UNITED
STATES SECURITES AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 Form
10-KSB
 
 [X]
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
 SECURITIES
EXCHANGE ACT OF 1934
 For
Fiscal Year Ended
 December
31, 2007
 
 Commission
File #0-30503
 PANGEA
PETROLEUM CORPORATION
 (Name the
small business issuer in its charter)
 
 COLORADO
 (State or
other jurisdiction of incorporation or organization)
 
 76-0635938
 (IRS
Employer Identification No)
 
 9801
Westheimer, Suite 302, Houston, Texas 77042
 (Address
of principal executive offices)(Zip Code)
 
 (713)
706-6350
 (Issuer’s
telephone number)
 
 (Former
name, former address and former fiscal year, if changed since last
report)
 
 Securities registered pursuant to
Section 12(b) of the Act:None
 
 Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $0.001 Par Value
 
 Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. [  ]
 
 Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the  Exchange Act 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 [X]
No [ ]
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.  (X)
 
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes [  ] No [X
]
  
 Revenues
for year ended December 31, 2007: $53,447.  The aggregate market value
of the voting common stock held by non-affiliates of the registrant as of March
20, 2008 was $919,019.  The number of shares of common stock
outstanding as of March 20, 2008 was 306,339,544.
 
 
 
 
 
 TABLE
      OF CONTENTSPART
      IItem
      1.
              Description
      of Business
              3Item
      2.
              Description
      of
      Properties
              6Item
      3.
              Legal
      Proceedings
              6PART
      IIItem
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Small
      Business Issuer Purchase of Equity Securities
              7Item
      6.
              Management's
      Discussion and Analysis or Plan of Operations
              8Item
      7.
              Consolidated
      Financial Statements
              F-1Item
      8.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              12Item
      8A.
              Controls
      and Procedures
              12Item
      8B.
              Other
      Information
              14PART
      IIIItem
      9.
              Directors,
      Executive Officers, Promoters and Control Persons; Corporate Governance;
      Compliance with Section 16(a) of the Exchange Act
              14Item
      10.
              Executive
      Compensation
              15Item
      11.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              18Item
      12.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              18Item
      13.
              Exhibits
              19Item
      14.
              Principal
      Accountant Fees and Services
              20SIGNATURES
 
    
 FORWARD
LOOKING STATEMENT
 
 
 We
are  including  the  following  cautionary  statement  in
this Form 10-KSB to make applicable and take advantage of the safe harbor
provision of the
Private  Securities  Litigation  Reform  Act  of  1995  for  any
forward-looking statements  made  by,  or on
behalf of, the Company.  Forward-looking statements include statements
concerning  plans,  objectives,  goals,  strategies,
expectations,  future events or performance and underlying assumptions
and other statements  which  are
other  than  statements  of  historical  facts.  The
statements contained herein and other information contained in this report may
be based, in part, on management's estimates, projections, plans and judgments.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical results or
those anticipated. In this report, the words "anticipates", "believes",
"expects", "intends", "future", "plans", "targets" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on the forward-looking statements contained herein.  We
undertake no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that may arise after the date
hereof.  Our  expectations,  beliefs  and  projections  are  expressed
in good faith  and  are  believed  to
have a reasonable basis, including
without  limitations,  management's  examination
of historical operating trends,
data  contained  in  our records and other data
available from third parties,  but  there can be no
assurance that management's expectations, beliefs or  projections will
result or be achieved or accomplished. In addition to other
factors  and  matters  discussed  elsewhere  herein,
the following are important factors  that could cause actual results
to differ materially  from  those discussed in the
forward-looking statements: our dependence on limited cash resources, dependence
on certain key personnel within the Company, and the ability to raise additional
capital; our ability to secure leases for our oil and gas projects; our ability
to obtain acceptable forms and amounts of financing; the demand for, and price
level of, our products and services; competitive factors; the ability to
mitigate concentration of business in a small number of customers; the evolving
industry and technology standards; the ability to protect proprietary
technology; the dependence on key personnel; and the effect of business
interruption due to political unrest; oil and gas prices; and our ability to
efficiently manage our operations.  In addition, our ability to
generate long-term value for the common stockholder is dependent upon the
acquisition of profitable energy prospects. There are many companies
participating in the oil and gas industry, many with greater resources. Greater
competition for profitable operations can increase prices and make it more
difficult to acquire assets at reasonable multiples of cash flow.  We
believe that we will be able to compete in this environment and will be able to
find attractive investments; however, it is not possible to predict competition
or the effect this will have on operations. Operations are also significantly
affected by factors, which are outside our control, including the prices of oil
and natural gas, environmental and governmental regulations. Accordingly, actual
results may differ, possibly materially, from the predictions contained
herein.
 
 
 PART
I
  ITEM
1.  DESCRIPTION OF BUSINESS
   GENERAL
INFORMATION ABOUT PANGEA
   Pangea
Petroleum Corporation is a Colorado corporation that was organized on March 11,
1997. Our principle executive office is located at 9801 Westheimer, Suite 302,
Houston, Texas 77042.  Our company website can be viewed at
www.pangeapetroleum.com.  We are a publicly traded company listed on
the OTC Electronic Bulletin Board under the symbol “PAPO”.  We
currently have no subsidiaries.
  BUSINESS
STRATEGY
 
 Pangea is
an independent energy company focused on exploration and development of oil and
natural gas reserves, whose core business is directed to the development of oil
and gas prospects in proven onshore production areas. Pangea is pursuing a
development program designed to achieve profitability by distributing risk
across multiple oil and gas projects.  We diversify our risk by
carefully identifying prospects that fit within strict parameters and by taking
a minority working interest in each project. We devote essentially all of our
resources towards the development of revenue producing activities by keeping
overhead costs at a minimum level through the retention of carefully selected
consultants, contractors and service companies.
 
 Our
projects are focused on low risk development type drilling. Each project is
screened looking at depth, seismic data available, surrounding production from
similar wells, and proximity to infrastructure.  We seek to hold a minority
non-operating interest in the projects and, thus, also closely examine the
project operator to determine that they have the experience and operating
philosophy that is consistent with Pangea quality expectations. The well
drilling cost and upfront cost to buy in to the prospect are
estimated.
 
