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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549



Form 10-K



[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2008



[   ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________



Commission file number  333-114995



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|TEXOLA ENERGY CORPORATION                                        
|(Exact name of small business issuer as specified in its charter)



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|Nevada                                                         |  | 98-0490694                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



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|#477 1313 E Maple Street Suite 201
Bellingham, Washington   98225
|(Address of principal executive offices)                         



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|604-488-0266               
|(Issuer's telephone number)



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|None                                                         
|Securities registered under Section 12(b) of the Exchange Act
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|Common Stock, par value $0.001 per share                     
|Securities registered under Section 12(g) of the Exchange Act



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o      No þ



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes o       No þ



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ       No o



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



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

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|Large accelerated filer o |  | Accelerated filer o |  | Non-accelerated filer o
(Do not check if a smaller reporting company) |  | Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes þ       No o



Aggregate market value of the 31,413,333 common voting shares held by non affiliates of the registrant was $314,133 based on the closing price of $.01 on April 6, 2009.



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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 14, 2009.



DOCUMENTS INCORPORATED BY REFERENCE



None















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TEXOLA ENERGY CORPORATION



(An Exploration Stage Company)



DECEMBER 31, 2008 ANNUAL REPORT ON FORM 10-K



TABLE OF CONTENTS



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|PART I     |                                                                                                 |     
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|Item 1.    | Description of Business.                                                                        | 4   
|Item 1A.   | Risk Factors                                                                                    | 5   
|Item 1B.   | Unresolved Staff Comments                                                                       | 11  
|Item 2.    | Description of Property.                                                                        | 11  
|Item 3.    | Legal Proceedings.                                                                              | 11  
|Item 4.    | Submission of Matters to a Vote of Security Holders.                                            | 11  
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|PART II    |                                                                                                 |     
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|Item 5.    | Market For Common Equity and Related Stockholder Matters                                        | 12  
|Item 6.    | Selected Financial Data.                                                                        | 13  
|Item 7.    | Managements Discussion and Anaylsis of Financial Condition and results of Operations           | 13  
|Item 7A.   | Quantitive and Qualitative Disclosures about Market Risk                                        | 16  
|Item 8.    | Financial Statements and Supplementary Data                                                     | 16  
|Item 9.    | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure            | 33  
|Item 9A.   | Controls and Procedures                                                                         | 33  
|Item 9B.   | Other information                                                                               | 34  
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|PART III   |                                                                                                 |     
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|Item 10.   | Directors, Executive Officers, and Corporate Governance;                                        | 35  
|Item 11.   | Executive Compensation.                                                                         | 36  
|Item 12.   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | 38  
|Item 13.   | Certain Relationships and Related Transactions, and Director Independence.                      | 39  
|Item 14.   | Principal Accounting Fees and Services.                                                         | 39  
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|PART IV    |                                                                                                 |     
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|Item 15.   | Exhibits, Financial Statements Schedules                                                        | 40  
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|Signatures |                                                                                                 | 42  





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PART I



ITEM 1.

DESCRIPTION OF BUSINESS



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 name change was effected with NASDAQ on November 7, 2005 and our common shares became quoted on the OTC Bulletin Board on November 7, 2005 under the new stock symbol of "TXLA". In addition, on October 26, 2005 we affected a ten (10) for one (1) forward stock split of our authorized, issued and outstanding common stock. As a result, our authorized capital increased from 75,000,000 shares of common stock to 750,000,000 shares of common stock.



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 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



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.



During the year ended December 31, 2005, the Company changed its focus toward oil and gas exploration and we subsequently 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.



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, 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.



On February 21, 2008, due to depressed market conditions arising from the US sub-prime issues and the Companys inability to raise the significant exploration capital required to maintain and explore its oil and gas properties and leases, the Company made a decision to abandon its projects located in Brown County, Kansas, and Maverick Springs, Nevada and postponed further funding and exploration at Chinchaga, Alberta.  As a result and in conjunction with the Companys audit for the year ended December 31, 2007, the investments in the Brown County and Maverick Springs projects, totaling $2,124,061, were written off to $Nil to reflect the impairment of the assets in accordance with generally accepted accounting principles. The analysis of any future 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.



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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 future 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 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.



ITEM 1A.

RISK FACTORS



An investment in our securities involves an exceptionally high degree of risk and is extremely speculative. In addition to the other information regarding the Company contained in this Form 10K, you should consider many important factors in determining whether to purchase the shares of our Company. The following risk factors reflect the potential and substantial material risks which could be involved if you decide to purchase shares in our Company.



RISKS RELATED TO OUR BUSINESS



We havenegativecash 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 totaling approximately $57,284 for the year ending December 31, 2008 and accumulative losses of $4,610,796 since inception to December 31, 2008.  As of December 31, 2008 we had a working capital deficiency of $337,867. We do not expect positive cash flow from operations in the near term.

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.



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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  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, 2008, we have incurred aggregate losses of $4,610,796 including the write off of oil and gas leases of $2,124,061. 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 to continue to require outside capital to fund development and operating costs. Consequently, we expect to incur operating losses and negative cash flow for the foreseeable future.



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 exploration and pre-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 exploration stage and potential investors should be aware of the difficulties normally encountered by enterprises in the exploration and pre-development stages. 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 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.



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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.



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  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.



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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.



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 labor, 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.



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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, labor disruptions, flooding, explosions and the inability to obtain suitable or adequate machinery, equipment or labor.



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, she may not be willing or able to devote a sufficient amount of time to our business operations, thereby limiting the success of our company.



Rhonda Stevenson presently spends approximately 10% of her 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 Ms. Stevenson spends a reasonable amount of time in pursuit of our company's interests. However, she may not be able to provide sufficient time in the future and our business may be periodically interrupted or delayed as a result of Ms. Stevensons other business interests. To mitigate any such interruption, we may decide to seek out additional management resources and retain the necessary consultants in future exploration activities.



RISKS RELATED TO OUR COMMON STOCK



Our common stock is illiquid and shareholders may be unable to sell their shares.



There is currently a limited market for our common stock and we can provide no assurance to investors that a market will develop.  If a market for our common stock does not develop, our shareholders may not be able to re-sell the shares of our common stock that they have purchased and they may lose all of their investment.



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Public announcements regarding our company, changes in government regulations, conditions in our market segment or changes in earnings estimates by analysts may cause the price of our common shares to fluctuate substantially.  These fluctuations may adversely affect the trading price of our common shares.



If we complete a business opportunity or combination, we may be required to issue a substantial number of common shares which would dilute the shareholdings of our current shareholders and result in a change of control of our company.



We may pursue the acquisition of a business opportunity or a business combination with a private company.  The likely result of such a transaction would result in our company issuing common shares to shareholders of such private company.  Issuing previously authorized and unissued common shares in the capital of our company will reduce the percentage of common shares owned by existing shareholders and may result in a change in the control of our company and our management.



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 Financial Industry Regulatory Authority, or FINRA, 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, FINRA 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, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers.  FINRA 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



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.



10



---

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.



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.



ITEM 1B.

UNRESOLVED STAFF COMMENTS.



None



ITEM 2.

DESCRIPTION OF PROPERTY.



On February 21, 2008, due to depressed market conditions arising from the US sub-prime issues and the Companys inability to raise the significant exploration capital required to maintain and explore its oil and gas properties and leases,  the Company abandoned its projects located in Brown County, Kansas and Maverick Springs, Nevada as disclosed in Note 4 of our audited financial statements for the year ended December 31, 2007.  The Company will maintain its interest in its Chinchaga, Alberta prospect, but may not be in a position financially to participate in any further exploration should it be the decision of the remaining joint venture partners to do so.



ITEM 3.

LEGAL PROCEEDINGS.



We know of no material, existing 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 officer or any of our directors or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.



ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.



None.





11



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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 Bloomberg Finance 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.



