rent approximately 3,000 square feet of office space under a three year
lease.  We do not rent or own any other property.





Description
of Properties








Source:
La Cortez Energy, Inc.


40





The Putumayo 4 Block





On
December 22, 2008, we entered into the MOU with Petronorte that entitles us to a
50% net working interest in the Putumayo 4 Block.  We expect to
execute the Definitive Agreements with Petronorte relating to the Putumayo 4
Block within the next few months. Petronorte was the successful bidder in the
Colombia Mini Round 2008 on the Putumayo 4 Block and signed an exploration and
production contract with the ANH in February 2009.





The Block
covers an area of 126,845 acres (51,333 hectares) located in the Putumayo Basin
in southern Colombia and has over 400 Km of pre-existing 2D seismic through
which Petronorte has identified promising leads.








Source: La Cortez Energy,
Inc.





There are
four existing wells in the Putumayo 4 Block that date back to the 1970’s. Even
though information is scarce, these wells intended to reach the Caballos
formation and in doing so, oil shows were recorded from the Villeta formation,
our primary objective. Furthermore, neighboring and close fields, including
Nancy-Burdine-Maxine, Costayaco and Orito, have been prolific hydrocarbon
producers, partially affirming our reserve expectations in the
block.





Infrastructure
in the Putumayo region has been rapidly improving. Several important
discoveries, including one competitor’s discovery in Costayaco, have resulted in
an influx of companies into the region, resulting in a reduction in oil services
fees and improving security in the area. Specifically, the Putumayo 4 Block is
located near the Orito field, run by Ecopetrol, which is a receiving station for
a pipeline to the port Tumaco on the Colombian pacific. Transportation of
potential crude production from the Putumayo 4 Block could be trucked easily to
Orito through the paved roads in the area.


41





The Maranta Block








Source: emerald Energy Plc., La Cortez
Energy, Inc.





On
February 6, 2009, La Cortez Energy Colombia entered into the Farm-In Agreement
with Emerald for a 20% Participating Interest in the Maranta E&P block in
the Putumayo Basin in Southwest Colombia.  The Maranta block covers an
area of 90,459 acres (36,608 hectares) in the foreland of the Putumayo
Basin.





Emerald was awarded the Maranta block
E&P Contract by the ANH on September 12, 2006.  The E&P
Contract granted Emerald a 100% working interest in the block for an exploration
period of up to six years with an initial production period of up to 24
years.





The first
phase of the Emerald’s exploration period lasted 18 months with a minimum work
program that was comprised of the acquisition of 30 square kilometers of new 2D
seismic data and the re-processing of 40 square kilometers of existing 2D
seismic data.  Emerald extended its work program and shot an
additional 41 square kilometers of 2D seismic to better map out the geological
structures in the block.





The
Maranta block is adjacent to nearby producing oil fields and close to recent
discoveries that have tested oil up to 7,000 barrels per day. Emerald identified
a number of prospects and leads at an estimate depth of some 11,000 ft from the
existing seismic data, each with an unrisked prospective resource potential
estimated to be between 5 and 15 million barrels.  The Umbria #1 well
was drilled in the Maranta block in 1967 and encountered oil in the Villeta
formation.  There may also be potential to re-enter this well to further
test the formation productivity3.





3.
 Source:  Emerald Energy Plc


42





A 2D
seismic program was acquired by Emerald in 2007 with the aim of maturing the
identified prospects and leads to a drill-ready status. In March 2008, Emerald
elected to enter the second phase of the exploration period, with a duration of
12 months and a minimum work program comprising the drilling of 1 well, planned
to commence by the second quarter of 2009.





ITEM
      3.
            LEGAL
      PROCEEDINGS





No legal
or governmental proceedings are presently pending or, to our knowledge,
threatened, to which we are a party or to which any of our Properties is
subject.




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





No
matters were submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year covered by
this report.


43


PART
II





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





Our
Common Stock is currently listed on the OTC Bulletin Board under the symbol
“LCTZ.OB”.




The
following table sets forth the high and low closing bid prices for our Common
Stock for the fiscal quarters indicated as reported on the OTCBB. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.





Period
                      High
      (1)
                      
                      Low
      (1)Fiscal Year Ended December 31,
      2007:First
      Quarter(2)
                      
                      $
                      0.02
                      
                      
                      $
                      0.02Second
      Quarter
                      
                      
                      0.05
                      
                      
                      
                      0.02Third
      Quarter
                      
                      
                      0.06
                      
                      
                      
                      0.05Fourth
      Quarter
                      
                      
                      0.06
                      
                      
                      
                      0.06Fiscal Year Ending December 31,
      2008First
      Quarter
                      
                      $
                      2.00
                      
                      
                      $
                      0.06Second
      Quarter
                      
                      
                      2.50
                      (3)
                      
                      
                      2.00Third
      Quarter
                      
                      
                      2.90
                      (3)
                      
                      
                      1.01Fourth
      Quarter
                      
                      
                      1.50
                      (3)
                      
                      
                      1.01
 
 (1)
                    All
      quotations give retroactive effect to the Stock Split which was effected
      on February 27,
2008.


(2)
              From
      January 11, 2007, the first available date during this
      quarter.  Although our Common Stock was quoted on the OTCBB
      since January 11, 2007, the first trade did not take place until April 11,
      2008.


(3)
              During
      this period, our Common Stock traded on the OTCBB above this closing bid
      price. Our Common Stock is thinly traded and, thus, pricing of our Common
      Stock on the OTCBB does not necessarily represent its fair market
      value.





Holders




As of
March 26, 2009, we had 18,935,244 shares of our Common Stock issued and
outstanding held by 20 shareholders of record.


44


Securities
Authorized For Issuance Under Equity Compensation Plans




We
adopted our 2008 Plan on February 7, 2008 and amended and restated the 2008 Plan
as of November 7, 2008. The 2008 Plan was approved by our Board and a majority
of the outstanding shares of our Common Stock4
and allows for awards of up to an aggregate of 4,000,000 shares of our Common
Stock, subject to adjustment under certain circumstances. If an incentive award
granted under the 2008 Plan expires, terminates, is unexercised or is forfeited,
or if any shares are surrendered to us in connection with an incentive award,
the shares subject to such award and the surrendered shares will become
available for further awards under the 2008 Plan. As of the date hereof, we have
granted option awards under the 2008 Plan exercisable for a net aggregate of
2,175,000 shares of our Common Stock. We have not maintained any other equity
compensation plans since our inception.





Dividends





We have
never declared any cash dividends with respect to our Common
Stock.  Future payment of dividends is within the discretion of our
Board of Directors and will depend on our earnings, capital requirements,
financial condition and other relevant factors.  Although there are no
material restrictions limiting, or that are likely to limit, our ability to pay
dividends on our Common Stock, we presently intend to retain future earnings, if
any, for use in our business and have no present intention to pay cash dividends
on our Common Stock.





ITEM
      6.
            SELECTED
      FINANCIAL DATA





Not
applicable.





ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





The
following discussion highlights the principal factors that have affected our
financial condition and results of operations as well as our liquidity and
capital resources for the periods described. This discussion contains
forward-looking statements. Please see “Forward-Looking Statements” for a
discussion of the uncertainties, risks and assumptions associated with these
forward-looking statements.




The
following discussion and analysis of the Company’s financial condition and
results of operations are based on the preparation of our financial statements
in accordance with U.S. generally accepted accounting principles. You
should read the discussion and analysis together with such financial statements
and the related notes thereto.




Results
of Operations





Fiscal
year Ended December 31, 2008 compared to 2007





We are
still in our development stage and have generated no revenues to
date.





4.
                Although
      the Board approved the increase in the number of shares of Common Stock
      issuable under the 2008 Plan from 2,000,000 to 4,000,000, this increase
      has not yet been approved by our
stockholders.


45


General
and Administrative Expenses





We
incurred total expenses of $2,649,312 for the twelve month period ended December
31, 2008 compared to $28,836 for the twelve month period ended December 31,
2007. Our payroll expenses increased to $505,783 for the twelve month period
ended December 31, 2008 from zero for the twelve month period ended December 31,
2007; stock-based compensation increased to $1,246,153 for the twelve month
period ended December 31, 2008 from zero for the twelve month period ended
December 31, 2007; professional fees increased to $441,683 for the twelve month
period ended December 31, 2008 from $19,695 for the twelve month period ended
December 31, 2007; travel expenses increased to $168,812 for the twelve month
period ended December 31, 2008 from zero for the twelve month period ended
December 31, 2007; rent expense increased to $56,012 for the twelve month period
ended December 31, 2008 from $2,400 for the twelve month period ended December
31, 2007; and other expenses increased to $230,869 for the twelve month period
ended December 31, 2008 from $6,741 for the twelve month period ended December
31, 2007. The increase in expenses for the twelve month period ended December
31, 2008 is attributable primarily to increased general, administrative and
legal expenses incurred in connection with our new business activities in South
America and administrative costs related to the Private Placement and the Unit
Offering.





Other
Income (Expense), Net





Net other
income (expense) for the twelve months ended December 31, 2008, was $68,783
compared to no interest income for the twelve months ended December 31, 2007.
Interest income in the amount of $69,005 was earned on our cash deposits
resulting from our Private Placement and Unit Offering for the twelve months
ended December 31, 2008.





Net
Losses





Our net
loss for the twelve months ended December 31, 2008 was $(2,580,529) compared to
$(28,836) for the twelve month period ended December 31, 2007.





Liquidity
and Capital Resources





Our cash
and cash equivalents balance as of December 31, 2008 was $6,733,381 compared to
$1,025 as of December 31, 2007.  This increase was due to the sale of
our securities in the Private Placement and in the Unit Offering.





Effective
March 14, 2008, we closed the Private Placement. We offered our shares of Common
Stock at a price of $1.00 per share and we derived total proceeds of $2,400,000
($2,314,895 net after expenses) from the sale of 2,400,000 shares of our Common
Stock.





Effective
September 10, 2008, we closed the Unit Offering. We offered our Units at a price
of $1.25 per Unit and we derived total proceeds of $5,981,000 ($5,762,126 net
after expenses) from the sale of 4,784,800 Units.





On June
16, 2007, May 17, 2007 and July 28, 2006, our former President and sole
director, Maria de la Luz, advanced $10,000, $2,700 and $2,000, respectively, to
us for working capital purposes. These advances carried no interest rate and
were payable on demand. On June 30, 2008, Ms. de la Luz forgave the total amount
of the advances. Accordingly, the Company eliminated the $14,700 payable and
treated the debt forgiveness as a capital contribution and recorded the amount
as additional paid in capital.


46





We
presently do not have any available credit, bank financing or other external
sources of liquidity, other than the remaining net proceeds from the Private
Placement and the Unit Offering.  Due to our brief history and
historical operating losses, our operations have not been a source of
liquidity.





We
recently entered into the MOU with Petronorte and the Farm-In Agreement with
Emerald.  We expect that our capital commitments to Petronorte will be
approximately US $2.3 million in 2009 for Phase 1 seismic reprocessing and
acquisition activity costs.  In accordance with the terms of the
Emerald Farm-In Agreement, we paid Emerald US $0.948 million on February 12,
2008, as a reimbursement of Emerald’s Phase 1 sunk costs5,
and an additional US $ 2.433 million on February 18, 2008, as the first
installment on Emerald’s Phase 2 exploratory well costs.  We will be
required to pay Emerald an additional US $2.433 million for its Phase 2 costs
once the drill rig is mobilized to begin drilling on the Maranta block
exploratory well.  We expect that this second Phase 2 payment will be
requested by Emerald early in the second quarter of 2009.  We believe
that we have sufficient funds only to cover our operational overhead for the
next few months, but not sufficient additional funds to make all of the required
Emerald and expected Petronorte payments.





We
utilize cash of approximately $100,000 per month in the day-to-day operations of
our business, including payroll, professional fees and office
expenses.  Because we will not be the Operator in either of our
Petronorte or Emerald projects and assuming no other material changes in our
operations, we expect this rate of cash utilization to increase slightly over
the next twelve months.





We will
need to obtain additional capital in order to meet our working needs and our
commitments to Emerald and Petronorte, and to continue to execute our business
plan, build our operations and become profitable. In order to obtain capital, we
may need to sell additional shares of our Common Stock or debt securities, or
borrow funds from private or institutional lenders. Because of recent problems
in the credit markets, steep stock market declines, financial institution
failures, government bail-outs, the sharp decline in oil and natural gas prices
and our status as an early stage company, there can be no assurance that we will
be successful in obtaining additional funding in amounts or on terms acceptable
to us, if at all.  If we are unable to raise additional funding as
necessary, we may have to suspend our operations temporarily or cease operations
entirely.





Our
independent registered public accounting firm has included an explanatory
paragraph in their report on our consolidated financial statements relating to
the uncertainty of our business as a going concern, due to our limited operating
history, our lack of historical profitability, and our limited funds. We believe
that we will be able to raise the required funds for operations and to achieve
our business plan.





5.
                All
      costs on this project are calculated in Colombian pesos and paid in US
      dollars.  Because of changes in exchange rates, our capital
      commitments in US dollars may be more or less than originally calculated
      and budgeted.


47


ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTAL DATA





Our
audited consolidated financial statements as of, and for the years ended,
December 31, 2008 and 2007, and for the period from June 9, 2006 (inception)
through December 31, 2008, are included beginning on page F-1 immediately
following the signature page to this report.  See Item 15 for a list
of the financial statements included herein.





ITEM
      9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





None.





ITEM
9A.[T] CONTROLS AND PROCEDURES





We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer (who joined the
Company as principal executive officer in June 2008) and principal financial
officer (who joined the Company in February 2008 and became principal financial
officer in June 2008), of the effectiveness of our disclosure controls and
procedures  (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
as of December 31, 2008. Based upon that evaluation, our principal executive
officer and principal financial officer concluded that, as of the end of the
period covered in this report, our disclosure controls and procedures were not
effective to ensure that information required to be disclosed in reports filed
by us under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the required time periods and is accumulated and
communicated to our management, including our principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.  In particular, we concluded that internal
control weaknesses in our accounting policies and procedures relating to our
equity transactions, financial statement disclosures and segregation of duties
were material weaknesses.





Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error or fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Due to
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. To address the material weaknesses, we performed
additional analysis and other post-closing procedures in an effort to ensure our
consolidated financial statements included in this annual report have been
prepared in accordance with generally accepted accounting principles in the
United States of America. In addition, we engaged independent accounting
consultants to assist us with our accounting functions and in performing the
additional analyses referred to above.  Accordingly, management
believes that the financial statements included in this report fairly present in
all material respects our financial condition, results of operations and cash
flows for the periods presented.


48





Management’s
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2008 based on the framework in Internal
Control—Integrated Framework and the Internal Control over Financial Reporting –
Guidance for Smaller Public Companies both issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of the company's annual or interim financial statements will not be
prevented or detected on a timely basis. We have identified the following
material weaknesses.





1.
            As
      of December 31, 2008, we did not maintain effective internal controls over
      financial reporting. Specifically, we had not developed and effectively
      communicated to our employees our accounting policies and procedures. This
      had resulted in inconsistent application of such policies and procedures
      in the Company’s financial statements in 2008. Since these entity level
      control weaknesses had a pervasive effect across the organization,
      management concluded that these circumstances constituted a material
      weakness in our system of financial
reporting.





2.
            As
      of December 31, 2008, we did not maintain effective controls over
      financial statement disclosure and the recording of equity transactions.
      Specifically, controls were not designed and in place to ensure that all
      disclosures required were originally addressed in our financial
      statements. Accordingly, management concluded that this control deficiency
      constituted a material weakness.





3.
            As
      of December 31, 2008, we did not adequately segregate, or mitigate the
      risks associated with, incompatible functions among personnel to reduce
      the risk that a potential material misstatement of the financial
      statements would occur without being prevented or detected. Accordingly,
      management concluded that this control deficiency constituted a material
      weakness.





Because
of these material weaknesses, management has concluded that the Company did not
maintain effective internal control over financial reporting as of December 31,
2008, based on the criteria established in "Internal Control-Integrated
Framework" issued by the COSO.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.


49


This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.





Subsequent
to December 31, 2008, management has engaged consultants to assist the Company
in ensuring that accounting policies and procedures are consistent across all
the organization and that we have adequate control over financial statement
disclosures.  In addition, the Company continues to increase its
workforce in preparation for leaving the development stage and beginning
operations.   We also intend to hire an experienced Chief
Financial Officer with and oil and gas industry background.  We
believe that these combined actions will remedy the material weaknesses in our
current system of internal control over financial reporting.