 -3-
 We then
utilize a risk based economic evaluation that compares “high”, “most likely”,
and “low” production and price scenarios to rank projects for
investment.  Our overall Business Plan employs the same technique for
price and production, and in addition, uses “high”, “most likely” and “low”
scenarios to factor in a projection for the number of potential dry holes that
may be encountered in the drilling program each year.  The “most
likely” case is designed to have a 50% chance of being achieved. The “high” and
“low” cases then define the boundaries of an 80% range, such that there is a 10%
chance of achieving the “high” case and a 90% chance of achieving the “low”
case.
 
 We
attempt to design a drilling program that will be attractive, even in the low
case assumption range, by choosing generally lower risk wells from prospects at
shallower depths. This philosophy allows Pangea to avoid the unnecessarily
complex down-hole environments which are often encountered in deeper wells, and
which often invite very expensive and unreliable results.
 
 To date
Pangea has chosen to focus its acquisition, exploration, and development
activities primarily in the Gulf Coast region.  This region is
characterized by long-lived gas reserves with predictable and relatively low
production depletion rates, multiple geologic targets that decrease drilling
risk, strong natural gas prices, lower service costs than in more competitive or
remote basins, a favorable regulatory environment that encourages active
drilling efforts, and virtually no federal land or land access impediments.
Management believes that by continuing to identify projects that fit the
company's investment and production criteria, we have a strategy that will
enhance production and cash flow and optimize the use of our investment
capital.
 
 We are
managed by a small experienced team focused on finding and structuring
attractive oil and gas investment opportunities. Our goal is to create long-term
value for our investors by building an onshore oil and natural gas reserve
base.
 
 In
summary, Pangea seeks to acquire and exploit properties with the following
characteristics:
 
 §
              primarily
      Gulf Coast Basin locations,§
              an
      established production history and infrastructure,§
              multiple
      productive sands and reservoirs,§
              low
      current production levels with significant identified proven and
      potential reserve opportunities and,§
              the
      opportunity to obtain a minority
interest.
 
 RISK
FACTORS
 
 Going
Concern Risk
 
 We have
had and could have in the future losses, deficits and deficiencies in liquidity,
which could impair our ability to continue as a going concern.
 
 In Note
#2 to our consolidated financial statements, our independent auditors have
indicated that certain factors raise substantial doubt about our ability to
continue as a going concern.  Since its inception, we have suffered
recurring losses from operations and have been dependent on existing
stockholders and new investors to provide the cash resources to sustain its
operations.  During the years ended December 31, 2007 and 2006, we
reported net losses and negative cash flows from operations as
follows:
 
 2007
              
              
              2006Loss
      from operations
              
              $
              (339,522
              )
              
              $
              (962,566
              )Net
      Loss from continuing operations
              
              $
              (402,979
              )
              
              $
              (1,010,931
              )Net
      cash (used in) operating activities
              
              $
              (38,770
              )
              
              $
              (113,169
              )
 
  Our
continuing negative operating results have produced a working capital deficit of
$710,775 at December 31, 2007. This is an increase compared to a working capital
deficit of $540,449 at December 31, 2006, and reflects the additional loss of
­­­22% from 2007 operations.  The above factors represent
a substantial improvement over year 2006 performance;
however the net loss from continuing operations continues to raise doubt about
our ability to fully establish the Company.
  -4-
 IMPLEMENTATION
OF BUSINESS STRATEGY DEPENDENT ON ADDITIONAL FINANCING
  Pangea
must obtain financing to fund the expansion of operations.  Such
outside financing must be provided from the sale of equity or third party
financing.  Further, the sale of equity securities will dilute our
existing stockholders' interests, and borrowings from third parties could result
in our assets being pledged as collateral.  While the Company is
currently able to fund all basic operating costs, it is possible our operations
could be restricted if loan terms increase our debt service
requirements.  There is no assurance that we can obtain financing on
favorable terms.
   INDUSTRY
  The
petroleum industry is a global industry that is fundamental to all economic
activity.  It is composed of the down stream sector (refining,
marketing, products and derivatives) and the upstream sector that is focused on
finding and producing crude oil and natural gas.  Oil and natural gas
are commodities, which are found throughout the world and they have been
produced in increasing quantities since the mid 19th century.  The
exploration, production and transportation of these materials in the modern era
generate an enormous appetite for capital because quantities sufficient to fuel
the world's economic machine are rapidly becoming more difficult to find and
expensive to produce. Consequently, a few global corporations and state energy
companies dominate the industry.  These companies tend to concentrate
their investments on very large prospects and to quickly abandon less
productive, older reserves.
  The
production technology in the petroleum industry has improved tremendously in
recent years; however commercial quantities of oil and gas are frequently left
in place when fields are abandoned.  This is particularly true in
older reservoirs that were abandoned before modern technologies were
available.  Additionally, the economic level of interest varies with
company size.  A small company such as Pangea can successfully exploit
a field that is not of interest to a major oil and gas company.
  Mature
energy provinces such as the United States have many fields with production and
collection infrastructure in place that can be purchased.  The
infrastructure represents a significant savings in investment required for
production to continue.  These fields offer investment potential for
those companies willing to commit capital and appropriate
technology.  Technology that is readily available from consultants,
service companies, and other groups established to support the petroleum
production sector.
  These
factors allow small companies like Pangea to effectively and efficiently target
the niche comprised by fields with established reserves that require capital
and/or technology in order to develop, enhance or restore
production.
 
 JOINT
OPERATIONS; NON-OPERATOR STATUS
 
 Pangea
owns less than 100% of the working interest in our oil and gas
holdings.  Operations are conducted jointly with other working
interest owners.  Joint operating arrangements are customary in the
oil and gas industry and are governed by a joint operating agreement whereby a
single working interest owner is designated the operator.  On
properties where we own less than 50% of the working interest, drilling and
operating decisions may not be entirely within our control.  If we
disagree with the decision of a majority of working interest owners, we may be
required, among other things, to postpone the proposed activity or decline to
participate.  If we decline to participate, we might be required to
relinquish our interest or may be subject to certain non-consent penalties, as
provided in the applicable operating agreement.  Such penalties
typically allow participating working interest owners to recover from the
proceeds of production, if any, an amount equal to 100%- 400% of the new
investment. Under most operating agreements, the operator is given direct and
full control over all operations on the property and is obligated to conduct
operations in a workman-like manner; however the operator is usually not liable
to the working interest owners for losses sustained or for liabilities incurred,
except those resulting from its own gross negligence or willful
misconduct.  Each working interest owner is liable for its share of
the costs of developing and operating jointly owned properties.  The
operator is required to pay the expenses of developing and operating the
property and will invoice working interest owners for their proportionate share
of such costs.  In instances where we are a non-operating working
interest owner, we may have a limited ability to exercise control over
operations and the associated
costs of such operations.  The success of our investment in such
non-operated activities may, therefore, be dependent upon a number of facts that
are outside of our direct control.
 