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



|                   |       |      
|------------------ | ----- | -----
|OTC Bulletin Board
|Month Ended        | High  | Low  
|January 31, 2008   | $0.05 | $0.05
|February 28, 2008  | $0.04 | $0.04
|March 31, 2008     | $0.04 | $0.04
|April 30, 2008     | $0.03 | $0.03
|May 31, 2008       | $0.04 | $0.04
|June 30,2008       | $0.03 | $0.03
|July 31, 2008      | $0.03 | $0.03
|August 31, 2008    | $0.02 | $0.02
|September 30, 2008 | $0.02 | $0.02
|October 31, 2008   | $0.01 | $0.01
|November 30, 2008  | $0.01 | $0.01
|December 31, 2008  | $0.01 | $0.01



Our common stock began being quoted for trading on the OTC Bulletin Board on November 7, 2005.



Over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.



The source of the high and low bid information above was obtained from Daily Herald and reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.



Our shares of common stock are issued in registered form, Empire Stock Transfer Inc. of 470 St. Rose Pkwy, Suite 304, Henderson, NV 89074 (Telephone: 702.818.5898;  Facsimile: 702.974.1444) is the registrar and transfer agent for our shares of common stock.



As of December 31, 2008 we had 4 registered shareholders holding 31,413,333 common shares, one of which is CEDE & Co., which holds 30,658,266 shares for an undisclosed number of beneficial holders.



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, 2008.



12



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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 9, 2009 there were no options outstanding.



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, 2008.



ITEM 6.

SELECTED FINANCIAL DATA



Not applicable



ITEM 7.

MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



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.



Company Overview and Plan of Operation



As mentioned earlier in this 10K, due to depressed market conditions arising from the US sub-prime issues and the Companys inability to raise the significant exploration capital required to maintain and explore its oil and gas properties and leases,  the Company abandoned its projects located in Brown County, Kansas, and Maverick Springs, Nevada.  The Company will maintain its interest in the Chinchaga, Alberta property, but may not be in a position financially to participate in any further exploration should it be the decision of the remaining joint venture partners to do so.  As a result and in conjunction with the Companys audit for the year ended December 31, 2007, the investments in Brown County and Maverick Springs, totaling $2,124,061, were written off to $Nil to reflect the impairment of the assets in accordance with generally accepted accounting principles.



Our plan of operation for the next twelve months is to concentrate on restructuring its current debt, identifying potential sources of capital and seeking out joint venture partners to participate in future exploration prospects and other business activities.  We can provide no assurance, however, that we will be able to raise capital and/or continue to have the support of joint venture partners and lenders.



13



---

In implementing a structure for a particular business acquisition or opportunity, we may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity.  We may also acquire stock or assets of an existing business.  Any such business combination or acquisition of a business opportunity may require management of our company to sell or transfer all or a portion of the shares they hold in our company and require such individuals to resign as members of our board.  The resulting change in control of our company could result in the removal of one or more of our present officers and directors and a corresponding reduction in or elimination of their participation in the future affairs of our company.



The search for and analysis of new business opportunities will be undertaken by our current management who are not professional business analysts.  In seeking or analyzing prospective business opportunities, our management may utilize the services of outside consultants or advisors.



Management does not have the capacity to conduct as extensive an investigation of a target business as might be undertaken by a venture capital fund or similar institution. As a result, management may elect to merge with a target business which has one or more undiscovered shortcomings and may, if given the choice to select among target businesses, fail to enter into an agreement with the most investment-worthy target business.  Likewise, no assurances can be given that we will be able to enter into an agreement with a target business.



We anticipate that the selection of a business opportunity in which to participate will be complex and without certainty of success.  Management believes that there are numerous firms in various industries seeking the perceived benefits of being a publicly registered corporation.  Business opportunities may be available in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.  We can provide no assurance that we will be able to locate compatible business opportunities.



Going Concern



We are in the exploration stage, and have not attained profitable operations and are dependent upon obtaining financing to carry out our business plan. For these reasons our independent auditors stated in their report on our audited financial statements that they have substantial doubt we will be able to continue as a going concern. Our financial statements have been prepared assuming we will continue as a going concern.  Our accumulated deficit after writing off its interests in the Brown County and Maverick Springs properties in 2007, amounts to $4,610,496 as at December 31, 2008.  The continuation of our business is dependent upon us raising additional finances and the support of our lenders. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.



There can be no assurances that we will be successful in raising additional cash to finance operations. If not, we will be required to reduce operations and/or liquidate assets. Our financial statements do not include any adjustments relating 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.



Excluding costs associated with negotiating future oil and gas leases and interest on long term debt, we estimate our operating expenses and working capital requirements for the next twelve month period to be as follows:



|                                        |   |        | 
|--------------------------------------- | - | ------ | 
|Estimated Expenses to December 31, 2009 |  
|Operating Expenses                      |   |        | 
|Consultants                             | $ | 10,000 | 
|Professional Fees                       | $ | 26,000 | 
|General and Administrative Expenses     | $ | 24,000 | 
|Total                                   | $ | 60,000 | 



Employee and Consultant Compensation



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



14



---

Professional Fees



We expect to incur on-going legal and accounting/audit expenses to comply with our reporting responsibilities as public company under the United States Securities Exchange Act of 1934, as amended.



General and Administrative Expenses



These costs primarily consist of expenses such as regulatory filings, rent, telecommunications, website maintenance and office equipment and supplies.



Results of Operations for Fiscal Years Ended December 31, 2008 and December 31, 2007



As the company is an exploration stage company, revenues for the years ended December 31, 2008 and December 31, 2007 were $Nil. After accounting for a loss embedded on derivative liabilities of $6,300 (gain of $449,600 in 2007), general and administrative expenses for the year ended December 31, 2008 were $50,984 compared to $785,131 for the year ended December 31, 2007, a decrease of $734,147 over the preceding year.  The $57,284 in total expenses including the loss on derivative liabilities of $6,300 includes (1) $4,350 in consulting fees, (2) $24,760 in accounting and audit, (3) $157 in interest expenses, (4) $5,421 in transfer agent and filing costs, (5) $2,545 in legal fees (6) $5,584 for management compensation (7) $1,271 in drilling and exploration expenses and $6,896 in general operating fees including bank charges, office and sundry, promotion, regulatory, rent, telephone and communications, transfer agent and travel costs.



The loss from continuing operations amounted to $57,284.  The net loss for the year ended December 31, 2008 was 57,284 compared to $2,459,592 for the year ended December 31, 2007.



As at December 31, 2008, the Company had cash of $305 and current liabilities of $340,255.  Current liabilities include demand loans from third parties to cover start up and initial operating expenses. The company plans to raise funds through private placements with accredited investors to pay out the demand loans and provide working capital to support operating expenses and fund the development of strategic partnerships, supplier relationships and potential acquisitions.

Liquidity and Capital Resources



As of December 31, 2008, we had cash of $305 and $340,255 in current liabilities. The current liabilities primarily consisted of accounts payable, loans payable and a derivative liability. We had a working capital deficiency of $337,867 as of December 31, 2008.



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, 2009.



We incurred a loss of $57,284 for the year ended December 31, 2008. As indicated above, our estimated working capital requirements and projected operating expenses to December 31, 2009 total $60,000. As we do not have the funds necessary to cover our projected operating expenses to December 31, 2009, 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 fulfill any additional cash requirement through the sale of our equity securities and/or issuance of debt.



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.



15



---

Exploration Expenditures



We incurred $1,271 in drilling and exploration expenditures during the year ended December 31, 2008.  As of March 30, 2009, 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, 2009.



Off-Balance Sheet Arrangements



We have no significant  off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.



ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Market risk is the sensitivity of income to changes in interest rates, foreign exchanges, equity prices, and other market-driven rates or prices.  We are not presently engaged in any substantive business and until such time as we consummate a business combination, we will not be exposed to risks associated with foreign exchange rates, equity prices or other market-driven rates or prices.



ITEM 8.

FINANCIAL STATEMENTS



Our financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.  The following financial statements are filed as part of this annual report:



1.

Report of Independent Registered Public Accounting Firm;

2.