Officers’
Certifications





Appearing
as exhibits to this Annual Report are “Certifications” of our Chief Executive
Officer and Chief Financial Officer.  The Certifications are required
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302
Certifications”).  This section of the Annual Report contains
information concerning the Controls Evaluation referred to in the Section 302
Certification.  This information should be read in conjunction with
the Section 302 Certifications for a more complete understanding of the topics
presented.





Changes
in Internal Control Over Financial Reporting





There
have been no changes in our internal control over financial reporting that
occurred during the quarter ended December 31, 2008 that have materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.





ITEM
      9B.
            OTHER
      INFORMATION





Change
in Shell Company Status





As a result of La Cortez Colombia’s
entry into the Farm-In Agreement with Emerald (discussed above), we have ceased
to be a shell company as that term is defined in Rule 12b-2 under the Exchange
Act.





The
following constitutes the current “Form 10 information” pursuant to Rule 144(i)
under the Securities Act not otherwise provided under other items of this Annual
Report on Form 10-K:





Description
of our Securities





Common
Stock





We are
authorized to issue up to 300,000,000 shares of common stock, par value $0.001
per share. As of December 31, 2008, there were 18,935,244 shares of Common Stock
issued and outstanding.  The outstanding shares of Common Stock are
validly issued, fully paid and non-assessable.


50





Holders
of the Company’s Common Stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of Common Stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
Common Stock voting for the election of directors can elect all of the
directors. Holders of the Company’s Common Stock representing a majority of the
voting power of the Company’s capital stock issued, outstanding and entitled to
vote, represented in person or by proxy, are necessary to constitute a quorum at
any meeting of stockholders. A vote by the holders of a majority of the
Company’s outstanding shares is required to effectuate certain fundamental
corporate changes such as liquidation, merger or an amendment to the Company’s
certificate of incorporation.





Holders
of the Company’s Common Stock are entitled to share in all dividends that our
Board of Directors, in its discretion, declares from legally available funds. In
the event of a liquidation, dissolution or winding up, each outstanding share of
Common Stock entitles its holder to participate pro rata in all assets that
remain after payment of liabilities and after providing for each class of stock,
if any, having preference over the Common Stock. The Company’s Common Stock has
no pre-emptive, subscription or conversion rights and there are no redemption
provisions applicable to the Company’s Common Stock.





Preferred
Stock





The Company is authorized to issue
10,000,000 shares of preferred stock, par value $.001 per share, none of which
are currently outstanding.





Options





As of
December 31, 2008, the Company had issued 2,025,000 nonqualified stock options
under the 2008 Plan, at a weighted average fair market value exercise price of
$2.22 per share.  The Company granted an additional 200,000 options
under the 2008 Plan on January 7, 2009 at an exercise price of $1.50 per
share.  For all of these grants, the Board of Directors of the Company
set the exercise price of the options at a price equal to or greater than the
fair market value of the Common Stock on the date of grant of the options. All
options under the 2008 Plan vest pro-rata in three annual installments beginning
on the first anniversary of the date of grant and have a 10 year
term.





Warrants





In connection with the closing of the
Unit Offering on September 10, 2008 (the “Closing”), we issued to investors in
the Unit Offering 4,784,800 Warrants exercisable for an aggregate of 2,392,400
shares of our Common Stock.  Each of the Warrants is exercisable into
one-half of a share of our Common Stock at a price of $2.25 per whole
share.  The Warrants expire on September 9, 2014.  The
shares of our Common Stock issuable upon exercise of the Warrants carry
“piggyback” and contingent “demand” registration rights.  (See
below.)





The
Warrants are exercisable by cash payment of the exercise price or, if we default
in honoring investors’ “piggyback” registration rights (see “Registration
Rights” below) at any time or if a “demand” registration statement is not
declared effective by the SEC within the required 120 day period (see
“registration Rights” below), by “cashless exercise”.  A “cashless
exercise” means that in lieu of paying the aggregate purchase price for the
shares being purchased upon exercise of the warrants in cash, the holder will
forfeit a number of shares underlying the Warrants with a “fair market value”
equal to such aggregate exercise price.  The Company will not receive
additional proceeds to the extent that Warrants are exercised by cashless
exercise.


51





The
exercise price and number of shares of Common Stock issuable on exercise of the
Warrants may be adjusted in certain circumstances including in the event of a
stock dividend, recapitalization, reorganization, merger or
consolidation.  The Warrants shall also be subject to a weighted
average anti-dilution price protection for the five year life of the
Warrants.





No
fractional shares will be issued upon exercise of the Warrants. If, upon
exercise of the Warrants, a holder would be entitled to receive a fractional
interest in a share, the Company will, upon exercise, round up to the nearest
whole number, the number of shares of Common Stock to be issued to the Warrant
holder.





Registration
Rights





Investors
in the Unit Offering have “piggyback” registration rights for the shares of
Common Stock issued in the Unit Offering included in the Units and underlying
the Warrants included in the Units.





Additionally, investors the Unit
Offering have “demand” registration rights with respect to the shares of Common
Stock included in the Units if the Company does not file a registration
statement with the SEC in which the investors can exercise their ‘piggyback’
registration rights within six months of the Closing of the Unit
Offering.  That is, at any time on or after the date that is six
months after the Closing, and only if the Company has not filed a registration
statement enabling the investors to exercise their “piggyback” registration
rights, one or more of the investors that in the aggregate beneficially own at
least 50% of the Shares issued in the Unit Offering may make a demand that the
Company effect the registration of all or part of the investors’ Shares (a
"Demand Registration").  Investors have the right to one Demand
Registration pursuant to these provisions.





We are expected to prepare a
Registration Statement following receipt of the required investor demand, to be
filed with the SEC and to become effective within two hundred ten (210) days
from the receipt of the demand notice, registering for resale all shares of
Common Stock issued in the Unit Offering included in the Units of those
investors who choose to participate in such Demand Registration.  We
shall pay monetary penalties to these investors equal to one and one-quarter
percent (1.25%) of the gross proceeds of the Unit Offering for each full month
that the registration statement is late in being declared effective; provided,
that in no event shall the aggregate of any such penalties exceed fifteen
percent (15%) of the gross proceeds of the Unit Offering.  No
penalties shall accrue with respect to any shares of Common Stock removed from
the registration statement in respect to a comment from the SEC limiting the
number of shares of Common Stock which may be included in the registration
statement.  The holders of any Common Stock removed from the
registration statement as a result of a comment from the SEC shall continue to
have “piggyback” registration rights with respect to these
shares.


52


Transfer
Agent





The
transfer agent for our Common Stock is Continental Stock Transfer & Trust
Company. The transfer agent’s address is 17 Battery Place, New York, New York
10004, and its telephone number is (212) 845-3212.





Liability
and Indemnification of Directors and Officers





Nevada
Revised Statutes (“NRS”) Sections 78.7502 and 78.751 provide us with the power
to indemnify any of our directors and officers. The director or officer must
have conducted himself/herself in good faith and reasonably believe that his/her
conduct was in, or not opposed to our best interests. In a criminal action, the
director, officer, employee or agent must not have had reasonable cause to
believe his/her conduct was unlawful.





Under NRS
Section 78.751, advances for expenses may be made by agreement if the director
or officer affirms in writing that he/she believes he/she has met the standards
and will personally repay the expenses if it is determined such officer or
director did not meet the standards.





The
Company’s Bylaws include an indemnification provision under which we have the
power to indemnify our directors, officers and former directors and officers
(including heirs and personal representatives) against all costs, charges and
expenses actually and reasonably incurred, including an amount paid to settle an
action or satisfy a judgment to which the director or officer is made a party by
reason of being or having been a director or officer of the Company or any of
its subsidiaries prior to the Merger.





The
Company’s amended and restated Articles of Incorporation provide a limitation of
liability such that no director or officer shall be personally liable to the
Company or any of its stockholders for damages for breach of fiduciary duty as
director or officer involving any act or omission of any such director or
officer, provided there was no intentional misconduct, fraud or a knowing
violation of the law, or payment of dividends in violation of NRS Section
78.300.




Our Board
of Directors may take such action as it deems necessary to carry out these
indemnification provisions, including adopting procedures for determining and
enforcing indemnification rights and purchasing insurance policies. Our Board of
Directors may also adopt bylaws or resolutions or authorize the entry into
contracts implementing indemnification arrangements as may be permitted by law.
The Board of Directors has authorized us to enter into indemnification contracts
with our officers and directors and we are currently implementing these
agreements.  Neither the amendment or repeal of these indemnification
provisions, nor the adoption of any provision of our amended and restated
certificate of incorporation or bylaws inconsistent with these indemnification
provisions, will eliminate or reduce any rights to indemnification relating to
their status or any activities prior to such amendment, repeal or
adoption.





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


53





Non-Reliance
on Previously Issued Financial Statements




On
April 8, 2009, our audit committee concluded, upon the advice of
management, that our previously issued consolidated financial statements for
each of the year-to-date periods ended March 31, 2008, June 30, 2008 and
September 30, 2008 (the “Restatement Periods”) presented in our Forms 10-Q filed
with the Securities and Exchange Commission on May 15, 2008, August 14, 2008 and
November 14, 2008, respectively, will require restatement and should no longer
be relied on.




We made
this determination after management reconsidered the valuation of 1,000,000
shares (restated for 5:1 forward stock split) of our common stock we issued to a
consultant on February 7, 2008 at an original valuation of $0.01 per share
(post-5:1 forward stock split), in exchange for services.  Upon review and
consideration of the requirements of EITF 96-18, “Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services,” regarding the valuation of this
stock, management has concluded that the shares issued to the consultant should
have been valued at $1.00 per share (post-5:1 forward stock split) based on the
$1.00 per share stock price we received in our private placement that closed on
March 14, 2008.  The Company’s financial statements for the Restatement
Periods will be restated to recognize additional non-cash expense in the
amount of $990,000 in each of the Restatement Periods.





Our audit
committee has discussed the matters disclosed above with our independent
registered public accounting firm, BDO Seidman, LLP.


54





PART
III





ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE





Executive
Officers and Directors




Below are
the names and certain information regarding the Company’s current executive
officers and directors:




Name
                                    
                                    Age
                                    
                                    Title
                                    
                                    Date First AppointedAndres Gutierrez Rivera
                                    
                                    50
                                    
                                    President,
      Chief Executive Officer and Director
                                    
                                    June 1, 2008Nadine C. Smith
                                    
                                    51
                                    
                                    Director
      and Chairman of the Board, Vice President and Interim Chief Financial
      Officer
                                    
                                    February 7, 2008Jaime Ruiz Llano
                                    
                                    53
                                    
                                    Director
                                    
                                    July 1, 2008Jaime
                                      
                                      Gaona
                                    
                                    69
                                    
                                    Director
                                    
                                    July 23, 2008Richard G. Stevens
                                    
                                    61
                                    
                                    Director
                                    
                                    July 23, 2008Jose Fernando
                                      Montoya Carrillo
                                    
                                    55
                                    
                                    Director
                                    
                                    October 15, 2008




Directors
are elected to serve until the next annual meeting of stockholders and until
their successors are elected and qualified.  Officers are elected by
the Board of Directors and serve until their successors are appointed by the
Board of Directors.




Biographical
resumes of each officer and director of the Company are set forth
below.





Andres Gutierrez Rivera was
appointed our President and Chief Executive Officer on June 1,
2008.  Mr. Gutierrez was most recently (from January 2007 to June
2008) the senior executive of Lewis Energy Colombia Inc.  In this role
he was responsible for all aspects of Lewis Energy’s operational management and
its business development initiatives in Colombia.  Prior to joining
Lewis Energy, Mr. Gutierrez was briefly a consultant with Upside Energy &
Mining Services, in charge of the execution of various consulting projects
related to the oil and gas divisions of several multinational
companies.





From 2001
to 2006, Mr. Gutierrez was employed with Hocol, S.A., an oil and gas exploration
and production (E&P) company based in Bogotá, Colombia with operations in
Colombia and Venezuela.  From 2004, Mr. Gutierrez served as one of
three Vice Presidents reporting directly to the President of
Hocol.  As Vice President Finance Administration, Human Talent and
Operations, Mr. Gutierrez participated in defining Hocol’s long term strategy
and company direction.  In 2005, Mr. Gutierrez participated in the
development and execution of the divestiture of Hocol to Maurel & Prom for
approximately $460 million.


55





Mr.
Gutierrez obtained a bachelor degree in Civil Engineering from the Escuela
Colombia de Ingenieria in 1982 in Bogota, Colombia and a MSCE from Georgia
Institute of Technology in march 1985 in Atlanta, Georgia.





Nadine C. Smith became a
director and our Chairman of the Board of Directors on February 7, 2008. On
February 19, 2008, Ms. Smith was appointed our Vice President and on June 1,
2008 she assumed the positions of Interim Chief Financial Officer and Interim
Treasurer.  Ms. Smith was recently appointed as the Chairman of Loreto
Resources Corporation, a publicly held, early stage independent company that
plans to be involved in the mining sector in South America.  Ms. Smith
has previously served as a director of Gran Tierra Energy, Inc., an oil and gas
exploration and production company operating in South America, Patterson-UTI
Energy Inc. and American Retirement Corporation, all public companies.
Ms. Smith has been a private investor and business consultant since
1990.





Jaime Ruiz Llano became our
director on July 1, 2008.  Mr. Ruiz has been involved in government
affairs in Colombia for the past 20 years.  Mr. Ruiz has held various
high level government positions throughout his career.  In 1991, Mr.
Ruiz was elected as a Senator in the Colombian Congress. He served in that
capacity until 1994.  From 1998 to 1999, Mr. Ruiz held the position of
Director for the Colombian National Planning Department, the government entity
controlling the national budgeting and government planning strategies; in 1999
he served as Special Presidential Advisor for Government Affairs to the
President of Colombia.





From 2000
to 2002, Mr. Ruiz served as Executive Director - Member of the Board of
Directors of the World Bank.  The Executive Directors oversee the
World Bank's business, including approval of loans and guarantees, new policies,
the administrative budget, country assistance strategies and borrowing and
financial decisions.





In 2006,
Mr. Ruiz served as Deputy Chief of Mission in the Colombian embassy in
Washington, D.C. During the periods when he was not serving in the Colombian
government, Mr. Ruiz held the position of President of his family-owned
construction business.  Additionally, Mr. Ruiz has served on the Board
of Directors of Ecopetrol, Colombia’s state-run oil company.





Mr. Ruiz
received a Masters in Civil Engineering from the University of Kansas and a
Masters in Development Studies from the Institute of Social Studies, The Hague,
The Netherlands.





Jaime Navas Gaonabegan his
career as a geologist with Exxon in Colombia, where he was employed for 27
years, serving in a number of capacities including Exploration
Manager.  Mr. Navas retired from Exxon as Production Geology Manager
in 1992.  From 1993 to 1996, Mr. Navas worked as Senior Exploration
Advisor with Maxus Energy in Bolivia.





From 1998
to 2002, Mr. Navas was a member of the Strategic Team and Mentor of the
Exploration and New Ventures teams for Hocol, S.A.  Mr. Navas was one
of five members of Hocol’s Management Team, accountable for the overall business
results of the company. His responsibilities at Hocol included the development
and implementation of strategies for the achievement of Hocol’s exploration
goals and objectives, collaboration in managing government relations and
securing approvals for the company’s exploration activities.


56





In 2002,
Mr. Navas co-founded AGN-Exploration, an exploration consulting firm based in
Bogotá, Colombia, where he currently acts as the company’s
President.  In 2005, Mr. Navas was appointed as one of the five
members of the Investment Committee of LAEFM (Latin America Enterprise Fund
Manager), the first hydrocarbon investment fund established in
Colombia.





Mr. Navas
holds a Masters in Science of Petroleum Geology from the Colorado School of
Mines and a degree in Geology and Geophysics from Universidad Nacional, Bogotá,
Colombia.





Richard G. Stevens is the
founder and managing director of Hunter Stevens, a professional services firm
that Mr. Stevens organized in 1995.  Prior to forming Hunter Stevens,
Mr. Stevens served as a partner with Ernst & Young LLP and Coopers &
Lybrand LLP (now known as PricewaterhouseCoopers, LLP), both of which are public
accounting firms.





Since
2006, Mr. Stevens has been a director of Chordiant Software, Inc. and currently
is their lead independent director.  Mr. Stevens previously served as
Chairman of the Audit Committee of Verity, Inc., a software firm based in
Sunnyvale, CA and at Pain Therapeutics, Inc., a bioscience company in South San
Francisco.





Mr.
Stevens holds a Bachelor of Science Degree with honors from the University of
San Francisco, and is a licensed Certified Public Accountant in the States of
California and New York, and a Certified Fraud Examiner.