 -5-
 MARKETING
 
 The
revenue generated by our operations is highly dependent upon the price of, and
demand for, crude oil and natural gas.  Historically, the markets for
crude oil and natural gas have been volatile and are likely to continue to be
volatile in the future.  The prices received by the Company for its
crude oil and natural gas production and the level of such production are
subject to fluctuations and depend on numerous factors beyond our control
including seasonality, the condition of the United States economy (particularly
the manufacturing sector), foreign imports, political conditions in other
oil-producing and natural gas-producing countries, the actions of the
Organization of Petroleum Exporting Countries and domestic regulation,
legislation and policies.  Decreases in the prices of crude oil and
natural gas could have an adverse effect on the carrying value of any proved
reserves or revenue from operations in the future.
 
 COMPETITION
 
 We
operate in a highly competitive environment.  Competition is
particularly intense with respect to the acquisition of desirable undeveloped
crude oil and natural gas properties.  The principal competitive
factors in the acquisition of such undeveloped crude oil and natural gas
properties include the staff and data necessary to identify, investigate and
purchase such properties, and the financial resources necessary to acquire and
develop such properties.  We compete with major and independent crude
oil and natural gas companies for properties and the equipment and labor
required to develop and operate such properties.  Many of these
competitors have financial and other resources substantially greater than ours,
which may adversely affect the company’s ability to compete on certain
projects.
 
 TITLE
TO PROPERTIES
 
 As is
customary in the crude oil and natural gas industry, we make only a cursory
review of title to undeveloped crude oil and natural gas leases at the time they
are acquired by us.  However, before drilling commences, we require a
thorough title search to be conducted, and any material defects in title are
remedied prior to the time actual drilling of a well begins.  To the
extent title opinions or other investigations reflect title defects, we, rather
than the seller of the undeveloped property, are typically obligated to cure any
title defect at our expense.  If we were unable to remedy or cure any
title defect of a nature such that it would not be prudent to commence drilling
operations on the property, we could suffer a loss of the lease cost for the
property.  We believe that we have good title to our oil and gas
leases.
 
 EMPLOYEES
 
 As of
December 31, 2007, we had two full-time employees.  We also retain
independent geological and engineering consultants and administrative assistance
as needed and expect to continue to do so in the future.
 
 ITEM
2.  DESCRIPTION OF PROPERTY
 
 The
Company leased office space under a one year operating lease that expired in
March 31, 2007 for monthly rent of $763.  Due to rising costs the
lease was not renewed. We continue to keep our mail and answering service at
that location until other office space is found.
 
 ITEM 3.  LEGAL
PROCEEDINGS
 
 None
 
 -6-
 PART
II
 
 ITEM 5.  MARKET
FOR  COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
 
  The
following table sets forth certain information as to the high and low bid
quotations quoted on the OTC Bulletin Board for the fiscal years ended December
31, 2006 and December 31, 2007.  Information with respect to
over-the-counter bid quotations represents prices between dealers, does not
include retail mark-ups, mark-downs or commissions, and may not necessarily
represent actual transactions.
  Period
              High
              Low2006First
      Quarter
              
              .036
              .007Second
      Quarter
              
              .054
              .018Third
      Quarter
              
              .039
              .015Fourth
      Quarter
              
              .023
              .0112007First
      Quarter
              
              .009
              .003Second
      Quarter
              
              .012
              .005Third
      Quarter
              
              .008
              .004Fourth
      Quarter
              
              .0095
              .003
 
 The
closing price of our common stock as of March 20, 2008 was
$.­­­­003 per share.  As of March 20, 2008 there were
approximately 612 certificate shareholders of record and 306,339,544 common
shares outstanding.
 
 OUR
TRANSFER AGENT IS:
 Olde
Monmouth Stock Transfer Co., Inc.
 200
Memorial Parkway
 Atlantic
Highlands, New Jersey 07716
 
 SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS FOR FISCAL YEAR ENDED
DECEMBER 31, 2007
 
 Number
      of Securities to be issued upon exercise of outstanding options, warrants
      and rights
              Weighted-average
      price of outstanding options warrants and rights
              Number
      of Securities
                remaining
      available for future issuance under equity compensation plans(excluding
      securities reflected in column (a))(a)
              (b)
              (c)Equity
      compensation plans approved by security holders
              25,000,000
              $0.11
              0Equity
      compensation plans not approved by security holders
              0
              0
              0TOTAL
              25,000,000
              $0.11
              0
 
     -7-
 On July
20, 2005, our shareholders approved the 2005 Equity Compensation Plan. The
purpose of the Plan is to further the interests of the Corporation and the
stockholders by providing incentives in the form of stock to key employees,
consultants and Directors who contribute materially to our success and
profitability.  The grants recognize and reward outstanding individual
performances and contributions and will give such a person a proprietary
interest in us, thus enhancing their personal interest in our continued success
and progress.  The Plan also compensates consultants for their work
for the Corporation.  The Plan will be administered by the Board of
Directors.  The Board of Directors has exclusive power to select the
participants in the Plan, to establish the terms of the stock granted to each
participant, and to make all determinations necessary or advisable under the
Plan.  The maximum number of shares of common stock that may be
granted or optioned and sold under the Plan is 25,000,000.
 
 DIVIDENDS
 
 We have
never declared dividends. We presently intend to retain future earnings to
support our growth.  Any payment of cash dividends in the future will
be dependent upon: the amount of funds legally available, our earnings;
financial condition; capital requirements; and other factors which our Board of
Directors deems relevant.
 
 RECENT
SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM UNREGISTERED
SECURITIES
  None
  
 ITEM
6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
 
 GENERAL
 
 We are an
independent energy company focused on exploration and development of oil and
natural gas reserves in the onshore United States, primarily on the Gulf
Coast.  We have crafted a business model specifically designed to
exploit the unique opportunities currently available to small companies in the
domestic oil and gas industry. Pangea’s basic philosophy is that it will
maximize potential success by focusing on shallow, less expensive prospects with
quality data.  Through the development of strong relationships with
industry partners, Pangea has been able to assemble a large pool of prospect
opportunities, which have been rigorously evaluated to identify the best
possible drilling candidates.  Finally, management believes that,
while not all wells will be successful, there is a relationship between the
number of potential prospects drilled and the rate of success enjoyed, such that
the more wells the Company drills, the more chances we have for success. For
this reason Pangea takes a minority position in each well, so that within the
available funds, the number of wells drilled can be increased.
 