Balance Sheets as at December 31, 2008 and December 31, 2007;

3.

Statements of Operations for the years ended December 31, 2008, December 31, 2007 and for the period from September 29, 2005 (Date of  Inception)  to December 31, 2008;

4.

Statement of Stockholders Equity (Deficiency) for the period September 29, 2005 (Date of Inception) to December 31, 2008;

5.

Statements of Cash Flows for the years ended December 31, 2008, December  31, 2007 and for the period from September 29, 2005 (Date of Inception) to December 31, 2008; and

6.

Notes to Financial Statements dated December 31, 2008.



It is the opinion of management that the audited financial statements for the fiscal year ended December 31, 2008 includes all adjustments necessary in order to ensure that the audited financial statements are not misleading







16



---























TEXOLA ENERGY CORPORATION



(An  Exploration Stage Company)



DECEMBER 31, 2008 AND 2007



(Stated in U.S. Dollars)





























17



---



MOORE & ASSOCIATES, CHARTERED

ACCOUNTANTS AND ADVISORS



PCAOB REGISTERED





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors

Texola Energy Corporation

(An Exploration Stage Company)



We have audited the accompanying balance sheets of Texola Energy Corporation (An Exploration Stage Company) as of December 31, 2008 and 2007, and the related statements of operations, stockholders equity and cash flows for the years ended December 31, 2008 and 2007, and from inception on September 29, 2005 through December 31, 2008. These financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audit 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 (An Exploration Stage Company) as of December 31, 2008 and 2007, and the related statements of operations, stockholders equity and cash flows for the years ended December 31, 2008 and 2007, and from inception on September 29, 2005 through December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.



The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 2 to the financial statements, the Company has an accumulated deficit of $4,610,796 as at December 31, 2008, which raises substantial doubt about its ability to continue as a going concern.  Managements plans concerning these matters are also described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



/s/ Moore & Associates, Chartered



Moore & Associates Chartered

Las Vegas, Nevada

April 9, 2009



6490 West Desert Inn Rd, Las Vegas, NV 89146 (702) 253-7499 Fax (702) 253-7501



18



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TEXOLA ENERGY CORPORATION(An Exploration  Stage Company)

BALANCE SHEETS 
(Stated in U.S. Dollars)



|                                                               |   |             |   |   |            |  
|-------------------------------------------------------------- | - | ----------- | - | - | ---------- | -
|                                                               |   | DECEMBER 31 |  
|                                                               |   | 2008        |   |   | 2007       |  
|                                                              
|ASSETS                                                         |   |             |   |   |            |  
|                                                              
|Current                                                        |   |             |   |   |            |  
|Cash                                                           | $ | 305         |   | $ | 32,609     |  
|Receivable                                                     |   | -           |   |   | 1,950      |  
|Prepaid expenses                                               |   | 2,083       |   |   | 5,621      |  
|Total Current Assets                                           |   | 2,388       |   |   | 40,180     |  
|                                                              
|TOTAL ASSETS                                                   | $ | 2,388       |   | $ | 40,180     |  
|                                                              
|LIABILITIES                                                    |   |             |   |   |            |  
|Current                                                        |   |             |   |   |            |  
|Accounts payable and accrued liabilities                       | $ | 18,355      |   | $ | 5,163      |  
|Loans payable Note 5                                          |   | 272,200     |   |   | 272,200    |  
|Derivative liability Note 6                                   |   | 49,700      |   |   | 43,400     |  
|Total Current Liabilities                                      |   | 340,255     |   |   | 320,763    |  
|                                                              
|Convertible Debentures Note 6                                 |   | 2,917,263   |   |   | 2,917,263  |  
|TOTAL LIABILITIES                                              |   | 3,257,518   |   |   | 3,238,026  |  
|                                                              
|STOCKHOLDERS' DEFICIT                                          |   |             |   |   |            |  
|                                                              
|Common StockNote 7                                            |   |             |   |   |            |  
|Authorized:                                                    |   |             |   |   |            |  
|750,000,000 common shares with a par value of $0.001 per share |   |             |   |   |            |  
|                                                              
|Issued:                                                        |   |             |   |   |            |  
|31,413,333 common shares                                       |   | 31,413      |   |   | 31,413     |  
|Additional paid-in capital                                     |   | 1,324,253   |   |   | 1,324,253  |  
|Deficit accumulated during the Exploration stage               |   | (4,610,796  | ) |   | (4,553.512 | )
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT                    | $ | (3,255,130  | ) | $ | (3,197,846 | )
|                                                              
|                                                               | $ | 2,388       |   | $ | 40,180     |  



See the accompanying notes to the financial statements



19



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TEXOLA ENERGY CORPORATION(An  Exploration  Stage Company)

STATEMENTS OF OPERATIONS 
(Stated in U.S. Dollars)

|                                                                              |   |             |   |   |            |   |   |               |  
|----------------------------------------------------------------------------- | - | ----------- | - | - | ---------- | - | - | ------------- | -
|                                                                              |   |             |   |   |            |   |   | Cumulative    |  
|                                                                              |   |             |   |   |            |   |   | Period from   |  
|                                                                              |   |             |   |   |            |   |   | Inception     |  
|                                                                              |   |             |   |   |            |   |   | September 29, |  
|                                                                              |   | YEARS ENDED |   |   | 2005       |  
|                                                                              |   | DECEMBER 31 |   |   | to         |  
|                                                                              |   |             |   |   |            |   |   | December 31,  |  
|                                                                              |   | 2008        |   |   | 2007       |   |   | 2008          |  
|                                                                             
|Revenue                                                                       | $ | -           |   | $ | -          |   | $ | -             |  
|                                                                             
|Expenses                                                                      |   |             |   |   |            |   |   |               |  
|Advertising and promotion                                                     |   | -           |   |   | 1,013      |   |   | 50,764        |  
|Audit and accounting                                                          |   | 24,760      |   |   | 43,732     |   |   | 118,645       |  
|Communications                                                                |   | -           |   |   | 810        |   |   | 545,770       |  
|Consulting                                                                    |   | 4,350       |   |   | 158,825    |   |   | 20,834        |  
|Management compensation                                                       |   | 5,584       |   |   | 104,583    |   |   | 110,167       |  
|Drilling and exploration                                                      |   | 1,271       |   |   | 136,752    |   |   | 374,003       |  
|Gain on embedded derivative liabilities(Note 6)                               |   | 6,300       |   |   | (449,600   | ) |   | (586,300      | )
|Foreign exchange (gain) loss                                                  |   | 2,856       |   |   | 99         |   |   | (11,819       | )
|Interest and bank charges                                                     |   | 157         |   |   | 362        |   |   | 2,252         |  
|Interest expense  beneficial conversion feature of debenture(Note 6a and 6b) |   | -           |   |   | -          |   |   | 1,026,000     |  
|Interest on long term debt(Note 6)                                            |   | -           |   |   | 126,666    |   |   | 241,943       |  
|Investor relations                                                            |   | -           |   |   | 125,180    |   |   | 253,000       |  
|Legal fees                                                                    |   | 2,545       |   |   | 20,439     |   |   | 84,985        |  
|Office and miscellaneous                                                      |   | 4,040       |   |   | 40,094     |   |   | 55,864        |  
|Transfer agent/filing fees                                                    |   | 5,421       |   |   | 4,081      |   |   | 17,938        |  
|Travel                                                                        |   | -           |   |   | 22,495     |   |   | 131,957       |  
|                                                                              |   | 57,284      |   |   | 335,531    |   |   | 2,436,003     |  
|                                                                             
|Loss from continuing operations                                               | $ | (57,284     | ) | $ | (335,531   | ) | $ | (2,436,003    | )
|                                                                             
|Loss from discontinued operations                                             |   |             |   |   |            |   |   |               |  
|Abandonment of oil and gas properties                                         |   | -           |   |   | 2,124,061  |   |   | 2,124,061     |  
|Provision for income taxes                                                    |   | -           |   |   | -          |   |   | -             |  
|                                                                             
|Loss for the year                                                             | $ | (57,284     | ) | $ | (2,459,592 | ) |   | (4,560,064    | )
|                                                                             
|Basic And Diluted Loss Per Share                                              |   | (.00        | ) |   | (.08       | ) |   |               |  
|                                                                             
|Weighted Average Number Of Shares Outstanding(Note 8)                         |   | 31,413,333  |   |   | 31,413,333 |   |   |               |  