Jose Fernando Montoya Carrillo
began his career in the oil and gas industry 27 years ago at Shell and held
various management positions over 19 years with the company and its Latin
American subsidiaries. During this time, Mr. Montoya's positions included
Corporate Planning and Business Development Manager, Operations Manager, Oil
Marketing Director and General Manager of Shell Downstream
Paraguay.





In 1997,
Mr. Montoya joined Hocol S.A. (a Colombian company previously owned by Shell)
where he held various executive management positions, including Business
Development Manager, Chief Financial Officer, Chief Operating Officer, President
and Chief Executive Officer until September 2007. Mr. Montoya continued to be a
board member and consultant to the management of Hocol S.A., a subsidiary of the
French group Maurel et Prom (M&P) until September 2008. Mr. Montoya is
currently a partner-owner of the energy consultant firm Upside - Energy and
Marketing Services and a founding partner of The Leadership and Management
Center. Both of these companies are located in Bogota, Columbia.





Mr.
Montoya holds a Bachelors Degree in Chemistry Engineering from the National
University of Colombia.


57





Non-Executive
Senior Management





The
following sets forth information regarding certain of our senior
managers:





Exploration Manager - Mr. Carlos
Lombo:Carlos Lombo has more than 23 years of oil and gas
industry experience. Mr. Lombo was most recently an external geological
consultant (from 2003 to 2008) with numerous oil and gas companies and
government entities including: Occidental Petroleum Colombia (OXY), Nexen
Petroleum, Ecopetrol, ANH, and Solana Resources Ltd amongst many others. As a
consultant, Mr. Lombo was responsible for all aspects of seismic interpretation,
prospect and geological evaluations, assessment of exploration opportunities and
other tasks. Prior to this period, Mr. Lombo was an Exploration Geologist
Project Manager with Ecopetrol, the Colombia, state-owned oil and gas company,
from 1986 to 2003. Mr. Lombo served over 17 years in this capacity, working
extensively throughout every basin of the Colombian topography across numerous
exploration projects. Mr. Lombo earned a Bachelor of Arts degree in Mathematics
from the District University in Bogotá and a Masters degree in Geology from the
National University of Colombia.





Production and Operations Manager –
William Giron: Mr. Girón brings over 26 years of oil and gas experience
to La Cortez. Most recently, from 2007 to date, Mr. Girón was the Production
Manager for Hocol’s Magdalena Valley assets where he was responsible for
production in excess of 18,000 BOED (Barrels of Oil Equivalent per day), a
capital expenditure budget exceeding US $130 million, and relationships with
Ecopetrol, the Colombian state-controlled oil company, the Colombian Ministry of
Mines, local government officials and third parties private partners. Mr. Girón
also performed in other capacities at Hocol as field asset manager for the heavy
crude oil of La Hocha field, as a reservoir engineer and a field development
manager.





Prior to
joining Hocol, Mr. Girón was employed by Texas Petroleum Company (Texaco) from
1982 to 1995. He was an independent consultant from 1996 to 1997. At Texaco, Mr.
Girón held various posts as a production and reservoir engineer and as an
assistant superintendent. He was involved in activities including budgeting and
planning, reservoir management, production enhancement and pipeline operations
management. Mr. Girón has a B.S. in Petroleum Engineering from the Universidad
de America in Bogotá.





Business and Technical
Advisors




We expect
to recruit a number of experienced and highly regarded professionals to provide
advice to us in their areas of specialization or expertise. These advisors will
enter into agreements with us to serve for fixed terms ranging from one to three
years. We will generally grant these advisors options to purchase our Common
Stock as partial payment for their services. In addition, these advisors will
receive cash compensation in connection with services rendered and will be
reimbursed for their reasonable out-of-pocket
expenses.


58


Director
Independence





We are
not currently subject to listing requirements of any national securities
exchange or inter-dealer quotation system which has requirements that a majority
of the board of directors be “independent” and, as a result, we are not at this
time required to have our Board of Directors comprised of a majority of
“Independent Directors.”  Nevertheless, our Board of Directors has
determined that four of our six directors, Messrs. Ruiz Llano, Navas Gaona,
Stevens and Montoya Carrillo, including all of our audit committee members (see
below), are “independent” within the definition of independence provided in the
Marketplace Rules of The Nasdaq Stock Market.





Board
Committees




Our Board
currently maintains a standing audit committee and an evaluation and reserves
committee.




Audit
Committee




Our Board
of Directors, by unanimous consent, established an audit committee (the “Audit
Committee”) in October 2008.  The initial members of this committee
are Messrs. Montoya, Ruiz and Stevens.  Our Board of Directors has
determined that Mr. Stevens is an “audit committee financial expert”, as defined
in Item 407 of Regulation S-K, and is the Chairman of the Audit
Committee.  Although the Audit Committee has not yet adopted a formal
charter, the Board resolution establishing the Audit Committee authorized the
Audit Committee to operate with the customary responsibilities and authority
typically granted to a public company audit committee.  During the
fiscal year ended December 31, 2008, the Audit Committee held two meetings, both
of which were telephonic. All of the Audit Committee members attended both of
the Audit Committee meetings held during the fiscal year ended December 31,
2008.





Evaluation
and Reserves Committee





In
October 2008, Our Board, by unanimous consent, also established an evaluation
and reserves committee.  The initial members of this committee are
Messrs. Gutierrez, Montoya and Navas.  This committee was established
to, among other things, fulfill the Board’s oversight responsibilities with
respect to evaluating and reporting on our oil and gas reserves and reviewing
and approving non-binding proposals, indications of interest, bids, memoranda of
understanding and the like with respect to potential business prospects of and
investments and acquisitions by us.  The evaluation and reserves
committee currently does not operate under a charter although its authority and
powers has been enumerated by the Board.





Other
Committees





The
Company currently has not established an executive committee, a compensation
committee or a nominating committee.  We are not a "listed company"
under SEC rules and are therefore not required to have a compensation committee
or a nominating committee.


59


Compensation
Committee





Our Board
of Directors believes that it is not necessary to have a standing compensation
committee at this time.  Because of the early stage of our development
and our limited operations, the functions of such committee are adequately
performed by the Board of Directors.  Currently, the non-management
members of our Board of Directors administer and approve all elements of
compensation and awards for our executive officers. These independent members of
our Board have the responsibility to review and approve the business goals and
objectives relevant to each executive officer’s compensation, evaluate
individual performance of each executive in light of those goals and objectives,
and determine and approve each executive’s compensation based on this
evaluation.





Shareholder
Communications





Currently,
we do not have a policy with regard to the consideration of any director
candidates recommended by security holders.  To date, no security
holders have made any such recommendations.





Code
of Ethics




We have
adopted a written code of ethics (the “Code of Ethics”) that applies to our
principal executive officer, principal financial officer, principal accounting
officer or controller, and persons performing similar functions. We believe that
the Code of Ethics is reasonably designed to deter wrongdoing and promote honest
and ethical conduct; provide full, fair, accurate, timely and understandable
disclosure in public reports; comply with applicable laws; ensure prompt
internal reporting of code violations; and provide accountability for adherence
to the code.  To request a copy of the Code of Ethics, please make
written request to our President, c/o La Cortez Energy, Inc. at Calle 67 #7-35,
Oficina 409, Bogota, Colombia.




Compliance
with Section 16(a) of the Exchange Act





Our
common stock is not registered pursuant to Section 12 of the Exchange
Act.  Accordingly, our officers, directors and principal shareholders
are not subject to the beneficial ownership reporting requirements of Section
16(a) of the Exchange Act.




60




ITEM
      11.
            EXECUTIVE
      COMPENSATION





The
following table sets forth information concerning the total compensation paid or
accrued by us during the last two fiscal years ended December 31, 2008 to (i)
all individuals that served as our principal executive officer or acted in a
similar capacity for us at any time during the fiscal year ended December 31,
2008; (ii) all individuals that served as our principal financial officer or
acted in a similar capacity for us at any time during the fiscal year ended
December 31, 2008; and (iii) all individuals that served as executive officers
of ours at any time during the fiscal year ended December 31, 2008 that received
annual compensation during the fiscal year ended December 31, 2008 in excess of
$100,000.





Summary
Compensation Table




Name and
                                            Principal Position
                                          
                                          Year
                                          
                                          Salary
                                            ($)
                                          
                                          
                                          Bonus
                                            ($)
                                          
                                          
                                          Stock
                                            Awards
                                            ($)
                                          
                                          
                                          Option
                                            Awards
                                            (1) ($)
                                          
                                          
                                          Non-
                                            Equity
                                            Incentive
                                            Plan
                                            Compen-
                                            sation ($)
                                          
                                          
                                          Change
                                            in
                                            Pension
                                            Value
                                            and Non-
                                            qualified
                                            Deferred
                                            Compen-
                                            sation
                                            Earnings
                                            ($)
                                          
                                          
                                          All Other
                                            Compensation
                                            ($)
                                          
                                          
                                          Total ($)(a)
                                          
                                          (b)
                                          
                                          (c)
                                          
                                          
                                          (d)
                                          
                                          
                                          (e)
                                          
                                          
                                          (f)
                                          
                                          
                                          (g)
                                          
                                          
                                          (h)
                                          
                                          
                                          (i)
                                          
                                          
                                          (j)Andres
      Gutierrez Rivera,
                                            Chief
      Executive Office (2)
                                          
                                          2008
                                          
                                          
                                          145,833
                                          
                                          
                                          
                                          72,915
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          130,969
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          349,717Maria
      de la Luz, Chief
                                          
                                          2008
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0Executive
      Officer (2)
                                          
                                          2007
                                          
                                          
                                          6,000
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          6,000Nadine
      C. Smith, Vice
                                            President
      and Interim Chief
                                            Financial
      Officer (3)
                                          
                                          2008
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          22,919
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          22,919


(1)
            Option
      Awards expense as reported here and in our financial statements has been
      recorded in accordance with SFAS 123(R), “Share-Based
      Payment.”


(2)
            Effective
      June 1, 2008, Ms. de la Luz resigned as our President and Chief Executive
      Officer and Mr. Gutierrez was appointed our President and Chief Executive
      Officer.


(3)
            Ms.
      Smith was appointed Interim Chief Financial Officer on June 1,
      2008.  Ms. Smith receives no compensation in her capacities as
      Vice President and Interim Chief Financial Officer.  However,
      for accounting purposes, we imputed compensation of $23,333 for her
      contributed services for the year ended December 31, 2008.  The
      Option Awards value reflects option grants made to Ms. Smith in her
      capacity as director and
Chairman.


61




We have
not issued any stock options or maintained any stock option or other incentive
plans other than our 2008 Plan. (See “Item 5. Market for Common Equity and
Related Stockholder Matters – Securities Authorized for Issuance Under Equity
Compensation Plans” above.) We have no plans in place and have never maintained
any plans that provide for the payment of retirement benefits or benefits that
will be paid primarily following retirement including, but not limited to, tax
qualified deferred benefit plans, supplemental executive retirement plans,
tax-qualified deferred contribution plans and nonqualified deferred contribution
plans.




We paid
Ms. de la Luz a fee of $500 per month for her services to us as officer and
director.  We are paying Mr. Gutierrez Rivera for his services to us
as President and Chief Executive Officer according to his employment agreement
with us.  We have no other contracts, agreements, plans or
arrangements, whether written or unwritten, that provide for payments to the
named executive officers listed above, other that our Board approved director
compensation plan which includes the reimbursement to all directors of
reasonable out-of-pocket expenses incurred in attending Board of Directors
and committee meetings.





Outstanding
Equity Awards at Fiscal Year-End





The
following table sets forth information regarding stock options held by the
Company's Named Executive Officers at December 31, 2008.





Option AwardsName and
                  Principal Position
                
                Number of
                  securities
                  underlying
                  unexercised
                  options
                  exercisable
                  (#)
                
                
                Number of
                  securities
                  underlying
                  unexercised
                  options
                  unexercisable
                  (#)
                
                
                Equity
                  incentive
                  plan
                  awards:
                  Number of
                  securities
                  underlying
                  unexercised
                  unearned
                  options
                  (#)
                
                
                Option
                  plan
                  exercise
                  price
                  ($)
                
                
                Option expiration
                  date(a)
                
                (b)
                
                
                (c)
                
                
                (d)
                
                
                (e)
                
                
                (f)Andres
      Gutierrez Rivera,
                  Chief
      Executive Officer (1)
                
                
                -
                
                
                
                -
                
                
                
                1,000,000
                
                
                $
                2.20
                
                
                July
      1, 2018Maria
      de la Luz,
                  Chief
      Executive Officer (1)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                N/A
                
                
                
                N/ANadine
      Smith,
                  Vice
      President and Interim Chief Financial Officer (2)
                
                
                -
                
                
                
                -
                
                
                
                175,000
                
                
                $
                2.20
                
                
                July
      1, 2018





(1)
            Effective
      June 1, 2008, Ms. de la Luz resigned as our President and Chief Executive
      Officer and Mr. Gutierrez was appointed our President and Chief Executive
      Officer.


62


(2)
            Ms.
      Smith was appointed Interim Chief Financial Officer on June 1,
      2008.  Ms. Smith receives no compensation in her capacities as
      Vice President and Interim Chief Financial Officer.  The Option
      Awards value reflects option grants made to Ms. Smith in her capacity as
      director and Chairman.





Equity Compensation Plan
Information





The
following table sets forth information about the Company’s equity compensation
plans as of December 31, 2008:





Plan Category
                            
                            Number of securities to be
                              issued upon exercise of
                              outstanding options,
                              warrants and rights
                            
                            
                            Weighted-average
                              exercise price of
                              outstanding options,
                              warrants and rights
                            
                            
                            Number of securities
                              remaining available
                              for future issuance
                              under equity
                              compensation plansEquity
      compensation plans approved by security holders
                            
                            
                            2,000,000
                            
                            
                            $
                            2.23
                            
                            
                            
                            -Equity
      compensation plans not approved by security holders
                            
                            
                            25,000
                            
                            
                            $
                            1.71
                            
                            
                            
                            1,975,000Total
                            
                            
                            2,025,000
                            
                            
                            $
                            2.22
                            
                            
                            
                            1,975,000





Employment
Agreements with Executive Officers





The
Company has entered into an employment agreement effective as of June 1, 2008
(the “Employment Agreement”) with Andres Gutierrez pursuant to which Mr.
Gutierrez was appointed as our President and Chief Executive Officer, with the
following terms:





Pursuant
to the Employment Agreement, Mr. Gutierrez’s base annual compensation has
been set at $250,000, which amount shall be paid in accordance with our
customary payroll practices and may be increased annually at the discretion of
the Board. This annual compensation shall be paid in equal monthly installments
in Colombian Pesos (“COP”).  The exchange rate used to calculate Mr.
Gutierrez’s monthly salary payment will be calculated each month and shall
neither exceed a maximum of COP 2,400 nor be less than a minimum of COP 1,600.
This minimum/maximum range will be adjusted at the end of each calendar year
based upon changes in the consumer price index in Colombia.





In
addition, Mr. Gutierrez is eligible to receive an annual cash bonus of up to
fifty percent (50%) of his applicable base salary. Mr. Gutierrez’s annual bonus
(if any) shall be in such amount (up to the limit stated above) as the Board may
determine in its sole discretion, based upon Mr. Gutierrez’s achievement of
certain performance milestones to be established annually by the Board in
discussion with Mr. Gutierrez (the “Milestones”). For the first year of
employment, in the event the Board and Mr. Gutierrez are unable to agree to
Milestones acceptable to both, the amount of Mr. Gutierrez’s bonus shall be
determined by the Board on a discretionary basis.  As of December 31,
2008, we had accrued a bonus payable to Mr. Gutierrez in the amount of
$72,915.


63





On July
1, 2008, and in accordance with his employment agreement, we granted Mr.
Gutierrez an option to purchase an aggregate of 1,000,000 shares of our Common
Stock under our 2008 Equity Incentive Plan. This option vests in three equal
annual installments beginning on June 1, 2009 and is exercisable at a price
equal to the fair market value our Common Stock on the date of grant, as
determined by the Board.





The
initial term of the Employment Agreement expires on June 1, 2009; provided,
however, that the Employment Agreement shall automatically renew for additional
one (1) year terms thereafter, unless either party provides notice to the
other party of its intent not to renew such Employment Agreement not less than
thirty (30) days prior to the expiration of the then-current term or unless
the Employment Agreement is terminated earlier in accordance with its
terms.