 RESULTS
OF OPERATIONS
 
 We
participated in drilling two wells in 2007. One of those wells is producing and
one well was judged to be a dry hole and was
abandoned.    This resulted in a 50% success rate, which is
at the Company’s target success rate of 50% and below the 60% rate we achieved
in 2006.  Production in 2007 was up 4% to 5.3 million cubic feet of
gas equivalent, versus 5.1 million cubic feet equivalent in 2006.
 
 In the
first quarter 2007, we participated in drillinga 4,700' Frio test
inColorado County,
Texas.  This project was developed based on 3D seismic
data.  The well encountered three Frio sands and a Miocene
sand.  The first Frio sand was placed on production in May 2007 at 300
MCFD.  We have a 2.00% working interest and 1.48% net interest in
the prospect.  The prospect area has several potential additional
locations in the Frio and Miocene that are being evaluated for
drilling.  The well has produced with little decline since June
2007.
 
 We
participated in drilling a prospect in Cumberland County, Illinois,on in November 2007.  The primary target was the Geneva Reef
sand at 4000’ with a secondary objective to test the Salem and Warsaw
sands.  The Geneva
 Reef was
wet in this location and the Warsaw and Salem were tested and deemed to be
non-commercial. The well was plugged and abandoned.
 
 In
February 2006, we purchased a 7% working interest (5.25% net interest) in a
re-entry workover in Brazoria
County, Texas.  The well was drilled in 2002 and experienced
mechanical difficulty in the first of four zones in the Miocene
sands.  The logs indicate three additional sands which will be
sequentially completed for the project.  A workover rig moved in at
the end of March 2006.  The workover in the first zone was
successful.  Following facilities construction and pipeline connection
the well was placed on production at a 250 MCFD restricted rate. This prospect
will likely have two to three additional well locations.  To date, we
have not received revenue from this project, as the operator has not provided
well information or status and appears to have the well shut-in.  In
2006, a $21,000 impairment value was placed on the well pending results of
operations.  The operator has continued to fail to respond to Pangea
demands for status and contract performance and we are evaluating how to
proceed.
 
 -8-
 CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
 
 Our
discussion and analysis of its financial condition and results of operations as
of December 31, 2007 are based upon its consolidated financial statements, which
have been prepared in accordance with generally accepted accounting principles
in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates. We base the
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. These estimates and
assumptions provide a basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions, and these differences may be material.
 
 We
believe the following critical accounting policies affect its more significant
judgments and estimates used in the preparation of its consolidated financial
statements.
 
 OIL
AND GAS PRODUCING ACTIVITIES
 
 We follow
the "successful efforts" method of accounting for our oil and gas properties.
Under this method of accounting, all property acquisition costs (cost to acquire
mineral interests in oil and gas properties) and costs (to drill and equip) of
exploratory and development wells are capitalized when incurred, pending
determination of whether the well has found proved reserves. If an exploratory
well has not found proved reserves in commercial quantities, the costs
associated with the well are charged to expense. The costs of development wells
are capitalized whether productive or nonproductive.  Geological and
geophysical costs and the costs of carrying and retaining undeveloped properties
are expensed as incurred.  Management estimates the future liability
for plugging and abandonment of the related wells. Accordingly, a net cost of
$8,193 has been recorded for plugging and abandonment.
 
 Unproved
oil and gas properties that are individually significant are periodically
assessed for impairment of value, and a loss is recognized at the time of
impairment by providing an impairment allowance.  Other unproved
properties are amortized based on the average holding period. Capitalized costs
of producing oil and gas properties after considering estimated dismantlement
and abandonment costs and estimated salvage values are depreciated and depleted
by the unit-of-production method.  On the sale or retirement of a
complete unit of a proved property, the cost and related accumulated
depreciation, depletion, and amortization are eliminated from the property
accounts, and the resultant gain or loss is recognized. On the retirement or
sale of a partial unit of proved property, the cost is charged to accumulated
depreciation, depletion, and amortization with a resulting gain or loss
recognized in the statement of operations.
 
 On the
sale of an entire interest in an unproved property for cash or cash equivalent,
gain or loss on the sale is recognized, taking into consideration the amount of
any recorded impairment if the property had been assessed individually. If a
partial interest in an unproved property is sold, the amount received is treated
as a reduction of the cost of the interest retained.
  OIL
AND GAS REVENUES
  Oil and
gas revenues are recorded under the sales method. We recognize oil and gas
revenues as production occurs. As a result, we accrued revenue relating to
production for which we have not received payment.
 
 
 COMPARISON
OF YEAR ENDED DECEMBER 31, 2007 TO YEAR ENDED DECEMBER 31, 2006.
 
 Revenues
were $53,447 in 2007 compared to revenue of $38,497 in 2006 reflecting an
increase of 27% or $14,950 in revenue in 2007.  This increase in
revenue reflects a rise in production during the year.   During
the fiscal year 2007 $17,202 was used for capital and exploratory expenditures
compared to $172,506 in 2006 (using the successful effort method of
accounting).
  -9-
 The
$607,952 decrease in the net loss from continuing operations to $402,979 for the
year ended December 31, 2007 from $1,010,931 for the year ended December 31,
2006 is due to a few factors.   Impairment of oil and gas
properties decreased to $23,634 in 2007.  This was due to the plug and
abandonment costs recorded in 2006 for the drilled and abandoned wells of
$73,105, while $0 costs were recorded in 2007.  There was a decrease
in Selling, General and Administrative expenses including stock based
compensation, which decreased by $430,669 to $306,432 in 2007 compared to
$737,101 in 2006.
  During
the year ended December 31, 2007, we reported a net loss of $402,979 compared to
a net loss of $1,010,931 for the year ended December 31, 2006.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Since our
inception, we have suffered recurring losses from operations and have been
dependent on existing stockholders and new investors to provide the cash
resources to sustain its operations.
 