See the accompanying notes to the financial statements



20



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TEXOLA ENERGY CORPORATION

(An Exploration Stage Company)



STATEMENT OF STOCKHOLDERS EQUITY

For the period October 21, 2003 (date of inception) to December 31, 2008

(Stated in US Dollars)

DeficitCommon Shares
      
      Accumulated
      
      
      AccumulatedAdditional
      
      
      During the
      
      
      Compre-Paid In
      
      
      Exploration
      
      
      hensive
      
      
      SpecialShares
      
      
      Amount
      
      
      Capital
      
      
      Stage
      
      
      Loss
      
      
      Distribution
      
      
      TotalCommon shares issued for cash at $0.0002 per share October 14, 2003
      500,000
      
      $
      500
      
      $
      (400
      )
      $
      -
      
      $
      -
      
      $
      -
      
      $
      100Special distribution
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (3,300
      )
      
      (3,300
      )Net loss for the year
      -
      
      
      -
      
      
      -
      
      
      (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
      )
      
      -
      
      
      -
      
      
      -
      
      
      44,950Foreign 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
      
      
      3
      
      
      2,497
      
      
      -
      
      
      -
      
      
      -
      
      
      2,500Stock based compensation
      -
      
      
      -
      
      
      45,000
      
      
      -
      
      
      -
      
      
      -
      
      
      45,000Discontinued operations
      (60,500,000
      )
      
      (6,050
      )
      
      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
      )Common shares issued on conversion of debenture and accrued interest
      1,025,000
      
      
      1,025
      
      
      511,475
      
      
      -
      
      
      -
      
      
      -
      
      
      512,500Intrinsic value of the beneficial conversion feature of the convertible debentures (Note 6a and 6b)
      -
      
      
      -
      
      
      390,000
      
      
      -
      
      
      -
      
      
      -
      
      
      390,000Common shares issued pursuant to private placement at $0.50 per share(Note 7a)
      463,333
      
      
      463
      
      
      231,203
      
      
      -
      
      
      -
      
      
      -
      
      
      231,666Stock based compensation
      
      
      
      
      
      
      99,945
      
      
      
      
      
      
      
      
      
      
      
      99,945Net loss for the year
      -
      
      
      -
      
      
      -
      
      
      (1,944,298
      )
      
      -
      
      
      -
      
      
      (1,944,298
      )Balance - December 31, 2007
      31,413,333
      
      
      31,413
      
      
      1,289,198
      
      
      (2,093,919
      )
      
      -
      
      
      -
      
      
      (773,308
      )Stock based compensation
      
      
      
      
      
      
      35,055
      
      
      
      
      
      
      
      
      
      
      
      35,055Net loss for the year
      -
      
      
      -
      
      
      -
      
      
      (2,459,593
      )
      
      -
      
      
      -
      
      
      (2,459,593
      )Balance  December 31 , 2007
      31,413,333
      
      
      31,413
      
      
      1,324,253
      
      
      (4,553,512
      )
      
      -
      
      
      -
      
      
      (3,197,846
      )Net loss for the year
      -
      
      
      -
      
      
      -
      
      
      (57,284
      )
      
      
      
      
      
      
      
      (57,284
      )Balance  December 31, 2008
      31,413,333
      
      $
      31,413
      
      $
      1,324,253
      
      $
      (4,610,796
      )
      $
      -
      
      $
      -
      
      $
      (3,255,130
      )




See the accompanying notes to the financial statements



21



---

TEXOLA ENERGY CORPORATION(An Exploration  Stage Company)



STATEMENTS OF CASH FLOWS

(Stated in U.S. Dollars)



|                                                                                     |   |             |   |   |            |   |   |                       |  
|------------------------------------------------------------------------------------ | - | ----------- | - | - | ---------- | - | - | --------------------- | -
|                                                                                     |   |             |   |   |            |   |   | Cumulative            |  
|                                                                                     |   | December 31 |   |   | from       |  
|                                                                                     |   | 2008        |   |   | 2007       |   |   | September 29, 2005    |  
|                                                                                     |   |             |   |   |            |   |   | to December 31 , 2008 |  
|                                                                                     |   |             |   |   |            |   |   | (Note 2))             |  
|                                                                                    
|Operating Activities                                                                 |   |             |   |   |            |   |   |                       |  
|Income (loss) for the year                                                           | $ | (57,284     | ) | $ | (2,459,593 | ) | $ | (4,560,064            | )
|                                                                                    
|Adjustments to Reconcile Net Loss to Net                                             |   |             |   |   |            |   |   |                       |  
|Cash Provided by Operating Activities                                                |   |             |   |   |            |   |   |                       |  
|Consulting - stock based compensation                                                |   | -           |   |   | 35,055     |   |   | 180,000               |  
|Interest expense - beneficial conversion feature of debenture *(Note 6c, 6d and 6e)* |   | -           |   |   | -          |   |   | 1,026,000             |  
|Gain on embedded derivative liabilities(Note 6c, 6d and 6e)                          |   | 6,300       |   |   | (449,600   | ) |   | (586,300              | )
|Receivable                                                                           |   | 1,950       |   |   | 53,889     |   |   | -                     |  
|Prepaid expenses                                                                     |   | 3,538       |   |   | 26,050     |   |   | (2,083                | )
|Non-cash interest expense                                                            |   | -           |   |   | -          |   |   | 12,500                |  
|Assets held for resale and discontinued operations                                   |   | -           |   |   | -          |   |   | -                     |  
|Accounts payable and accrued liabilities                                             |   | 13,192      |   |   | (12,255    | ) |   | 7,305                 |  
|Interest payable                                                                     |   | -           |   |   | (90,597    | ) |   |                       |  
|Due to related parties                                                               |   | -           |   |   | -          |   |   | -                     |  
|Liabilities held for resale and discontinued operations                              |   | -           |   |   | -          |   |   | -                     |  
|                                                                                     |   | (32,304     | ) |   | (2,897,051 | ) |   | (3,922,642            | )
|Investing Activity                                                                   |   |             |   |   |            |   |   |                       |  
|Explorations advance                                                                 |   | -           |   |   | 64,711     |   |   |                       |  
|Acquisition of oil and gas property                                                  |   | -           |   |   | 2,104,156  |   |   | (1,652,218            | )
|Abandonment of oil and gas properties                                                |   | -           |   |   |            |   |   | 2,104,156             |  
|Proceeds on sale of share of oil and gas property                                    |   | -           |   |   | -          |   |   | 48,062                |  
|                                                                                     |   | -           |   |   | 2,168,867  |   |   | 500,000               |  
|Financing Activities                                                                 |   |             |   |   |            |   |   |                       |  
|Loans payable                                                                        |   | -           |   |   | 247,000    |   |   | 272,200               |  
|Capital contributions                                                                |   | -           |   |   | -          |   |   | 231,666               |  
|Convertible debenture                                                                |   | -           |   |   | 217,263    |   |   | 2,917,263             |  
|                                                                                     |   | -           |   |   | 464,263    |   |   | 3,421,129             |  
|Net Increase (Decrease) in Cash                                                      |   | (32,304     | ) |   | (263,921   | ) |   | (1,513                | )
|                                                                                    
|Cash, beginning of year                                                              |   | 32,609      |   |   | 296,530    |   |   | 1,818                 |  
|                                                                                    
|Cash, end of year                                                                    | $ | 305         |   | $ | 32,609     |   | $ | 305                   |  

See the accompanying notes to the financial statements



22



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TEXOLA ENERGY CORPORATION

(An Exploration Stage Company)



