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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-KSB

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934
  For the fiscal year ended December 31, 2006

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
  THE SECURITIES EXCHANGE ACT OF 1934 
  For the transition period from [ ] to [ ] Commission file number 333-114995

TEXOLA ENERGY
CORPORATION(name of small business issuer in its charter)

|Nevada                                                               | 47-0930829                               
|-------------------------------------------------------------------- | -----------------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)     
|                                                                     |                                          
|Suite 206  475 Howe Street                                          |                                          
|Vancouver, British Columbia Canada                                   | V6C 2B3                                  
|(Address of principal executive offices)                             | (Zip Code)                               
|                                                                     |                                          
|Issuer's telephone number (604) 685-2300                             |                                          
|                                                                     |                                          
|Securities registered pursuant to Section 12(b) of the
      Act:    |                                          
|                                                                     |                                          
|Title of each class                                                  | Name of each exchange on which registered
|Nil                                                                  | Nil                                      

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

Common Stock, par value $0.001(Title of
class)

Check whether the issuer is not required to file reports pursuant
to Section 13 or 15(d) of the Exchange Act.    [  
]

Note:Checking the box above will not relieve any
registrant required to file reports pursuant to Section 13 or 15(d) of the
Exchange act from their obligations under those Sections.

Check whether the issuer (1) 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.

Yes [X] No [   ]

Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB.    [   ]

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

Yes [   ] No [X]

State Issuer's revenues for its most recent fiscal year:
$Nil

State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days:

29,413,333 common shares at $0.25(1)= $7,353,333

(1) Average of bid and ask closing prices on April
10, 2007

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the Issuer's
classes of common equity, as of the latest practicable date.

31,413,333 common shares issued and outstanding as of April
10, 2007

DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional Small Business Disclosure Format (Check one): Yes
[   ] No [X]

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PART I

Item 1. Description of Business.

This annual report contains forward-looking statements as that
term is defined in Section 27A of the United States Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may", "should",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential" or "continue" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks in the section
entitled "Risk Factors", that may cause our or our industry's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.

Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.

Our financial statements are stated in United States dollars
and are prepared in accordance with United States generally accepted accounting
principles.

In this annual report, unless otherwise specified, all dollar
amounts are expressed in United States dollars. All references to "CDN$" refer
to Canadian dollars and all references to "common shares" refer to the common
shares in our capital stock.

As used in this annual report, the terms "we", "us", "our", and
"Texola" mean Texola Energy Corporation, unless otherwise indicated.

Corporate History

We were incorporated pursuant to the laws of the State of
Nevada on October 14, 2003 under the name Sound Technology, Inc. On September
29, 2005, we incorporated a wholly-owned Nevada subsidiary for the sole purpose
of effecting a name change through a merger with our subsidiary. On October 24,
2005, we merged our subsidiary with and into our company, with our company
continuing on as the surviving corporation under the name Texola Energy
Corporation.

Our principal business office is located at Suite 206  475
Howe Street, Vancouver, British Columbia, Canada V6C 2B3. Our registered office
for service in the State of Nevada is located at Suite 300, 7251 West Lake
Mead.

From our incorporation until November, 2005, we were an audio
component retailer. We supplied audio products to the audio do-it-yourself and
original equipment manufacturer markets. We retailed and distributed components
to the original equipment manufacturer market and the end user of the purchased
product who may wish to construct, upgrade or replace their existing audio
equipment.

As management investigated opportunities and challenges in the
business of audio retail and distribution, management realized that the business
did not present the best opportunity for our company to realize value for our
shareholders. As a result, our company decided to abandon the audio retail and
distribution business and sell all of the issued and outstanding shares of our
wholly-owned subsidiary.

On November 16, 2005, we entered into a share purchase
agreement among our company, Raymond Li, Simon Au, and Patrick Fung. Pursuant to
the terms of the share purchase agreement, we agreed to sell all of the issued
and outstanding shares in the capital of Audiyo, Inc., our wholly-owned
operating subsidiary, to Mr. Li, Mr. Au and Mr. Fung in exchange for: (i) the
return and cancellation of all shares of our company held by such individuals;
and (ii) the waiver and forgiveness of any outstanding amounts owed by our
company to the three individuals. On January 5, 2006, our company transferred
the Audiyo shares to Raymond Li, Patrick Fung and Simon Au, who were each former
affiliates of our company. Raymond Li, a former director of our company,
tendered 40,500,000, or

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approximately 45%, of the shares of our company for
cancellation. Patrick Fung, a former director of our company, tendered
20,000,000, or approximately 22%, of the shares of our company for cancellation.
Simon Au, a former director of our company, did not hold any shares in our
company as of the closing of the share purchase agreement.

Current Business

We are an exploration stage company engaged in the acquisition
of prospective oil and gas properties. Following the change in our business, we
conducted due diligence on potential acquisitions of suitable oil and gas
properties. As a result of the due diligence period, we entered into three
arrangements to acquire the oil and gas interests in the following locations:
(i) Brown County, Kansas, United States; (ii) Maverick Spring Prospect, Nevada,
United States; and (iii) Chinchaga Prospect, Alberta, Canada.

In addition to the exploration and development of our existing
three property interests, we intend to acquire additional oil and gas interests
in the future. Management believes that future growth of our company will
primarily occur through the acquisition of additional oil and gas properties
following extensive due diligence by our company. However, we may elect to
proceed through collaborative agreements and joint ventures in order to share
expertise and reduce operating costs with other experts in the oil and gas
industry.

The analysis of new property interests will be undertaken by or
under the supervision of our management and board of directors. Although the oil
and gas industry is currently very competitive, management believes that many
undervalued prospective properties remain available for acquisition
purposes.

Brown County, Kansas, United States

On November 18, 2005, we entered into an Assignment Agreement
with Heartland Oil and Gas Corp. whereby our company acquired 23 oil and gas
leases covering approximately 5,600 acres in Brown County, Kansas. Pursuant to
the terms of the Assignment Agreement, our company was assigned all rights under
the leases which grant our company the exclusive rights for the purpose of
mining, exploring, operating and producing oil and gas from such property
interests and establishing the infrastructure necessary to extract oil and gas.
Management has no current intention with respect to further exploration on this
prospect at this time.

Maverick Spring Prospect, Nevada, United States

On February 28, 2006, we entered into a Joint Participation
Agreement with Chamberlain Exploration Development and Research Stratigraphic
Corporation, doing business as Cedar Strat Corporation. Pursuant to the terms of
the participation agreement, Cedar Strat has agreed to provide certain
proprietary information and geological data relating to a prospect area covering
approximately 120,000 acres in Nevada, United States in consideration for the
payment by our company of a per acre participation fee and, subject to
completion of a comprehensive survey of the property by Cedar Strat, an
obligation to commence a drilling program on the property.

The participation fee is calculated at a cost of $10.00 per
acre multiplied by the total acreage of leases that our company obtains in the
property area with a minimum payment of $700,000 and a maximum payment of
$1,100,000. The participation fee is payable as follows: (i) $100,000 upon the
execution of the participation agreement; and (ii) $600,000 on or before April
14, 2006. If the participation fee payable by our company exceeds the $700,000
minimum payment under the participation agreement, our company is required to
pay the applicable balance as follows: (i) $100,000 within 30 days of delivery
of a gravity model coinciding with the structural cross section delivered as
part of the base prospect fee; (ii) an additional $200,000 within 30 days of
delivery of a second structural cross section with accompanying gravity model;
and (iii) $100,000 at the time of well permitting.

Subsequent to the execution of the participation agreement, we
paid Cedar Strat a deposit of $100,000 on or about March 11, 2006. We made
additional payments of $200,000 on or about April 7, 2006, $100,000 on May 7,
2006, $300,000 on June 7, 2006 and $300,000 on September 11, 2006.. The balance
of the prospect fee of $100,000 is payable at the time of well permitting.

In addition to the payment of the participation fee, our
company is required to commence a drilling program on the property within 18
months of Cedar Strat completing a comprehensive survey of the property in
accordance with the terms of the participation agreement. We are required to
drill one test well within 18 months of completion of the survey and a
subsequent test well within 12 months from the date of completion or abandonment
of the prior test

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well. We are required to drill subsequent wells every 12 months
following the completion or abandonment of the prior test well for the term of
the participation agreement. The term of the participation agreement is ten
years from the date that our company obtains the leases in the property
area.

The parties to the participation agreement have agreed that our
company will receive 80% of the net revenue interest of any revenue generated
from our efforts on the property. Cedar Strat will retain a 5.5% overriding
royalty interest, a consultant will retain a 2.0% overriding royalty interest
and Cedar Strat will retain a 15% carried back-in working interest. Our company
will also receive a reimbursement for all prospect fees and exploration and
development costs in regards to our proportionate interest prior to Cedar
Strat's back-in interest becoming effective.

Chinchaga Prospect, Alberta, Canada

On March 8, 2006, we entered into a Farmout and Option
Agreement with Suncor Energy Inc. Pursuant to the terms and conditions of the
farmout agreement, our company and our partners acquired a 100% working interest
in the cost to drill an exploratory well on approximately 18,000 acres of leases
owned by Suncor Energy in Northern Alberta, Canada. Upon the completion of the
drilling program, our group will earn a 100% working interest in approximately
7,000 acres and will obtain the right to drill a second well in 2007 to earn a
100% interest in the remaining 11,000 acres. Suncor Energy has retained a 12.5%
gross overriding royalty on the lands. Our company is a minority partner in the
group with a 10% interest in the drilling partnership. The exploration target is
a dolomitized Slave Point reef at a depth of approximately 8,900 feet.

The Chinchaga prospect was generated by Suncor Energy's
prospect working group. Due diligence performed by Suncor Energy includes
extensive geologic studies, including log analysis and sample work on virtually
all offsetting wells, seismic modelling, reprocessing and interpretation, and a
complete 3D seismic survey covering the leases. In addition, Suncor Energy
prepared the surface location and contracted the rig to drill the well.

The Chinchaga well was spud on March 10, 2006 and drilling
commenced to a depth of 410 meters when it was halted due to early spring
break-up. The well was re-entered in December 2006 and was plugged and abandoned
as a dry well in January 2007. Having participated in the drilling of the first
well, we continue to hold our proportionate working interest in the 7,000 acres
covering the prospect area.

Competitors

We are an exploration stage company engaged in the acquisition
of prospective oil and gas properties. We compete with other companies for both
the acquisition of prospective properties and the financing necessary to develop
such properties.

We conduct our business in an environment that is highly
competitive and unpredictable. In seeking out prospective properties, we have
encountered intense competition in all aspects of our business as we compete
directly with other development stage companies as well as established
international companies. Many of our competitors are national or international
companies with far greater resources, capital and access to information than us.
Accordingly, these competitors may be able to spend greater amounts on the
acquisition of prospective properties and on the exploration and development of
such properties. In addition, they may be able to afford greater geological
expertise in the exploration and exploitation of mineral and oil and gas
properties. This competition could result in our competitors having resource
properties of greater quality and attracting prospective investors to finance
the development of such properties on more favorable terms. As a result of this
competition, we may become involved in an acquisition with more risk or obtain
financing on less favorable terms.

Governmental Regulations

The exploration and development of oil and gas properties is
subject to various United States federal, state and local governmental
regulations. Our company may from time to time, be required to obtain licenses
and permits from various governmental authorities in regards to the exploration
of our property interests.

If our company proceeds with the development of our properties,
we anticipate that we will be subject to increased governmental regulation.
Matters subject to regulation include discharge permits for drilling operations,
drilling and abandonment bonds, reports concerning operations, the spacing of
wells, and pooling of properties and taxation. From time to time, regulatory
agencies have imposed price controls and limitations on production by
restricting the

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rate of flow of oil and gas wells below actual production
capacity in order to conserve supplies of oil and gas. The production, handling,
storage, transportation and disposal of oil and gas, by-products thereof, and
other substances and materials produced or used in connection with oil and gas
operations are also subject to regulation under federal, state, provincial and
local laws and regulations relating primarily to the protection of human health
and the environment. As our company has not proceeded to the development of our
properties, we have not incurred any expenditures related to complying with such
laws, or for remediation of existing environmental contamination. The
requirements imposed by such laws and regulations are frequently changed and
subject to interpretation, and we are unable to predict the ultimate cost of
compliance with these requirements or their effect on our operations.

Employees

Currently we have no employees other than our sole officer,
Thornton Donaldson. We anticipate that we will be conducting most of our
business through agreements with consultants and third parties. Our sole officer
does not have an employment agreement with us.

RISK FACTORS

Much of the information included in this annual report includes
or is based upon estimates, projections or other "forward-looking statements".
Such forward-looking statements include any projections or estimates made by us
and our management in connection with our business operations. While these
forward-looking statements, and any assumptions upon which they are based, are
made in good faith and reflect our current judgment regarding the direction of
our business, actual results will almost always vary, sometimes materially, from
any estimates, predictions, projections, assumptions, or other future
performance suggested herein. We undertake no obligation to update
forward-looking statements to reflect events or circumstances occurring after
the date of such statements.

Such estimates, projections or other "forward-looking
statements" involve various risks and uncertainties as outlined below. We
caution readers of this annual report that important factors in some cases have
affected and, in the future, could materially affect actual results and cause
actual results to differ materially from the results expressed in any such
estimates, projections or other "forward-looking statements". In evaluating us,
our business and any investment in our business, readers should carefully
consider the following factors.

We have had negative cash flows from operations and if we
are not able to continue to obtain further financing our business operations may
fail.

To date we have had negative cash flows from operations and we
have been dependent on sales of our equity securities and debt financing to meet
our cash requirements and have incurred losses totalling approximately
$1,944,298 for the year ending December 31, 2006, and accumulative losses of
$2,043,187 since inception to December 31, 2006. As of December 31, 2006 we had
a working capital deficiency of $242,175. We do not expect positive cash flow
from operations in the near term. There is no assurance that actual cash
requirements will not exceed our estimates. In particular, additional capital
may be required in the event that:

- the costs to acquire further acreage are more than we currently anticipate;
- drilling and completion costs for further wells increase beyond our
  expectations; or
- we encounter greater costs associated with general and administrative
  expenses or offering costs.

The occurrence of any of the aforementioned events could
adversely affect our ability to meet our business plans.

We depend almost exclusively on outside capital to pay for the
continued exploration and development of our properties. Such outside capital
may include the sale of additional stock and/or commercial borrowing. Capital
may not continue to be available if necessary to meet these continuing
development costs or, if the capital is available, that it will be on terms
acceptable to us. The issuance of additional equity securities by us would
result in a significant dilution in the equity interests of our current
stockholders. Obtaining commercial loans, assuming those loans would be
available, will increase our liabilities and future cash commitments.

If we are unable to obtain financing in the amounts and on
terms deemed acceptable to us, we may be unable to continue our business and as
a result may be required to scale back or cease operations for our business, the
result of

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which would be that our stockholders would lose some or all of
their investment.

A decline in the price of our common stock could affect our
ability to raise further working capital and adversely impact our
operations.

A prolonged decline in the price of our common stock could
result in a reduction in the liquidity of our common stock and a reduction in
our ability to raise capital. Because our operations have been primarily
financed through the sale of equity securities, a decline in the price of our
common stock could be especially detrimental to our liquidity and our continued
operations. Any reduction in our ability to raise equity capital in the future
would force us to reallocate funds from other planned uses and would have a
significant negative effect on our business plans and operations, including our
ability to explore and develop new properties and continue our exploration and
development on our current property interests. If our stock price declines, we
may not be able to raise additional capital or generate funds from operations
sufficient to meet our obligations.

If we issue additional shares in the future this may result
in dilution to our existing stockholders.