 Our
capital and exploratory expenditures of $17,202 for the fiscal year 2007 were
used to invest in two wells.  We have not been able to generate
positive cash flow from operations. The net cash from financing activities
decreased in 2007 to $5,000 from $282,988 in 2006. We intend to continue
investing in additional oil and gas projects but will need additional financing
from private placements, debt financing or equity investment in order to
participate fully and at the levels we intend. There can be no assurance that
any of the plans developed by Pangea will produce cash flows sufficient to
ensure its long-term viability.
 
 Our
long-term viability as a going concern is dependent on certain key factors, as
follows:
 
 -
              Our
      ability to continue to obtain sources of outside financing that will
      supplement current income and allow us to continue to make strategic
      investments in new oil and gas well prospects.-
              Our
      ability to coordinate attractive development prospects, with timely
      funding that will allow us to continue to increase oil and gas reserves
      and production.-
              Our
      ability to increase profitability and sustain a cash flow level that will
      ensure support for continuing operations as well as make timely new well
      investments.
 
  RECENT
FINANCING
  None
   2008
OUTLOOK
 We are
working on identifying additional prospects for drilling in 2008 in Illinois and
New York, but we currently have nothing scheduled.  We have no active
drilling prospects, however, we are pursuing three opportunities to purchase
existing production in Texas and Mississippi.
 
 Pangea’s
2.5% working interest in Stueben County, New York,
which covers approximately 50,000 acres, has completed shooting twenty-two
square miles of 3-D seismic.  The data is being processed and drilling
prospects are being examined. Thus far there are leads identified in the
Oriskany and Onandaga Reef sands.   Currently plans for drilling
have been deferred due to land issues.  Pangea is evaluating how to
proceed with the project and may elect to farm out the prospect to avoid future
expenditures until operations proceed.
 
 Pangea
has an interest in a Geneva Reef project covering approximately 3600 acres in
Clay, Effingham, Shelby,
Fayette, and Cumberland CountiesinIllinois.Analysis
of 2D seismic in the area indicated that there are at least six geologic
features having potential to offset successful Geneva Reef production in the
area.  The operator ran 3D seismic in the areas of interest and
confirmed the existence of one reef structure that was drilled in 2007 and was
unsuccessful.  It is anticipated that at least one of the remaining 2D
prospects will have a drillable reef.  The operator is running
additional 3D seismic to attempt to define drilling locations on this prospect.
The offset reefs have had approximately three wells each, and initial total reef
production has been between 500 and 1000 BOPD on the successful 3D
finds.  Pangea has a 3.0% working interest and a 2.1% net interest in
the project.
 
 -10-
 Henderson County, Texas is an
11500’ test in the Rodessa and Pettit with a secondary objective in the Upper
Travis Peak.  The first well has the potential for an additional well
in the fault trap and, if successful, will lead to drilling in four additional
analogous fault blocks on the leased acreage.  Pangea had reserved a
2% working interest and 1.54% net interest in the first well, but has not
provided any funding.  The operator has had extended difficulty
obtaining the necessary leases for the surface drilling location and has been
delayed in proceeding throughout 2007.  In December 2007 Pangea
informed the operator that we will not proceed with participation in the
project.
 
 Pangea is
also pursuing the acquisition of interests in three producing projects; two in
Texas and one in Mississippi.  The two Texas projects are primarily
gas producers that are comprised of multiple wells with excellent production
histories.  Pangea is looking a 5% of a project making 30,000,000
cubic feet per month and 3% of a project making 150,000,000 cubic feet per
month.  The Mississippi project is in a relatively shallow oil horizon
area that produces relatively heavy oil.  The wells produce at a very
shallow decline rate over a long period and are currently making 3200 Barrels
per month.  Pangea is evaluating a 3-5% interest.  All three
projects appear to have a greater than 10 year remaining life.  To
date there are no definitive agreements for purchase and final negotiations will
depend on the ability of Pangea to raise the up front capital necessary to
finalize each deal.
 
 We
continue to review additional prospects in Texas, Louisiana, Illinois and New
York to add new wells to our prospect list.  Our strategy remains one
of evaluating primarily shallow, onshore oil and gas projects that avoid
investing in “wildcat” or exploratory wells. Focus remains on investing in
development well prospects that are supported by seismic data, proven production
from the surrounding area and good information from adjacent wells.
Additionally, we will continue to diversify our risk by taking a minority
working interest in the prospects such that we are not dependent on any one
project or highly impacted by an unsuccessful well. The ability to invest
further is entirely dependent on Pangea securing additional capital from
investors or debt financing.  There is no assurance that additional
equity or debt financing will be available on terms acceptable to
Management.
 
 OFF
BALANCE SHEET ARRANGEMENT
 
 During
the year ended December 31, 2007, we had no off balance sheet
arrangements.


-11-
 ITEM 7. CONSOLIDATED
FINANCIAL STATEMENTS
 
 The
consolidated financial statements of the company are set forth beginning on page
F-1.
 
 
 
 
 
 
 PANGEA
PETROLEUM CORPORATION
 
 
 
 
 
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 WITH
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
 For
the years ended December 31, 2007 and 2006
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 F-1
 PANGEA
PETROLEUM CORPORATION
 TABLE
OF CONTENTS
 __________
 
 
 
 PageReport
      of Independent Registered Public Accounting Firm
              F-3Consolidated
      Financial Statements:Consolidated
      Balance Sheet as of December 31, 2007
              F-4Consolidated
      Statements of Operations for the yearsended
      December 31, 2007 and 2006
              F-5Consolidated
      Statements of Stockholders' Deficit forthe
      years ended December 31, 2007 and 2006
              F-6Consolidated
      Statements of Cash Flows for the yearsended
      December 31, 2007 and 2006
              F-7Notes
      to Consolidated Financial Statements
              F-8
 
 
 
 
 F-2
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To
the Board of Directors
 Pangea
Petroleum Corporation
 Houston,
Texas
 
 We have
audited the accompanying consolidated balance sheet of Pangea Petroleum
Corporation as of December 31, 2007, and the related consolidated statements of
operations, stockholders' deficit and cash flows for each of the two years then
ended. These consolidated financial statements are the responsibility of Pangea
Petroleum Corporation’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit.
 