In the
event of a termination of employment “without cause” by the Company during the
first 12 months following June 1, 2008, Mr. Gutierrez shall receive:
(i) twelve (12) months of his base salary; plus (ii) to the
extent the Milestones are achieved or, in the absence of Milestones, the Board
has, in its sole discretion, otherwise determined an amount for Mr. Gutierrez’s
bonus for the initial 12 months of his employment, a pro rata portion of his
annual bonus for the initial 12 months of his employment, to be paid to him on
the date such annual bonus would have been payable to him had he remained
employed by the Company; plus (iii) any other accrued compensation and
Benefits, as defined in the Employment Agreement. In the event of a termination
of employment by Mr. Gutierrez for “good reason”, as defined in the Employment
Agreement, Mr. Gutierrez shall receive: (i) twelve (12) months of his
then in effect base salary, subject to his compliance with the non-competition,
non-solicitation and confidentiality provisions of the Employment Agreement. All
of the foregoing shall be payable in accordance with the Company’s customary
payroll practices then in effect.




Further,
in the event of the termination of Mr. Gutierrez’s employment in connection with
a Change of Control, as defined in the Employment Agreement, without cause by
the Company within 12 months of the Effective Date, or by Mr. Gutierrez for good
reason, any options then held by Mr. Gutierrez that have not already vested in
accordance with their terms shall immediately vest and become exercisable as of
the date of such termination and Mr. Gutierrez shall have nine (9) months
from the date of termination to exercise any or all such options.





The
Employment Agreement also provides that Mr. Gutierrez shall not: (i) during
his employment and for a period of one (1) year following the termination
of his employment, unless such employment is terminated by us for cause or by
him for no reason, directly or indirectly engage or invest in, own, manage,
operate, finance, control or participate in the ownership, management,
operation, financing, or control of, be employed by, associated with, or in any
manner connected with, lend any credit to, or render services or advice to, any
business, firm, corporation, partnership, association, joint venture or other
entity that engages or conducts any business the same as or substantially
similar to the business or currently proposed to be engaged in or conducted by
the Company and/or any of its affiliates, including its Colombia subsidiary, in
South America or included in the future strategic plan of the business of the
Company, anywhere within the United States of America or South America; provided, however, that Mr.
Gutierrez may own less than 5% of the outstanding shares of any class of
securities of any enterprise (but without otherwise participating in the
activities of such enterprise) including those engaged in the oil and gas
business, other than any such enterprise with which the Company competes or is
currently engaged in a joint venture, if such securities are listed on any
national or regional securities exchange or have been registered under Section
12(g) of the Exchange Act; (ii) during his employment and for a period of one
(1) year following the termination of his employment, solicit any of our
current and/or future employees to leave our employ, or solicit or attempt to
take away any customers of the Company or any of its affiliates; or
(iii) during his employment and thereafter, disclose, directly or
indirectly, any confidential information of the Company to any third party,
except as may be required by applicable law or court order, in which case the
executive must promptly notify the Company so as to allow it to seek a
protective order if the Company so elects.


64





The
employment agreement with Mr. Gutierrez including its terms of compensation were
negotiated in an arm’s length transaction between Mr. Gutierrez and us and was
approved by Ms. Smith our Chairman and sole director at the time of Mr.
Gutierrez’s hire.




Compensation
of Non-Employee Directors




Our Board
of Directors currently consists of four non-employee directors and two executive
officers.  We do not provide cash or incentive compensation for the
services of executive officers as directors.  Our Board of
Directors, on July 23, 2008, approved a compensation package for our
non-employee directors6.
This compensation package provides for the grant of stock options to purchase
100,000 shares of our Common Stock to each new non-employee director upon
his or her appointment or election to the Board of Directors. These options will
have an exercise price equal to or greater than the fair market value of the
Common Stock on the date of grant of an option award and will fully vest in
equal, one-third installments over three years. In addition, each non-employee
director will receive annual cash compensation of $12,000.  The
chairman of the Audit Committee will also receive additional annual compensation
of $15,000 and the chairmen of the Compensation, Reserves and Nominating and
Corporate Governance Committees of our Board of Directors will also each receive
additional annual cash compensation of $5,000. Each non-employee director will
receive $1,000 for attendance at each committee meeting of the Board of
Directors, or $500 for telephonic attendance. Directors are also reimbursed for
reasonable out-of-pocket expenses incurred in attending Board of Directors and
committee meetings.





Until we
establish a compensation committee, amendments to our director compensation
package must be approved by a majority of our independent
directors.
 
 6.
                On
      July 23, 2008, our Board of Directors approving our non-director
      compensation plan consisted of Nadine Smith, Andres Gutierrez, Jaime Ruiz
      and Richard Stevens.


65


The following table sets forth
information regarding compensation accrued to the Company's non-employee
directors at December 31, 2008.





Director
Compensation





Name
                
                Fees
                  earned
                  or paid
                  in cash
                  ($)
                
                
                Stock
                  awards
                  ($)
                
                
                Option
                  awards (1)
                  ($)
                
                
                Non-
                  equity
                  incentive
                  plan
                  compen-
                  sation
                  ($)
                
                
                Nonqualified
                  deferred
                  compensation
                  earnings
                  ($)
                
                
                All other
                  compen-
                  sation
                  ($)
                
                
                Total
                  ($)(a)
                
                (b)
                
                
                (c)
                
                
                (d)
                
                
                (e)
                
                
                (f)
                
                
                (g)
                
                
                (h)Jaime
      Ruiz Llano
                
                $
                7,000
                
                
                $
                -
                
                
                $
                13,097
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                20,097Jaime
      Navas Gaona
                
                $
                5,267
                
                
                $
                -
                
                
                $
                11,965
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                17,232Richard
      G. Stevens
                
                $
                8,267
                
                
                $
                -
                
                
                $
                11,965
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                20,232Jose
      Fernando Montoya Carrillo
                
                $
                3,533
                
                
                $
                -
                
                
                $
                3,933
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                7,466





(1)
            Option
      awards expense as reported here and in our financial statements has been
      recorded in accordance with SFAS 123(R), “Share-Based
      Payment.”


66





ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS




The
following table sets forth information with respect to the beneficial ownership
of our common stock known by us as of March 1, 2009 by:




·
            each
      person or entity known by us to be the beneficial owner of more than 5% of
      our common stock;





·
            each
      of our directors;





·
            each
      of our executive officers; and





·
            all
      of our directors and executive officers as a
  group.




Except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of our common stock owned by them, except to
the extent such power may be shared with a spouse.




Unless otherwise indicated in the
following table, the address for each person named in the table is c/o La
Cortez Energy, Inc., Calle 67 #7-35, Oficina 409, Bogota, Colombia.




Name and Address
                                of Beneficial Owner
                              
                              Title of Class
                              
                              Amount and Nature
                                of
                                Beneficial Ownership(1)
                              
                              
                              Percent of Class(2)Nadine
      C. Smith
                                1266
      1st
      Street, Suite 4
                                Sarasota,
      FL 34236
                              
                              Common
      Stock
                              
                              
                              2,700,000
                              (3)
                              
                              
                              14.1
                              %Andres
      Gutierrez Rivera
                              
                              Common
      Stock
                              
                              
                              75,000
                              (4)
                              
                              
                              *
                              %Jaime
      Ruiz Llano
                              
                              Common
      Stock
                              
                              
                              - 0
      -
                              (5)
                              
                              
                              0.0
                              %Jaime
      Navas Gaona
                              
                              Common
      Stock
                              
                              
                              - 0
      -
                              (6)
                              
                              
                              0.0
                              %Richard
      G. Stevens
                              
                              Common
      Stock
                              
                              
                              - 0
      -
                              (6)
                              
                              
                              0.0
                              %Jose
      Fernando Montoya Carrillo
                              
                              Common
      Stock
                              
                              
                              300,000
                              (7)
                              
                              
                              1.6
                              %All
      directors and executive officers
                                as
      a group (6 persons)
                              
                              Common
      Stock
                              
                              
                              3,075,000
                              
                              
                              
                              16.0
                              %Professional
      Trading Services SA
                                Gerbergasse
      5
                                CH
      8001 Zurich, Switzerland
                              
                              Common
      Stock
                              
                              
                              2,600,000
                              (8)
                              
                              
                              13.3
                              %




67





Asset
      Protection Fund Ltd.
                                    
                                    Common
      Stock
                                    
                                    
                                    2,250,000
                                    (9)
                                    
                                    
                                    11.4
                                    %3076
      Sir Francis Drake’s HighwayRoad
      Town, Tortola, BVIClarion
      Finanz AG
                                    
                                    Common
      Stock
                                    
                                    
                                    1,590,000
                                    (10)
                                    
                                    
                                    8.3
                                    %Gerbergasse
      5CH
      8001 Zurich, SwitzerlandVP
      Bank
                                      Bleicherweg
      50
                                      CH-8027
      Zurich
                                    
                                    Common
      Stock
                                    
                                    
                                    1,250,000
                                    
                                    
                                    
                                    6.6
                                    %Laffin
      Ventures Corporation
                                      c/o
      Gottbetter & Partners, LLP
                                      488
      Madison Avenue, 12th Floor
                                      New
      York, NY 10022
                                    
                                    Common
      Stock
                                    
                                    
                                    1,250,000
                                    
                                    
                                    
                                    6.6
                                    %Tangocorp,
      Inc.
                                      802
      Grand Pavilion
                                      PO
      Box 10335 APO
                                      West
      Bay Rd
                                      Grand
      Cayman, Cayman Islands
                                    
                                    Common
      Stock
                                    
                                    
                                    1,250,000
                                    
                                    
                                    
                                    6.6
                                    %Paramount
      Strategy Corp.
                                      PO
      BOX 802
                                      West
      Bay
                                      Cayman
      Islands
                                      KYI-1303
                                    
                                    Common
      Stock
                                    
                                    
                                    1,250,000
                                    
                                    
                                    
                                    6.6
                                    %Adrien
      Ellul
                                      SOHO
      Square
                                      21
      Lyndhurst Terrace
                                      Central,
      Hong Kong
                                      Hong
      Kong SAR
                                    
                                    Common
      Stock
                                    
                                    
                                    1,250,000
                                    
                                    
                                    
                                    6.6
                                    %Solomon
      Btesh
                                      Via
      Espana #137
                                      Edificio
      Ben Betesh
                                      Panama
      City, Panama
                                    
                                    Common
      Stock
                                    
                                    
                                    1,000,000
                                    
                                    
                                    
                                    5.3
                                    %Hypo-Alpe-Adria
      Bank
                                      Landstrasse
      126A
                                      FL-9494
      Schaan - Liechtenstein
                                    
                                    Common
      Stock
                                    
                                    
                                    1,000,000
                                    
                                    
                                    
                                    5.3
                                    %Aton
      Select Fund Ltd.
                                      3076
      Sir Francis Drake's Highway
                                      Raod
      Town, Tortola
                                      British
      Virgin Islands
                                    
                                    Common
      Stock
                                    
                                    
                                    965,000
                                    
                                    
                                    
                                    5.1
                                    %





*
              Less
      than 1%.


68


(1)
              Beneficial
      Ownership is determined in accordance with the rules of the SEC and
      generally includes voting or investment power with respect to securities.
      Shares of common stock subject to options or warrants currently
      exercisable or convertible, or exercisable or convertible within 60 days
      of March 1, 2009 are deemed outstanding for computing the percentage of
      the person holding such option or warrant but are not deemed outstanding
      for computing the percentage of any other
  person.





(2)
              Percentage
      based upon 18,935,244 shares of Common Stock outstanding as of March
      1, 2009.





(3)
              Includes
      200,000 shares of our Common Stock issuable within 60 days upon the
      exercise of warrants.





(4)
              Includes
      25,000 shares of our Common Stock issuable within 60 days upon the
      exercise of warrants.  Does not include 1,000,000 shares of our
      Common Stock issuable upon the exercise of options granted under the 2008
      Plan, which vest in three equal annual installments beginning on July 1,
      2009.





(5)
              Does
      not include 100,000 shares of our Common Stock issuable upon the exercise
      of options granted under the 2008 Plan, which vest in three equal annual
      installments beginning on July 1,
2009.





(6)
              Does
      not include 100,000 shares of our Common Stock issuable upon the exercise
      of options granted under the 2008 Plan, which vest in three equal annual
      installments beginning on July 23,
2009.





(7)
              Includes
      200,000 shares of our Common Stock held by Jade & Adamo Associates
      (“JAA”) and 100,000 shares of our Common Stock issuable within 60 days
      upon the exercise of warrants held by JAA.  Mr. Montoya owns
      sixty-five percent (65%) of JAA and disclaims beneficial ownership of
      thirty-five percent (35%) of the Common Stock held by and issuable to
      JAA.  Does not include 100,000 shares of our Common Stock
      issuable upon the exercise of options granted under the 2008 Plan, which
      vest in three equal annual installments beginning on November 7,
      2009.





(8)
              Includes
      650,000 shares of our Common Stock issuable within 60 days upon the
      exercise of warrants.





(9)
              Includes
      750,000 shares of our Common Stock issuable within 60 days upon the
      exercise of warrants.





(10)
              Includes
      280,000 shares of our Common Stock issuable within 60 days upon the
      exercise of warrants.




69


Securities
Authorized for Issuance Under Equity Compensation Plans




Our Board
of Directors and stockholders adopted the 2008 Plan on February 7, 2008 and our
Board of Directors approved an amendment and restatement of the 2008 Plan on
November 7, 2008.  The 2008 Plan, as amended and restated, reserves a
total of 4,000,000 shares of our Common Stock for issuance upon the exercise of
awards.  Although our Board of Directors approved the increase from
2,000,000 to 4,000,000 in the number of shares of Common Stock that can be
issued under the 2008 Plan, our stockholders have not yet approved this
increase.





If
an incentive award granted under the 2008 Plan expires, terminates, is
unexercised or is forfeited, or if any shares are surrendered to us in
connection with an incentive award, the shares subject to such award and the
surrendered shares will become available for further awards under the 2008 Plan.
As of the date hereof, we have granted option awards under the 2008 Plan
exercisable for a net aggregate of 2,175,000 shares of our Common Stock. We have
not maintained any other equity compensation plans since our
inception.





ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, ANDDIRECTOR
      INDEPENDENCE


On June
16, 2007, May 17, 2007 and July 28, 2006, our former president, chief executive
officer and majority stockholder, Ms. de la Luz, advanced $10,000, $2,700 and
$2,000, respectively, to us for working capital purposes. These advances carried
no interest rate and were contributed to the Company as of June 30,
2008.  As of August 15, 2008, we completed the Split-Off of the Legacy
Business to Ms. de la Luz in exchange for 11,250,000 shares of our Common Stock
which she surrendered to us.




On
February 13, 2008, we issued 230,000 shares (1,150,000 shares on a post-Stock
Split basis) of our restricted Common Stock to our Chairman, Nadine C. Smith, in
consideration of cash in the amount of $0.05 per share, on a pre-Stock Split
basis, for a total of $11,500.





On March
14, 2008 as part of our Private Placement, we issued 500,000 shares of our
restricted Common Stock to our Chairman, Nadine C. Smith, in consideration of
cash in the amount of $1.00 per share, on a post-Stock Split basis, for a total
of $500,000.





On
September 10, 2008 as part of our Unit Offering, we issued 400,000 Units to our
Chairman, Nadine C. Smith, and 50,000 Units to our President and Chief Executive
Officer, Andres Gutierrez Rivera, in consideration of cash in the amount of
$1.25 per Unit, for a total of $500,000 and $62,500,
respectively.


70




ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





Audit
Fees.




The
aggregate fees billed to us by our principal accountant for services rendered
during the fiscal years ended December 31, 2008 and 2007 are set forth in the
table below:





Fee Category
                
                Fiscal year ended December 31, 20087
                
                
                Fiscal year ended December 31, 20078Audit
      fees (1)
                
                $
                60,000
                
                
                $
                5,500Audit-related
      fees (2)
                
                $
                10,000
                
                
                
                -Tax
      fees (3)
                
                
                -
                
                
                
                -All
      other fees (4)
                
                
                -
                
                
                
                -Total
      fees
                
                $
                70,000
                
                
                $
                5,500





(1)
            Audit
      fees consists of fees incurred for professional services rendered for the
      audit of consolidated financial statements, for reviews of our interim
      consolidated financial statements included in our quarterly reports on
      Forms 10-Q and 10-QSB and for services that are normally provided in
      connection with statutory or regulatory filings or
      engagements.





(2)
            Audit-related
      fees consists of fees billed for professional services that are reasonably
      related to the performance of the audit or review of our consolidated
      financial statements, but are not reported under “Audit
    fees.”





(3)
            Tax
      fees consists of fees billed for professional services relating to tax
      compliance, tax planning, and tax
advice.





(4)
            All
      other fees consists of fees billed for all other
  services.