Our Certificate of Incorporation authorizes the issuance of
750,000,000 shares of common stock. Our board of directors has the authority to
issue additional shares up to the authorized capital stated in the certificate
of incorporation. Our board of directors may choose to issue some or all of such
shares to acquire one or more businesses or to provide additional financing in
the future. The issuance of any such shares may result in a reduction of the
book value or market price of the outstanding shares of our common stock. If we
do issue any such additional shares, such issuance also will cause a reduction
in the proportionate ownership and voting power of all other stockholders.
Further, any such issuance may result in a change of control of our
corporation.

We have a history of losses and fluctuating operating
results which raise substantial doubt about our ability to continue as a going
concern.

Since inception through December 31, 2006, we have incurred
aggregate losses of $2,043,187. There is no assurance that we will operate
profitably or will generate positive cash flow in the future. In addition, our
operating results in the future may be subject to significant fluctuations due
to many factors not within our control, such as the general economic cycle, the
market price of oil and gas and exploration and development costs. If we cannot
generate positive cash flows in the future, or raise sufficient financing to
continue our normal operations, then we may be forced to scale down or even
close our operations.

Until such time as we generate revenues, we expect an increase
in development costs and operating costs. Consequently, we expect to incur
operating losses and negative cash flow until our properties enter commercial
production.

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

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

Due to the speculative nature of the exploration of oil and
gas properties, there is substantial risk that our business will fail.

The business of oil and gas exploration and development is
highly speculative involving substantial risk. There is generally no way to
recover any funds expended on a particular property unless reserves are
established and unless the company can exploit such reserves in an economic
manner. We can provide investors with no assurance that any property interest
that we may acquire will provide commercially exploitable reserves. Any
expenditures by our

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company in connection with locating, acquiring and developing
an interest in a mineral or oil and gas property may not provide or contain
commercial quantities of reserves.

Because of the early stage of development and the nature of
our business, our securities are considered highly speculative.

Our securities must be considered highly speculative, generally
because of the nature of our business and the early stage of its development. We
are engaged in the business of exploring and, if warranted, developing
commercial reserves of oil and gas. Our properties are in the exploration stage
only and are without known reserves of oil and gas. Accordingly, we have not
generated any revenues nor have we realized a profit from our operations to date
and there is little likelihood that we will generate any revenues or realize any
profits in the short term. Any profitability in the future from our business
will be dependent upon locating and developing economic reserves of oil and gas,
which itself is subject to numerous risk factors as set forth herein. Since we
have not generated any revenues, we will have to raise additional monies through
the sale of our equity securities or debt in order to continue our business
operations.

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

The oil and gas industry in general is cyclical in nature. It
tends to reflect and be amplified by general economic conditions, both
domestically and abroad. Historically, in periods of recession or periods of
minimal economic growth, the operations of oil and gas companies have been
adversely affected. Certain end-use markets for oil and petroleum products
experience demand cycles that are highly correlated to the general economic
environment which is sensitive to a number of factors outside our control. A
recession or a slowing of the economy could have a material adverse effect on
our financial results and proposed plan of operations. A recession may lead to
significant fluctuations in demand and pricing for oil and gas. If we elect to
proceed with the development of any of our property interests, our profitability
may be significantly affected by decreased demand and pricing of oil and gas.
Reduced demand and pricing pressures will adversely affect our financial
condition and results of operations. We are not able to predict the timing,
extent and duration of the economic cycles in the markets in which we
operate.

The potential profitability of oil and gas properties is
dependent upon many factors beyond our control. For instance, world prices and
markets for oil and gas are unpredictable, highly volatile, potentially subject
to governmental fixing, pegging, controls, or any combination of these and other
factors, and respond to changes in domestic, international, political, social,
and economic environments. Additionally, due to worldwide economic uncertainty,
the availability and cost of funds for production and other expenses have become
increasingly difficult, if not impossible, to project. These changes and events
may materially affect our financial performance.

Adverse weather conditions can also hinder drilling operations.
A productive well may become uneconomic in the event water or other deleterious
substances are encountered which impair or prevent the production of oil and/or
gas from the well. In addition, production from any well may be unmarketable if
it is impregnated with water or other deleterious substances. The marketability
of oil and gas which may be acquired or discovered will be affected by numerous
factors beyond our control. These factors include the proximity and capacity of
oil and gas pipelines and processing equipment, market fluctuations of prices,
taxes, royalties, land tenure, allowable production and environmental
protection. These factors cannot be accurately predicted and the combination of
these factors may result in our company not receiving an adequate return on
invested capital.

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

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

We are required to obtain licenses and permits from various
governmental authorities. We anticipate that we will be able to obtain all
necessary licenses and permits to carry on the activities which we intend to
conduct, and that we intend to comply in all material respects with the terms of
such licenses and permits. However, there can be no guarantee that we will be
able to obtain and maintain, at all times, all necessary licenses and permits
required to

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undertake our proposed exploration and development or to place
our properties into commercial production. In the event that we proceed with our
operation without necessary licenses and permits, we may be subject to large
fines and possibly even court orders and injunctions to cease operations.

The acquisition of oil and gas interests involve many risks
and dispute as to the title of such interests will result in a material adverse
effect on our company.

The acquisition of interests in mineral properties involves
certain risks. Title to mineral claims and the borders of such claims may be
disputed. Any of our leases may be subject to prior unregistered agreements or
transfers and title may be affected by undetected defects. If it is determined
that any of our leases are based upon a claim with an invalid title, a disputed
border, or subject to a prior right, our balance sheet will be adversely
affected and we may not be able to recover damages without incurring expensive
litigation costs.

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

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

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

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

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

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

We believe that our operations comply, in all material
respects, with all applicable environmental regulations. However, we are not
fully insured against all possible environmental risks.

Any future operations will involve many risks and we may
become liable for pollution or other liabilities which may have an adverse
effect on our financial position.

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In the course of the exploration, acquisition and development
of mineral properties, several risks and, in particular, unexpected or unusual
geological or operating conditions may occur. Drilling operations generally
involve a high degree of risk. Hazards such as unusual or unexpected geological
formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire,
inability to obtain suitable or adequate machinery, equipment or labour, and
other risks are involved. We may become subject to liability for pollution. It
is not always possible to fully insure against such risks, and we do not
currently have any insurance against such risks nor do we intend to obtain such
insurance in the near future due to high costs of insurance. Should such
liabilities arise, they could reduce or eliminate any future profitability and
result in an increase in costs and a decline in value of the securities of our
company.

We are not insured against most environmental risks. Insurance
against environmental risks (including potential liability for pollution or
other hazards as a result of the disposal of waste products occurring from
exploration and production) has not been generally available to companies within
the industry. We will periodically evaluate the cost and coverage of such
insurance. If we became subject to environmental liabilities and do not have
insurance against such liabilities, the payment of such liabilities would reduce
or eliminate our available funds and may result in bankruptcy. Should we be
unable to fully fund the remedial cost of an environmental problem, we might be
required to enter into interim compliance measures pending completion of the
required remedy.

Resource exploration involves many risks, regardless of the
experience, knowledge and careful evaluation of the property by our company.
These hazards include unusual or unexpected formations, formation pressures,
fires, power outages, labour disruptions, flooding, explosions and the inability
to obtain suitable or adequate machinery, equipment or labour.

Operations in which we will have a direct or indirect interest
will be subject to all the hazards and risks normally incidental to the
exploration, development and production of resource properties, any of which
could result in damage to or destruction of mines and other producing
facilities, damage to life and property, environmental damage and possible legal
liability for any or all damage. We do not currently maintain liability
insurance and may not obtain such insurance in the future. The nature of these
risks is such that liabilities could represent a significant cost to our
company, and may ultimately force our company to become bankrupt and cease
operations.

Any change to government regulation/administrative practices
may have a negative impact on our ability to operate and our
profitability.

The laws, regulations, policies or current administrative
practices of any government body, organization or regulatory agency in the
United States or any other jurisdiction, may be changed, applied or interpreted
in a manner which will fundamentally alter 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 and/or our profitably.

If we are unable to hire and retain key personnel, we may
not be able to implement our plan of operation and our business may fail.

Our success will be largely dependent on our ability to hire
and retain highly qualified personnel. This is particularly true in the highly
technical businesses of oil and gas exploration. These individuals may be in
high demand and we may not be able to attract the staff we need. In addition, we
may not be able to afford the high salaries and fees demanded by qualified
personnel, or we may fail to retain such employees after they are hired. At
present, we have not hired any key personnel. Our failure to hire key personnel
when needed will have a significant negative effect on our business.

Our sole executive officer has other business interests, and
as a result, he may not be willing or able to devote a sufficient amount of time
to our business operations, thereby limiting the success of our company.

Thornton Donaldson presently spends approximately 25% of his
business time on business management services for our company and retains the
necessary consultants to assist in the development of our properties on an as
needed basis. Management has determined that Mr. Donaldson spends a reasonable
time in pursuit of our company's interests. Due to the time commitments from Mr.
Donaldson's other business interests, however, Mr. Donaldson may not be able to
provide sufficient time to the management of our business in the future and our
business may be

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periodically interrupted or delayed as a result of Mr.
Donaldson's other business interests. To mitigate any such interruption, we are
currently seeking to add additional management and will also continue to retain
the necessary consultants in future exploration activities.

Our stock is a penny stock. Trading of our stock may be
restricted by the Securities and Exchange Commission's penny stock regulations
which may limit a stockholder's ability to buy and sell our stock.

Our stock is a penny stock. The Securities and Exchange
Commission has adopted Rule 15g-9 which generally defines "penny stock" to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and "accredited investors". The term
"accredited investor" refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the Securities and Exchange Commission which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer's confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.

The National Association of Securities Dealers, or NASD, has
adopted sales practice requirements which may also limit a stockholder's ability
to buy and sell our stock.

In addition to the "penny stock" rules described above, the
NASD has adopted rules that require that in recommending an investment to a
customer, a broker-dealer must have reasonable grounds for believing that the
investment is suitable for that customer. Prior to recommending speculative low
priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer's financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, the NASD believes that there is a high probability that
speculative low priced securities will not be suitable for at least some
customers. The NASD requirements make it more difficult for broker-dealers to
recommend that their customers buy our common stock, which may limit your
ability to buy and sell our stock and have an adverse effect on the market for
our shares.

Item 2. Description of Property.

Our executive and head offices are located at Suite 206  475
Howe Street, Vancouver, British Columbia, Canada V6C 2B3. The office is
sub-leased on a monthly basis and is currently provided on a gratuitous basis
from Mr. Donaldson. Our current premises are adequate for our current operations
and we do not anticipate that we will require any additional premises in the
foreseeable future.

We currently hold property interests concerning three
properties in North America.

Brown County, Kansas, United States

Pursuant to the terms of an Assignment Agreement dated November
18, 2005, between our company and Heartland Oil and Gas, we acquired 23 oil and
gas leases covering approximately 5,600 acres in Brown County, Kansas. Pursuant
to the terms of the Assignment Agreement, our company was assigned all rights
under the leases which grants our company the exclusive rights for the purpose
of mining, exploring, operating and producing oil and gas from such property
interests and establishing the infrastructure necessary to extract oil and gas.
Management has no

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current intention with respect to further exploration on this
prospect at this time.

Maverick Spring Prospect, Nevada, United States

Pursuant to the terms of a Joint Participation Agreement dated
February 28, 2006, between our company and Cedar Strat, and as of March 20,
2006, our company has acquired approximately 110,000 acres of leases relating to
the prospect area in Nevada, United States, as set out in the participation
agreement. In addition to the payment of a participation fee, our company is
required to commence a drilling program on the property within 18 months of
Cedar Strat completing a comprehensive survey of the property in accordance with
the terms of the participation agreement. We are required to drill one test well
within 18 months of completion of the survey and a subsequent test well within
12 months from the date of completion or abandonment of the prior test well. We
are required to drill subsequent wells every 12 months following the completion
or abandonment of the prior test well for the term of the participation
agreement. The term of the participation agreement is ten years from the date
that our company obtains the leases in the property area.

We are now assessing our lease acreage position with a view to
renewing those leases which appear key to the two structural anticlines earlier
identified on the leases by Cedar Strat. Management intends to continue
assessing ongoing exploration initiatives.

Chinchaga Prospect, Alberta, Canada

On March 8, 2006, we entered into a Farmout and Option
Agreement with Suncor Energy. Pursuant to the terms of the farmout agreement,
our company and our partners acquired a 100% working interest in the cost to
drill an exploratory well on approximately 18,000 acres of leases owned by
Suncor Energy in Northern Alberta, Canada. Upon the completion of the drilling
program, our group will earn a 100% working interest in approximately 7,000
acres and will obtain the right to drill a second well in 2007 to earn a 100%
interest in the remaining 11,000 acres. Our company is a minority partner in the
group with a 10% interest in the drilling partnership. The exploration target is
a dolomitized Slave Point reef at a depth of approximately 8,900 feet.

We have paid our full working interest in regards to the
Chinchaga well and we do not expect to incur any additional cash calls in
respect of the well by the operator once the drilling of the well is
recommenced.

Item 3. Legal Proceedings.

We know of no material, active or pending legal proceedings
against our company, nor are we involved as a plaintiff in any material
proceeding or pending litigation. There are no proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial shareholder,
is an adverse party or has a material interest adverse to our interest.

Item 4. Submissions of Matters to a Vote of Security
Holders.

None.

PART II

Item 5. Market for Common Equity and Related Stockholder
Matters.

Our common stock is quoted on the National Association of
Securities Dealers OTC Bulletin Board under the symbol "TXLA". The following
quotations obtained from Canada Stockwatch reflect the high and low bids for our
common stock based on inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.

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The high and low bid prices of our common stock for the periods
indicated below are as follows:

OTC Bulletin Board(1)(2)Quarter Ended
    High
    LowDecember 31, 2006
    $1.15
    $0.55September 30, 2006
    $1.01
    $0.60June 30, 2006
    $1.62
    $0.71March 31, 2006
    $1.80
    $1.00December 31, 2005
    $1.10
    $0.60


| | (1) | Our common stock began being quoted for trading on the
      OTC Bulletin Board on November 7, 2005.                                                                  
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                       
| | (2) | Over-the-counter market quotations reflect inter-dealer
      prices without retail mark-up, mark-down or commission, and may not
      represent actual transactions.

Our common shares are issued in registered form. Empire Stock
Transfer of Suite 300, 7251 West Lake Mead Blvd., Las Vegas, NV 89128-8351
(Telephone: 702.562.4091; Facsimile: 702.974.1444) is the registrar and transfer
agent for our common shares.

On April 10, 2007, the shareholders' list of our common shares
showed 5 registered shareholders and 31,413,333 common shares issued and
outstanding.

We have not declared any dividends since incorporation and do
not anticipate that we will do so in the foreseeable future. Although there are
no restrictions that limit the ability to pay dividends on our common shares,
our intention is to retain future earnings for use in our operations and the
expansion of our business.

Recent Sales of Unregistered Securities

We did not issue any equity securities during the year ended
December 31, 2006 that were not otherwise reported in a quarterly report filed
on Form 10-QSB or in a current report filed on Form 8-K.

Equity Compensation Plan Information

We established a 2005 Stock Option Plan to provide for the
issuance of stock options to acquire an aggregate of up to 5,000,000 shares of
our common stock. As of April 10, 2007, there were 700,000 options outstanding
that were issued under our 2005 Stock Option Plan. As at December 31, 2006, we
had 700,000 options outstanding and 4,300,000 options available for future
grants. During the year ended December 31, 2006, we did not grant any options to
purchase shares of our common stock and no stock options were exercised.

The following table provides a summary of the number of stock
options granted under the 2005 Stock Option Plan, the weighted average exercise
price and the number of stock options remaining available for issuance under the
2005 Stock Option Plan, all as at December 31, 2006.

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
      planEquity compensation plans not approved by security holders
    700,000
    $0.50
    4,300,000


Purchases of Equity Securities by the Issuer and Affiliated
Purchasers

We did not purchase any of our shares of common stock or other
securities during our fiscal year ended December 31, 2006.

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Item 6. Management's Discussion and Analysis or Plan of
Operation.