 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 audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
 
 In our
opinion, the consolidatedinancial statements referred to above present fairly, in all material
respects, the financial position of Pangea Petroleum Corporation as of December
31, 2007, and the results of its operations and its cash flows for each of the
two yearsthen
ended in conformity with accounting principles generally accepted in the
United States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has experienced significant
losses. Those conditions, among others, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
these matters are also described in Note 2. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
 
 Malone
& Bailey, PC
 Houston,
Texas
 www.malone−bailey.com
 
 May 1,
2008
 
 
 
 
 
 F-3
 PANGEA
PETROLEUM CORPORATION
 CONSOLIDATED
BALANCE SHEET
 December
31, 2007
 
 
 ASSETSCurrent
      assets - Cash
              
              
              2,718Property
      and equipment:Proven
      oil and gas properties (successful efforts method), net of
      accumulateddepletion
      of $138,642
              
              
              40,478Unproven
      oil and gas properties (successful efforts method)
              
              
              171,462Total
      property and equipment
              
              
              211,940Total
      assets
              
              $
              214,658LIABILITIES AND
      STOCKHOLDERS’ DEFICITCurrent
      liabilitiesAccounts
      payable
              
              $
              21,535Accrued
      interest payable to related parties
              
              
              126,730Notes
      payable to related parties
              
              
              528,041Notes
      payable
              
              
              15,507Stock
      Payable
              
              
              21,680Total
      current liabilities
              
              
              713,493Long
      term debt to related parties
              
              
              5,000Asset
      retirement obligations
              
              
              8,193Total
      liabilities
              
              
              726,686Stockholders'
      deficit:Preferred
      stock: $.001 par value; 10,000,000 shares authorized,none
      issued and outstanding
              
              
              -Common
      stock: $.001 par value; 500,000,000 shares authorized;306,339,544
      shares issued and outstanding
              
              
              306,340Additional
      paid-in capital
              
              
              18,373,829Accumulated
      deficit
              
              
              (19,192,197
              )Total
      stockholders' deficit
              
              
              (512,028
              )Total
      liabilities and stockholders' deficit
              
              $
              214,658
 
 
 
 See
summary for significant accounting policies and notes to consolidated financial
statements.
   F-4
  PANGEA
PETROLEUM CORPORATION
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 Years
ended December 31, 2007 and 2006
 
 
 2007
              
              
              2006Oil
      and gas revenue
              
              $
              53,447
              
              
              $
              38,497Costs
      and expenses:Lease
      operating expenses
              
              
              26,124
              
              
              
              18,217Production
      tax
              
              
              2,981
              
              
              
              3,636Selling,
      general and administrative,including
      stock based compensation
              
              
              306,150
              
              
              
              682,982Dry
      holecosts
              
              
              282
              
              
              
              54,119Impairment
      of oil and gas properties
              
              
              23,634
              
              
              
              90,938Plug
      and abandonment costs
              
              
              -
              
              
              
              73,105Depletion
      and depreciation
              
              
              33,236
              
              
              
              78,066Gain/Loss
      on sale of assets
              
              
              562
              
              
              
              -Total
      costs and expenses
              
              
              392,969
              
              
              
              1,001,063Loss
      from operations
              
              
              (339,522
              )
              
              
              (962,566
              )Other
      income and (expenses):Interest
      expense
              
              
              (63,457
              )
              
              
              (63,365
              )Settlement
      income
              
              
              -
              
              
              
              15,000Net
      loss
              
              $
              ( 402,979
              )
              
              $
              (1,010,931
              )Weighted
      average common shares outstanding
              
              
              298,865,393
              
              
              
              269,385,275Basic
      and diluted net loss per common share
              
              $
              (0.00
              )
              
              $
              (0.00
              )
 
 
 
 See
summary for significant accounting policies and notes to consolidated financial
statements.
 
 
 
 
 F-5
 PANGEA
PETROLEUM CORPORATION
 CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIT
 Years
ended December 31, 2007 and 2006
 
 
 
 Additional
              
              
              
              
              
              
              
              
              TotalCommon
      Stock
              
              
              Paid-In
              
              
              Accumulated
              
              
              Deferred
              
              
              Stockholders’Shares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              Compensation
              
              
              DeficitBalance
      atDecember
      31, 2005
              
              
              222,676,886
              
              
              
              222,677
              
              
              
              17,257,178
              
              
              
              (17,778,287
              )
              
              
              -
              
              
              
              (298,432
              )Common
      stock issuedfor
      cash
              
              
              13,700,000
              
              
              
              13,700
              
              
              
              171,300
              
              
              
              -
              
              
              
              -
              
              
              
              185,000Common
      stock issuedfor
      exerciseof
      cashlesswarrants
              
              
              2,296,434
              
              
              
              2,296
              
              
              
              (2,296
              )
              
              
              -
              
              
              
              -
              
              
              
              -Common
      stock issuedto
      compensate employeesand
      consultants
              
              
              34,239,244
              
              
              
              34,240
              
              
              
              585,881
              
              
              
              -
              
              
              
              (4,247
              )
              
              
              615,874Common
      stock issuedfor
      Asset PurchaseAgreement
              
              
              20,000,000
              
              
              
              20,000
              
              
              
              150,000
              
              
              
              -
              
              
              
              -
              
              
              
              170,000Cancellation
      of sharesUnder
      SecuritiesPurchase
      AgreementDated
      December 31, 2001
              
              
              (11,653,998
              )
              
              
              (11,654
              )
              
              
              11,654
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,010,931
              )
              
              
              -
              
              
              
              (1,010,931
              )Balance
      atDecember
      31, 2006
              
              
              281,258,566
              
              
              $
              281,259
              
              
              $
              18,173,717
              
              
              $
              (18,789,218
              )
              
              $
              (4,247
              )
              
              $
              (338,489
              )Common
      stock issuedto
      compensate employeesand
      consultants
              
              
              25,080,978
              
              
              
              25,081
              
              
              
              200,112
              
              
              
              -
              
              
              
              4,247
              
              
              
              229,440Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (402,979
              )
              
              
              -
              
              
              
              (402,979
              )Balance
      atDecember
      31, 2007
              
              
              306,339,544
              
              
              $
              306,340
              
              
              $
              18,373,829
              
              
              $
              (19,192,197
              )
              
              $
              0
              
              
              $
              (512,028
              )
 
 
 See
summary for significant accounting policies and notes to consolidated financial
statements.
 