Audit Committee’s
Pre-Approval Practice




Our Audit
Committee is directly responsible for the appointment, compensation, retention
and oversight of the work of any registered public accounting firm engaged by us
for the purpose of preparing or issuing an audit report or performing other
audit, review or attest services for us, and each such registered public
accounting firm must report directly to the Audit Committee.  Our
Audit Committee must approve in advance all audit, review and attest services
and all non-audit services (including, in each case, the engagement fees
therefor and terms thereof) to be performed by our independent auditors, in
accordance with applicable laws, rules and regulations.




Our Audit
Committee selected BDO Seidman, LLP as our independent registered public
accountants for purposes of auditing our financial statements for the year ended
December 31, 2008.  In accordance with Audit Committee practice, BDO
Seidman, LLP was pre-approved by the Audit Committee to perform these audit
services for us prior to its engagement.





7.
              To
      be paid to BDO Seidman, LLP, our current
  auditors.


8.
              Paid
      to Cordovano and Honeck LLP, our former
  auditors.


71




PART
IV





ITEM
15.             EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES





Financial
Statement Schedules





The
consolidated financial statements of La Cortez Energy, Inc. are listed on the
Index to Financial Statements on this annual report on Form 10-K beginning on
page F-1.





All
financial statement schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.





Exhibits





The
following Exhibits are being filed with this Annual Report on Form
10-K:




In
reviewing the agreements included or incorporated by reference as exhibits to
this Annual Report on Form 10-K, please remember that they are included to
provide you with information regarding their terms and are not intended to
provide any other factual or disclosure information about the Company or the
other parties to the agreements. The agreements may contain representations and
warranties by each of the parties to the applicable agreement. These
representations and warranties have been made solely for the benefit of the
parties to the applicable agreement and:





•
            should
      not in all instances be treated as categorical statements of fact, but
      rather as a way of allocating the risk to one of the parties if those
      statements prove to be inaccurate;





•
            have
      been qualified by disclosures that were made to the other party in
      connection with the negotiation of the applicable agreement, which
      disclosures are not necessarily reflected in the
  agreement;





•
            may
      apply standards of materiality in a way that is different from what may be
      viewed as material to you or other investors;
  and





•
            were
      made only as of the date of the applicable agreement or such other date or
      dates as may be specified in the agreement and are subject to more recent
      developments.





Accordingly,
these representations and warranties may not describe the actual state of
affairs as of the date they were made or at any other time. Additional
information about the Company may be found elsewhere in this Annual Report on
Form 10-K and the Company’s other public filings, which are available without
charge through the SEC’s website at http://www.sec.gov.





72




Exhibit
                                                                No.
                                                              
                                                              SEC
      Report
                                                                Reference Number
                                                              
                                                              Description3.1
                                                              
                                                              3.1
                                                              
                                                              Amended
      and Restated Articles of Incorporation of the Registrant as filed with the
      Nevada Secretary of State on February 8, 2008 (1)3.2
                                                              
                                                              3.2
                                                              
                                                              By-Laws
      of the Registrant (2)10.1
                                                              
                                                              10.1
                                                              
                                                              Employment
      Agreement dated May 13, 2008 by and between the Registrant and Andres
      Gutierrez Rivera (3)10.2
                                                              
                                                              10.1
                                                              
                                                              Form
      of Stock Option Agreement to Directors under the Registrant’s 2008 Equity
      Incentive Plan, as amended (4)10.3
                                                              
                                                              10.1
                                                              
                                                              Form
      of Stock Option Agreement to Executive Officers under the Registrant’s
      2008 Equity Incentive Plan, as amended (4)10.4
                                                              
                                                              10.1
                                                              
                                                              Split-Off
      Agreement dated August 15, 2008 by and among the Registrant, De La Luz
      Chocolates, Inc., and Maria de la Luz(5)10.5
                                                              
                                                              10.2
                                                              
                                                              General
      Release Agreement dated August 15, 2008, by and among the Registrant, De
      La Luz Chocolates, Inc., and Maria de la Luz(5)10.6
                                                              
                                                              10.1
                                                              
                                                              Form
      of Subscription Agreement (6)10.7
                                                              
                                                              10.2
                                                              
                                                              Form
      of Warrant (6)10.8
                                                              
                                                              10.3
                                                              
                                                              Form
      of Registration Rights Agreement (6)10.9
                                                              
                                                              10.6
                                                              
                                                              The
      Registrant’s Amended and Restated 2008 Equity Incentive Plan
      (7)10.10
                                                              
                                                              10.1
                                                              
                                                              Memorandum
      of Understanding between the Registrant and Petroleos del Norte S. A.
      dated as of December 22, 2008 (8)10.11
                                                              
                                                              *
                                                              
                                                              Farm-Out
      Agreement (Maranta E&P Block) by and between Emerald Energy Plc
      Sucursal Colombia and La Cortez Energy Colombia, Inc. dated as of February
      6, 200814.1
                                                              
                                                              14
                                                              
                                                              Code
      of Ethics (9)21
                                                              
                                                              *
                                                              
                                                              List
      of Subsidiaries31.1
                                                              
                                                              *
                                                              
                                                              Certification
      of Principal Executive Officer, pursuant to SEC Rules 13a-14(a) and
      15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act
      of 200231.2
                                                              
                                                              *
                                                              
                                                              Certification
      of Interim Principal Financial Officer, pursuant to SEC
      Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302
      of the Sarbanes-Oxley Act of
2002




73




Exhibit
                          No.
                        
                        SEC
      Report
                          Reference Number
                        
                        Description32.1
                        
                        *
                        
                        Certification
      of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350,
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002**32.2
                        
                        *
                        
                        Certification
      of Interim Chief Financial Officer, pursuant to 18 U.S.C.
      Section 1350, adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002**










(1)
            Filed
      with the SEC on February 13, 2008 as an exhibit, numbered as indicated
      above, to the Registrant’s current report (SEC File No. 333-138465) on
      Form 8-K, which exhibit is incorporated herein by
    reference.




(2)
            Filed
      with the Securities and Exchange Commission on November 7, 2006 as an
      exhibit, numbered as indicated above, to the Registrant’s registration
      statement (SEC File No. 333-138465) on Form SB-2, which exhibit is
      incorporated herein by reference.




(3)
            Filed
      with the SEC on May 20, 2008 as an exhibit, numbered as indicated above,
      to the Registrant’s current report (SEC File No. 333-138465) on Form 8-K,
      which exhibit is incorporated herein by
  reference.




(4)
            Filed
      with the SEC on July 28, 2008 as an exhibit, numbered as indicated above,
      to the Registrant’s current report (SEC File No. 333-138465) on Form 8-K,
      which exhibit is incorporated herein by
  reference.




(5)
            Filed
      with the SEC on August 21, 2008 as an exhibit, numbered as indicated
      above, to the Registrant’s current report (SEC File No. 333-138465) on
      Form 8-K, which exhibit is incorporated herein by
    reference.




(6)
            Filed
      with the SEC on September 16, 2008 as an exhibit, numbered as indicated
      above, to the Registrant’s current report (SEC File No. 333-138465) on
      Form 8-K, which exhibit is incorporated herein by
    reference.




(7)
            Filed
      with the SEC on November 14, 2008 as an exhibit, numbered as indicated
      above, to the Registrant’s quarterly report (SEC File No. 333-138465) on
      Form 10-Q, which exhibit is incorporated herein by
    reference.




(8)
            Filed
      with the SEC on January 9, 2009 as an exhibit, numbered as indicated
      above, to the Registrant’s current report (SEC File No. 333-138465) on
      Form 8-K, which exhibit is incorporated herein by
    reference.




(9)
            Filed
      with the SEC on March 31, 2008 as an exhibit, numbered as indicated above,
      to the Registrant’s annual report (SEC File No. 333-138465) on Form
      10-KSB, which exhibit is incorporated herein by
  reference.




* Filed
herewith.


** This
certification is being furnished and shall not be deemed “filed” with the SEC
for purposes of Section 18 of the Exchange Act, or otherwise subject to the
liability of that section, and shall not be deemed to be incorporated by
reference into any filing under the Securities Act or the Exchange Act, except
to the extent that the Registrant specifically incorporates it by
reference.





74





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.





LA
      CORTEZ ENERGY, INC.Dated:  April
      9, 2009
            By:
            /s/ Andres Gutierrez
  RiveraAndres
      Gutierrez Rivera, President and
              Chief
      Executive OfficerBy:
            /s/ Nadine C. SmithNadine
      C. Smith, Interim Chief Financial
              Officer





In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





SIGNATURE
                  
                  TITLE
                  
                  DATE/s/ Nadine C. Smith
                  
                  Director
                  
                  April
      9, 2009Nadine
      C. Smith/s/ Andres Gutierrez Rivera
                  
                  Director
                  
                  April
      9, 2009Andres
      Gutierrez Rivera/s/ Jose Fernando Montoya
                  
                  Director
                  
                  April
      9, 2009Jose
      Fernando Montoya
                    Carrillo/s/ Jaime Navas Gaona
                  
                  Director
                  
                  April
      9, 2009Jaime
      Navas Gaona/s/ Jaime Ruiz Llano
                  
                  Director
                  
                  April
      9, 2009Jaime
      Ruiz Llano/s/ Richard G. Stevens
                  
                  Director
                  
                  April
      9, 2009Richard
      G. Stevens





75




INDEX
TO FINANCIAL STATEMENTS




PageReports
      of Independent Registered Public Accounting Firms
                                
                                F-2Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                                
                                F-4Consolidated
      Statements of Operations for the years ended December 31, 2008 and 2007
      and for the period from June 9, 2006 (Inception) through December 31,
      2008
                                
                                F-5Consolidated
      Statement of Changes in Stockholders’ Equity (Deficit) for the period from
      June 9, 2006 (Inception) through December 31, 2008
                                
                                F-6Consolidated
      Statements of Cash Flows for the years ended December 31, 2008 and 2007
      andfor
      the period from June 9, 2006 (Inception) through December 31,
      2008
                                
                                F-7Notes
      to Consolidated Financial Statements
                                
                                F-8





F-1





Report
of Independent Registered Public Accounting Firm




Board of
Directors


La Cortez
Energy, Inc.


Bogota,
Colombia




We have
audited the consolidated balance sheet of La Cortez Energy, Inc. (a Nevada
corporation in the development stage) as of December 31, 2008, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
the year ended December 31, 2008 and the related consolidated statements of
operations, stockholders’ equity, and cash flows for the period from inception
(June 9, 2006) to December 31, 2008. 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 audit. We did not audit the
consolidated financial statements of La Cortez Energy, Inc. for the period from
inception (June 9, 2006) to December 31, 2007.  Such statements are
included in the cumulative inception to December 31, 2008 totals of the
consolidated statements of operations and cash flows and reflect a net loss of
0.01% of the related cumulative totals. Those consolidated statements were
audited by other auditors whose report has been furnished to us and our opinion,
insofar as it relates to amounts for the period from inception (June 9, 2006) to
December 31, 2007 included in the cumulative totals, is based solely upon
the report of the other auditors.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit and the
report of other auditors provide a reasonable basis for our
opinion.




In our
opinion, based on our audit and the report of other auditors, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of La Cortez Energy, Inc. at December 31, 2008 and the
results of its operations and its cash flows for the year then ended and for the
period from inception (June 9, 2006) to December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.




The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 2 to the
financial statements, the Company is in the development stage with limited
operating history, no revenues and no historical profitability, and has limited
available funds that raise substantial doubt about its ability to continue as a
going concern. Management’s plan in regard to these matters is also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.




/s/
BDO Seidman, LLP




Houston,
Texas


April 8,
2009





F-2




Report
of Independent Registered Public Accounting Firm
 
 
 To the
Board of Directors and Shareholders:
 La Cortez
Enterprises, Inc.
 
 
 We have
audited the balance sheet of La Cortez Enterprises, Inc. (a development stage
company) as of December 31, 2007, and the related statements of operations,
changes in shareholders’ deficit and cash flows for the year ended December 31,
2007, the period from June 9, 2006 (inception) through December 31, 2006, and
the period from June 9, 2006 (inception) through December 31, 2007 (not
separately included herein). 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 audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about 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 audit provides a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of La Cortez Enterprises, Inc. as of
December 31, 2007, and the results of its operations and its cash flows for the
year ended December 31, 2007, the period from June 9, 2006 (inception) through
December 31, 2006, and the period from June 9, 2006 (inception) through December
31, 2007 in conformity with accounting principles generally accepted in the
United States of America.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 1 to the financial statements,
the Company has suffered operating losses since inception and has a limited
operating history, which raises a substantial doubt about its ability to
continue as a going concern. Management’s plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
  /s/
 Cordovano and Honeck LLP
 
 Cordovano
and Honeck LLP
 Englewood,
Colorado
 February
11, 2008


F-3





LA CORTEZ ENERGY,
INC.


(A
Development Stage Company)


Consolidated
Balance Sheets





December
      31,2008
                                                    
                                                    
                                                    2007AssetsCash
      and cash equivalents
                                                    
                                                    $
                                                    6,733,381
                                                    
                                                    
                                                    $
                                                    1,025Prepaid
      expenses and other
                                                    
                                                    
                                                    20,132
                                                    
                                                    
                                                    
                                                    500Total
      current assets
                                                    
                                                    
                                                    6,753,513
                                                    
                                                    
                                                    
                                                    1,525Property
      and equipment, net of accumulated depreciation of $38,719 and $-,
      respectively
                                                    
                                                    
                                                    231,604
                                                    
                                                    
                                                    
                                                    —$
                                                    6,985,117
                                                    
                                                    
                                                    $
                                                    1,525Liabilities
      and Stockholders’ Equity (Deficit)Current
      liabilities:Accounts
      payable
                                                    
                                                    $
                                                    29,685
                                                    
                                                    
                                                    $
                                                    —Accrued
      liabilities
                                                    
                                                    
                                                    127,107
                                                    
                                                    
                                                    
                                                    1,000Indebtedness
      to related party
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    14,600Total
      liabilities
                                                    
                                                    
                                                    156,792
                                                    
                                                    
                                                    
                                                    15,600Commitments
      (Note 8)
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Stockholders’
      equity (deficit):Preferred
      stock, $0.001 par value, 10,000,000 shares authorized, no shares issued or
      outstanding
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Common
      stock, $0.001 par value; 300,000,000 and 300,000,000 shares authorized,
      respectively, and 18,935,244 and 20,750,000 shares issued and outstanding,
      respectively
                                                    
                                                    
                                                    18,935
                                                    
                                                    
                                                    
                                                    20,750Additional
      paid-in capital
                                                    
                                                    
                                                    9,431,994
                                                    
                                                    
                                                    
                                                    7,250Deficit
      accumulated during development stage
                                                    
                                                    
                                                    (2,622,604
                                                    )
                                                    
                                                    
                                                    (42,075
                                                    )Total
      stockholders’ equity (deficit)
                                                    
                                                    
                                                    6,828,325
                                                    
                                                    
                                                    
                                                    (14,075
                                                    )Total
      liabilities and stockholders’ equity
                                                    
                                                    $
                                                    6,985,117
                                                    
                                                    
                                                    $
                                                    1,525




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





F-4





LA
CORTEZ ENERGY, INC.


(A
Development Stage Company)


Consolidated
Statements of Operations


For
the years ended December 31, 2008 and 2007 and


For
the period from June 9, 2006 (Inception) through December 31, 2008




For the Years Ended December 31,
                                    
                                    
                                    From
                                      June 9, 2006
                                      (Inception)
                                      Through
                                      December 31,2008
                                    
                                    
                                    2007
                                    
                                    
                                    2008ExpensesGeneral
      and administrative
                                    
                                    $
                                    2,649,312
                                    
                                    
                                    $
                                    28,836
                                    
                                    
                                    $
                                    2,691,387Loss
      from operations
                                    
                                    
                                    (2,649,312
                                    )
                                    
                                    
                                    (28,836
                                    )
                                    
                                    
                                    (2,691,387
                                    )Other
      income (expense):Interest
      income
                                    
                                    
                                    69,005
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    69,005Interest
      expense
                                    
                                    
                                    (222
                                    )
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (222
                                    )Net
      loss
                                    
                                    $
                                    (2,580,529
                                    )
                                    
                                    $
                                    (28,836
                                    )
                                    
                                    $
                                    (2,622,604
                                    )Basic
      and diluted loss per share
                                    
                                    $
                                    (0.15
                                    )
                                    
                                    $
                                    (0.00
                                    )
                                    
                                    
                                    N/ABasic
      and diluted weighted average common shares outstanding
                                    
                                    
                                    17,730,971
                                    
                                    
                                    
                                    20,750,000
                                    
                                    
                                    
                                    N/A





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





F-5





LA
CORTEZ ENERGY, INC.