The following discussion should be read in conjunction with our
financial statements and the related notes that appear elsewhere in this annual
report. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed below and elsewhere in this annual report, particularly in the
section entitled "Risk Factors" beginning on page 6 of this annual report.

Our consolidated audited financial statements are stated in
United States dollars and are prepared in accordance with United States
generally accepted accounting principles.

Company Overview

We are an exploration stage company engaged in the acquisition
of prospective oil and gas properties. Following the change in our business, we
conducted due diligence on potential acquisitions of suitable oil and gas
properties. As a result of the due diligence period, we entered into three
arrangements to acquire the oil and gas interests in the following areas: (i)
Brown County, Kansas, United States; (ii) Maverick Spring Prospect, Nevada,
United States; and (iii) Chinchaga Prospect, Alberta, Canada.

In addition to the exploration and development of our existing
three property interests, we intend to acquire additional oil and gas interests
in the future. Management believes that future growth of our company will
primarily occur through the acquisition of additional oil and gas properties
following extensive due diligence by our company. However, we may elect to
proceed through collaborative agreements and joint ventures in order to share
expertise and reduce operating costs with other experts in the oil and gas
industry.

Plan of Operations

As of December 31, 2006, our company had cash of $296,530 and a
working capital deficiency of $242,175. We estimate our operating expenses and
working capital requirements for the next twelve month period to be as
follows:

Estimated Expenses to December 31, 2007Operating ExpensesAcquisition
      Costs
    $
    150,000Exploration Costs
    $
    500,000Employee
      and Consultant Compensation
    $
    100,000Professional Fees
    $
    100,000General
      and Administrative Expenses
    $
    15,000Total
    $
    865,000


Acquisition Costs

We anticipate incurring lease renewal costs relating to our
Maverick Springs prospect pursuant to our obligations under the Participation
Agreement with Cedar Strat. We anticipate that the total number of acres to be
renewed or acquired by our company will be between 80,00 and 110,000 acres.

We paid Cedar Strat a deposit of $100,000 on or about March 11,
2006, when we entered into the Participation Agreement. We made additional
payments of $200,000 on or about April 7, 2006, an additional payment of
$100,000 on May 7, 2006 and $300,000 on June 7, 2006. The balance of the
prospect fee of $400,000 is payable as follows: (a) $100,000 within 30 days of
delivery of a gravity model coinciding with the structural cross section
delivered as part of the base prospect fee; (b) an additional $200,000 within 30
days of delivery of a second structural cross section with accompanying gravity
model; and (c) $100,000 at the time of well permitting. We do not anticipate
that the items set out in (b) and (c) above will be required until after
December 31, 2006, but such amounts have been included for budgeting
purposes.

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- 15 -

We hold a 10% working interest in the Chinchaga 8-24-95-8-W6M
well held by Suncor Energy, in the Chinchanga area of Alberta, Canada. We have
fully paid our portion of the authorization for expenditure received from Tasman
Exploration Ltd., the operator of the well. The well was drilled, plugged and
abandoned in January 2007 and we do not expect to incur any additional
expenditures in respect of the well.

Exploration Costs

We anticipate incurring exploration costs relating to our
Maverick Springs prospect estimated at a minimum of $500,000 for a seismic
survey. Although we continue to retain a 10% working interest in the prospect,
we do not anticipate incurring costs related to our Chinchaga prospect in 2007.
In the event a second well is drilled on the 7,000 acre prospect area, we will
assess our participation at that time.

Employee and Consultant Compensation

Given the early stage of our development and exploration
properties, we intend to continue to outsource our professional and personnel
requirements by retaining consultants on an as needed basis.

We estimate that our consultant and related professional
compensation expenses for the next twelve month period will be approximately
$100,000.

Professional Fees

We expect to incur on-going legal expenses to comply with our
reporting responsibilities as public company under the United States Securities
Exchange Act of 1934, as amended. We estimate our legal and accounting expenses
for the next fiscal year to be approximately $100,000.

General and Administrative Expenses

We anticipate spending $15,000 on general and administrative
costs in the next twelve month period. These costs primarily consist of expenses
such as office supplies and office equipment.

Trends and Uncertainties

Our ability to generate revenues in the future is dependent on
whether we successfully explore and develop our current property interests or
any property interests that we may acquire in the future. We cannot predict
whether or when this may happen and this causes uncertainty with respect to the
growth of our company and our ability to generate revenues.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2006, we had cash of $296,530 and $626,215
in current liabilities. The current liabilities primarily consisted of accounts
payable, loans payable and a derivative liability. We had a working capital
deficiency of $242,175 as of December 31, 2006.

To date, we have had negative cash flows from operations and we
have been dependent on sales of our equity securities and debt financing to meet
our cash requirements. We expect this situation to continue for the foreseeable
future. We anticipate that we will have negative cash flows during our fiscal
year ended December 31, 2007.

We incurred a loss of $1,944,298 for the year ended December
31, 2006. As indicated above, our estimated working capital requirements and
projected operating expenses to December 31, 2007 total $865,000. As we do not
have the funds necessary to cover our projected operating expenses to December
31, 2007, we will be required to raise additional funds through the issuance of
equity securities or through debt financing. There can be no assurance that we
will be successful in raising the required capital or that actual cash
requirements will not exceed our estimates. We intend to fulfil any additional
cash requirement through the sale of our equity securities.

Given that we are an exploration stage company and have not
generated revenues to date, our cash flow projections are subject to numerous
contingencies and risk factors beyond our control, including exploration and
development risks, competition from well-funded competitors, and our ability to
manage growth. We can offer no assurance that

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- 16 -

our company will generate cash flow sufficient to meet our cash
flow projections or that our expenses will not exceed our projections. If our
expenses exceed estimates, we will require additional monies during the next
twelve months to execute our business plan.

There are no assurances that we will be able to obtain funds
required for our continued operation. There can be no assurance that additional
financing will be available to us when needed or, if available, that it can be
obtained on commercially reasonable terms. If we are not able to obtain
additional financing on a timely basis, we will not be able to meet our other
obligations as they become due and we will be forced to scale down or perhaps
even cease the operation of our business.

There is substantial doubt about our ability to continue as a
going concern as the continuation of our business is dependent upon obtaining
further long-term financing, successful exploration and development of our
property interests and, finally, achieving a profitable level of operations. The
issuance of additional equity securities by us could result in a significant
dilution in the equity interests of our current stockholders. Obtaining
commercial loans, assuming those loans would be available, will increase our
liabilities and future cash commitments.

Capital Expenditures

We incurred $1,691,729 in capital expenditures during the year
ended December 31, 2006, which sum consisted of acquisition costs of oil and gas
properties and exploration advances. As of April 10, 2007, our company did not
have any material commitments for capital expenditures and management does not
anticipate that our company will spend additional material amounts on capital
expenditures in the year ending December 31, 2007.

Off-Balance Sheet Arrangements

Our company has no outstanding derivative financial
instruments, off-balance sheet guarantees, interest rate swap transactions or
foreign currency contracts. Neither our company nor our operating subsidiary
engages in trading activities involving non-exchange traded contracts.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with
United States generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying disclosures of our company. Although these estimates
are based on management's knowledge of current events and actions that our
company may undertake in the future, actual results may differ from such
estimates.

Going Concern

The audited financial statements included with this annual
report have been prepared on the going concern basis which assumes that adequate
sources of financing will be obtained as required and that our assets will be
realized and liabilities settled in the ordinary course of business.
Accordingly, the audited financial statements do not include any adjustments
related to the recoverability of assets and classification of assets and
liabilities that might be necessary should we be unable to continue as a going
concern.

In order to continue as a going concern, we require additional
financing. There can be no assurance that additional financing will be available
to us when needed or, if available, that it can be obtained on commercially
reasonable terms. If we are not able to continue as a going concern, we would
likely be unable to realize the carrying value of our assets reflected in the
balances set out in our financial statements.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123R,
"Share Based Payment". SFAS 123R is a revision of SFAS No. 123
"Accounting for Stock-Based Compensation", and supersedes APB Opinion No.
25, "Accounting for Stock Issued to Employees" and its related
implementation guidance. SFAS 123R establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments

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- 17 -

or that may be settled by the issuance of those equity
instruments. SFAS 123R focuses primarily on accounting for transactions in which
an entity obtains employee services in share-based payment transactions. SFAS
123R does not change the accounting guidance for share-based payment
transactions with parties other than employees provided in SFAS 123 as
originally issued and Emerging Issues Task Force Issue No. 96-18, "Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services". SFAS 123R does not address
the accounting for employee share ownership plans, which are subject to AICPA
Statement of Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans". SFAS 123R requires a public entity to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award (with limited exceptions). That cost
will be recognized over the period during which an employee is required to
provide service in exchange for the award  the requisite service period
(usually the vesting period). SFAS 123R requires that the compensation cost
relating to share-based payment transactions be recognized in financial
statements. That cost will be measured based on the fair value of the equity or
liability instruments issued. The scope of SFAS 123R includes a wide range of
share-based compensation arrangements including share options, restricted share
plans, performance-based awards, share appreciation rights, and employee share
purchase plans. Public entities (other than those filing as small business
issuers) will be required to apply SFAS 123R as of the first interim or annual
reporting period that begins after 15 June 2005. Public entities that file as
small business issuers will be required to apply SFAS 123R in the first interim
or annual reporting period that begins after 15 December 2005. For non-public
entities, SFAS 123R must be applied as of the beginning of the first annual
reporting period beginning after 15 December 2005. The adoption of this standard
is not expected to have a material effect on our company's results of operations
or financial position.

In December 2004, FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets - An Amendment of APB Opinion No. 29". The guidance in
APB Opinion No. 29, "Accounting for Nonmonetary Transactions", is based
on the principle that exchanges of nonmonetary assets should be measured based
on the fair value of the assets exchanged. The guidance in that Opinion,
however, included certain exceptions to that principle. SFAS No. 153 amends
Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The provisions of SFAS No. 153
are effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after 15 June 2005. Early application is permitted and companies must
apply the standard prospectively. The adoption of this standard is not expected
to have a material effect on our company's results of operations or financial
position.

In May 2005, the FASB issued SFAS No. 154, Accounting
Changes and Error Corrections, which replaces APB Opinion No. 20,
Accounting Changes, and supersedes FASB Statement No. 3, Reporting
Accounting Changes in Interim Financial Statements  an amendment of APB Opinion
No. 28. SFAS 154 requires retrospective application to prior periods
financial statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. When it is impracticable to determine the period-specific
effects of an accounting change on one or more individual prior periods
presented, SFAS 154 requires that the new accounting principle be applied to the
balances of assets and liabilities as of the beginning of the earliest period
for which retrospective application is practicable and that a corresponding
adjustment be made to the opening balance of retained earnings for that period
rather than being reported in an income statement. When it is impracticable to
determine the cumulative effect of applying a change in accounting principle to
all prior periods, SFAS 154 requires that the new accounting principle be
applied as if it were adopted prospectively from the earliest date practicable.
SFAS 154 shall be effective for accounting changes and corrections of errors
made in fiscal years beginning after 15 December 2005. We do not expect the
provisions of SFAS 154 will have a significant impact on our results of
operations.

In February 2006, the FASB issued SFAS No. 155, Accounting
for Certain Hybrid Financial Instruments, an amendment of FASB Statements No.
133 and 140. This statement permits fair value re-measurement for any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation. It establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation. In addition, SFAS 155 clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of Statement 133. It also clarifies that concentrations of credit
risk in the form of subordination are not embedded derivatives. SFAS 155 amends
Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. This
Statement is effective for all financial instruments acquired or issued after
the beginning

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of an entitys first fiscal year that begins after 15 September
2006. The adoption of this standard is not expected to have a material effect on
our companys results of operations or financial position.

In March 2006, the FASB issued SFAS 156, Accounting for
Servicing of Financial Assetsan amendment of FASB Statement No. 140. This
statement amends FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, with
respect to the accounting for separately recognized servicing assets and
servicing liabilities. This statement: (1) requires an entity to recognize a
servicing asset or servicing liability each time it undertakes an obligation to
service a financial asset by entering into a servicing contract in any of the
following situations: (a) a transfer of the servicers financial assets that
meets the requirements for sale accounting, (b) a transfer of the servicers
financial assets to a qualifying special-purpose entity in a guaranteed mortgage
securitization in which the transferor retains all of the resulting securities
and classifies them as either available-for-sale securities or trading
securities in accordance with FASB Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities, (c) an acquisition or assumption
of an obligation to service a financial asset that does not relate to financial
assets of the servicer or its consolidated affiliates; (2) requires all
separately recognized servicing assets and servicing liabilities to be initially
measured at fair value, if practicable; (3) permits an entity to choose either
of the following subsequent measurement methods for each class of separately
recognized servicing assets and servicing liabilities: (a) Amortization
methodAmortize servicing assets or servicing liabilities in proportion to
and over the period of estimated net servicing income or net servicing loss and
assess servicing assets or servicing liabilities for impairment or increased
obligation based on fair value at each reporting date, or (b) Fair value
measurement methodMeasure servicing assets or servicing liabilities at fair
value at each reporting date and report changes in fair value in earnings in the
period in which the changes occur; (3) at its initial adoption, permits a
one-time reclassification of available-for-sale securities to trading securities
by entities with recognized servicing rights, without calling into question the
treatment of other available-for-sale securities under Statement 115, provided
that the available-for-sale securities are identified in some manner as
offsetting the entitys exposure to changes in fair value of servicing assets or
servicing liabilities that a servicer elects to subsequently measure at fair
value; and (5) requires separate presentation of servicing assets and servicing
liabilities subsequently measured at fair value in the statement of financial
position and additional disclosures for all separately recognized servicing
assets and servicing liabilities. An entity should adopt this statement as of
the beginning of its first fiscal year that begins after September 15, 2006.
Earlier adoption is permitted as of the beginning of an entitys fiscal year,
provided the entity has not yet issued financial statements, including interim
financial statements, for any period of that fiscal year. The effective date of
this Statement is the date an entity adopts the requirements of this
statement.

Item 7. Financial Statements.

Our financial statements are stated in United States dollars,
are prepared in accordance with United States generally accepted accounting
principles.

It is the opinion of management that the audited financial
statements for the fiscal year ended December 31, 2006 include all adjustments
necessary in order to ensure that the audited financial statements are not
misleading.

The following financial statements are filed as part of this
annual report:

The Independent Auditors' Report of
Moore & Associates, CHTD, Chartered Accountants, for the audited financial
statements for the year ended December 31, 2006, dated April 9, 2007;

Balance Sheets at December 31, 2006 and
2005;

Statements of Stockholders Deficiency
for the period of inception October 21, 2003 to December 31, 2006;

Statements of Loss for the years ended
December 31, 2006 and 2005;

Statements of Cash Flows for the years
ended December 31, 2006 and 2005; and

Notes to the Financial
Statements.

---

- 19 -

TEXOLA ENERGY CORPORATION(Formerly Sound Technology, Inc.)

(An Exploration Stage Company)

FINANCIAL STATEMENTS

December 31, 2006 and 2005

Expressed in US Funds

---

|MOORE & ASSOCIATES, CHARTERED 
|------------------------------
|ACCOUNTANTS
      AND ADVISORS
|PCAOB
      REGISTERED        

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
  FIRM

To the Board of Directors
  Texola Energy Corporation

We have audited the accompanying balance sheet of Texola Energy
  Corporation as of December 31, 2006 and 2005, and the related statements of
  operations, stockholders equity and cash flows through December 31, 2006
  and 2005. These financial statements are the responsibility of the Companys
  management. Our responsibility is to express an opinion on these financial statements
  based on our audits.