STATEMENTS OF CASH FLOWS - Continued

(Stated in US Dollars)



|                                                                                       |   |             |   |           |    |   |                    |  
|-------------------------------------------------------------------------------------- | - | ----------- | - | --------- | -- | - | ------------------ | -
|                                                                                       |   |             |   |           |    |   | Cumulative         |  
|                                                                                       |   |             |   |           |    |   | From               |  
|                                                                                       |   |             |   |           |    |   | September 29, 2005 |  
|                                                                                       |   | December 31 |   |           | to |  
|                                                                                       |   | 2008        |   | 2007      |    |   | December 31 , 2008 |  
|                                                                                       |   |             |   |           |    |   | (Note 2)           |  
|                                                                                      
|Supplementary Disclosure for Non-Cash Investing and Financing Activities               |   |             |   |           |    |   |                    |  
|                                                                                      
|Settlement of amounts due to related party by issuance of shares                       | $ | -           | $ | -         |    | $ | 2,500              |  
|                                                                                      
|Issuance of convertible debenture for oil and gas property finders fees               | $ | -           | $ | -         |    | $ | 500,000            |  
|Intrinsic value of the beneficial feature of convertible debentures *(Note 6a and 6f)* | $ | -           | $ | -         |    | $ | 1,026.000          |  
|Loss(Gain) on embedded derivative liabilities(Note 6f)                                 | $ |             | $ | (449,600  | )  | $ | (592,600           | )
|Cancellation of capital stock on disposal of subsidiary                                | $ | -           | $ | -         |    | $ | (6,050             | )
|                                                                                      
|Common shares issued on conversion of debenture and accrued interest                   | $ | -           | $ |           |    | $ | 512,500            |  
|Intrinsic value of the beneficial conversion feature convertible debentures(Note 6b)   | $ | -           | $ |           |    | $ | 1,026,000          |  
|                                                                                      
|Assets sold on disposal of subsidiary                                                  | $ | -           | $ | -         |    | $ | 119,277            |  
|Abandonment of oil and gas properties                                                  | $ |             |   | 2,124,061 |    | $ | 2,214,061          |  
|Liabilities cancelled on disposal of subsidiary                                        | $ | -           | $ | -         |    | $ | (130,187           | )
|                                                                                      
|Stock compensation expense                                                             | $ |             | $ | 35,055    |    | $ | 180,000            |  
|Supplementary Cash Flow                                                                |   |             |   |           |    |   |                    |  
|Disclosures                                                                            |   |             |   |           |    |   |                    |  
|Interest paid                                                                          |   | -           | $ | -         |    | $ | -                  |  
|Income taxes paid                                                                      |   | -           | $ | -         |    | $ | -                  |  





See the accompanying notes to the financial statements



23



---

TEXOLAENERGY CORPORATION

(An Exploration Stage Company)



NOTES TO THE FINANCIAL STATEMENTS

December 31, 2008

(Stated in US Dollars)



1.

Organization



On October 24, 2005, the predecessor company, Sound Technology, Inc. changed its name to Texola Energy Corporation (the Company), following a merger with its 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.



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, 2008



On November 1, 2005, the Company affected 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.



2

Going Concern



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, 2008, the Company has an accumulated deficit of $4,610,796.  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, 2008.



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.



3.

Significant Accounting Policies



a)

Fiscal Period



The Companys fiscal year is December 31.





24



---



b)

Use of Estimates



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts and timing of revenues and expenses, the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities.  These estimates and assumptions are based on the Companys historical results as well as managements future expectations.  The Companys actual results could vary materially from managements estimates and assumptions.



c)

Business Combinations



The Company uses the purchase method of accounting for business combinations. The Company includes the results of operations of the acquired business from the date of acquisition. Net assets of the companies acquired are recorded at their fair values at the date of acquisition. The excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired is included in goodwill on the accompanying balance sheets.



d)

Cash and Cash Equivalents



For purposes of the balance sheet and statement of cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents.  At December 31, 2008, the Company had no cash equivalents



e)

Goodwill and other Intangibles



The Company follows Financial Accounting Standards Board ("FASB'') Statement of Financial Accounting Standards ("SFAS'') No. 141, "Business Combinations, and SFAS No. 142, "Goodwill and Other Intangible Assets''.  SFAS No. 141 requires business combinations initiated after September 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets apart from goodwill.  SFAS No. 142 requires that purchased goodwill and certain indefinite-lived intangibles no longer be amortized, but instead be tested for impairment at least annually. The Company evaluated its intangible assets and determined that all such assets have determinable lives.  SFAS No. 142 prescribes a two-phase process for impairment testing of goodwill.  The first phase screens for impairment; while the second phase (if necessary) measures the impairment.



The Company follows Financial Accounting Standards Board ("FASB'') Statement of Financial Accounting Standards ("SFAS'') No. 141, "Business Combinations, and SFAS No. 142, "Goodwill and Other Intangible Assets''.  SFAS No. 141 requires business combinations initiated after September 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets apart from goodwill.  SFAS No. 142 requires that purchased goodwill and certain indefinite-lived intangibles no longer be amortized, but instead be tested for impairment at least annually. The Company evaluated its intangible assets and determined that all such assets have determinable lives.  SFAS No. 142 prescribes a two-phase process for impairment testing of goodwill.  The first phase screens for impairment; while the second phase (if necessary) measures the impairment



f)

Oil and Gas Properties



The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, capitalized interest costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. As of December 31, 2008, the Company has no properties with proven reserves. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proven reserves. Investments in unproven properties and major development projects including capitalized interest, if any, are not amortized until proven reserves associated with the projects can be determined. If the future exploration of unproven properties are determined uneconomical the amount of such properties are added to the capitalized cost to be amortized.



As of December 31, 2008, since all of the Companys oil and gas properties were unproven and written off, they were excluded from depletion.



25



---



Capitalized costs included in a full cost pool are subject to a ceiling test, which limits such costs to the aggregate of the estimated present value, using a ten percent discount rate, of the future net revenues from proven reserves, based on current economic and operating conditions.



g)

Long-Lived Assets



In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.



h)

Revenue Recognition



The Company recognizes revenue from the sale of products and services in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition in Financial Statements. Revenues are recognized only when all of the following criteria have been met:  Persuasive evidence for an agreement exists; delivery has occurred; the fee is fixed or determinable; and collectability is reasonably assured.



i)

Foreign Currency Translations



The Companys functional currency is the Canadian dollar. The Companys reporting currency is the U.S. dollar.  All transactions initiated in Canadian dollars are translated into U.S. dollars in accordance with SFAS No. 52 "Foreign Currency Translation" as follows:



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.



Adjustments arising from such translations are deferred until realization and are included as a separate component of shareholders equity (deficiency) as a component of comprehensive income or loss.  Therefore, translation adjustments are not included in determining net income (loss) but reported as accumulated comprehensive income (loss).



For foreign currency transactions, the Company translates these amounts to the Companys functional currency at the exchange rate effective on the invoice date.  If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange transaction gain or loss results which is included in determining net income (loss) for the period.



j)

Income Taxes



Income taxes are accounted for using the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  A valuation allowance is provided for significant deferred tax assets when it is more likely than not that such assets will not be recovered.



k)

Fair Value of Financial Instruments



The carrying values of the Companys financial instruments, consisting of its cash, advances recoverable, accounts payable, and loans payable, materially approximated their respective fair values at the balance sheet date due to the immediate or short-term maturity of these financial instruments.  The fair value of the convertible debentures is based on current rates at which the Company could borrow funds with similar remaining maturity.