(A
Development Stage company)


Consolidated
Statement of Changes in Stockholders’ Equity (Deficit)


For
the period from June 9, 2006 (Inception) through December 31,
2008





DeficitAccumulatedAdditional
                                                                                                                                
                                                                                                                                DuringCommon Stock
                                                                                                                                
                                                                                                                                Paid-in
                                                                                                                                
                                                                                                                                DevelopmentShares
                                                                                                                                
                                                                                                                                Par
      Value
                                                                                                                                
                                                                                                                                Capital
                                                                                                                                
                                                                                                                                Stage
                                                                                                                                
                                                                                                                                TotalBalance
      at June 9, 2006 (inception)
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                $
                                                                                                                                —
                                                                                                                                
                                                                                                                                $
                                                                                                                                —
                                                                                                                                
                                                                                                                                $
                                                                                                                                —
                                                                                                                                
                                                                                                                                $
                                                                                                                                —July
      2006, common stock sold to president/ sole director at $.0008 per
      share
                                                                                                                                
                                                                                                                                
                                                                                                                                *
                                                                                                                                
                                                                                                                                11,250,000
                                                                                                                                
                                                                                                                                
                                                                                                                                11,250
                                                                                                                                
                                                                                                                                
                                                                                                                                (2,250
                                                                                                                                )
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                9,000December
      2006, common stock sold pursuant to a SB-2 registered offering at
      $.002/share
                                                                                                                                
                                                                                                                                
                                                                                                                                *
                                                                                                                                
                                                                                                                                9,500,000
                                                                                                                                
                                                                                                                                
                                                                                                                                9,500
                                                                                                                                
                                                                                                                                
                                                                                                                                9,500
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                19,000Net
      loss, inception through December 31, 2006
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                (13,239
                                                                                                                                )
                                                                                                                                
                                                                                                                                (13,239
                                                                                                                                )Balance
      at December 31, 2006
                                                                                                                                
                                                                                                                                
                                                                                                                                *
                                                                                                                                
                                                                                                                                20,750,000
                                                                                                                                
                                                                                                                                
                                                                                                                                20,750
                                                                                                                                
                                                                                                                                
                                                                                                                                7,250
                                                                                                                                
                                                                                                                                
                                                                                                                                (13,239
                                                                                                                                )
                                                                                                                                
                                                                                                                                14,761Net
      loss, year ended December 31, 2007
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                (28,836
                                                                                                                                )
                                                                                                                                
                                                                                                                                (28,836
                                                                                                                                )Balance
      at December 31, 2007
                                                                                                                                
                                                                                                                                
                                                                                                                                *
                                                                                                                                
                                                                                                                                20,750,000
                                                                                                                                
                                                                                                                                
                                                                                                                                20,750
                                                                                                                                
                                                                                                                                
                                                                                                                                7,250
                                                                                                                                
                                                                                                                                
                                                                                                                                (42,075
                                                                                                                                )
                                                                                                                                
                                                                                                                                (14,075
                                                                                                                                )February
      2008, common stock sold to an officer at $.01 per share
                                                                                                                                
                                                                                                                                
                                                                                                                                *
                                                                                                                                
                                                                                                                                1,150,000
                                                                                                                                
                                                                                                                                
                                                                                                                                1,150
                                                                                                                                
                                                                                                                                
                                                                                                                                10,350
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                11,500February
      2008, common stock issued to a consultant in exchange for services at
      $1.00 per share
                                                                                                                                
                                                                                                                                
                                                                                                                                *
                                                                                                                                
                                                                                                                                1,000,000
                                                                                                                                
                                                                                                                                
                                                                                                                                1,000
                                                                                                                                
                                                                                                                                
                                                                                                                                999,000
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                1,000,000February
      2008, cancellation of former officer's shares
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                (9,000,000
                                                                                                                                )
                                                                                                                                
                                                                                                                                (9,000
                                                                                                                                )
                                                                                                                                
                                                                                                                                9,000
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                —February
      2008, common stock issued in exchange for extinguishment of debt and
      accrued interest at $.50 per share
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                100,444
                                                                                                                                
                                                                                                                                
                                                                                                                                100
                                                                                                                                
                                                                                                                                
                                                                                                                                50,122
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                50,222March
      2008, common stock sold in private placement offering at $1.00 per share,
      less offering costs totaling $85,105
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                2,400,000
                                                                                                                                
                                                                                                                                
                                                                                                                                2,400
                                                                                                                                
                                                                                                                                
                                                                                                                                2,312,495
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                2,314,895June
      2008, indebtedness forgiven by related party
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                14,700
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                14,700August
      2008, cancellation of former officer's shares
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                (2,250,000
                                                                                                                                )
                                                                                                                                
                                                                                                                                (2,250
                                                                                                                                )
                                                                                                                                
                                                                                                                                2,250
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                —September
      2008, common stock sold in private placement offering at $1.25 per share,
      less offering costs totaling $218,874
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                4,784,800
                                                                                                                                
                                                                                                                                
                                                                                                                                4,785
                                                                                                                                
                                                                                                                                
                                                                                                                                5,757,341
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                5,762,126Stock
      based compensation
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                246,153
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                246,153Contributed
      services by interim CFO
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                23,333
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                23,333Net
      loss, year ended December 31, 2008
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                —
                                                                                                                                
                                                                                                                                
                                                                                                                                (2,580,529
                                                                                                                                )
                                                                                                                                
                                                                                                                                (2,580,529
                                                                                                                                )Balance
      at December 31, 2008
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                18,935,244
                                                                                                                                
                                                                                                                                $
                                                                                                                                18,935
                                                                                                                                
                                                                                                                                $
                                                                                                                                9,431,994
                                                                                                                                
                                                                                                                                $
                                                                                                                                (2,622,604
                                                                                                                                )
                                                                                                                                $
                                                                                                                                6,828,325





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





*
Restated for 5:1 forward stock split (see Note 6).





F-6





LA
CORTEZ ENERGY, INC.


(A
Development Stage company)


Consolidated
Statements of Cash Flows


For
the years ended December 31, 2008 and 2007 and


for
the period from June 9, 2006 (Inception) through December 31, 2008




Year Ended December 31,
                                            
                                            
                                            From
                                              June 9, 2006
                                              (Inception)
                                              through
                                              December 31,2008
                                            
                                            
                                            2007
                                            
                                            
                                            2008Cash
      flows from operating activities:Net
      loss
                                            
                                            $
                                            (2,580,529
                                            )
                                            
                                            $
                                            (28,836
                                            )
                                            
                                            $
                                            (2,622,604
                                            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                                            
                                            
                                            38,719
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            38,719Stock-based
      compensation
                                            
                                            
                                            1,246,153
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            1,246,153Contributed
      services by interim CFO
                                            
                                            
                                            23,333
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            23,333Common
      stock issued in exchange for interest expense
                                            
                                            
                                            222
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            222Changes
      in operating assets and liabilities:Prepaid
      expenses and other
                                            
                                            
                                            (19,632
                                            )
                                            
                                            
                                            —
                                            
                                            
                                            
                                            (20,132
                                            )Accounts
      payable
                                            
                                            
                                            29,685
                                            
                                            
                                            
                                            (500
                                            )
                                            
                                            
                                            29,685Accrued
      liabilities
                                            
                                            
                                            126,107
                                            
                                            
                                            
                                            (2,100
                                            )
                                            
                                            
                                            127,107Net
      cash used in operating activities
                                            
                                            
                                            (1,135,942
                                            )
                                            
                                            
                                            (31,436
                                            )
                                            
                                            
                                            (1,177,517
                                            )Cash
      flows from investing activities:Purchases
      of property and equipment
                                            
                                            
                                            (270,323
                                            )
                                            
                                            
                                            —
                                            
                                            
                                            
                                            (270,323
                                            )Net
      cash used in investing activities
                                            
                                            
                                            (270,323
                                            )
                                            
                                            
                                            —
                                            
                                            
                                            
                                            (270,323
                                            )Cash
      flows from financing activities:Proceeds
      from the sale of common stock
                                            
                                            
                                            8,392,500
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            8,420,500Payments
      for common stock offering costs
                                            
                                            
                                            (303,979
                                            )
                                            
                                            
                                            —
                                            
                                            
                                            
                                            (303,979
                                            )Proceeds
      from issuance of note payable
                                            
                                            
                                            50,000
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            50,000Proceeds
      from officer advances
                                            
                                            
                                            100
                                            
                                            
                                            
                                            12,600
                                            
                                            
                                            
                                            14,700Net
      cash provided by financing activities
                                            
                                            
                                            8,138,621
                                            
                                            
                                            
                                            12,600
                                            
                                            
                                            
                                            8,181,221Net
      increase (decrease) in cash
                                            
                                            
                                            6,732,356
                                            
                                            
                                            
                                            (18,836
                                            )
                                            
                                            
                                            6,733,381Cash,
      beginning of period
                                            
                                            
                                            1,025
                                            
                                            
                                            
                                            19,861
                                            
                                            
                                            
                                            —Cash,
      end of period
                                            
                                            $
                                            6,733,381
                                            
                                            
                                            $
                                            1,025
                                            
                                            
                                            $
                                            6,733,381Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Income
      taxes
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —Interest
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —Non-cash
      financing transactions:Common
      stock issued in exchange for extinguishment of note payable and accrued
      interest
                                            
                                            $
                                            (50,222
                                            )
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            (50,222
                                            )Contributed
      capital associated with forgiveness of debt by related
    party
                                            
                                            $
                                            14,700
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            14,700





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





F-7





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





Note
1 – Organization, Basis of Presentation and Summary of Significant Accounting
Policies





Organization
and Basis of Presentation





La Cortez
Energy, Inc. (“LCE,” and together with its subsidiaries, La Cortez Energy
Colombia, Inc., a Cayman Islands corporation (“La Cortez Colombia”), and La
Cortez Energy Colombia, E.U., a Colombia corporation, the “Company” or “La
Cortez”) is an international, early stage oil and gas exploration and production
(“E&P”) company concentrating on opportunities in South America. The Company
had established a subsidiary in Colombia to explore E&P opportunities in
Colombia and Peru.  Subsequent to year end, the Company elected to
dissolve its Colombian subsidiary.  The assets of the Colombian entity
will be retained by La Cortez Colombia and the Company operations in Colombia
will be operated through a branch of La Cortez Colombia.





LCE was
incorporated on June 9, 2006 in the State of Nevada. LCE was originally formed
to create, market and sell gourmet chocolates wholesale and retail throughout
Mexico, as more fully described in its registration statement on Form SB-2 as
filed with the SEC on November 7, 2006 (the “Legacy Business”). This business
has been discontinued. On February 7, 2008, LCE changed its name from La Cortez
Enterprises, Inc. to La Cortez Energy, Inc.





Development
Stage





The
consolidated financial statements presented herein have been prepared by the
Company in accordance with U.S. generally accepted accounting principles
(“GAAP”) and the accounting policies set forth in these financial statements.
The Company is in the development stage and consequently its financial
statements have been prepared in accordance with Statement of Financial
Accounting Standards (“SFAS”) No.7, “Accounting and Reporting by Development
Stage Enterprises”.





Use
of Estimates





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





Split-off
of Legacy Business




In
connection with the discontinuation of the Company’s Legacy Business and the
redirecting of its business strategy to focus on oil and gas exploration and
production opportunities in South America, the Company split off and sold all of
the assets and liabilities of the Legacy Business (the “Split-Off”) to Maria de
la Luz, the Company’s founding stockholder. The Split Off closed on August 21,
2008. As more fully described in a Form 8-K filed by the Company with the SEC on
August 21, 2008, the Company contributed all of its assets and liabilities
relating to the Legacy Business, whether accrued, contingent or otherwise, and
whether known or unknown, to a newly organized, wholly owned subsidiary, De La
Luz Gourmet Chocolates, Inc., a Nevada corporation (“Split-Off Subsidiary”), and
immediately thereafter sold all of the outstanding capital stock of Split-Off
Subsidiary to Ms. de la Luz in exchange for 9,000,000 shares of the Company’s
common stock, $0.001 par value per share (the “Common Stock”) previously
surrendered by Ms. de la Luz and all of the Company’s Common Stock that Ms. de
la Luz then owned, 2,250,000 shares. The 11,250,000 shares surrendered by Ms. de
la Luz have been cancelled.





F-8





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





Cash
and Cash Equivalents





The
Company considers all highly liquid debt instruments with original maturities of
three months or less when acquired to be cash equivalents. The Company places
its cash and cash equivalents with financial institutions that are insured by
the Federal Deposit Insurance Corporation (“FDIC”) up to
$100,000.  From time to time, the Company’s cash balances exceeded
FDIC insured limits. In October 2008, the Federal government temporarily
increased the FDIC insured limits up to a maximum of $250,000 per depositor
until December 31, 2009, after which time the insured limits will return to
$100,000.  The Company mitigates this concentration of credit risk by
monitoring the credit worthiness of financial institutions and its
customers.  The Company had no cash equivalents at December 31,
2008.





Property
and equipment, net





Property
and equipment consists primarily of office furniture and equipment and is stated
at cost.  Depreciation is computed on a straight-line basis over the
estimated useful lives ranging from five to ten years.  Depreciation
expense for the year ended December 31, 2008 was $38,719.  There was
no depreciation expense for the year ended December 31, 2007.





Oil
and gas properties





As of
December 31, 2008, the Company had no oil and gas properties, although it
expected to acquire such properties during 2009.  The Company is
currently evaluating whether to follow the successful efforts or full cost
method of accounting for oil and gas properties.  This decision could
have a material impact on the Company’s disclosures, operating results,
financial position and cash flows.





Income
Taxes





Income
taxes are provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due plus deferred taxes related
primarily to differences between the recorded book basis and the tax basis of
assets and liabilities for financial and income tax reporting. Deferred tax
assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future income taxes.





F-9





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





Organization
Costs





Costs
related to the organization of the Company have been expensed as
incurred.





Loss
per Common Share





The
Company reports net loss per share using a dual presentation of basic and
diluted loss per share. Basic net loss per share excludes the impact of common
stock equivalents. Diluted net loss per share utilizes the average market price
per share when applying the treasury stock method in determining common stock
equivalents. At December 31, 2008, there were no variances between the basic and
diluted loss per share as the effect of all common stock equivalents would have
been anti-dilutive.





Fair
value of financial instruments




The
carrying value of cash and cash equivalents, accounts payable and accrued
expenses and other liabilities approximates fair value due to the short term
nature of these accounts.




Fiscal
year-end





The
Company’s year-end is December 31.





Reclassifications





Certain
prior year amounts have been reclassified to conform to current year
presentation.





Foreign
Currency Translation





The
Company conducts its operations in two primary functional currencies: the U.S.
dollar and the Colombian peso. Balance sheet accounts of the Company’s Colombian
subsidiary are translated from foreign currencies into U.S. dollars at
period-end exchange rates while income and expenses are translated at average
exchange rates during the period. Cumulative translation gains or losses related
to net assets located outside the U.S. are shown as a component of shareholders’
equity. Gains and losses resulting from foreign currency transactions, which are
denominated in a currency other than the entity’s functional currency, are
included in the consolidated statements of operations.  For the years
ended December 31, 2008 and 2007, cumulative translation gains (losses) and
foreign currency transaction gains (losses) were immaterial.





F-10





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





New
accounting pronouncements





On
December 31, 2008, the SEC published the final rules and interpretations
updating its oil and gas reporting requirements. Many of the revisions are
updates to definitions in the existing oil and gas rules to make them consistent
with the petroleum resource management system, which is a widely accepted
standard for the management of petroleum resources that was developed by several
industry organizations. Key revisions include changes to the pricing used to
estimate reserves utilizing a 12-month average price rather than a single day
spot price which eliminates the ability to utilize subsequent prices to the end
of a reporting period when the full cost ceiling was exceeded and subsequent
pricing exceeds pricing at the end of the reporting period, the ability to
include nontraditional resources in reserves, the use of new technology for
determining reserves, and permitting disclosure of probable and possible
reserves. The SEC will require companies to comply with the amended disclosure
requirements for registration statements filed after January 1, 2010, and for
annual reports on Form 10-K for fiscal years ending on or after December 15,
2009. Early adoption is not permitted. The Company is currently assessing the
impact that the adoption will have on the Company’s disclosures, operating
results, financial position and cash flows.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”, (“SFAS No. 162”), which identifies a consistent
framework for selecting accounting principles to be used in preparing financial
statements for nongovernmental entities that are presented in conformity with
United States generally accepted accounting principles (GAAP). The current GAAP
hierarchy was criticized due to its complexity, ranking position of FASB
Statements of Financial Accounting Concepts and the fact that it is directed at
auditors rather than entities. SFAS No. 162 was effective November 15, 2008,
which was 60 days following the United States Securities and Exchange
Commission’s (SEC’s) approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles. The FASB did not expect that SFAS No.
162 will result in a change in current practice, and the adoption of SFAS No.
162 did not have an impact on the Company’s operating results, financial
position or cash flows.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS No. 161”), an amendment of FASB Statement No.
133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No.
133”). SFAS No. 161 requires entities to provide qualitative disclosures about
the objectives and strategies for using derivatives, quantitative data about the
fair value of and gains and losses on derivative contracts, and details of
credit-risk-related contingent features in their hedged positions. The standard
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged but
not required. SFAS No. 161 will be effective for the Company on January 1, 2009.
SFAS No. 161 also requires entities to disclose more information about the
location and amounts of derivative instruments in financial statements, how
derivatives and related hedges are accounted for under SFAS No. 133 and how the
hedges affect the entity’s financial position, financial performance, and cash
flows. The Company does not believe that the adoption of SFAS 161 will have an
impact on its financial position or results of operations.