We conducted our audits in accordance with standards of the Public
  Company Accounting Oversight Board (United States). Those standards require
  that we plan and perform the audits 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 audits provide
  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 Texola Energy Corporation
  as of December 31, 2006 and 2005 and the results of its operations and its cash
  flows through December 31, 2006 and 2005, 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, which contemplates, among
  other things, the realization of assets and satisfaction of liabilities in the
  normal course of business. As of December 31, 2006, the Company has an accumulated
  deficit of $1,857,940. Managements plans concerning these matters are
  also described in Note 1. The financial statements do not include any adjustments
  that might result from the outcome of this uncertainty.

/s/ Moore & Associates, Chartered

Moore & Associates Chartered
  Las Vegas, Nevada
  April 9, 2007

2675 S. Jones Blvd. Suite 109, Las Vegas, NV 89146 (702)
  253-7511 Fax (702) 253-7501

F-1

---

|Texola Energy Corporation         | Statement 1
|--------------------------------- | -----------
|(Formerly Sound Technology, Inc.) |            
|(An Exploration Stage Company)    |            
|Balance Sheets                    |            
|Expressed in US Funds             |            

|                                                                     |   | December 31, |  
|-------------------------------------------------------------------- | - | ------------ | -
|                                                                     |   | 2006         |  
|                                                                     |   |              |  
|                                                                     |   |              |  
|ASSETS                                                               |   |              |  
|Current                                                              |   |              |  
|Cash                                                                 | $ | 296,530      |  
|Receivable                                                           |   | 55,839       |  
|Prepaid expenses                                                     |   | 31,671       |  
|                                                                     |   | 384,040      |  
|                                                                     |   |              |  
|Exploration Advances(Note 4)                                         |   | 64,711       |  
|Oil and Gas Properties(Note 4)                                       |   | 2,104,156    |  
|                                                                     | $ | 2,552,907    |  
|                                                                     |   |              |  
|LIABILITIES                                                          |   |              |  
|                                                                     |   |              |  
|Current                                                              |   |              |  
|Accounts payable and accrued
      liabilities                       | $ | 17,418       |  
|Interest payable                                                     |   | 90,597       |  
|Loans payable (Note
      5)                                         |   | 25,200       |  
|Derivative liability (Note 6f)                                       |   | 493,000      |  
|                                                                     |   | 626,215      |  
|                                                                     |   |              |  
|Share Subscriptions Received(Note
      7a)                          |   | -            |  
|Convertible Debentures(Note 6)                                       |   | 2,700,000    |  
|                                                                     |   | 3,326,215    |  
|Continued Operations(Note 1)                                         |   |              |  
|                                                                     |   |              |  
|SHAREHOLDERS
      DEFICIENCY                                       |   |              |  
|                                                                     |   |              |  
|Capital Stock- Statement 2 (Note 7)                                  |   |              |  
|Authorized:                                                          |   |              |  
|750,000,000
      common shares with a par value of $0.001 per share |   |              |  
|Issued:                                                              |   |              |  
|31,413,333
      shares (2005  29,925,000 shares)                   |   | 31,413       |  
|                                                                     |   |              |  
|Additional Paid-in Capital                                           |   | 1,289,198    |  
|Accumulated Comprehensive Loss
      Statement 2                    |   | -            |  
|Special Distribution Statement 2 (Notes 3
      & 8)                |   | -            |  
|Deficit Accumulated During the Exploration
      Stage- Statement 2  |   | (2,093,919   | )
|                                                                     |   | (773,308     | )
|                                                                     | $ | 2,552,907    |  

The accompanying notes are an integral part of these financial
  statements

F-2

---

|Texola Energy Corporation                                                 | Statement 2
|------------------------------------------------------------------------- | -----------
|(Formerly Sound Technology, Inc.)                                         |            
|(An Exploration Stage Company)                                            |            
|Statements of Stockholders Deficiency(Restated
      Note 12)             |            
|For the Period from Inception October 21, 2003 to December
      31, 2006 |            
|Expressed in US Funds                                                     |            

|                                 |               |             |             |   |         |   |   |                 |   |   | Deficit     |   |   |               |   |   |              |   |   |         |  
|-------------------------------- | ------------- | ----------- | ----------- | - | ------- | - | - | --------------- | - | - | ----------- | - | - | ------------- | - | - | ------------ | - | - | ------- | -
|                                 | Common Shares |             | Accumulated |   |         |   |   |                 |   |   |             |   |  
|                                 |               |             |             |   |         |   |   |                 |   |   | During the  |   |   | Accumulated   |   |   |              |   |   |         |  
|                                 |               |             |             |   |         |   |   | Additional      |   |   | Exploration |   |   | Comprehensive |   |   | Special      |   |   |         |  
|                                 |               | Shares      |             |   | Amount  |   |   | Paid In Capital |   |   | Stage       |   |   | Loss          |   |   | Distribution |   |   | Total   |  
|Common shares issued for         |               |             |             |   |         |   |   |                 |   |   |             |   |   |               |   |   |              |   |   |         |  
|cash at $0.0002 per share        |               |             |             |   |         |   |   |                 |   |   |             |   |   |               |   |   |              |   |   |         |  
|October 14, 2003                 |               | 500,000     |             | $ | 500     |   | $ | (400            | ) | $ | -           |   | $ | -             |   | $ | -            |   | $ | 100     |  
|Special Distribution (Note 3)    |               | -           |             |   | -       |   |   | -               |   |   | -           |   |   | -             |   |   | (3,300       | ) |   | (3,300  | )
|Net loss for the period          |               | -           |             |   | -       |   |   | -               |   |   | (3,900      | ) |   | -             |   |   | -            |   |   | (3,900  | )
|                                 |               |             |             |   |         |   |   |                 |   |   |             |   |   |               |   |   |              |   |   |         |  
|Balance December 31, 2003        |               | 500,000     |             |   | 500     |   |   | (400            | ) |   | (3,900      | ) |   | -             |   |   | (3,300       | ) |   | (7,100  | )
|Common shares issued for         |               |             |             |   |         |   |   |                 |   |   |             |   |   |               |   |   |              |   |   |         |  
|cash at $0.0005 per share        |               | 89,900,000  |             |   | 89,900  |   |   | (44,950         | ) |   | -           |   |   | -             |   |   | -            |   |   | 44,950  |  
|Foreign currency translation     |               | -           |             |   | -       |   |   | -               |   |   | -           |   |   | (526          | ) |   | -            |   |   | (526    | )
|Net loss for the year            |               | -           |             |   | -       |   |   | -               |   |   | (63,464     | ) |   |               |   |   | -            |   |   | (63,464 | )
|                                 |               |             |             |   |         |   |   |                 |   |   |             |   |   |               |   |   |              |   |   |         |  
|Balance, December 31, 2004       |               | 90,400,000  |             |   | 90,400  |   |   | (45,350         | ) |   | (67,364     | ) |   | (526          | ) |   | (3,300       | ) |   | (26,140 | )
|                                 |               |             |             |   |         |   |   |                 |   |   |             |   |   |               |   |   |              |   |   |         |  
|Common shares issued in          |               |             |             |   |         |   |   |                 |   |   |             |   |   |               |   |   |              |   |   |         |  
|settlement of loan from          |               |             |             |   |         |   |   |                 |   |   |             |   |   |               |   |   |              |   |   |         |  
|related party at $0.10 per       |               |             |             |   |         |   |   |                 |   |   |             |   |   |               |   |   |              |   |   |         |  
|share                            |               | 25,000      |             |   | 25      |   |   | 2,475           |   |   | -           |   |   | -             |   |   | -            |   |   | 2,500   |  
|Stock based compensation         |               | -           |             |   | -       |   |   | 45,000          |   |   | -           |   |   | -             |   |   | -            |   |   | 45,000  |  
|Discontinued operations          |               |             |             |   |         |   |   |                 |   |   |             |   |   |               |   |   |              |   |   |         |  
|(Note 8)                         |               | (60,500,000 | )           |   | (60,500 | ) |   | 54,450          |   |   | -           |   |   | 526           |   |   | 3,300        |   |   | (2,224  | )
|Net loss for the year            |               | -           |             |   | -       |   |   | -               |   |   | (82,257     | ) |   | -             |   |   | -            |   |   | (82,257 | )
|                                 |               |             |             |   |         |   |   |                 |   |   |             |   |   |               |   |   |              |   |   |         |  
|Balance, December
      31, 2005 |               | 29,925,000  |             | $ | 29,925  |   | $ | 56,575          |   | $ | (149,621    | ) | $ | -             |   | $ | -            |   | $ | (63,121 | )

The accompanying notes are an integral part of these financial
  statements

F-3

---

|Texola Energy Corporation                                                 | Statement 2
|------------------------------------------------------------------------- | -----------
|(Formerly Sound Technology, Inc.)                                         |            
|(An Exploration Stage Company)                                            |            
|Statements of Stockholders Deficiency(Restated
      Note 12)             |            
|For the Period from Inception October 21, 2003 to December
      31, 2006 |            
|Expressed in US Funds                                                     |            

|                                  |               |            |             |   |          |  |  |                 |  |   | Deficit     |   |   |               |  |   |              |  |   |            |  
|--------------------------------- | ------------- | ---------- | ----------- | - | -------- |  |  | --------------- |  | - | ----------- | - | - | ------------- |  | - | ------------ |  | - | ---------- | -
|                                  | Common Shares |            | Accumulated |   |          |  |  |                 |  |   |             |   |  
|                                  |               |            |             |   |          |  |  |                 |  |   | During the  |   |   | Accumulated   |  |   |              |  |   |            |  
|                                  |               |            |             |   |          |  |  | Additional      |  |   | Exploration |   |   | Comprehensive |  |   | Special      |  |   |            |  
|                                  |               | Shares     |             |   | Amount   |  |  | Paid In Capital |  |   | Stage       |   |   | Loss          |  |   | Distribution |  |   | Total      |  
|                                  |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   |              |  |   |            |  
|Balance, December 31, 2005        |               | 29,925,000 |             | $ | 29,925 $ |  |  | 56,575          |  | $ | (149,621    | ) | $ | -             |  | $ | -            |  | $ | (63,121    | )
|                                  |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   |              |  |   |            |  
|Common shares issued on           |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   |              |  |   |            |  
|conversion of debenture           |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   |              |  |   |            |  
|and accrued interest              |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   |              |  |   |            |  
|(Note 6a)                         |               | 1,025,000  |             |   | 1,025    |  |  | 511,475         |  |   | -           |   |   | -             |  |   | -            |  |   | 512,500    |  
|Intrinsic value of the beneficial |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   |              |  |   |            |  
|conversion feature of the         |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   |              |  |   |            |  
|convertible debentures            |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   |              |  |   |            |  
|(Notes 6a & 6b)                   |               | -          |             |   | -        |  |  | 390,000         |  |   | -           |   |   | -             |  |   | -            |  |   | 390,000    |  
|Common shares issued              |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   |              |  |   |            |  
|pursuant to private               |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   |              |  |   |            |  
|placement at $0.50 per            |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   |              |  |   |            |  
|share (Note 7a)                   |               | 463,333    |             |   | 463      |  |  | 231,203         |  |   | -           |   |   | -             |  |   | -            |  |   | 231,666    |  
|Consulting - Stock based          |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   |              |  |   |            |  
|compensation                      |               | -          |             |   | -        |  |  | 99,945          |  |   | -           |   |   | -             |  |   | -            |  |   | 99,945     |  
|                                  |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   | -            |  |   |            |  
|Net loss for the year             |               | -          |             |   | -        |  |  | -               |  |   | (1,944,298  | ) |   | -             |  |   |              |  |   | (1,944,298 | )
|                                  |               |            |             |   |          |  |  |                 |  |   |             |   |   |               |  |   |              |  |   |            |  
|                                  |               | 31,413,333 |             | $ | 31,413 $ |  |  | 1,289,198       |  | $ | (1,944,298  | ) | $ | -             |  | $ | -            |  | $ | (773,308   | )

The accompanying notes are an integral part of these financial
  statements

F-4

---

|Texola Energy Corporation         | Statement 3
|--------------------------------- | -----------
|(Formerly Sound Technology, Inc.) |            
|(An Exploration Stage Company)    |            
|Statements of Loss                |            
|Expressed in US Funds             |            

|                                                         |   |                          |   |   |              |   |   |            |   |   | Cumulative      |  
|-------------------------------------------------------- | - | ------------------------ | - | - | ------------ | - | - | ---------- | - | - | --------------- | -
|                                                         |   |                          |   |   |              |   |   |            |   |   | Period from     |  
|                                                         |   |                          |   |   |              |   |   |            |   |   | September 29,   |  
|                                                         |   |                          |   |   |              |   |   |            |   |   | 2005            |  
|                                                         |   |                          |   |   |              |   |   |            |   |   | To              |  
|                                                         |   | Years Ended December 31, |   |   | December 31, |  
|                                                         |   | 2006                     |   |   | 2005         |   |   | 2004       |   |   | 2006            |  
|                                                         |   |                          |   |   | *(Note 12*)  |   |   |            |   |   | *(Note 1 & 12*) |  
|                                                         |   |                          |   |   |              |   |   |            |   |   |                 |  
|Revenue                                                  | $ | -                        |   | $ | -            |   | $ | -          |   | $ | -               |  
|                                                         |   |                          |   |   |              |   |   |            |   |   |                 |  
|                                                         |   |                          |   |   |              |   |   |            |   |   |                 |  
|Expenses                                                 |   |                          |   |   |              |   |   |            |   |   |                 |  
|Advertising and
      promotion                          |   | 49,752                   |   |   | -            |   |   | -          |   |   | 49,752          |  
|Audit and accounting
      fees                          |   | 30,653                   |   |   | 39,500       |   |   | 10,500     |   |   | 50,153          |  
|Communications                                           |   | 15,673                   |   |   | -            |   |   | -          |   |   | 15,673          |  
|Consulting fees                                          |   | 341,945                  |   |   | 57,000       |   |   | 5,000      |   |   | 386,945         |  
|Drilling and exploration                                 |   | 235,979                  |   |   | -            |   |   | -          |   |   | 235,979         |  
|Gain on embedded
      derivative liabilities (Note 6f ) |   |                          |   |   |              |   |   |            |   |   |                 |  
|Foreign exchange                                         |   | (16,677                  | ) |   | 1,405        |   |   | -          |   |   | (14,772         | )
|Interest and bank
      charges                          |   | 1,719                    |   |   | 43           |   |   | 550        |   |   | 1,732           |  
|Interest expense
       beneficial conversion           |   |                          |   |   |              |   |   |            |   |   |                 |  
|feature of debenture
      (Notes 6a, 6b & 6f)           |   | 1,026,000                |   |   | -            |   |   | -          |   |   | 1,026,000       |  
|Interest on long
      term debt (Note 6)                |   | 98,097                   |   |   | 5,000        |   |   | -          |   |   | 103,097         |  
|Investor relations                                       |   | 140,000                  |   |   | -            |   |   | -          |   |   | 140,000         |  
|Legal fees                                               |   | 42,177                   |   |   | 35,302       |   |   | 36,500     |   |   | 62,001          |  
|Management fees                                          |   | -                        |   |   | -            |   |   | 3,000      |   |   | -               |  
|Office and miscellaneous                                 |   | 10,432                   |   |   | 2,267        |   |   | 224        |   |   | 11,729          |  
|Stock based compensation                                 |   | -                        |   |   | -            |   |   | -          |   |   | -               |  
|Transfer agent and
      filing fees                     |   | 2,086                    |   |   | 6,350        |   |   | -          |   |   | 8,436           |  
|Travel                                                   |   | 109,462                  |   |   | -            |   |   |            |   |   | 109,462         |  
|Total operating expenses                                 |   | 1,944,298                |   |   | 146,867      |   |   | 55,774     |   |   | 2,043,187       |  
|                                                         |   |                          |   |   |              |   |   |            |   |   |                 |  
|Loss from Continuing Operations                          |   | (1,944,298               | ) |   | (146,867     | ) |   | (55,774    | ) |   | (2,043,187      | )
|                                                         |   |                          |   |   |              |   |   |            |   |   |                 |  
|Discontinued Operations                                  |   |                          |   |   |              |   |   |            |   |   |                 |  
|Income (loss) from
      discontinued operations         |   |                          |   |   |              |   |   |            |   |   |                 |  
|*(Note
      8)*                                         |   | -                        |   |   | 9,408        |   |   | (7,690     | ) |   | -               |  
|Gain on sale of subsidiary (Note
      8)                |   | -                        |   |   | 55,202       |   |   | -          |   |   | -               |  
|Income (loss) on discontinued
      operations           |   | -                        |   |   | 64,610       |   |   | (7,690     | ) |   | -               |  
|                                                         |   |                          |   |   |              |   |   |            |   |   |                 |  
|Loss for the Period                                      | $ | (1,944,298               | ) | $ | (82,257      | ) | $ | (63,464    | ) | $ | (2,043,187      | )
|                                                         |   |                          |   |   |              |   |   |            |   |   |                 |  
|BASIC AND DILUTED NET LOSS PER                           |   |                          |   |   |              |   |   |            |   |   |                 |  
|COMMON SHARE                                             | $ | (0.06                    | ) | $ | (0.00        | ) | $ | (0.00      | ) | $ |                 |  
|                                                         |   |                          |   |   |              |   |   |            |   |   |                 |  
|                                                         |   |                          |   |   |              |   |   |            |   |   |                 |  
|BASIC AND DILUTED WEIGHTED AVERAGE                       |   |                          |   |   |              |   |   |            |   |   |                 |  
|NUMBER OF COMMON SHARES                                  |   |                          |   |   |              |   |   |            |   |   |                 |  
|OUTSTANDING                                              |   | 31,114,703               |   |   | 88,745,548   |   |   | 70,780,550 |   |   |                 |  