26



---



l)

Concentrations of Credit Risk



The Companys financial instruments that are exposed to concentrations of credit risk primarily consist of its cash, advances recoverable, loans payable, and convertible debenture.  The Company places its cash and cash equivalents with financial institutions of high credit worthiness.  At times, its cash and cash equivalents with a particular financial institution may exceed any applicable government insurance limits.  The Companys management also routinely assesses the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.



m)

Derivative Financial Instruments



Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.  Gains and losses from changes in fair values of derivatives for accounting purposes are recognized in earnings.  The Company does not engage in hedge transactions.



n)

Segment Reporting



SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, changed the way public companies report information about segments of their business in their quarterly reports issued to stockholders.  It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues and its major customers.  The Company currently operates its business in the USA and Canada.



o)

Comprehensive Income



SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements.  For the year ended December 31, 2008, the Company experienced no comprehensive income.



p)

Earnings (Loss) per Share



The Company computes net earnings (loss) per common share using SFAS No. 128, Earnings Per Share.  Basic earnings (loss) per common share is computed based on the weighted average number of shares outstanding for the period.  Diluted earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average shares outstanding assuming all dilutive potential common shares were issued.  As the Company generated net losses in each of the periods presented, the basic and diluted loss per share is the same as any exercise of the convertible debenture, options or warrants would be anti-dilutive.



q)

Recently Adopted Accounting Standards



In December 2007, the FASB issued SFAS No. 141 (Revised) Business Combinations. SFAS 141 (Revised) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective for the fiscal year beginning after December 15, 2008. The management is in the process of evaluating the impact SFAS 141 (Revised) will have on the Companys financial statements upon adoption.



In December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51. SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective for the fiscal year beginning after December 15, 2008. The management is in the process of evaluating the impact SFAS 160 will have on the Companys financial statements upon adoption.





27



---

4.

Oil and Gas Properties



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 consisted of 23 oil and gas leases covering an aggregate of approximately 6,328 acres, located in the State of Kansas.  The expiration dates for the leases ranged from October 2008 through April 2014.  On February 18, 2008, the company abandoned its interest in the Brown County Property.



b)

Maverick Springs Property, Nevada, United States



During the year ended December 31, 2005 the Company paid finders 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, 2007, 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.



The minimum participation fee (renegotiated) was payable as follows:



(i)

$100,000 upon execution of the agreement (paid);

(ii)

$200,000 on or before March 28, 2007 (paid);

(iii)

$100,000 on or before May 7, 2007 (paid); and

(iv)

$300,000 on or before June 7, 2006 (paid).



If the participation fee exceeded $700,000 then the balance of the fee was payable as follows:



(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 was 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 was to receive 80% of the net revenue interest of any revenues generated.  Cedar Strat would retain a 5.5% overriding royalty.  On February 18, 2008, the company abandoned its interest in the Maverick Springs property.



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 participated in a 100% working interest in the costs 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 was to earn a 100% working interest in approximately 7,000 acres and have an option to drill a second well in 2007 on the remaining lands.  Suncor Energy was to retain a 12.5% gross overriding royalty in the lands.



28



---

The Company was a minority partner with a 10% working interest, which is subject to change depending upon future cash participation.



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



During the year ended December 31, 2005, the Company pursuant to a cash call initially advanced $358,571 ($418,500Cdn) to fund the drilling of an exploratory well.  Of this amount $189,790 ($210,600Cdn) was returned to the Company as excess cash calls.  The Company sold 25.93% of its 13.5% interest in the farmout arrangement to Energy Resource Royalty Corp., a private company, for $48,062 ($53,900Cdn).  The Company also realized a foreign exchange gain of $16,497 due to the refund of excess cash calls.  During December 2006 the Company, pursuant to a cash call advanced a further $243,713 ($215,345Cdn) to fund the drilling of a second exploratory well.  Of this advance $55,839 ($63,195Cdn) was recoverable from Energy Resource Royalty Corp.



As of December 31, 2008 $1,271 ($1,485 Cdn)  (December 31, 2007 - $136,752 ($147,961Cdn)); was expended in drilling costs.



As of December 31, 2008, the company wrote off $0.00 (December 31, 2007 -$2,124,061) associated with the Brown County and Maverick Springs oil and gas properties.



5.

Loans Payable



Loans payable consist of four loans of $25,200, $97,000, $100,000 and $50,000, made by unrelated parties to the Company.  The $25,200 and $97,000 loans are unsecured, non-interest bearing and fall due on April 30, 2009, May 20, 2009.   The $100,000 and $50,000 loans are unsecured, non-interest bearing and due on demand.



6.

Convertible Debentures



a)

On November 1, 2005, pursuant to a finders fee arrangement (Note 4b) the Company issued a Convertible Debenture in the amount of $500,000.  The Debenture bears interest at 6% per annum, and falls due November 1, 2008.  The Debenture and accrued interest may be converted at the option of the holder into Units of the Company.  Each Unit consists of a common share at $0.50 per share and one share purchase warrant to acquire one additional share of the Company at $0.50 per share, expiring two years subsequent to the date of conversion.



On March 27, 2006 at the request of the holder the debenture and accrued interest of $12,500 was converted into 1,025,000 shares of common stock of the Company, and 1,025,000 share purchase warrants were issued.  The warrants expired March 26, 2008.



b)

On March 8, 2006, the Company issued a Convertible Debenture in the amount of $1,300,000.  The Debenture bears interest at 6% per annum, and falls due November 1, 2008.  The Debenture and accrued interest may be converted at the option of the holder into Units of the Company.  Each Unit consists of a common share at $1.00 per share and one share purchase warrant to acquire one additional share of the Company at $1.50 per share, expiring two years subsequent to the date of conversion.



The Company determined that the 6% Convertible Debentures (Notes 6a and 6b) should be accounted for in accordance with EITF No. 98-5 "Accounting for Convertible Securities with Beneficial Conversion Features", the beneficial conversion feature is calculated at its intrinsic value (that is, the difference between the conversion price and the fair value of the common stock into which the debt is convertible, multiplied by the number of shares into which the debt is convertible) at the commitment date. 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.



Interest expense of $0 (year ended December 31, 2008 $52,000) was recorded in the financial statements.



On August 31, 2007 the terms of the debenture were amended to suspend the accrual of interest on this debenture, effective August 31, 2007. Accrued interest as at August 31, 2007 of $113,969 is included in the principal balance of $1,413,969.  Each $1.00 of the Debenture may be converted at the option of the holder into common stock of the Company at the lower of $0.25 or 85% of the market price of the common stock at the time of conversion.





29



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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.



On August 31, 2007 the terms of the debenture were amended to suspend the accrual of interest on this debenture, effective August 31, 2007.  Accrued interest as at August 31, 2007 of $29,658 is included in the principal balance of $329,658.  Each $1.00 of the Debenture may be converted at the option of the holder into common stock of the Company at the lower of $0.25 or 85% of 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.



On August 31, 2007 the terms of the debenture were amended to suspend the accrual of interest on this debenture, effective August 31, 2007.  Accrued interest as at August 31, 2007 of $31,240 is included in the principal balance of $431,240.  Each $1.00 of the Debenture may be converted at the option of the holder into common stock of the Company at the lower of $0.25 or 85% 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.



On August 31, 2007 the terms of the debenture were amended to suspend the accrual of interest on this debenture, effective August 31, 2007. Accrued interest as at August 31, 2007 of $42,396 is included in the principal balance of $742,396. Each $1.00 of the Debenture may be converted at the option of the holder into common stock of the Company at the lower of $0.25 or 85% 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, 2008 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 $Nil, (December 31, 2007 - $493,000).



The company determined that the conversion feature of the 0% Convertible Debentures (Notes 6b, 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, 2008 the fair value of the conversion feature of the 0% Convertible Debentures estimated using the Black-Scholes option pricing model has been recorded as a current liability in the amount of $43,400 (December 31, 2007 - $0).



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, 2008 the Company recorded interest expense relating to the beneficial conversion feature of the 8% Convertible Debentures of $nil (year ended December 31, 2007 - $(143,000)), and a gain resulting from the change in fair value of the embedded derivative liability of $149,900 (year ended December 31, 2007  $0) and interest expense of $126,666 (year ended September 30, 2006 - $60,671).