F-11





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
No. 141(R)”). SFAS No. 141(R) replaces SFAS No. 141, “Business Combinations”,
however it retains the fundamental requirements that the acquisition method of
accounting be used for all business combinations and for an acquirer to be
identified for each business combination. SFAS No. 141(R) requires an acquirer
to recognize the assets acquired, liabilities assumed, and any noncontrolling
interest in the acquiree at the acquisition date, be measured at their fair
values as of that date, with specified limited exceptions. Changes subsequent to
that date are to be recognized in earnings, not goodwill. Additionally, SFAS No.
141 (R) requires costs incurred in connection with an acquisition be expensed as
incurred. Restructuring costs, if any, are to be recognized separately from the
acquisition. The acquirer in a business combination achieved in stages must also
recognize the identifiable assets and liabilities, as well as the noncontrolling
interests in the acquiree, at the full amounts of their fair values. SFAS No.
141(R) is effective for business combinations occurring in fiscal years
beginning on or after December 15, 2008. The Company will apply the requirements
of SFAS No. 141(R) upon its adoption on January 1, 2009 and is currently
evaluating whether SFAS No. 141(R) will have an impact on its financial position
and results of operations.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
permits companies to elect to measure many financial instruments and certain
other items at fair value. Upon adoption of SFAS No. 159, a company may elect
the fair value option for eligible items that exist at the adoption date.
Subsequent to the initial adoption, the election of the fair value option should
only be made at initial recognition of the asset or liability or upon a
remeasurement event that gives rise to new-basis accounting. The decision about
whether to elect the fair value option is applied on an instrument-by-instrument
basis, is irrevocable and is applied only to an entire instrument and not only
to specified risks, cash flows or portions of that instrument. SFAS No. 159 does
not affect any existing accounting standards that require certain assets and
liabilities to be carried at fair value nor does it eliminate disclosure
requirements included in other accounting standards. The Company adopted SFAS
No. 159 effective January 1, 2008 and did not elect the fair value option for
any existing eligible items.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS
No. 157 does not impose fair value measurements on items not already accounted
for at fair value; rather it applies, with certain exceptions, to other
accounting pronouncements that either require or permit fair value measurements.
Under SFAS No. 157, fair value refers to the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants in the principal or most advantageous market. The standard
clarifies that fair value should be based on the assumptions market participants
would use when pricing the asset or liability. In February 2008, the FASB issued
FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157 (“FSP
FAS 157-2”), which delays the effective date of SFAS 157 for all non-financial
assets and liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis, until fiscal years
beginning after November 15, 2008. These non-financial items include assets and
liabilities such as non-financial assets and liabilities assumed in a business
combination, reporting units measured at fair value in a goodwill impairment
test and asset retirement obligations initially measured at fair value.
Effective January 1, 2008, the Company adopted SFAS No. 157 for fair value
measurements not delayed by FSP FAS No. 157-2. The adoption had no impact on the
Company’s financial condition or results of operations. The Company will adopt
SFAS No. 157 for non-financial assets and liabilities effective
January 1, 2009.  The adoption of this statement is not
expected to have a significant impact on the Company’s financial condition or
results of operations.





F-12





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





In June
2008, the FASB’s Emerging Issues Task Force reached a consensus regarding EITF
Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is
Indexed to an Entity’s Own Stock” (EITF 07-5). EITF 07-5 outlines a two-step
approach to evaluate the instrument’s contingent exercise provisions, if any,
and to evaluate the instrument’s settlement provisions when determining whether
an equity-linked financial instrument (or embedded feature) is indexed to an
entity’s own stock. EITF 07-5 is effective for fiscal years beginning after
December 15, 2008 and must be applied to outstanding instruments as of the
beginning of the fiscal year of adoption as a cumulative-effect adjustment to
the opening balance of retained earnings. Early adoption is not permitted. The
Company will adopt EITF 07-5 on January 1, 2009 and is currently
evaluating the impact of the adoption of EITF 07-5.





Note 2—Going
Concern





At
December 31, 2008, the Company had cash and cash equivalents of $6,733,381
and working capital of $6,596,721. The Company believes that its existing
capital resources may not be adequate to enable it to execute its business
plan.  The Company estimates that it will require additional cash
resources during 2009 based upon its current operating plan and
condition.





Through
December 31, 2008, the Company has been primarily engaged in locating
viable investment prospects and recruiting personnel. In the course of its
development activities, the Company has sustained losses and expects such losses
to continue through at least 2009. The Company expects to finance its operations
primarily through its existing cash and any future financing. However, there
exists substantial doubt about the Company’s ability to continue as a going
concern. The Company will be required to obtain additional capital in the future
to continue its operations. There is no assurance that the Company will be able
to obtain any such additional capital as it needs to finance these efforts,
through equity or debt financing, or any combination thereof, or on satisfactory
terms or at all. Additionally, no assurance can be given that any such
financing, if obtained, will be adequate to meet the Company’s ultimate capital
needs and to support the Company’s growth. If adequate capital cannot be
obtained on a timely basis and on satisfactory terms, the Company’s operations
would be materially negatively impacted.





The
Company’s ability to complete additional offerings is dependent on the state of
the debt and/or equity markets at the time of any proposed offering, and such
market’s reception of the Company and the offering terms. In addition, the
Company’s ability to complete an offering may be dependent on the status of its
oil and gas exploration activities, which cannot be predicted. There is no
assurance that capital in any form would be available to the Company, and if
available, on terms and conditions that are acceptable.





F-13





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





As a
result of the above discussed conditions, and in accordance with generally
accepted accounting principles in the United States of America, there exists
substantial doubt about the Company’s ability to continue as a going concern,
and the Company’s ability to continue as a going concern is contingent upon its
ability to secure additional adequate financing or capital during the coming
year. If the Company is unable to obtain additional sufficient funds during this
time, the Company might lose its interest in the Petronorte and Emerald projects
described in Note 3 below.  This action would have an adverse effect
on the Company’s operations, the realization of its assets and the timely
satisfaction of its liabilities. The Company’s financial statements are
presented on a going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. The financial
statements do not include any adjustments relating to the recoverability of the
recorded assets or the classification of liabilities that may be necessary
should it be determined that the Company is unable to continue as a going
concern.





Note
3 – Oil and gas properties





Agreement
with Petronorte





On
December 22, 2008, the Company entered into a memorandum of understanding (the
“MOU”) with Petroleos del Norte S.A. (“Petronorte”), a subsidiary of Petrolatina
Plc., that entitles it to a 50% net working interest in the Putumayo 4 block
located in the south of Colombia (the “Putumayo 4 Block”).  Petronorte
was the successful bidder on the Putumayo 4 Block in the Colombia Mini Round
2008 run by theAgencia
Nacional de Hidrocarburos (the “ANH”), Colombia’s hydrocarbon regulatory
agency.  According to the MOU, the Company will have the exclusive
right to a fifty percent (50%) net participation interest in the Putumayo 4
Block and in the exploration and production contract (the “E&P Contract”)
after ANH production participation, and will execute an assignment agreement and
a joint operating agreement (the “Definitive Agreements”) with Petronorte
relating to the Putumayo 4 Block by no later than April 30, 2009.  
Petronorte signed an E&P Contract with the ANH in February
2009.  Petronorte will be the “operator” of the E&P
Contract.





The
Definitive Agreements are expected to provide that each of La Cortez and
Petronorte will have a fifty percent (50%) working interest in the Putumayo 4
Block, responsible for fifty percent (50%) of the costs incurred under the
E&P Contract, and a fifty percent (50%) revenue interest entitling us to
fifty percent (50%) of the revenues originated from the Putumayo 4 Block, net of
royalty payments to the ANH, except that La Cortez will be responsible for
paying two-thirds (2/3) of the costs originated from the first 103 kilometers of
2D seismic to be performed in the Block, in accordance with the expected Phase 1
minimum exploration program under the E&P Contract. The Company expects to
require approximately US $2.3 million for Phase 1 seismic reprocessing and
acquisition activities in the Putumayo 4 Block during the remainder of
2009.  If a prospective Phase 1 well in a prospect in the Putumayo 4
Block proves productive, Petronorte will reimburse La Cortez for its share of
these seismic costs paid by La Cortez with production from the Putumayo 4
Block.





F-14





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





Provided
that the Company has satisfactorily complied with payment requirements relating
to its share of all costs incurred to the date of its request, Petronorte will
submit a request to the ANH to assign a 50% interest in the E&P Contract to
La Cortez and will assist it in obtaining such assignment through reasonable
means.





Emerald
Farm-In Agreement





On
February 6, 2009, the Company entered into a farm-in agreement (the “Farm-In
Agreement”) with Emerald Energy Plc Sucursal Colombia (“Emerald”), a branch of
Emerald Energy Plc., for a 20% participating interest (the “Participating
Interest”) in the Maranta exploration and production block (“Maranta”) in the
Putumayo Basin in Southwest Colombia.





As
consideration for its 20% participating interest, the Company reimbursed Emerald
$948,000 of its Phase 1 sunk costs.  This amount was paid to Emerald
on February 12, 2009.  Additionally, the Company will bear 65% of the
Maranta block Phase 2 costs, of which the exploratory well drilling costs1 are currently estimated
at approximately US $4.875 million, US $2.433 million of which La Cortez paid to
Emerald on February 18, 2009 and US $2.433 million of which La Cortez will pay
to Emerald no later than 12 days after the start of mobilization of the drill
rig for an exploratory well to be drilled on the Mirto prospect in the Maranta
block.  If Emerald determines that the exploratory well should be
completed and La Cortez agrees with this decision, La Cortez will pay 65% of the
completion costs, that is, La Cortez will pay an amount currently estimated at
approximately US $1.17 million required to complete and test the exploratory
well, no later than five days after the decision to complete the well has been
made by Emerald.  65% of any additional Phase 2 costs will be paid by
La Cortez as needed, following cash calls by Emerald.  If La Cortez
does not agree with Emerald’s decision to proceed with completion of the
exploratory well, its obligations under the Farm-In Agreement will cease and the
Farm-In Agreement will terminate.





After the
Phase 2 work is completed, La Cortez will pay 20% of all subsequent costs
related to the Maranta block.





Once La
Cortez has completed paying all of its Phase 2 commitments on the Maranta block,
Emerald will assign and transfer to La Cortez the Participating Interest in the
Maranta block, subject to ANH approval.  If the ANH does not approve
the Assignment, Emerald and La Cortez have agreed that they will use their best
endeavors to seek in good faith a legal way to enter into an agreement with
terms equivalent to the Farm-In Agreement and the JOA, that shall privately
govern the relations between the Parties and which will not require ANH
approval.







1.  These
are the costs that will be required to drill the exploratory well to the abandon
(“dry hole”) or complete decision point.





F-15





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





Note
4 – Related Party Transactions




Forgiveness
of indebtedness to related party





On July
28, 2006, the then sole officer and director of the Company advanced $2,000 to
the Company for working capital. On June 16, 2007, the then sole officer and
director advanced $10,000 to the Company for working capital. On May 17, 2007,
the then sole officer and director advanced $2,700 to the Company for working
capital. All of these advances bore no interest and were payable on demand.
These advances are included in the accompanying consolidated balance sheet at
December 31, 2007, as “Indebtedness to related party”. On June 30, 2008, the
former sole officer and director forgave the total amount of the advances.
Accordingly, the Company eliminated the $14,700 payable and treated the debt
forgiveness as a capital contribution and recorded the amount as additional paid
in capital.





Common
Stock sales





On July
28, 2006, the Company sold 11,250,000 (after giving effect to the common stock
split referred to in Note 5 below) shares of its Common Stock to its then sole
officer and director, Maria de la Luz, for $9,000, or $.0008 (post-split) per
share.





On
February 7, 2008, the Company sold 1,150,000 (post-split) shares of its Common
Stock to its newly appointed, then sole officer and director, Nadine C. Smith,
for $11,500, or $.01 (post-split) per share.





On
September 10, 2008 as part of its Unit offering described in Note 6, the Company
sold 400,000 Units (defined below), at a price of $1.25 per Unit, for a total of
$500,000 to its Chairman and Vice President, Nadine C. Smith, and 50,000 Units
for a total of $62,500 to its President and Chief Executive Officer, Andres
Gutierrez.





Contributed
services





During
the year ended December 31, 2008, our Chairman of the Board and interim CFO
contributed services for which the Company determined the fair value to be
$23,333, and, accordingly, we recognized such amount as
compensation.  There were no such services contributed during the year
ended December 31, 2007.





F-16





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





Note
5 – Income taxes





La Cortez
Energy, Inc. files a U.S. Federal income tax return.  The Company’s
foreign subsidiaries file income tax returns in their respective jurisdictions.
The components of the consolidated net loss before income tax benefit are as
follows:





2008
                
                2007U.S.
                
                $
                1,909,043
                
                $
                28,836Non-U.S.
                
                
                671,486
                
                
                -Net
      Loss
                
                $
                2,580,529
                
                $
                28,836




The
components of the Company’s deferred tax assets at December 31, 2008 and 2007
are as follows:





2008
                
                
                2007Deferred
      tax assets and liabilities:Loss
      carryforwards
                
                $
                426,000
                
                
                $
                9,818Property
      and equipment
                
                
                (5,000
                )
                
                
                -Stock-based
      compensation
                
                
                83,000
                
                
                
                -Net
      deferred tax asset
                
                
                504,000
                
                
                
                9,818Valuation
      allowance
                
                
                (504,000
                )
                
                
                (9,818
                )$
                -
                
                
                $
                -





Income
tax benefit differs from the amount computed at the federal statutory rates
(approximately 34%) as follows:





Income
      tax benefit at statutory rate
                  
                  
                  (877,000
                  )Stock
      issued to consultant
                  
                  
                  337,000Other
      Permanent differences
                  
                  
                  31,000Increase
      in valuation allowance
                  
                  
                  494,000Other
                  
                  
                  15,000-





F-17





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





As of
December 31, 2008, the Company had generated U.S. net operating loss
carryforwards of approximately $555,000, which expire from 2027 to 2028 and net
loss carryforwards in certain non-U.S. jurisdictions of approximately $671,486,
which do not expire. These net operating loss carryforwards are available
to reduce future taxable income. However, a, change in ownership, as defined by
federal income tax regulations, could significantly limit the Company’s
ability to utilize its U.S. net operating loss carryforwards. Additionally,
because federal tax laws limit the time during which the net operating loss
carryforwards may be applied against future taxes, if the Company fails to
generate taxable income prior to the expiration dates it may not be able to
fully utilize the net operating loss carryforwards to reduce future income
taxes. As the Company has had cumulative losses and there is no assurance of
future taxable income, valuation allowances have been recorded to fully
offset the deferred tax asset at December 31, 2008 and 2007. The valuation
allowance increased $494,000 and $9,813 due primarily to the Company’s 2008
and 2007 net losses, respectively.





Note
6 – Shareholders’ Equity





As of
December 31, 2008, there were 18,935,244 shares of common stock and no shares of
preferred stock issued and outstanding.





Common
Stock split





On
February 8, 2008, the articles of incorporation of LCE were amended to increase
the authorized capital stock of LCE to 310,000,000 shares, of which 300,000,000
are common stock with a par value of $0.001 per share and 10,000,000 shares are
preferred stock with a par value $0.001 per share.  The Board of
Directors is authorized to fix or alter the designation, powers, preferences and
rights of the preferred stock.  The Board of Directors has made no
such designation as of December 31, 2008.