The accompanying notes are an integral part of these financial
  statements

F-5

---

|Texola Energy Corporation         | Statement 4
|--------------------------------- | -----------
|(Formerly Sound Technology, Inc.) |            
|(An Exploration Stage Company)    |            
|Statements of Cash Flows          |            
|Expressed in US Funds             |            

|                                                        |   |                          |   |   |              |   |   |         |   |   | Cumulative    |  
|------------------------------------------------------- | - | ------------------------ | - | - | ------------ | - | - | ------- | - | - | ------------- | -
|                                                        |   |                          |   |   |              |   |   |         |   |   | Period from   |  
|                                                        |   |                          |   |   |              |   |   |         |   |   | September 29, |  
|                                                        |   |                          |   |   |              |   |   |         |   |   | 2005          |  
|                                                        |   |                          |   |   |              |   |   |         |   |   | To            |  
|                                                        |   | Years Ended December 31, |   |   | December 31, |  
|                                                        |   | 2006                     |   |   | 2005         |   |   | 2004    |   |   | 2006          |  
|Cash Resources
      Provided By (Used In)              |   |                          |   |   |              |   |   |         |   |   | *(Note 1*)    |  
|                                                        |   |                          |   |   |              |   |   |         |   |   |               |  
|Operating Activities                                    |   |                          |   |   |              |   |   |         |   |   |               |  
|                                                        |   |                          |   |   |              |   |   |         |   |   |               |  
|Loss for the period                                     | $ | (1,944,298               | ) | $ | (82,257      | ) | $ | (63,464 | ) | $ | (2,043,187    | )
|Adjustments to Reconcile Net Loss to Net                |   |                          |   |   |              |   |   |         |   |   |               |  
|Cash Provided
      by Operating Activities             |   |                          |   |   |              |   |   |         |   |   |               |  
|Gain on sale of subsidiary                              |   | -                        |   |   | (55,202      | ) |   | -       |   |   | -             |  
|Stock based compensation
      - consulting             |   | 99,945                   |   |   | 45,000       |   |   | -       |   |   | 144,945       |  
|Interest expense - beneficial conversion                |   |                          |   |   |              |   |   |         |   |   |               |  
|feature of debenture
      (Notes 6a. 6b & 6f)          |   | 1,026,000                |   |   | -            |   |   | -       |   |   | 1,026,000     |  
|Gain on embedded
      derivative liabilities (Note6e)  |   | (143,000                 | ) |   | -            |   |   | -       |   |   | (143,000      | )
|Assets held for
      resale and discontinued           |   |                          |   |   |              |   |   |         |   |   |               |  
|operations
      (Note 8)                               |   | -                        |   |   | (32,973      | ) |   | (55,090 | ) |   | -             |  
|Receivable                                              |   | (55,839                  | ) |   |              |   |   |         |   |   | (55,839       | )
|Prepaid expenses                                        |   | (31,671                  | ) |   |              |   |   |         |   |   | (31,671       | )
|Non cash interest                                       |   | 12,500                   |   |   |              |   |   |         |   |   | 12,500        |  
|Accrued liabilities                                     |   | (15,502                  | ) |   | 18,870       |   |   | 10,550  |   |   | 6,368         |  
|Interest payable                                        |   | 85,597                   |   |   | 5,000        |   |   | -       |   |   | 90,597        |  
|Due to related parties                                  |   | -                        |   |   | 39,970       |   |   | 3,000   |   |   | -             |  
|Liabilities held
      for resale and discontinued      |   |                          |   |   |              |   |   |         |   |   |               |  
|operations
      (Note 8)                               |   | -                        |   |   | 52,367       |   |   | 63,306  |   |   | -             |  
|                                                        |   | (966,268                 | ) |   | (9,225       | ) |   | (41,698 | ) |   | (993,287      | )
|Investing Activities                                    |   |                          |   |   |              |   |   |         |   |   |               |  
|Cash disposed of
      on disposal of subsidiary        |   | -                        |   |   | (18,802      | ) |   | -       |   |   | -             |  
|Acquisition of Oil and Gas property                     |   | (1,627,018               | ) |   | (25,200      | ) |   | -       |   |   | (1,652,218    | )
|Exploration advances                                    |   | (64,711                  | ) |   | -            |   |   | -       |   |   | (64,711       | )
|Proceeds on sale
      of share of Oil and Gas property |   | 48,062                   |   |   | -            |   |   | -       |   |   | 48,062        |  
|                                                        |   | (1,643,667               | ) |   | (44,002      | ) |   | -       |   |   | (1,668,867    | )
|Financing Activities                                    |   |                          |   |   |              |   |   |         |   |   |               |  
|Loans payable                                           |   | (5,000                   | ) |   | 30,200       |   |   | -       |   |   | 25,200        |  
|Capital contributions                                   |   | -                        |   |   | -            |   |   | 44,950  |   |   | -             |  
|Share subscriptions
      received                      |   | -                        |   |   | 231,666      |   |   | -       |   |   | 231,666       |  
|Convertible debentures                                  |   | 2,700,000                |   |   | -            |   |   | -       |   |   | 2,700,000     |  
|                                                        |   | 2,695,000                |   |   | 261,866      |   |   | 44,950  |   |   | 2,956,866     |  
|                                                        |   |                          |   |   |              |   |   |         |   |   |               |  
|Effect of Exchange Rate Changes on Cash                 |   | -                        |   |   | -            |   |   | (526    | ) |   | -             |  
|                                                        |   |                          |   |   |              |   |   |         |   |   |               |  
|Net Increase in Cash                                    |   | 85,065                   |   |   | 208,639      |   |   | 2,726   |   |   | 294,712       |  
|                                                        |   |                          |   |   |              |   |   |         |   |   |               |  
|Cash, Beginning of Period                               |   | 211,465                  |   |   | 2,826        |   |   | 100     |   |   | 1,818         |  
|                                                        |   |                          |   |   |              |   |   |         |   |   |               |  
|Cash, End of Period                                     | $ | 296,530                  |   | $ | 211,465      |   | $ | 2,826   |   | $ | 296,530       |  

The accompanying notes are an integral part of these financial
  statements

F-6

---



|Texola Energy Corporation          | Statement 4 -continued
|---------------------------------- | ----------------------
|(Formerly Sound Technology, Inc.)  |                       
|(An Exploration Stage Company)     |                       
|Statements of Cash Flow(Continued) |                       
|                                   |                       
|Expressed in US Funds              |                       

|                                                    |   |                          |   |   |              |   |   |      |  |   | Cumulative    |  
|--------------------------------------------------- | - | ------------------------ | - | - | ------------ | - | - | ---- |  | - | ------------- | -
|                                                    |   |                          |   |   |              |   |   |      |  |   | Period from   |  
|                                                    |   |                          |   |   |              |   |   |      |  |   | September 29, |  
|                                                    |   |                          |   |   |              |   |   |      |  |   | 2005          |  
|                                                    |   |                          |   |   |              |   |   |      |  |   | To            |  
|                                                    |   | Years Ended December 31, |   |   | December 31, |  
|                                                    |   | 2006                     |   |   | 2005         |   |   | 2004 |  |   | 2006          |  
|                                                    |   |                          |   |   |              |   |   |      |  |   | *(Note 1*)    |  
|Supplementary Disclosure for Non-Cash               |   |                          |   |   |              |   |   |      |  |   |               |  
|Investing and Financing Activities                  |   |                          |   |   |              |   |   |      |  |   |               |  
|                                                    |   |                          |   |   |              |   |   |      |  |   |               |  
|Settlement of amounts due to related party by       |   |                          |   |   |              |   |   |      |  |   |               |  
|issuance
      of shares                            | $ | 2,500                    |   | $ | 2,500        |   | $ | -    |  | $ | 2,500         |  
|Issuance of convertible debenture for oil and       |   |                          |   |   |              |   |   |      |  | $ |               |  
|gas property
      finders fees                     | $ | 500,000                  |   | $ | 500,000      |   | $ | -    |  |   | 500,000       |  
|Intrinsic value of the beneficial conversion        |   |                          |   |   |              |   |   |      |  |   |               |  
|feature convertible
      debentures (Notes 6a, 6b  |   |                          |   |   |              |   |   |      |  |   |               |  
|& 6f)                                               | $ | 1,026,000                |   | $ | -            |   | $ | -    |  | $ | 1,026,000     |  
|Gain on embedded derivative liabilities
      (Note |   |                          |   |   |              |   |   |      |  |   |               |  
|6f)                                                 | $ | (143,000                 | ) | $ | -            |   | $ | -    |  | $ | (143,000      | )
|Cancellation of capital stock
      on disposal of  |   |                          |   |   |              |   |   |      |  |   |               |  
|subsidiary                                          | $ | (6,050                   | ) | $ | (6,050       | ) | $ | -    |  | $ | (6,050        | )
|Promissory note payable                             | $ | -                        |   | $ | -            |   | $ | -    |  | $ | -             |  
|Acquisition of Subsidiary                           | $ | -                        |   | $ | -            |   | $ | -    |  | $ | -             |  
|Net liabilities assumed an acquisition
      of     |   |                          |   |   |              |   |   |      |  |   |               |  
|subsidiary                                          | $ | -                        |   | $ | -            |   | $ | -    |  | $ | -             |  
|Assets sold on disposal of subsidiary               | $ | 119,277                  |   | $ | 119,277      |   | $ | -    |  | $ | 119,277       |  
|Liabilities cancelled on disposal of subsidiary     | $ | (130,187                 | ) | $ | (130,187     | ) | $ | -    |  | $ | (130,187      | )
|Stock compensation expense                          | $ | 99,945                   |   | $ | 45,000       |   | $ | -    |  | $ | 144,945       |  
|                                                    |   |                          |   |   |              |   |   |      |  |   |               |  
|Supplementary Cash Flow Disclosures                 |   |                          |   |   |              |   |   |      |  |   |               |  
|                                                    |   |                          |   |   |              |   |   |      |  |   |               |  
|Interest paid                                       | $ | -                        |   | $ | -            |   | $ | -    |  |   | -             |  
|                                                    |   |                          |   |   |              |   |   |      |  |   |               |  
|Income taxes paid                                   | $ | -                        |   | $ | -            |   | $ | -    |  |   | -             |  

The accompanying notes are an integral part of these financial
  statements

F-7

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|1. | Organization and Going Concern
|-- | ------------------------------

On October 24, 2005, the predecessor
  company, Sound Technology, Inc. changed its name to Texola Energy Corporation
  (the Company), following a merger with its wholly owned subsidiary
  Texola Energy Corporation (Texola). Texola was incorporated on September
  29, 2005, for the purpose of changing the Companys name.

Sound Technology, Inc. was incorporated
  in Nevada, U.S.A. on October 14, 2003.

The Company is an exploration stage company.

In 2003, the Company acquired Audiyo
  Inc. (Audiyo), a company incorporated in Ontario, Canada. (Note
  3).Audiyo is an audio component Internet retailer with an interactive
  user-friendly website, www.audiyo.com, that enables the DIY (do-it-yourself)
  hobbyist to build sound systems by themselves at a price substantially less
  than current retail prices. Audiyos website provides step-by-step process
  instructions with visuals including tools and components required to build audio
  projects.

During the year, the Company changed
  its focus toward oil and gas exploration and effective December 31, 2005, completed
  the transaction disposing of its 100% interest in Audiyo to the former directors
  (Note 8).Accordingly, the cumulative amounts to date include the results
  of operations from the date of change of business focus, September 29, 2005
  to December 31, 2005

On November 1, 2005, the Company effected
  a forward split of its issued and outstanding common shares on a 10 for 1 basis,
  increasing the authorized number of shares from 75,000,000 with a par value
  of $0.001 to 750,000,000 with a par value of $0.001. The issued shares were
  likewise increased from 9,040,000 with a par value of $0.001 to 90,400,000 with
  a par value of $0.001. All common stock and per share amounts referred to in
  these financial statements have been adjusted to reflect the stock split.

Going Concern and Liquidity Considerations

The accompanying financial statements
  have been prepared assuming that the Company will continue as a going concern,
  which contemplates, among other things, the realization of assets and satisfaction
  of liabilities in the normal course of business. As at December 31, 2006, the
  Company has an accumulated deficit of $1,857,940. The Company intends to fund
  operations through equity and debt financing arrangements, which may be insufficient
  to fund its capital expenditures, working capital and other cash requirements
  for the year ending December 31, 2007.

The ability of the Company to emerge
  from the exploration stage is dependent upon the Companys successful efforts
  to raise sufficient capital for the development of its oil and gas interests,
  and then attaining profitable operations.

The ability of the Company to raise financing
  for its exploration activities, amongst other concerns, raise substantial doubt
  about the Companys ability to continue as a going concern. The accompanying
  financial statements do not include any adjustments that might result from the
  outcome of this uncertainty.