30



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The fair value of the 0% Convertible Debentures as at December 31, 2008 and December 31, 2008 is estimated using the Black-Scholes option pricing model with the following weighted average assumptions:



|                                                  |             |            
|------------------------------------------------- | ----------- | -----------
|                                                  | December 31 | December 31
|                                                  | 2008        | 2007       
|Risk free interest rate                           | .26%        | 3.12%      
|Expected life  years                             | .67         | 1.67       
|Expected volatility                               | 120%        | 110%       
|Expected dividend yield                           | -           | -          
|Weighted average of fair value of options granted | 0.00427     | $0.0038    



7.

Capital Stock



a)

Stock Issuances



There was no stock issuances during the twelve month period ended December 31, 2008.



b)

Stock Options



The Company has a stock option plan that provides for the issuance of stock options to its officers, directors, employees and consultants. Stock options must be non-transferable and the aggregate number of shares that may be reserved for issuance pursuant to stock options may not exceed 5,000,000 common shares of the Company. The exercise price of stock options is determined by the board of directors of the Company at the time of grant and may not be less than the fair market price of the common stock at the date of grant. Options have a maximum term of ten years. Vesting of options is made at the time of granting of the options at the discretion of the board of directors. Once approved and vested, options are exercisable at any time.



The officers, directors, employees and consultants entitled to stock options have left the Company and as a result their options have been cancelled.



Stock based compensation expense booked during the twelve months ended December 31, 2008 period comprises $0.00 (December 31, 2007  $35,055) for options vesting.  As of December 31, 2008 there were no stock options outstanding.



c)

Share Purchase Warrants



As at December 31, 2008 there were no warrants outstanding for the purchase of common shares.





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.  No stock options were granted during the twelve month period ended December 31, 2008.



8.

Segmented Information



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



31



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Details on a geographic basis of the location of the assets, liabilities and loss for the year from continuing operations, at December 31, 2008 are as follows:



|                                             |   |           |   |           |   |          
|-------------------------------------------- | - | --------- | - | --------- | - | ---------
|                                             |   | Canada    |   | USA       |   | Total    
|                                            
|Assets                                       | $ | 2,388     | $ |           | $ | 2,388    
|Liabilities                                  | $ | 3,257,518 | $ | -         | $ | 3,257,518
|Loss for the year from continuing operations | $ | 57,283    | $ | -         | $ | 57,283   
|Loss from discontinued operations            | $ | -         |   | 2,124,061 | $ | 2,124,061



Details on a geographic basis of the location of the assets, liabilities and loss for the year from continuing and discontinued operations, at December 31, 2007 are as follows:



|                                             |   |           |   |     |   |          
|-------------------------------------------- | - | --------- | - | --- | - | ---------
|                                             |   | Canada    |   | USA |   | Total    
|Assets                                       | $ | 40,180    | $ |     | $ | 40,180   
|Liabilities                                  | $ | 3,238,026 | $ | -   | $ | 3,238,026
|Loss for the year from continuing operations | $ | 335,531   | $ | -   | $ | 335,531  



9.

Income Taxes



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



|                                     |   |         |   |   |            |  
|------------------------------------ | - | ------- | - | - | ---------- | -
|                                     |   | 2008    |   |   | 2007       |  
|                                    
|Statutory rates                      |   | 34      | % |   | 34         | %
|Net loss for the year                | $ | (57,000 | ) | $ | (2,550,000 | )
|Income tax benefit at statutory rate |   | (19,400 | ) |   | (867,000   | )
|Stock based compensation             |   | -       |   |   | 12,000     |  
|Beneficial conversion feature        |   | 2,142   |   |   | (153,000   | )
|Valuation allowance                  |   | (17,258 | ) |   | 1,008,000  |  
|Income tax expense                   | $ | -       |   | $ | -          |  



The components of deferred income taxes are:



|                                  |   |            |   |   |          |  
|--------------------------------- | - | ---------- | - | - | -------- | -
|                                  |   | 2008       |   |   | 2007     |  
|                                 
|Net operating loss carry forwards | $ | 1,373,000  |   | $ | 365,000  |  
|Valuation allowance               |   | (1,373,000 | ) |   | (365,000 | )
|Net future tax asset              | $ | -          |   | $ | -        |  



The Company has available tax losses of approximately $4,606,895 which may be offset against future Canadian taxable income.  These losses expire as follows:



|     |   |          
|---- | - | ---------
|2023 | $ | 63,464   
|2024 |   | 82,257   
|2025 |   | 1,944,298
|2026 |   | 2,459,592
|2027 |   | 57,284   
|     | $ | 4,606,895





32



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ITEM 9.

CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE



There have been no changes in or disagreements with accountants or our auditors.  Moore & Associations of Las Vegas, Nevada has been our auditor since our fiscal year ending December 31, 2008.



ITEM 9A.

CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures



We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be disclosed in our reports to the SEC is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer as appropriate, to allow timely decisions regarding required disclosure.



As required by SEC rules, we carried out an evaluation, with the participation of the Chief Executive Officer (our principal executive and financial officer) of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2008, the end of the period covered by this report. Based on the foregoing, our principal executive and financial officer, concluded that our disclosure controls and procedures were effective as of December 31, 2008.



Managements Annual Report on Internal Control Over Financial Reporting



The Chief Executive Officer (principal executive and financial officer) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting (as defined in Rules 13a-15(f) and 15d(f) under the Exchange Act) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America (GAAP).



Internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets, (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (c) provide reasonable assurance that receipts and expenditures are being made only in accordance with authorizations of management and the board of directors, and (d) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.



In connection with the preparation of this report our Chief Executive Officer (principal executive and financial officer) conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2008 based on the criteria established in the Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In its assessment of the effectiveness of internal control over financial reporting as of December 31, 2008, the Company determined that there are material weaknesses affecting our internal control over financial reporting.



A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Companys annual or interim financial statements will not be prevented or detected on a timely basis.



The matters involving internal controls and procedures that the Companys Chief Executive Officer (principal executive and financial officer)  considers to be material weaknesses under COSO and SEC rules are: (1) lack of a functioning audit committee and lack of a majority of independent directors on the Company's board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective controls over period end financial disclosure and reporting processes. The aforementioned potential material weaknesses were identified by the Company's Chief Executive Officer in connection with the preparation of our financial statements as of December 31, 2008.



33



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The Chief Executive Officer (principal executive and financial officer) believes that the material weaknesses set forth in items (2), (3) and (4) above did not have an affect on the Company's financial results. However, the lack of a functioning audit committee and lack of a majority of independent directors on the Company's board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures, can impact the Company's financial statements for the future years.



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



Remedial Efforts to Address Prior Material Weaknesses



Although the Company is unable to meet the standards under COSO because of the limited funds available to a company of our size and stage of development, we are committed to improving our financial organization. As funds become available, we will undertake to: (1) create a position to segregate duties consistent with control objectives, (2) increase our personnel resources and technical accounting expertise within the accounting function (3) appoint one or more outside directors to our board of directors who shall be appointed to the audit committee of the Company resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures; and (4) prepare and implement sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.



We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.  However, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Projections of any evaluation of controls effectiveness to future periods are subject to risks.



Changes in Internal Control Over Financial Reporting



An evaluation was also performed with the participation of the Chief Executive Officer (our principal executive and financial officer) of any change in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



Except for changes described below under the heading Remedial Efforts to Address Prior Material Weaknesses, that evaluation did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



ITEM 9B.

OTHER INFORMATION



None.



34



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PART III



ITEM 10

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



| |                  |     |                                          
| | ---------------- | --- | -----------------------------------------
| | Name             | Age | Office(s) Held                           
| |                 
| | Rhonda Stevenson | 47  | Director, President, Secretary, Treasurer
| |                  |     | Chief Executive Officer &                
| |                  |     | Chief Financial Officer                  



Rhonda Stevenson was appointed president,CEO, Chief Finaicial Officer and director on November 24, 2008.  Ms. Stevenson has been extensively involved in government and private sector business ventures in the United States, Canada and Mexico.