 
 F-6
 PANGEA
PETROLEUM CORPORATION
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 Years
ended December 31, 2007 and 2006
 
 
 
 2007
              
              
              2006Cash
      flows from operating activities:Net
      loss
              
              $
              (402,979
              )
              
              $
              (1,010,931
              )Adjustments
      to reconcile net loss to net cash(used
      in) operating activities:Depletion
      and depreciation expense
              
              
              33,236
              
              
              
              78,066Impairment
      of oil and gas properties
              
              
              23,634
              
              
              
              90,938Dry
      hole expense
              
              
              -
              
              
              
              54,119Plug
      and abandonment costs
              
              
              -
              
              
              
              73,105Stock-based
      compensation
              
              
              251,120
              
              
              
              615,874Changes
      in assets and liabilities:Accounts
      receivable
              
              
              (15,079
              )
              
              
              2,136Prepaid
      expenses
              
              
              -
              
              
              
              6,500Payroll
      taxes refundable
              
              
              7,131
              
              
              
              2,748Accounts
      payable and accrued liabilities
              
              
              63,917
              
              
              
              (25,724
              )Other
              
              250
              
              
              
              -Net
      cash (used in) operating activities
              
              
              (38,770
              )
              
              
              (113,169
              )Cash
      flows (used in) investing activities:Capital
      and exploratory expenditures
              
              
              (17,202
              )
              
              
              (172,506
              )Cash
      flows from financing activities:Proceeds
      from the sale of common stock
              
              
              -
              
              
              
              185,000Proceeds
      from notes payable
              
              
              5,000
              
              
              97,988Net
      cash provided by financing activities
              
              
              5,000
              
              
              
              282,988Net
      change in cash and cash equivalents
              
              
              (50,972
              )
              
              
              (2,687
              )Cash
      and cash equivalents at beginning of year
              
              
              53,690
              
              
              
              56,377Cash
      and cash equivalents at end of year
              
              $
              2,718
              
              
              $
              53,690Supplemental
      Disclosures:Cash
      paid for interest
              
              $
              -
              
              
              $
              -Cash
      paid for income taxes
              
              
              -
              
              
              
              -Noncash
      investing and financing activities:Oil
      and gas property acquired with common stock issuance
              
              $
              -
              
              
              
              170,000Cashless
      exercise of warrants
              
              
              -
              
              
              
              2,296Cancellation
      of shares
              
              
              -
              
              
              
              11,654Assumptions
      of debt associated with oil & gas property
              
              
              33,961
              
              
              
              -Seller
      financed purchase of O&G properties
              
              
              7,515
              
              
              
              -Payoff
      of debt with oil and gas revenues
              
              
              8,980
              
              
              
              -
 
 See
summary for significant accounting policies and notes to consolidated financial
statements.
 
 
 F-7
 PANGEA
PETROLEUM CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 1.         Organization and Significant
Accounting Policies
 
 Organization
 
 Pangea
Petroleum Corporation (the “Company”) is a Colorado corporation engaged in oil
and gas exploration and development.  The Company was originally
incorporated in 1997 as Zip Top, Inc. and subsequently adopted a name change to
Pangea Petroleum Corporation.  On April 26, 2000, the Company was
recapitalized when the Company acquired the non-operating public shell, Segway
II Corporation.  Segway II Corporation had no significant assets or
liabilities at the date of acquisition and, accordingly, the transaction was
accounted for as a recapitalization.
 
 Accounting
Estimates
 
 The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenue and expenses during the reporting
period.  Actual results could differ from those estimates. These
estimates mainly involve the useful lives of property and equipment, the
impairment of unproved oil and gas properties, the valuation of deferred tax
assets and the realizability of accounts receivable.
 
 Cash and Cash
Equivalents
 
 For
purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less when purchased to
be cash equivalents.
 
 Oil and Gas Producing
Activities
 
 The
Company follows the "successful efforts" method of accounting for its oil and
gas properties.  Under this method of accounting, all property
acquisition costs (cost to acquire mineral interests in oil and gas properties)
and costs (to drill and equip) of exploratory and development wells are
capitalized when incurred, pending determination of whether the well has found
proved reserves.  If an exploratory well has not found proved reserves
in commercial quantities, the costs associated with the well are charged to
expense.  The costs of development wells are capitalized whether
productive or nonproductive.  Geological and geophysical costs and the
costs of carrying and retaining undeveloped properties are expensed as
incurred.
 
 In 2001,
the FASB issued SFAS 143, “Accounting for Asset Retirement Obligations” which
was adopted by Pangea when Pangea first acquired oil and gas properties. SFAS
143 requires entities to record the fair value of a liability for asset
retirement obligations (“ARO”) in the period in which it is incurred and a
corresponding increase in the carrying amount of the related long-lived asset.
The present value of the estimated asset retirement cost is capitalized as part
of the carrying amount of the long-lived asset and is depreciated over the
useful life of the asset. Pangea accrues an abandonment liability associated
with its oil and gas wells when those assets are placed in service. The ARO is
recorded at its estimated fair value and accretion is recognized over time as
the discounted liability is accreted to its expected settlement value. Fair
value is determined by using the expected future cash outflows discounted at
Pangea’s credit adjusted risk-free interest rate. No market risk premium has
been included in Pangea’s calculation of the ARO balance. Pangea’s ARO liability
at December 31, 2007 is $8,193.
 
 Unproved
oil and gas properties that are individually significant are periodically
assessed for impairment of value, and, if necessary, a loss is recognized by
providing an impairment allowance.  Pangea recorded $23,634 and
$90,938 of impairment expense in the years ended December 31, 2007 and 2006,
respectively. Other unproved properties are amortized based on the Company's
average holding period.
 
  F-8
 PANGEA
PETROLEUM CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 1.         Organization and Significant
Accounting Policies, continued
 
 Oil and Gas Producing
Activities (continued)
 
 Capitalized
costs of producing oil and gas properties after considering estimated
dismantlement and abandonment costs and estimated salvage value, are depreciated
and depleted by the unit-of-production method.  On the sale or
retirement of a complete unit of proved property, the cost and related
accumulated depreciation, depletion, and amortization are eliminated from the
property accounts, and the resultant gain or loss is recognized.  On
the retirement or sale of a partial unit of proved property, the cost is charged
to accumulated depreciation, depletion, and amortization with a resulting gain
or loss recognized in the statement of operations.
 
 On the
sale of an entire interest in an unproved property for cash or cash equivalent,
gain or loss on the sale is recognized, taking into consideration the amount of
any recorded impairment if the property had been assessed
individually.  If a partial interest in an unproved property is sold,
the amount received is treated as a reduction of the cost of the interest
retained.
 