F-8

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US
      Funds      
|                                 

|2. | Significant Accounting Policies
|-- | -------------------------------
|   |                                
|   | a)                             
|   |                                
|   |                                
|   |                                
|   | b)                             
|   |                                
|   |                                
|   |                                
|   | c)                             
|   |                                
|   |                                
|   |                                
|   | d)                             
|   |                                
|   |                                
|   |                                
|   | e)                             
|   |                                
|   |                                

F-9

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|2. | Significant Accounting Policies- Continued
|-- | ------------------------------------------
|   |                                           
|   | f)                                        
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   | g)                                        
|   |                                           
|   |                                           
|   |                                           
|   | h)                                        
|   |                                           
|   |                                           
|   |                                           
|   | i)                                        
|   |                                           
|   |                                           

| | i)   | Monetary assets and liabilities at the rate of exchange
        in effect at the balance sheet date;
| | ---- | ----------------------------------------------------------------------------------------------------
| | ii)  | Revenue and expense items at the average rate of exchange
        prevailing during the period; and 
| | iii) | Equity at historical rates.                                                                         

F-10

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|2. | Significant Accounting Policies -Continued
|-- | ------------------------------------------
|   |                                           
|   | i)                                        
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   | j)                                        
|   |                                           
|   |                                           
|   |                                           
|   | k)                                        
|   |                                           
|   |                                           
|   |                                           
|   | l)                                        
|   |                                           
|   |                                           

F-11

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|2. | Significant Accounting Policies- Continued
|-- | ------------------------------------------
|   |                                           
|   | m)                                        
|   |                                           
|   |                                           
|   |                                           
|   | n)                                        
|   |                                           
|   |                                           
|   |                                           
|   | o)                                        
|   |                                           
|   |                                           
|   |                                           
|   | p)                                        
|   |                                           
|   |                                           
|   |                                           
|   | q)                                        
|   |                                           
|   |                                           

F-12

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|2. | Significant Accounting Policies- Continued
|-- | ------------------------------------------
|   |                                           
|   | q)                                        
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           

F-13

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|2. | Significant Accounting Policies- Continued
|-- | ------------------------------------------
|   |                                           
|   | q)                                        
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           

F-14

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|2. | Significant Accounting Policies- Continued                                                                                                                                                                                                                                                                                                                                                                        
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | q)                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                   
|3. | Acquisition and Subsequent Sale of Subsidiary                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | On December 31, 2003, the Company acquired
        100 percent of the outstanding common shares of Audiyo.                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The aggregate purchase price was $10,000.
        The Company issued a promissory note in the amount of $10,000 payable
        to the shareholders of Audiyo. The note bore interest at prime plus 2%
        per annum, compounded annually and was payable on December 31, 2008. Accordingly,
        this was classified as a long-term liability. Interest on the note was
        waived by the note holder.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The following table summarizes the fair value
        of the assets acquired and liabilities assumed at the date of acquisition,
        December 31, 2003:                                                                                                                                                                                                                                                       

| | Cash                      | $ | 2,796   |  
| | ------------------------- | - | ------- | -
| | Accounts receivable       |   | 336     |  
| | Prepaid expenses          |   | 289     |  
| | Inventory                 |   | 11,976  |  
| | Total assets acquired     |   | 15,397  |  
| |                           |   |         |  
| | Accounts payable          |   | (2,114  | )
| | Due to related parties    |   | (22,400 | )
| | Total liabilities assumed |   | (24,514 | )
| |                           |   |         |  
| | Net liabilities assumed   | $ | (9,117  | )

As one of the shareholders of Audiyo
  was a promoter of the Company, the excess over predecessor costs has been treated
  as a reduction of equity (a special distribution). Accordingly, that portion
  of the $10,000 promissory note issued, related to the shareholder, being $3,300,
  has reduced goodwill.

The goodwill booked was therefore $15,817,
  being the excess of the purchase price for Audiyo over the identifiable assets
  of Audiyo, less the $3,300 mentioned above.

Effective December 31, 2005, the Company
  completed the sale of its 100% interest in Audiyo. (See Note 8)

F-15

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|4. | Oil and Gas Properties                                                                   
|-- | -----------------------------------------------------------------------------------------
|   |                                                                                          
|   | The total cost incurred and excluded from amortization
        are summarized as follows:

| |                               |   | December 31, |  |   | December 31, | 
| | ----------------------------- | - | ------------ |  | - | ------------ | 
| |                               |   | 2006         |  |   | 2005         | 
| | Oil and Gas Properties        |   |              |  |   |              | 
| |                               |   |              |  |   |              | 
| | Brown County Property (a)     |   |              |  |   |              | 
| | Acquisition costs             | $ | 25,200       |  | $ | 25,200       | 
| |                               |   |              |  |   |              | 
| | Maverick Springs Property (b) |   |              |  |   |              | 
| | Financing fees                |   | 500,000      |  |   | 500,000      | 
| | Acquisition costs             |   | 1,578,956    |  |   | -            | 
| |                               |   | 2,078,956    |  |   | 500,000      | 
| |                               |   |              |  |   |              | 
| |                               | $ | 2,104,156    |  | $ | 525,200      | 
| |                               |   |              |  |   |              | 
| | Exploration Advances          |   |              |  |   |              | 
| |                               |   |              |  |   |              | 
| | Chinchaga Property (c)        | $ | 64,711       |  | $ | -            | 

At December 30, 2006, all of the Companys
  oil and gas properties are considered unproven.

| | a) | Brown County Property, Kansas, United States                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Under an assignment agreement dated November 11, 2005,
        the Company acquired the Brown County Property from Heartland
        Oil and Gas Corp. at a cost of $25,200, paid in cash. The Brown County
        Property consist of 23 oil and gas leases covering an aggregate of approximately
        6,328 acres, located in the State of Kansas. The expiration date for the
        leases range from dates in October 2008 through April 2014.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | b) | Maverick Springs Property, Nevada, United States                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | During the year ended December 31, 2005 the Company
        paid finders fees with a fair value $500,000 by issuing a Convertible
        Debenture to a related party in regard to a Joint Participation Agreement
        with Chamberlain Exploration Development and Stratigraphic Corporation
        (Cedar Strat). (Note 6a)                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Pursuant to the participation agreement Cedar Strat
        is to provide certain proprietary information and geological data relating
        to a prospect area covering approximately 120,000 acres in Nevada. The
        term of the participation agreement is for 10 years from April 3, 2006,
        the date the Company acquired the leases in the property area for $518,330.                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The participation fee is calculated at a cost of $10.00
        per acre multiplied by the total acreage of leases that the Company obtains
        in the property, with a minimum payment of $700,000 and a maximum payment
        of $1,100,000.                                                                                                                                                                                                       

F-16

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|4. | Oil and Gas Properties- Continued
|-- | ---------------------------------
|   |                                  
|   | b)                               
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|   |                                  

| | i)   | $100,000 within 30 days of delivery of a gravity model
        coinciding with a structural cross section delivered as part of the base
        prospect fee (paid);
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ii)  | $200,000 within 30 days of delivery of a second structural
        cross section with gravity mode (paid)                                                           
| | iii) | $100,000 at the time of well permitting.                                                                                                                            

In addition to the above the Company
  is required to:

| | i)   | commence a drilling program on the property within eighteen
        months of Cedar Strat completing the comprehensive survey in accordance
        with the participation agreement;           
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ii)  | drill one test well within 18 months of completion of
        the survey and a subsequent test well within 12 months following the completion
        or abandonment of the prior test well; and
| | iii) | Drill a subsequent test well every 12 months for the
        term of the participation agreement.                                                                                               

Pursuant to the participation agreement
  the Company will receive 80% of the net revenue interest of any revenues generated.
  Cedar Start will retain a 5.5% overriding royalty.

| | **c)** | **Chinchaga Property, Alberta, Canada**
| | ------ | ---------------------------------------

The Company together with 5 partners
  (the Group) entered into a farmout arrangement for the Chinchaga
  property with Suncor Energy Inc. of Calgary, Alberta. Pursuant to the arrangement
  the Group will participate with a 100% working interest in the cost to drill
  an exploratory well on approximately 18,000 acres of leases owned by Suncor
  Energy Inc. On completion of the first well the group will earn a 100% working
  interest in approximately 7,000 acres and will have the option to drill a second
  well in 2007 on the remaining lands. Suncor Energy will retain a 12.5% gross
  overriding royalty in the lands.

The Company is a minority partner with
  a 10% working interest.

To finance the Companys obligations
  with respect to the project the Company issued a Convertible Debenture in the
  amount of $1,300,000 (Note 6b).

F-17

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|4. | Oil and Gas Properties- Continued
|-- | ---------------------------------
|   |                                  
|   | c)                               
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|5. | Loans Payable                    

Loans payable consist of loans made by
  unrelated parties to the Company. The loans are unsecured, non-interest bearing
  and fall due on October 31, 2007.

|6. | Convertible Debentures
|-- | ----------------------
|   |                       
|   | a)                    
|   |                       
|   |                       
|   |                       
|   | b)                    
|   |                       
|   |                       

F-18

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|6. | Convertible Debentures- Continued
|-- | ---------------------------------

A portion of the proceeds from issuance
  of the convertible debt, equal to the intrinsic value, is then allocated to
  additional paid-in capital. Because the debt is convertible at the date of issuance,
  the debt discount is charged to interest expense at the date of issuance.

During the year ended December 31, 2006
  interest expense relating to the beneficial conversion feature of the 6% debentures
  of $390,000 (2005 - $Nil) was recorded in the financial statements

| | c) | On May 10, 2006, the Company issued a Convertible Debenture
        in the amount of $300,000. The Debenture bears interest at 8% per annum,
        and falls due May 10, 2008. Each $1.00 of the Debenture and accrued interest
        may be converted at the option of the holder into common stock of the
        Company at the lower of $1.00 or the market price of the common stock
        at the time of conversion.                                                                                                                                                                                                                                         
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | d) | On September 1, 2006, the Company issued a Convertible
        Debenture in the amount of $400,000. The Debenture bears interest at 8%
        per annum, and falls due September 1, 2007. Each $1.00 of the Debenture
        and accrued interest may be converted at the option of the holder into
        common stock of the Company at the lower of $0.80 or 90% of the market
        price of the common stock at the time of conversion.                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | e) | On November 15, 2006, the Company issued a Convertible
        Debenture in the amount of $700,000. The Debenture bears interest at 8%
        per annum, and falls due November 15, 2007. Each $1.00 of the Debenture
        and accrued interest may be converted at the option of the holder into
        common stock of the Company at the lower of $0.80 or 90% of the market
        price of the common stock at the time of conversion.                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | f) | The Company determined that the conversion feature of
        the 8% Convertible Debentures (Notes 6c, 6d and 6e)is required
        to be accounted for as a derivative, according to Statement of Accounting
        Standards No. 133 (SFAS 133) and Emerging Issues Task Force Abstract Issue
        No. 00-19 (EITF 00-19), as the conversion feature met the attributes of
        a liability. As at December 31, 2006 the fair value of the conversion
        feature of the 8% Convertible Debentures estimated using the Black-Scholes
        option pricing model has been recorded as a current liability in the amount
        of $493,000, (2005 - $Nil)
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Changes in the fair value of the value of the derivative
        are recorded as a gain (loss) on embedded derivative liability.
        The Company recorded an interest expense at the inception of the conversion
        feature, as the notes are immediately convertible at the option of the
        lender.                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | During the year ended December 31, 2006 the Company
        recorded interest expense relating to the beneficial conversion feature
        of the 8% Convertible Debentures of $636,000 (2005 - $Nil), and a gain
        resulting from the change in fair value of the embedded derivative liability
        of $143,000 (2005 - $Nil).                                                                                                                                                                                                                                                                                                                               

F-19

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|6. | Convertible Debentures- Continued
|-- | ---------------------------------

The fair value of the 8% Convertible
  Debentures as at December 31, 2006 and 2005 is estimated using the Black-Scholes
  option pricing model with the following weighted average assumptions:

| |                                                   |   | 2006  |  |  | 2005 | 
| | ------------------------------------------------- | - | ----- |  |  | ---- | 
| |                                                   |   |       |  |  |      | 
| | Risk free interest rate                           |   | 4.00% |  |  | -    | 
| | Expected life - years                             |   | 0.74  |  |  | -    | 
| | Expected volatility                               |   | 78%   |  |  | -    | 
| | Expected dividend yield                           |   | -     |  |  | -    | 
| | Weighted average of fair value of options granted | $ | 0.25  |  |  | -    | 

|7. | Capital Stock
|-- | -------------
|   |              
|   | a)           
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   | b)           
|   |              
|   |              

F-20

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|7. | Capital Stock -Continued
|-- | ------------------------
|   |                         
|   | b)                      
|   |                         
|   |                         

NumberExercisableExercise
      
      
      AtNumber of
      
      Price per
      
      
      December 31,
      
      
      ExpiryShares
      
      Share
      
      
      2006
      
      
      Date700,000
      $
      0.50
      
      
      525,000
      
      
      November 21, 2010


A summary of changes in stock options
  for the years ended December 31, 2006 and 2005 is presented below:

| |                                  |  | December 31, 2006 |  |   | December 31, 2005 | 
| | -------------------------------- |  | ----------------- |  | - | ----------------- | 
| |                                  |  | Number            |  |   | Weighted          | 
| |                                  |  | Of                |  |   | Average           | 
| |                                  |  | Stock             |  |   | Exercise          | 
| |                                  |  | Options           |  |   | Price             | 
| | Outstanding, beginning of period |  | 700,000           |  | $ | 0.50              | 
| | Issued                           |  | -                 |  |   | -                 | 
| | Outstanding, end of period       |  | 700,000           |  | $ | 0.50              | 

As at December 31, 2006, 525,000 of these options
  have vested.

| | c) | Share Purchase Warrants
| | -- | -----------------------

As at December 31, 2006, share purchase
  warrants were outstanding for the purchase of common shares as follows

Number of
      Exercise
      ExpiryShares
      Price
      Date1,025,000
      $ 0.50
      March 27, 2008


F-21

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|7. | Capital Stock -Continued
|-- | ------------------------
|   |                         
|   | c)                      
|   |                         
|   |                         

| |                                  |  | December 31, 2006 |  |   | December 31, 2005 | 
| | -------------------------------- |  | ----------------- |  | - | ----------------- | 
| |                                  |  |                   |  |   | Weighted          | 
| |                                  |  | Number            |  |   | Average           | 
| |                                  |  | Of                |  |   | Exercise          | 
| |                                  |  | Warrants          |  |   | Price             | 
| |                                  |  |                   |  |   |                   | 
| | Outstanding, beginning of period |  | -                 |  | $ | -                 | 
| |                                  |  |                   |  |   |                   | 
| | Issued                           |  | 1,025,000         |  |   | 0.50              | 
| |                                  |  |                   |  |   |                   | 
| | Outstanding, end of period       |  | 1,025,000         |  | $ | 0.50              | 

| | d) | Stock Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Compensation costs attributable to share options granted
        to employees, directors or consultants is measured at fair value at the
        grant date and expensed with a corresponding increase to paid up capital
        over the vesting period. Upon exercise of the stock options, consideration
        paid by the option holder together with the amount previously recognized
        in additional paid up capital is recorded as an increase to share capital.
        The total fair value of the 700,000 options granted was $180,000 (2004
        - $nil) based on the Black-Scholes pricing model. Since the options vest
        on a graded schedule during the year ended December 31, 2006 the Company
        recorded $99,945 (2005 - $45,000) in stock based compensation for options
        granted during the year, which was charged to consulting expense.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The fair value of each option granted is estimated on
        the date of grant using the Black-Scholes option pricing model with the
        following weighted average assumptions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| |                                                   |  | 2006 |  |  | 2005   | 
| | ------------------------------------------------- |  | ---- |  |  | ------ | 
| |                                                   |  |      |  |  |        | 
| | Risk free interest rate                           |  | -    |  |  | 3.77%  | 
| | Expected life                                     |  | -    |  |  | 3.00   | 
| | Expected volatility                               |  | -    |  |  | 76.00% | 
| | Expected dividend yield                           |  | -    |  |  | -      | 
| | Weighted average of fair value of options granted |  | -    |  |  | $0.50  | 

F-22

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|8. | Discontinued Operations
|-- | -----------------------

Pursuant to an agreement dated November
  16, 2005, and effective December 31, 2005, the Company sold 100% of Audiyo Inc.
  to two directors and a past director. In consideration for the sale of the net
  assets of Audiyo, the purchasers returned 60,500,000 shares of Texola to the
  Company for cancellation, valued at $6,050, and forgave all outstanding amounts
  owed to the purchasers by the Company in the amount of $50,870. The shares received
  by the Company were cancelled subsequent to the year end.

The transaction was valued at the fair
  value of the assets and liabilities disposed of, and the non-monetary consideration
  was valued at the recorded amount.