On
February 7, 2008, the Company’s Board of Directors approved a 5-for-1 forward
stock split on each share of its common stock issued and outstanding at the
close of business on February 21, 2008. Shares issued prior to February 21, 2008
have been retroactively restated to reflect the impact of the stock
split.





Common
Stock issued for services





On
February 7, 2008, the Company issued 1,000,000 (post-split) shares of its common
stock in exchange for consulting services, which included assisting the Chairman
in building the Board of Directors and senior management team for the Company.
The transaction was valued in accordance with EITF 96-18, “Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services.”  Management determined
the fair value of the stock issued to the consultant at $1.00 (post-split) per
share based on the stock price received in the Offering (defined below) on March
14, 2008. Accordingly, stock-based compensation expense of $1,000,000 was
recognized in the accompanying consolidated financial statements for the year
ended December 31, 2008.





Common
Stock sales





On July
28, 2006, the Company sold 11,250,000 (post-split) shares of Common Stock to its
previous sole officer and director for $9,000, or $.0008 (post split) per
share.





F-18





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





On
December 12, 2006, the Company sold 9,500,000 (post split) shares of Common
Stock at a price of $.002 (post split) per share for total proceeds of $19,000.
The offering was made pursuant to the Company’s SB-2 registration statement that
became effective on December 4, 2006. All sales were made by the Company’s
previous sole officer and director.





On
February 7, 2008, the Company sold 1,150,000 (post split) shares of Common Stock
to Nadine Smith, its then newly appointed sole officer and director, for
$11,500, or $.01 (post-split) per share.





On
February 19, 2008 the Board of Directors authorized the Company to offer up to
2,000,000 shares of Common Stock to a limited number of accredited investors
and/or non-U.S persons at a price of $1.00 per share, in a private placement
offering (the “Offering”) pursuant to the exemption from registration provided
by Rule 506 of Regulation D under the Securities Act, Regulation S under the
Securities Act and/or Section 4(2) of the Securities Act. Because the offering
was oversubscribed, the Company’s Board of Directors further authorized to
increase the size of the Offering to up to 3,000,000 shares of Common Stock. On
March 14, 2008, the Company issued a total of 2,400,000 shares of Common Stock
for total proceeds to the Company of $2,400,000 ($2,314,895 net after offering
expenses).





On July
23, 2008 the Board of Directors authorized the Company to offer up to a maximum
of 10,000,000 units (the “Units”) at an offering price of $1.25 per Unit. Each
Unit consisted of one share of Common Stock and a common stock purchase warrant
to purchase one-half share of Common Stock, exercisable for a period of five
years at an exercise price of $2.25 per share. The Units were offered to a
limited number of accredited investors and non-U.S persons, in a private
placement offering pursuant to the exemption from registration provided by Rule
506 of Regulation D under the Securities Act of 1933, as amended (the
“Securities Act”), Regulation S under the Securities Act and/or Section 4(2) of
the Securities Act. On September 10, 2008, the Company issued 4,784,800 shares
of Common Stock as the result of the sale of 4,784,800 Units, for total proceeds
to the Company of $5,981,000 ($5,762,126 net after offering expenses), and
warrants to purchase 2,392,400 shares of Common stock.





Investors
in the Unit Offering have “piggyback” registration rights for the shares of
Common Stock issued in the Unit Offering included in the Units and underlying
the Warrants included in the Units.





Additionally,
investors the Unit Offering have “demand” registration rights with respect to
the shares of Common Stock included in the Units if the Company does not file a
registration statement with the SEC in which the investors can exercise their
‘piggyback’ registration rights within six months of the Closing of the Unit
Offering.  That is, at any time on or after the date that is six
months after the Closing, and only if the Company has not filed a registration
statement enabling the investors to exercise their “piggyback” registration
rights, one or more of the investors that in the aggregate beneficially own at
least 50% of the Shares issued in the Unit Offering may make a demand that the
Company effect the registration of all or part of the investors’ Shares (a
"Demand Registration").  Investors have the right to one Demand
Registration pursuant to these provisions.





F-19





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





The
Company expects to prepare a Registration Statement following receipt of the
required investor demand, to be filed with the SEC and to become effective
within two hundred ten (210) days from the receipt of the demand notice,
registering for resale all shares of Common Stock issued in the Unit Offering
included in the Units of those investors who choose to participate in such
Demand Registration.  The Company shall pay monetary penalties to
these investors equal to one and one-quarter percent (1.25%) of the gross
proceeds of the Unit Offering for each full month that the registration
statement is late in being declared effective; provided, that in no event shall
the aggregate of any such penalties exceed fifteen percent (15%) of the gross
proceeds of the Unit Offering.  No penalties shall accrue with respect
to any shares of Common Stock removed from the registration statement in respect
to a comment from the SEC limiting the number of shares of Common Stock which
may be included in the registration statement.  The holders of any
Common Stock removed from the registration statement as a result of a comment
from the SEC shall continue to have “piggyback” registration rights with respect
to these shares.  There has been no request for a Demand Registration
as of the date of this report.





Common
Stock issued to extinguish debt





On
February 8, 2008, the Corporation issued a $50,000 promissory note to Milestone
Enhanced Fund Ltd. (“Milestone”) in exchange for Milestone’s $50,000 working
capital loan to the Company. The note was due within one year of its date of
issuance and carried a 9% annual interest rate. On February 25, 2008, the
Company issued 100,444 shares of Common Stock in exchange for full payment of
the note and accrued interest. This transaction was valued by the Company’s
Board of Directors at the fair value of the Common Stock issued, or 100,000
shares at $.50/share for the principal and 444 shares at $.50/share for the
accrued interest which amounted to $222.





Common
Stock cancelled





On
February 26, 2008, 9,000,000 shares of LCE Common Stock owned by the founding
stockholder were surrendered to LCE and cancelled.





On August
21, 2008, 2,250,000 shares of LCE common stock owned by the founding director,
were surrendered in exchange for her interest in a split-off subsidiary of LCE,
as more fully described in a Form 8-K of the same date filed by the Company with
the SEC.    The net assets of the Split-Off Subsidiary were
$Nil as of August 21, 2008.  Therefore, this transaction was valued at
$Nil.





2008
Equity Incentive Plan





The
Company’s 2008 Equity Incentive Plan (the “2008 Plan”) provides for the grant of
incentive stock options to employees of the Company and non-statutory stock
options, restricted stock and stock appreciation rights to employees, directors
and consultants of the Company and of an affiliate or subsidiary of the Company.
A maximum of 4,000,000 shares of common stock are available for issuance under
the 2008 Plan. The 2008 Plan, originally adopted and approved by our Board of
Directors and majority stockholders on February 7, 2008 to enable grants to
issue up to 2,000,000 shares of our Common Stock, was amended and restated by
approval of our Board of Directors on November 7, 2008 to, among other things,
increase the number of shares that may be issued under the 2008 Plan to
4,000,000.  Our stockholders have not yet approved this
increase.  As of December 31, 2008, options had been granted under the
2008 Plan exercisable for an aggregate of 2,025,000 shares of common
stock.





F-20





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





The
Company determines the fair value of stock option awards on the date of grant in
accordance with Statement of Financial Accounting Standard (SFAS) No. 123(R),
Share-Based Payment.




Stock
Option Awards





On July
1, 2008, the Company granted options to purchase (i) 1,000,000 shares of its
Common Stock to Andres Gutierrez, the Company’s President and Chief Executive
Officer, (ii) 175,000 shares of its Common Stock to Nadine C. Smith, the
Company’s Chairman and Vice President, (iii) 100,000 shares of its Common Stock
to Jaime Ruiz, a newly appointed director, and (iv) an additional 175,000 shares
of its Common Stock to three employees of its Colombian subsidiary. The options
vest pro-rata in three annual installments beginning on the first anniversary of
the date of grant and have a 10 year term. They were granted with an exercise
price equal to $2.20.





On July
23, 2008, the Company granted options to purchase (i) 100,000 shares of its
Common Stock to each of Jaime Navas Gaona and Richard G. Stevens, newly
appointed directors, (ii) 150,000 shares, to Highlands Capital, Inc., a
consultant to the Company, and (iii) an additional 75,000 shares of its Common
Stock to one employee of its Colombian subsidiary. The options vest pro-rata in
three annual installments beginning on the first anniversary of the date of
grant and have a 10 year term. They were granted with an exercise price equal to
$2.47.





On
November 7, 2008, the Company granted options to purchase (i) 100,000 shares of
its common stock to Jose Montoya, a newly appointed director, and (ii) 50,000
shares to one employee.  The options vest pro-rata in three annual
installments beginning on the first anniversary of the date of grant and have a
10 year term. They were granted with an exercise price equal to
$1.71.





F-21





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





Stock
option activity summary is presented in the table below:





Number of
                                                  Shares
                                                
                                                Weighted-
                                                  average
                                                  Exercise
                                                  Price
                                                
                                                Weighted-
                                                  average
                                                  Remaining
                                                  Contractual
                                                  Term (years)
                                                
                                                Aggregate
                                                  Intrinsic
                                                  ValueOutstanding
      at December 31, 2007
                                                —
                                                
                                                
                                                —Granted
                                                2,025,000
                                                
                                                $
                                                2.22Exercised
                                                —
                                                
                                                
                                                —Forfeited
                                                —
                                                
                                                
                                                —Expired
                                                —
                                                
                                                
                                                —Outstanding
      at December 31, 2008
                                                2,025,000
                                                
                                                $
                                                2.22
                                                
                                                9.54
                                                
                                                $
                                                —




None of
the options outstanding at December 31, 2008 are vested or
exercisable.  During the year ended December 31, 2008, 2,025,000
options were granted with a weighted average grant date fair value of
$0.89.  During the year ended December 31, 2008, the Company
recognized stock-based compensation expense of $246,153 related to stock
options.  As of December 31, 2008, there was approximately $1,356,000
of total unrecognized compensation cost related to non-vested stock options
which is expected to be recognized over a weighted-average period of
approximately 2.5 years.





Subsequent
to year end, the Company granted options to purchase 200,000 shares to one
employee of its Colombian subsidiary.  The options vest pro-rata in
three annual installments beginning on the first anniversary of the date of
grant and have a 10 year term. They were granted with an exercise price equal to
$1.50.





Options
to purchase 50,000 shares of common stock were forfeited subsequent to year
end.





F-22





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





The fair
value of the options granted during 2008 was estimated at the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:




Estimated
      market value of stock on grant date(1)
                                      
                                      $
                                      1.27
      - $1.37Risk-free
      interest rate (2)
                                      
                                      
                                      3.11
      – 3.77
                                      %Dividend
      yield  (3)
                                      
                                      
                                      0.00
                                      %Volatility
      factor  (4)
                                      
                                      
                                      83.63
                                      %Expected
      life (5)
                                      
                                      
                                      6.5
      yearsExpected
      forfeiture rate (6)
                                      
                                      
                                      10
                                      %





(1)
            The
      estimated market value of the stock on the date of grant was based on a
      calculation by management after consideration of price per share received
      in the private offerings and reported public market
  prices.




(2)
            The
      risk-free interest rate was estimated by management using the U.S.
      Treasury zero-coupon yield over the contractual term of the option on date
      of grant.




(3)
            Management estimated the dividend yield at
      0% based upon its expectation that there will not be earnings available to
      pay dividends in the near term.




(4)
            The
      volatility factor was estimated by management using the historical
      volatilities of comparable companies in the same industry and region,
      because the Company does not have adequate trading history to determine
      its historical volatility.




(5)
            The
      expected life was estimated by management as the midpoint between the
      vesting date and the expiration date of the
  options.




(6)
            Management
      estimated the forfeiture rate at 10% based on its experience with
      companies in similar industries and
regions.





F-23





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





Note
7 – General and administrative expenses





General
and administrative expenses are made up of the following for the years ended
December 31, 2008 and 2007 and for the period from June 9, 2006 (inception)
through December 31, 2008:





Year
      ended December 31,
                      
                      
                      Inception
                        through
                        December 31,2008
                      
                      
                      2007
                      
                      
                      2008General
      and administrative expense:Payroll
                      
                      $
                      505,783
                      
                      
                      $
                      -
                      
                      
                      $
                      515,771Stock
      –based compensation
                      
                      
                      1,246,153
                      
                      
                      
                      -
                      
                      
                      
                      1,246,153Professional
      fees
                      
                      
                      441,683
                      
                      
                      
                      19,695
                      
                      
                      
                      461,378Travel
                      
                      
                      168,812
                      
                      
                      
                      -
                      
                      
                      
                      168,812Rent
                      
                      
                      56,012
                      
                      
                      
                      2,400
                      
                      
                      
                      59,612Other
                      
                      
                      230,869
                      
                      
                      
                      6,741
                      
                      
                      
                      239,661Total
      general and administrative expense
                      
                      $
                      2,649,312
                      
                      
                      $
                      28,836
                      
                      
                      $
                      2,691,387





Note
8 - Commitments





Leases





The
Company has signed a three year lease for approximately 3,000 square feet of
office space in Bogota, Colombia. The rent for this office space is
approximately $8,100 per month during the first year. The rental contract
provides for a 2% increase per year in the base rent and an additional
adjustment for inflation in Colombia as reflected in the Colombian consumer
price index, or the “Indice de Precios al Consumidor” (the “IPC”). This lease
will expire on July 2, 2011.




From
August to December 2008, the first five months of this lease, the Company paid
rent of approximately U.S. $42,714.





F-24





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





Based on
an estimated exchange rate of COP 2.250 per US dollar for each year (2009, 2010
and 2011), annual lease payment commitments for the remainder of the lease have
been calculated as follows:




Year
                  
                  Total Lease Payment
                    Amount2009
                  
                  $
                  99,0002010
                  
                  $
                  107,0002011
                  
                  $
                  65,000





These US
dollar amounts for the remainder of the office lease could increase if the US
dollar to COP exchange rate deteriorates in favor of the COP.





Employment
Agreement





The
Company has entered into an employment agreement effective as of June 1, 2008
(the “Employment Agreement”) with Andres Gutierrez pursuant to which Mr.
Gutierrez was appointed as its President and Chief Executive Officer, Pursuant
to the Employment Agreement, Mr. Gutierrez’s base annual compensation has
been set at U.S. $250,000, which amount may be increased annually at the
discretion of the Board of Directors. This annual compensation shall be paid in
equal monthly installments in Colombian Pesos (“COP”). The exchange rate used to
calculate Mr. Gutierrez’s monthly salary payment will be calculated each month
and shall neither exceed a maximum of COP 2,400 nor be less than a minimum of
COP 1,600. This minimum/maximum range will be adjusted at the end of each
calendar year based upon changes in the IPC.





In
addition, Mr. Gutierrez is eligible to receive an annual cash bonus of up to
fifty percent (50%) of his applicable base salary. Mr. Gutierrez’s annual bonus
(if any) shall be in such amount (up to the limit stated above) as the Board of
Directors may determine in its sole discretion, based upon Mr. Gutierrez’s
achievement of certain performance milestones to be established annually by the
Board of Directors in discussion with Mr. Gutierrez (the
“Milestones”).





Under the
Employment Agreement, we agreed to grant Mr. Gutierrez an option to purchase an
aggregate of 1,000,000 shares of our common stock under our 2008 Equity
Incentive Plan (the “2008 Plan”) as of June 1, 2008. We granted this option on
July 1, 2008. This option vests in three equal annual installments beginning on
July 1, 2009 and is exercisable at $2.20 per share.





F-25





LA CORTEZ
ENERGY, INC.


(A
Development Stage Company)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008





The
initial term of the Employment Agreement expires on June 1, 2009. In the event
of a termination of employment “without cause” by the Company during the first
12 months following June 1, 2008, Mr. Gutierrez shall receive: (i) twelve
(12) months of his base salary; plus (ii) to the extent the Milestones
are achieved or, in the absence of Milestones, the Board of Directors has, in
its sole discretion, otherwise determined an amount for Mr. Gutierrez’s bonus
for the initial 12 months of his employment, a pro rata portion of his annual
bonus for the initial 12 months of his employment, to be paid to him on the date
such annual bonus would have been payable to him had he remained employed by the
Company; plus (iii) any other accrued compensation and Benefits, as defined
in the Employment Agreement. In the event of a termination of employment by Mr.
Gutierrez for “good reason”, as defined in the Employment Agreement, Mr.
Gutierrez shall receive: (i) twelve (12) months of his then in effect
base salary, subject to his compliance with the non-competition,
non-solicitation and confidentiality provisions of the Employment
Agreement.  As of December 31, 2008, the Company has accrued a bonus
payable to Mr. Gutierrez in the amount of $72,915.





F-26