On November 24, 2008, Maya Vinogradov resigned as our President, Secretary and Chief Financial Officer and as director.



Term of Office



Directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.



Significant Employees



We have no significant employees other than our officer and director. We conduct our business through agreements with consultants and arms-length third parties.



Committees of the Board of Directors



We presently do not have an audit committee, compensation committee, nominating committee, an executive committee of our board of directors, stock plan committee or any other committees.



Audit Committee Financial Expert



Our board of directors has determined that it does not have a member of its audit committee that qualifies as an audit committee financial expert as defined in Item 401(e) of Regulation S-B, and is 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 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 material revenues to date.



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;



(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.



35



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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 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.



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-K filed with the Securities and Exchange Commission on April 17, 2006.



Nomination Process



As of March 31, 2009, 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.



Involvement in Certain Legal Proceedings



Our directors, executive officers 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 offences);

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



Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities (Reporting Persons), to file reports of ownership and changes in ownership with the SEC. Reporting Persons are required by SEC regulations to furnish us with copies of all forms they file pursuant to Section 16(a). Based solely on our review of the copies of such reports received by it, and written representations from certain Reporting Persons that, other than as described below, no other reports were required for those persons, we believe that, during the year ended December 31, 2007, the Reporting Persons complied with all Section 16(a) filing requirements applicable to them.



No one with a principal position has failed to file, on a timely basis, the identified reports required by section 16(a) of the Exchange Act during the most recent fiscal year.



36



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ITEM 11.

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, 2008; 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,



Summary Compensation Table



The following table sets forth summary information concerning compensation paid by or accrued for services rendered to us in all capacities during the past two fiscal years to our Chief Executive Officer and to each additional executive officer whose salary and bonus exceeded $100,000 (the Named Executive Officer.)



|                                                     |                                          |                                 |                        |                    |                              |             |             |            
|---------------------------------------------------- | ---------------------------------------- | ------------------------------- | ---------------------- | ------------------ | ---------------------------- | ----------- | ----------- | -----------
|SUMMARY COMPENSATION TABLE                          
|Name And Principal
Position                          | Year                                     | Annual Compensation             | Long-Term Compensation
|Salary
($)                                           | Bonus
($)                                | Other
Annual
Comp-
ensation
($) | Awards                 | Payouts            | All
Other
Compen-
sation
($)
|Restricted
Stock
Awards
($)                          | Securities
Under-lying
Options/
SARs
(#) | LTIP
Payouts
($)               
|Rhonda Stevenson
President,Secretary
and Treasurer   | 2008                                     | $Nil                            | $Nil                   | 2,000              | $Nil                         | $Nil        | $Nil        | $Nil       
|Maya Vinogradov
President, Secretary
and Treasurer   | 2007                                     | $Nil                            | Nil                    | 4,583              | Nil                          | Nil         | Nil         | Nil        
|Thornton Donalson
President, Secretary
and Treasurer | 2007
2006
2005                           | $Nil
$Nil
$Nil                  | 100,000
Nil
Nil        | Nil
120,000
40,000 | Nil
Nil
Nil                  | Nil
Nil
Nil | Nil
Nil
Nil | Nil
Nil
Nil



Rhonda Stevenson was appointed our President, Chief Executive Officer, Chief Financial Officer and Director on November 24, 2008.  She was paid a consulting fee of $2,000 for the period November 24, 2008 to November 24, 2009.



Ms. Vinogradov was our President, Secretary and Treasurer from  July 13, 2007. to November 24, 2008.   She was paid a consulting fee of $10,000 for the period July 13, 2007 to July 12, 2008.



Mr. Donaldson was our President, Secretary and Treasurer from November 8, 2005 to July 13, 2007.  He was paid a one-time bonus of $100,000 on January 24, 2007.  He resigned as a director on July 16, 2007.



Mr. Donaldson was granted 300,000 stock options on November 18, 2005. All options were cancelled during the fiscal year ending December 31, 2007.



Stock Option Grants



As of the date of this annual report on Form 10-K, we do not have any outstanding stock options to purchase our common stock.





37



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Long-Term Incentive Plans



There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that our directors and executive officers may receive stock options at the discretion of our board of directors. 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.



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, where the value of such compensation exceeds $60,000 per executive officer.



Employment Contracts, Termination of Employment and Change In Control Arrangements



We have not entered into any employment agreements with our officers and directors.



We reimburse our directors for expenses incurred in connection with attending board meetings. 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.





ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of April 9, 2009 by: (i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities, (ii) each of our directors, (iii) each of our named executive officers; and (iv) officers and directors as a group. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown.



| |                |                            |                      |                 
| | -------------- | -------------------------- | -------------------- | ----------------
| |                | Name and Address           | Amount and Nature of | Percentage of   
| | Title of Class | Of Beneficial Owner        | Beneficial Ownership | Common Stock (1)
| |               
| | Common Stock   | All Officers and Directors | Nil                  | 0.0%            



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on 31,413,333 shares of our common stock issued and outstanding as of December 31, 2008. Under Rule 13d-3, certain sharesmay be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power todispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire theshares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing thepercentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially ownedby such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of anyperson as shown in this table does not necessarily reflect the persons actual ownership or voting power with respect to the number ofshares of common stock actually outstanding on December 31, 2008.
|   
|   





Change in Control



We are not aware of any arrangement that might result in a change in control in the future.



Securities Authorized for Issuance under Equity Compensation Plans



The Company does not have any equity compensation plans.



38



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ITEM 13.

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, 2008, 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 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES



Audit Fees



The aggregate fees billed for each of the last two fiscal years ended December 31 for professional services rendered by the Companys independent auditors, for the audit of the registrants annual financial statements and review of financial statements included in the registrants Form 10-QSB filings for those years amount to $19,000.



|                            |   |                   |   |                  
|--------------------------- | - | ----------------- | - | -----------------
|                            |   | Fiscal year ended |   | Fiscal year ended
|                            |   | December 31, 2008 |   | December 31, 2007
|                           
|Audit fees (2008 estimated) | $ | 3,500             | $ | 7,500            
|Tax fees                    |   | Nil               |   | Nil              
|All other fees              |   | 7,500             |   | 19,000           



Audit-Related Fees



The aggregate fees billed in the period ended December 31, 2008 for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported under Item 9 (e)(1) of Schedule 14A was NIL.



Tax Fees



The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountants for tax compliance, tax advise, and tax planning was $NIL.



All Other Fees



During the last two fiscal years there were no other fees charged by the principal accountants.



Audit Committees Pre-approval Policies



Under our audit committees policy, pre-approval is generally provided for particular services or category of service, including planned services, project based services and routine consultations. In addition, the audit committee may also pre-approve particular services on a case-by-case basis. Our audit committee approved all services that our independent accountants provided to us since inception.



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.



39



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PART IV



ITEM 15.

EXHIBITS



|        |                                                                                                                                                                                                      
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)                                                                                      
|        |                                                                                                                                                                                                      
|(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)
|        |                                                                                                                                                                                                      



40



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|      |                                                                                                                                                                                                                                                                                                                                                       
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)                                                                                                                                                        
|     
|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 of Principal Executive Officer under Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                             
|     
|31.2  | Section 302 Certification of Principal Financial Officer under Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                             
|     
|(32)  | Section 1350 Certifications                                                                                                                                                                                                                                                                                                                           
|     
|32.1  | Section 906 Certification of Principal Executive Officer and Principal Financial Officer under Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                             





41



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SIGNATURES





In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



TEXOLA ENERGY CORPORATION



/s/ Rhonda Stevenson



By: Rhonda Stevenson

Chief Executive Officer

(Principal Executive  Officer)



Dated:  April 14, 2009



In accordance with the Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



/s/ Rhonda Stevenson



By: Rhonda Stevenson

Chief Executive Officer

(Principal Executive Officer)

Chief Financial Officer

(Principal Financial Officer)



Dated: April 14, 2009











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