The following table summarizes the identifiable
  assets and liabilities of Audiyo that was disposed of and the consideration
  received.

| | Consideration received                                             |   |          |   |  |        | 
| | ------------------------------------------------------------------ | - | -------- | - |  | ------ | 
| | Capital stock returned to treasury                                 | $ | 6,050    |   |  |        | 
| | Special distribution and other comprehensive
      income reversal |   | (3,826   | ) |  |        | 
| | Loans from related parties forgiven                                |   | 50,870   |   |  |        | 
| | Promissory note forgiven                                           |   | 10,000   |   |  |        | 
| |                                                                    |   |          |   |  |        | 
| | Total consideration received                                       |   |          |   |  | 63,094 | 
| |                                                                    |   |          |   |  |        | 
| | Identifiable assets and liabilities                                |   |          |   |  |        | 
| | Cash                                                               | $ | 18,802   |   |  |        | 
| | Accounts receivable                                                |   | 5,355    |   |  |        | 
| | Prepaid expenses                                                   |   | 1,243    |   |  |        | 
| | Inventory                                                          |   | 96,862   |   |  |        | 
| | Goodwill                                                           |   | 15,817   |   |  |        | 
| | Accounts payable                                                   |   | (1,281   | ) |  |        | 
| | Due to related parties                                             |   | (117,906 | ) |  |        | 
| | Loans payable                                                      |   | (11,000  | ) |  |        | 
| |                                                                    |   |          |   |  |        | 
| | Net assets sold                                                    |   |          |   |  | 7,892  | 
| |                                                                    |   |          |   |  |        | 
| | Gain on Disposal                                                   |   |          |   |  | 55,202 | 

|9. | Segmented Information
|-- | ---------------------

The Company currently operates in only
  the oil and gas industry and does not operate in different business segments.

Details on a geographic basis of the
  location of the assets, liabilities and loss for the year, at December 31, 2006
  are as follows:

| |                   |   | Canada    |  |   | USA       |  |   | Total     | 
| | ----------------- | - | --------- |  | - | --------- |  | - | --------- | 
| |                   |   |           |  |   |           |  |   |           | 
| | Assets            | $ | 448,751   |  | $ | 2,104,156 |  | $ | 2,788,886 | 
| | Liabilities       | $ | 3,326,215 |  | $ | -         |  | $ | 3,326,215 | 
| | Loss for the year | $ | 1,944,298 |  | $ | -         |  | $ | 1,944,298 | 

F-23

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|9. | Segmented Information -Continued
|-- | --------------------------------

Details on a geographic basis of the
  location of the assets, liabilities and loss for the year, at December 31, 2005
  are as follows:

| |                   |   | Canada  |  |   | USA     |  |   | Total   | 
| | ----------------- | - | ------- |  | - | ------- |  | - | ------- | 
| |                   |   |         |  |   |         |  |   |         | 
| | Assets            | $ | 211,465 |  | $ | 525,200 |  | $ | 736,665 | 
| | Liabilities       | $ | 799,786 |  | $ | -       |  | $ | 799,786 | 
| | Loss for the year | $ | 82,257  |  | $ | -       |  | $ | 82,257  | 

|10. | Commitment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | During the year, the Company entered into a consultancy
        contract with RLC Strategic Capital Management Corp that expires December
        31, 2008. RLC Strategic Capital Management Corp is to provide strategic
        development and financing initiatives for the Company. Over the term of
        the contract, the Company will pay a contractual fee of $10,000 per month
        and a transaction fee on any financing equal to 4% of any aggregated financing
        received by the Company.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|11. | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

A reconciliation of the expected income
  tax expense (benefit) to the actual income tax expense (benefit) is as follows:

| |                                            |   | 2006       |   |   | 2005    |  
| | ------------------------------------------ | - | ---------- | - | - | ------- | -
| |                                            |   |            |   |   |         |  
| | Statutory rates                            |   | 34%        |   |   | 34%     |  
| | Net loss for the year                      | $ | (1,944,000 | ) | $ | (82,000 | )
| |                                            |   |            |   |   |         |  
| | Income tax recovery at statutory rate      |   | (661,000   | ) |   | (28,000 | )
| | Stock based compensation                   |   | 34,000     |   |   | 15,000  |  
| | Items not deductible for tax purposes      |   | 300,000    |   |   | (5,000  | )
| | Valuation allowance                        |   | 327,000    |   |   | 18,000  |  
| |                                            |   |            |   |   |         |  
| | Income tax expense                         | $ | -          |   | $ | -       |  
| | The components of future income taxes are: |   |            |   |   |         |  
| |                                            |   | 2006       |   |   | 2005    |  
| |                                            |   |            |   |   |         |  
| | Non-capital losses carryforwards           | $ | 365,000    |   | $ | 38,000  |  
| |                                            |   |            |   |   |         |  
| | Valuation allowance                        |   | (365,000   | ) |   | (38,000 | )
| |                                            |   |            |   |   |         |  
| | Net future tax asset                       | $ | -          |   | $ | -       |  

F-24

---

|Texola Energy Corporation        
|---------------------------------
|(Formerly Sound Technology, Inc.)
|(An Exploration Stage Company)   
|Notes to Financial Statements    
|December 31, 2006 and 2005       
|Expressed in US Funds            
|                                 

|11. | Income Taxes -Continued
|--- | -----------------------

The Company has available tax losses
  of approximately $208,000, which may be offset against future Canadian taxable
  income. These losses expire as follows:

2023
      $
      4,0002024
      
      56,0002025
      
      53,0002026
      
      961,000$
      1,074,000




|**12.** | **Restatement**
|------- | ---------------

The Company has restated its December 31, 2005 financial
  statements in order to correctly account for the par value of the capital
  stock.

As a result of the restatement, for the
  years ended December 31, 2003, 2004 and 2005 capital stock has been increased
  by $450, $81,360 and $26,932 respectively, and additional paid in capital has
  reduced by $$450, $81360, and $26,932 respectively. The restatement has no effect
  on the accumulated deficit as at December 31, 2003, 2004 or 2005, nor the statement
  of loss for the years ended December 31, 2003, 2004 and 2005.

|13. | Comparative Figures
|--- | -------------------

Certain of the comparative figures have
  been reclassified to conform with the presentation adopted for the current year.

F-25

---

- 41 -

Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.

None.

Item 8A. Controls and Procedures.

We maintain disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our reports
filed under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, and that such information
is accumulated and communicated to our management, including our President (who
is also our Secretary and Treasurer) to allow for timely decisions regarding
required disclosure. In designing and evaluating our disclosure controls and
procedures, our management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and our management is required to
apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.

As of December 31, 2006, the end of the year covered by this
report, we carried out an evaluation, under the supervision and with the
participation of our management, including our President (who is also our
Secretary and Treasurer), of the effectiveness of the design and operation of
our disclosure controls and procedures. Based on the foregoing, our President
(who is also our Secretary and Treasurer) concluded that our disclosure controls
and procedures were effective as of the end of the period covered by this annual
report.

There have been no significant changes in our internal controls
over financial reporting that occurred during the quarter ended December 31,
2006 that have materially or are reasonably likely to materially affect, our
internal controls over financial reporting.

PART III

Item 9. Directors, Executive Officers, Promoters, Control
Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange
Act.

All directors of our company hold office until the next annual
general meeting of the shareholders or until their successors are elected and
qualified. The officers of our company are appointed by our board of directors
and hold office until their earlier death, retirement, resignation or
removal.

Our directors, executive officers and other significant
employees, their ages, positions held and duration each person has held that
position, are as follows:

Name
    Position Held with the Company
    Age
    Date First Elected or AppointedThornton Donaldson
    President, Secretary, Treasurer Director
    79
    November 8, 2005 October 3, 2005


Business Experience

The following is a brief account of the education and business
experience of our sole director and executive officer during at least the past
five years, indicating his principal occupation during the period, and the name
and principal business of the organization by which he was employed.

Thornton Donaldson  President, Secretary, Treasurer and
Director

Mr. Donaldson is currently the President, Secretary, Treasurer
and a director of our company. In addition to the positions held in our company,
Mr. Donaldson was the President of Canwest Petroleum Corporation from April

---

- 42 -

1998 to May 16, 2002 and from September 15, 2003 to present.
Canwest Petroleum is a company whose shares are quoted on the OTC Bulletin
Board. Mr. Donaldson was also President of Rich Coast, Inc., an industrial waste
treatment company located in Dearborn, Michigan from 1984 to 1993, and was a
director of Rich Coast from 1993 to 1999. Mr. Donaldson has been a director of
Lorex Resources, Ltd., a mineral exploration company located in Vancouver,
British Columbia since July 1999. Additionally, Mr. Donaldson is the President
and sole director of United Corporate Advisers Ltd., a geological and financial
consulting business founded by Mr. Donaldson in 1970. Mr. Donaldson has also
been self-employed as a consulting geologist and financial advisor as of
1978.

Family Relationships

There are no family relationships among our directors or
officers.

Involvement in Certain Legal Proceedings

Our director, executive officer and control persons have not
been involved in any of the following events during the past five years:

| | 1. | any bankruptcy petition filed by or against any business
      of which such person was a general partner or executive officer either at
      the time of the bankruptcy or within two years prior to that
  time;                                                                                                            
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                
| | 2. | any conviction in a criminal proceeding or being subject
      to a pending criminal proceeding (excluding traffic violations and other
      minor offenses);                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                
| | 3. | being subject to any order, judgment, or decree, not
      subsequently reversed, suspended or vacated, of any court of competent
      jurisdiction, permanently or temporarily enjoining, barring, suspending or
      otherwise limiting his involvement in any type of business, securities or
      banking activities; or
| |    |                                                                                                                                                                                                                                                                                                                                
| | 4. | being found by a court of competent jurisdiction (in a
      civil action), the Commission or the Commodity Futures Trading Commission
      to have violated a federal or state securities or commodities law, and the
      judgment has not been reversed, suspended, or
vacated.                                           

Compliance with Section 16(a) of the Securities Exchange Act
of 1934

Section 16(a) of the Securities Exchange Act requires our
executive officers and directors, and persons who own more than 10% of our
common stock, to file reports regarding ownership of, and transactions in, our
securities with the Securities and Exchange Commission and to provide us with
copies of those filings. Based solely on our review of the copies of such forms
received by us, or written representations from certain reporting persons, we
believe that during fiscal year ended December 31, 2006, all filing requirements
applicable to its officers, directors and greater than 10% percent beneficial
owners were complied with, with the exception that Thornton Donaldson filed two
late Form 4  Statement of Changes in Beneficial Ownership of Securities,
reporting two late transactions.

Code of Ethics

Effective March 30, 2006, our company's board of directors
adopted a Code of Business Conduct and Ethics that applies to, among other
persons, our company's president (being our principal executive officer) and our
company's secretary (being our principal financial and accounting officer and
controller), as well as persons performing similar functions. As adopted, our
Code of Business Conduct and Ethics sets forth written standards that are
designed to deter wrongdoing and to promote:

| | (1) | honest and ethical conduct, including the ethical
      handling of actual or apparent conflicts of interest between personal and
      professional relationships;                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                              
| | (2) | full, fair, accurate, timely, and understandable
      disclosure in reports and documents that we file with, or submit to, the
      Securities and Exchange Commission and in other public communications made
      by us;

---

- 43 -

|(3) | compliance with applicable governmental laws, rules and
      regulations;                                                                                                                       
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                  
|(4) | the prompt internal reporting of violations of the Code
      of Business Conduct and Ethics to an appropriate person or persons
      identified in the Code of Business Conduct and Ethics; and
|    |                                                                                                                                                                                                  
|(5) | accountability for adherence to the Code of Business
      Conduct and Ethics.                                                                                                                   

Our Code of Business Conduct and Ethics requires, among other
things, that all of our company's personnel shall be accorded full access to our
president and secretary with respect to any matter which may arise relating to
the Code of Business Conduct and Ethics. Further, all of our company's personnel
are to be accorded full access to our company's board of directors if any such
matter involves an alleged breach of the Code of Business Conduct and Ethics by
our president or secretary.

In addition, our Code of Business Conduct and Ethics emphasizes
that all employees, and particularly managers and/or supervisors, have a
responsibility for maintaining financial integrity within our company,
consistent with generally accepted accounting principles, and federal ,
provincial and state securities laws. Any employee who becomes aware of any
incidents involving financial or accounting manipulation or other
irregularities, whether by witnessing the incident or being told of it, must
report it to his or her immediate supervisor or to our company's president or
secretary. If the incident involves an alleged breach of the Code of Business
Conduct and Ethics by the president or secretary, the incident must be reported
to any member of our board of directors. Any failure to report such
inappropriate or irregular conduct of others is to be treated as a severe
disciplinary matter. It is against our company policy to retaliate against any
individual who reports in good faith the violation or potential violation of our
company's Code of Business Conduct and Ethics by another.

Our Code of Business Conduct and Ethics was filed as Exhibit
14.1 to our annual report on Form 10-KSB filed with the Securities and Exchange
Commission on April 17, 2006. We will provide a copy of the Code of Business
Conduct and Ethics to any person without charge, upon request. Requests can be
sent to: Texola Energy Corporation, Suite 206  475 Howe Street, Vancouver,
British Columbia, Canada V6C 2B3.

Nomination Process

As of April 10, 2007, we did not effect any material changes to
the procedures by which our shareholders may recommend nominees to our board of
directors. Our board of directors does not have a policy with regards to the
consideration of any director candidates recommended by our shareholders. Our
board of directors has determined that it is in the best position to evaluate
our companys requirements as well as the qualifications of each candidate when
the board considers a nominee for a position on our board of directors. If
shareholders wish to recommend candidates directly to our board, they may do so
by sending communications to the President of our company at the address on the
cover of this annual report.

Audit Committee and Audit Committee Financial
Expert

We do not have a standing audit committee at the present time.
Our board of directors has determined that we do not have a board member that
qualifies as an "audit committee financial expert" as defined in Item 401(e) of
Regulation S-B, nor do we have a board member that qualifies as independent as
the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities
Exchange Act of 1934, as amended.

We believe that the sole member of our board of directors is
capable of analyzing and evaluating our financial statements and understanding
internal controls and procedures for financial reporting. The board of directors
of our company does not believe that it is necessary to have an audit committee
because we believe that the functions of an audit committee can be adequately
performed by the board of directors, solely consisting of J. Stephen Barley. In
addition, we believe that retaining an independent director who would qualify as
an audit committee financial expert would be overly costly and burdensome and
is not warranted in our circumstances given the early stages of our development
and the fact that we have not generated any revenues from operations to
date.

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- 44 -

Item 10. Executive Compensation.

The particulars of compensation paid to the following
persons:

| | (a) | our principal executive officer;                                                                                                                                                                                                                 
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                  
| | (b) | each of our two most highly compensated executive
      officers who were serving as executive officers at the year ended December
      31, 2006; and                                                                                           
| |     |                                                                                                                                                                                                                                                  
| | (c) | up to two additional individuals for whom disclosure
      would have been provided under (b) but for the fact that the individual
      was not serving as our executive officer at the end of the most recently
      completed financial year,

who we will collectively refer to as the named executive
officers, of our company for the years ended December 31, 2006, 2005 and 2004,
are set out in the following summary compensation tables:

SUMMARY COMPENSATION
      TABLENameand PrincipalPosition
    Year
    Salary($)
    Bonus($)
    StockAwards($)
    OptionAwards($)
    Non-EquityIncentivePlanCompensa-tion($)
    Change inPensionValue andNonqualifiedDeferredCompensationEarnings($)
    AllOtherCompensa-tion($)
    Total($)Thornton Donaldson President, Secretary
      and Treasurer (1)
    2006 2005
    Nil Nil
    Nil Nil
    Nil Nil
    Nil 150,000
      (2)
    Nil Nil
    Nil Nil
    Nil Nil
    Nil 150,000


|(1) | Mr. Donaldson was appointed our President, Secretary and
      Treasurer on November 8, 2005.                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                          
|(2) | Mr. Donaldson was granted 300,000 stock options on
      November 18, 2005. Each option is exercisable at a price of $0.50 until
      November 18, 2010.

We have not entered into any employment agreement or consulting
agreement with our current director and executive officer. There are no
arrangements or plans in which we provide pension, retirement or similar
benefits for directors or executive officers. Our directors and executive
officers may receive stock options at the discretion of our board of directors
in the future. We do not have any material bonus or profit sharing plans
pursuant to which cash or non-cash compensation is or may be paid to our
directors or executive officers, except that stock options may be granted at the
discretion of our board of directors from time to time. We have no plans or
arrangements in respect of remuneration received or that may be received by our
executive officers to compensate such officers in the event of termination of
employment (as a result of resignation, retirement, change of control) or a
change of responsibilities following a change of control.

Outstanding Equity Awards at Fiscal Year-End

We established a 2005 Stock Option Plan to provide for the
issuance of stock options to acquire an aggregate of up to 5,000,000 shares of
our common stock. As of April 10, 2007, there were 700,000 options outstanding
that were issued under our 2005 Stock Option Plan.

As at December 31, 2006, we had 700,000 options outstanding and
4,300,000 options available for future grants. During the year ended December
31, 2006, we did not grant any options to purchase shares of our common stock
and no stock options were exercised.

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- 45 -

The particulars of unexercised options, stock that has not
vested and equity incentive plan awards for our named executive officers are set
out in the following table:

Options Awards
    Stock AwardsName
    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
      Exercise Price ($)
    Option
      Expiration Date
    Number
      of Shares or Units
      of Stock That Have
      Not Vested (#)
    Market
      Value of Shares or
      Units of Stock That
      Have Not Vested ($)
    Equity
      Incentive Plan Awards: Number
      of Unearned Shares, Units or
      Other Rights That Have Not
      Vested (#)
    Equity
      Incentive Plan Awards: Market
      or Payout Value of Unearned
      Shares, Units or Other Rights
      That Have Not Vested ($)Thornton Donaldson President,
      Secretary and Treasurer
    300,000
    Nil
    Nil
    $0.50
    November 18, 2010
    Nil
    Nil
    Nil
    Nil


Director Compensation

We reimburse our directors for expenses incurred in connection
with attending board meetings. We did not pay any other director's fees or other
cash compensation for services rendered as a director for the fiscal year ended
December 31, 2006.

We have no formal plan for compensating our directors for their
service in their capacity as directors, although such directors are expected in
the future to receive stock options to purchase common shares as awarded by our
board of directors or (as to future stock options) a compensation committee
which may be established. Directors are entitled to reimbursement for reasonable
travel and other out-of-pocket expenses incurred in connection with attendance
at meetings of our board of directors. Our board of directors may award special
remuneration to any director undertaking any special services on our behalf
other than services ordinarily required of a director. No director received
and/or accrued any compensation for their services as a director, including
committee participation and/or special assignments.

Item 11. Security Ownership of Certain Beneficial Owners and
Management.

The following table sets forth, as of April 10, 2007, certain
information with respect to the beneficial ownership of our common stock by each
stockholder known by us to be the beneficial owner of more than 5% of our common
stock and by our sole director and executive officer. Each person has sole
voting and investment power with respect to the shares of common stock, except
as otherwise indicated. Beneficial ownership consists of a direct interest in
the shares of common stock, except as otherwise indicated. Except as otherwise
noted, the number of shares beneficially owned includes common stock which the
named person has the right to acquire, through conversion or option exercise, or
otherwise, within 60 days after April 10, 2006. Beneficial ownership
calculations for 5% stockholders are based solely on publicly filed Schedule
13Ds or 13Gs, which 5% stockholders are required to file with the Securities and
Exchange Commission.

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- 46 -

Name and Address of Beneficial Owner
    Amount and Nature ofBeneficial Ownership
    Percentageof Class(1)Thornton Donaldson Suite 206  475 Howe Street Vancouver,
      BC V6C 2B3
    2,300,000(2)
    7.3%Directors and Executive Officers as a Group
    2,300,000(2)
    7.3%


|(1) | Based on 31,413,333 shares of common stock issued and
      outstanding as of April 10, 2007. Beneficial ownership is determined in
      accordance with the rules of the Securities and Exchange Commission and
      generally includes voting or investment power with respect to securities.
      Except as otherwise indicated, we believe that the beneficial owners of
      the common stock listed above, based on information furnished by such
      owners, have sole investment and voting power with respect to such shares,
      subject to community property laws where applicable.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(2) | Includes 300,000 options to acquire an aggregate of
      300,000 shares of common stock exercisable within sixty days of April 10,
      2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Equity Compensation Plan Information

This information can be found under Item 5  "Market for Common
Equity and Related Stockholder Matters."

Changes in Control

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

Item 12. Certain Relationships and Related Transactions and
Director Independence.

No director, executive officer, principal shareholder holding
at least 5% of our common shares, or any family member thereof, had any material
interest, direct or indirect, in any transaction, or proposed transaction,
during the year ended December 31, 2006, in which the amount involved in the
transaction exceeded or exceeds the lesser of $120,000 or one percent of the
average of our total assets at the year end for the last three completed fiscal
years.

Item 13. Exhibits.

Exhibits Required by Item 601 of Regulation S-B

The following Exhibits are filed with this Prospectus:

| | Exhibit | Description                                         
| | ------- | ----------------------------------------------------
| | Number  |                                                     
| |         |                                                     
| | (3)     | (i) Articles of Incorporation; and (ii)
      Bylaws

| | 3.1 | Articles of Incorporation (incorporated by reference from
      our Registration Statement on Form SB-2 filed on April 29, 2004)
| | --- | --------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                 
| | 3.2 | Bylaws (incorporated by reference from our Registration
      Statement on Form SB-2 filed on April 29, 2004)                   
| |     |                                                                                                                                 
| | 3.3 | Articles of Merger (incorporated by reference from our
      Current Report on Form 8-K filed on November 9, 2005)              
| |     |                                                                                                                                 
| | 3.4 | Certificate of Change (incorporated by reference from our
      Current Report on Form 8-K filed on November 9,
2005)           

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- 47 -

| | (4)  | Instruments Defining Rights of Security
      Holders, Including Indentures                                                  
| | ---- | -----------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                              
| | 4.1  | 2005 Stock Option Plan
      (incorporated by reference from our Annual Report on Form 10- KSB filed on
      April 17, 2006)
| |      |                                                                                                                              
| | (10) | Material Contracts                                                                                                           

| | 10.1  | Form of Subscription Agreement between Sound Technology
      Inc. and 32 persons (incorporated by reference from our Registration
      Statement on Form SB-2 filed on April 29, 2004):                              
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                        
| | 10.2  | Distribution Agreement dated May 15, 2004 between Sound
      Technology Inc. and Danish Audio Connect (incorporated by reference from
      our Registration Statement Form SB-2/A filed on June 18, 2004)            
| |       |                                                                                                                                                                                                                        
| | 10.3  | Terms of Use of Internet Secure (incorporated by
      reference from our Registration Statement on Form SB-2/A filed on August
      30, 2004)                                                                        
| |       |                                                                                                                                                                                                                        
| | 10.4  | User Agreement for PayPal Service (incorporated by
      reference from our Registration Statement on Form SB-2/A filed on August
      30, 2004)                                                                      
| |       |                                                                                                                                                                                                                        
| | 10.5  | Distribution Agreement dated May 27, 2004 between Audiyo
      Inc. and Raimund Mundorf (incorporated by reference from our Registration
      Statement on Form SB-2/A filed on August 30, 2004)                      
| |       |                                                                                                                                                                                                                        
| | 10.6  | Loan Agreement dated October 1, 2005, between our company
      and Dino Minichiello (incorporated by reference from our Annual Report on
      Form 10-KSB filed on April 17, 2006)                                   
| |       |                                                                                                                                                                                                                        
| | 10.7  | Debt Settlement and Subscription Agreement dated October
      15, 2005, between our company and Raymond Li (incorporated by reference
      from our Annual Report on Form 10-KSB filed on April 17, 2006)            
| |       |                                                                                                                                                                                                                        
| | 10.8  | Consulting Agreement dated November 1, 2005, between our
      company and Jane Clark (incorporated by reference from our Annual Report
      on Form 10-KSB filed on April 17, 2006)                                  
| |       |                                                                                                                                                                                                                        
| | 10.9  | Share Purchase Agreement dated November 16, 2005, among
      our company, Raymond Li, Simon Au and Patrick Fung (incorporated by
      reference from our Current Report on Form 8-K filed on November 21,
      2005)
| |       |                                                                                                                                                                                                                        
| | 10.10 | Assignment Agreement dated November 18, 2005, between our
      company and Heartland Oil and Gas Ltd. (incorporated by reference from our
      Current Report on Form 8-K filed on November 21, 2005)                
| |       |                                                                                                                                                                                                                        
| | 10.11 | Stock Option and Subscription Agreement dated November
      18, 2005, between our company and Thornton Donaldson (incorporated by
      reference from our Annual Report on Form 10-KSB filed on April 17,
      2006)
| |       |                                                                                                                                                                                                                        
| | 10.12 | Stock Option and Subscription Agreement dated November
      18, 2005, between our company and Jane Clark (incorporated by reference
      from our Annual Report on Form 10- KSB filed on April 17, 2006)             
| |       |                                                                                                                                                                                                                        
| | 10.13 | Stock Option and Subscription Agreement dated November
      21, 2005, between our company and Y.R. (Joe) Boury (incorporated by
      reference from our Annual Report on Form 10-KSB filed on April 17,
      2006)  
| |       |                                                                                                                                                                                                                        
| | 10.14 | Form of Subscription Agreement between our company and
      six persons (incorporated by reference from our Annual Report on Form
      10-KSB filed on April 17, 2006)                                               
| |       |                                                                                                                                                                                                                        
| | 10.15 | Finder's Fee Agreement dated December 5, 2005, between
      our company and Fort Scott Energy Corporation (incorporated by reference
      from our Annual Report on Form 10-KSB filed on April 17,
  2006)           

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- 48 -

| | 10.16 | Joint Participation Agreement for Maverick Springs Elko
      and White Pine Counties, Nevada dated February 28, 2006, between our
      company and Chamberlain Exploration Development and Research Stratigraphic
      Corporation doing business as Cedar Strat Corporation (incorporated by
      reference from our Annual Report on Form 10-KSB filed on April 17,
      2006)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                      
| | 10.17 | Farmout and Option Agreement dated March 7, 2006, between
      our company and Suncor Energy Inc. (incorporated by reference from our
      Current Report on Form 8-K on March 24, 2006)                                                                                                                                                                                           
| |       |                                                                                                                                                                                                                                                                                                                                                                                      
| | 10.18 | Private Placement Subscription Agreement dated March 8,
      2006, between our company and Bulstrode International Inc. (incorporated
      by reference from our Annual Report on Form 10-KSB filed on April 17,
      2006)                                                                                                                                                       
| |       |                                                                                                                                                                                                                                                                                                                                                                                      
| | 10.19 | 6% Convertible Note due March 8, 2008 issued to Bulstrode
      International Inc. by our company (incorporated by reference from our
      Annual Report on Form 10-KSB filed on April 17, 2006)                                                                                                                                                                                    
| |       |                                                                                                                                                                                                                                                                                                                                                                                      
| | 10.20 | Private Placement Subscription Agreement dated March 9,
      2006, between our company and Bulstrode International Inc. (incorporated
      by reference from our Annual Report on Form 10-KSB filed on April 17,
      2006)                                                                                                                                                       
| |       |                                                                                                                                                                                                                                                                                                                                                                                      
| | 10.21 | 6% Convertible Note due March 9, 2008 issued to Bulstrode
      International Inc. by our company (incorporated by reference from our
      Annual Report on Form 10-KSB filed on April 17, 2006)                                                                                                                                                                                    
| |       |                                                                                                                                                                                                                                                                                                                                                                                      
| | 10.22 | Amendment Agreement dated April 3, 2006, between our
      company and Fort Scott Energy Corp. (incorporated by reference from our
      Annual Report on Form 10-KSB filed on April 17, 2006)                                                                                                                                                                                       
| |       |                                                                                                                                                                                                                                                                                                                                                                                      
| | 10.23 | Amended and Restated Agreement dated April 7, 2006,
      between our company and Fort Scott Energy Corp. (incorporated by reference
      from our Annual Report on Form 10-KSB filed on April 17,
  2006)                                                                                                                                                                          

| | (14)             | Code of Ethics                                                                                                                           
| | ---------------- | -----------------------------------------------------------------------------------------------------------------------------------------
| |                  |                                                                                                                                          
| | 14.1             | Code of Business Conduct and Ethics
      (incorporated by reference from our Annual Report on Form 10-KSB filed on
      April 17, 2006)
| |                  |                                                                                                                                          
| | (31)             | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                  
| |                  |                                                                                                                                          
| | 31.1*            | Section
      302 Certification under Sarbanes-Oxley Act of 2002 of Thornton Donaldson                                                   
| |                  |                                                                                                                                          
| | (32)             | Section 1350 Certifications                                                                                                              
| |                  |                                                                                                                                          
| | 32.1*            | Section
      906 Certification under Sarbanes-Oxley Act of 2002 of Thornton Donaldson                                                   
| | * Filed herewith

Item 14. Principal Accountant Fees and Services.

Audit Fees

Our board of directors appointed Moore & Associates, CHTD,
Chartered Accountants as independent auditors to audit our financial statements
for the current fiscal year. The aggregate fees billed by Moore &
Associates, CHTD for professional services rendered for the audit of our annual
financial statements included in this annual report on Form 10-KSB for the
fiscal year ended December 31, 2006 were $6,000.

The aggregate fees billed by Staley Okada & Partners for
professional services rendered for the audit of our annual financial statements
included in our annual report on Form 10-KSB for the fiscal year ended December
31, 2005 were $15,000.

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- 49 -

Audit Related Fees

For the fiscal year ended December 31, 2006, the aggregate fees
billed for assurance and related services by Moore & Associates, CHTD
relating to our quarterly financial statements which are not reported under the
caption "Audit Fees" above, were $Nil.

For the fiscal year ended December 31, 2005, the aggregate fees
billed for assurance and related services by Staley Okada & Partners
relating to our quarterly financial statements which are not reported under the
caption "Audit Fees" above, were $7,276.

Tax Fees

For the fiscal year ended December 31, 2006, the aggregate fees
billed for tax compliance, by Moore & Associates, CHTD were $Nil.

For the fiscal year ended December 31, 2005, the aggregate fees
billed for tax compliance, by Staley Okada & Partners were $1,032.

All Other Fees

For the fiscal year ended December 31, 2006, the aggregate fees
billed by Moore & Associates, CHTD for other non-audit professional
services, other than those services listed above, totaled $Nil.

For the fiscal year ended December 31, 2005, the aggregate fees
billed by Staley Okada & Partners for other non-audit professional services,
other than those services listed above, totaled $Nil.

Our board of directors, who acts as our audit committee, has
adopted a policy governing the pre-approval by the board of directors of all
services, audit and non-audit, to be provided to our company by our independent
auditors. Under the policy, the board or directors has pre-approved the
provision by our independent auditors of specific audit, audit related, tax and
other non-audit services as being consistent with auditor independence. Requests
or applications to provide services that require the specific pre-approval of
the board of directors must be submitted to the board of directors by the
independent auditors, and the independent auditors must advise the board of
directors as to whether, in the independent auditor's view, the request or
application is consistent with the Securities and Exchange Commission's rules on
auditor independence.

The board of directors has considered the nature and amount of
the fees billed by Moore & Associates, CHTD and believes that the provision
of the services for activities unrelated to the audit is compatible with
maintaining the independence of Moore & Associates, CHTD.

---

- 50 -

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

TEXOLA ENERGY CORPORATION

/s/ Thornton Donaldson
  By: Thornton Donaldson
  President, Secretary, Treasurer and Director
  (Principal Executive Officer,
  Principal Financial Officer and
  Principal Accounting Officer)
  Dated: April 18, 2007

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.

/s/ Thornton Donaldson
  By: Thornton Donaldson
  President, Secretary, Treasurer and Director
  (Principal Executive Officer,
  Principal Financial Officer and
  Principal Accounting Officer)
  Dated: April 18, 2007

---