 Other Property and
Equipment
 
 Property
and equipment is stated at cost.  Depreciation is computed using the
straight-line method over the estimated useful lives of 3 to 5 years for office
furniture and equipment and transportation and other
equipment.  Additions or improvements that increase the value or
extend the life of an asset are capitalized. Expenditures for normal maintenance
and repairs are expensed as incurred.  Disposals are removed from the
accounts at cost less accumulated depreciation and any gain or loss from
disposition is reflected in operations.
 
 Oil and Gas
Revenues
 
 Revenues
from the sale of oil and natural gas are recognized when the product is
delivered at a fixed or determinable price, title has transferred,
collectibility is reasonably assured and evidenced by a contract. The Company
follows the “sales method” of accounting for its oil and natural gas revenue, so
it recognizes revenue on all natural gas or crude oil sold to purchasers,
regardless of whether the sales are proportionate to its ownership in the
property. A receivable or liability is recognized only to the extent that the
Company has an imbalance on a specific property greater than the expected
remaining proved reserves
 
 Impairment of Long-Lived
Assets
 
 In the
event facts and circumstances indicate the carrying value of a long-lived asset,
including associated intangibles, may be impaired, an evaluation of
recoverability is performed by comparing the estimated future undiscounted cash
flows associated with the asset to the asset’s carrying amount to determine if a
write-down to fair market value or discounted cash flow is required. Based upon
a recent evaluation by management, an impairment write-down of the Company’s
long-lived assets was recorded to write such assets down to their estimated net
realizable value resulting in an impairment expense of $23,634 and $90,938 in
2007 and 2006, respectively.
 
 Stock Based
Compensation
 
 Financial
Accounting Standard No. 123, “Accounting for Stock−Based Compensation”
established financial accounting and reporting standards for stock−based
employee compensation plans. It defines a fair value based method of accounting
for an employee stock option or similar equity instrument. In January 2006, the
Company implemented SFAS No. 123R, and accordingly, the Company accounts for
compensation cost for stock option plans in accordance with SFAS No.
123R.
 
 
 F-9
 PANGEA
PETROLEUM CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 1.         Organization and Significant
Accounting Policies, continued
 
 Concentration of Credit Risk
and Major Customers
 
 Financial
instruments which subject the Company to concentrations of credit risk include
cash and cash equivalents and accounts receivable.  The Company has
concentrated its credit risk for cash by maintaining deposits in a financial
institution, which may at times exceed the amounts covered by insurance provided
by the United States Federal Deposit Insurance Corporation
(“FDIC”)  The Company has not experienced any losses on
deposits.  During the years ended December 31, 2007 and 2006, 100% of
the Company’s revenues were received from five customers.
 
 Income
Taxes
 
 The
Company uses the liability method in accounting for income
taxes.  Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and income tax
carrying amounts of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to
reverse.  A valuation allowance, if necessary, is provided against
deferred tax assets, based upon management’s assessment as to their
realization.
 
 Basic and Diluted Net Loss
Per Share
 
 Basic
loss per share is computed using the weighted average number of shares of common
stock outstanding during each period. Diluted loss per share includes the
dilutive effects of common stock equivalents on an “as if converted” basis. For
the years ended 2007 and 2006, potential dilutive securities had an
anti-dilutive effect and were not included in the calculation of diluted net
loss per common share.
 
 Recently Issued Accounting
Pronouncements
 
 The
Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company’s results of
operations, financial position or cash flow.
 
 2.         Going Concern
Considerations
 
 Since its
inception, the Company has suffered recurring losses from operations and has
been dependent on existing stockholders and new investors to provide the cash
resources to sustain its operations.  During the years ended December
31, 2007 and 2006, the Company reported losses of $402,979 and $1,010,931,
respectively. Continuing negative operating results produced a working capital
deficit of $710,775 as of December 31, 2007. These conditions raise substantial
doubt as to Pangea’s ability to continue as a going concern.
 
 The
Company developed a multi-step plan and during 2007 took actions to improve its
financial position and deal with its liquidity problems. The final steps of the
plan are still being developed, but may include additional private placements of
the Company’s common stock, additional oil and gas property acquisitions and/or
exploration efforts, and efforts to raise additional debt financing or equity
offerings.
 
 The
Company’s long-term viability as a going concern is dependent on certain key
factors, as follows:
 
 ·
              The
      Company’s ability to obtain adequate sources of outside financing to
      support near term operations and to allow the Company to continue forward
      with current strategic plans.·
              The
      Company’s ability to locate, prove and produce from economically viable
      oil and gas reserves.·
              The
      Company’s ability to ultimately achieve adequate profitability and cash
      flows to sustain continuing
operations.
 
 The
consolidated financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
 
 
 F-10
 PANGEA
PETROLEUM CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 3.         Oil and Gas
Properties
 
 Oil and
gas properties consist of the following at December 31, 2007:
 
 Oil
      and gas properties
              
              $
              350,582Less
      accumulated depletion
              
              
              (138,642
              )Net
      oil and gas properties
              
              $
              211,940
 
 
 During the years ended December 31, 2007
and 2006, the Company recorded dry hole, abandonment and impairment charges of
$23,916 and $218,162, respectively. At December 31, 2007, the Company has
working interests in eight wells.  Three of the wells, with
capitalized costs totaling $171,462, have not been completed and, accordingly, a
determination has not yet been made if those wells are economically
viable.
 
 4.         Property and
Equipment
 
 Property
and equipment consists of the following at December 31, 2007:
 
 Office
      equipment
              3
      to 5 years
              
              $
              15,594Furniture
      and fixtures
              3
      to 5 years
              
              
              2,58018,174Less
      accumulated depreciation
              
              
              
              (18,174
              )Net
      property and equipment
              
              
              $
              0
 
 5.    Notes Payable to Related
Parties
 
 Notes
payable to related parties consist of the following at December 31,
2007:
 
 Notes
      payable to Mary Pollock, daughter of the chief executive officer. This
      note bears interest at rates of 12% per year and is due in a one time
      payment of principal and interest on December 31, 2007.  These
      notes are not collateralized.
              
              $
              118,299Notes
      payable to Charles Pollock, the Chief Executive Officer and a significant
      stockholder of the Company. This note bears interest of 12% per year, and
      due in one time payment of principal and interest on December 31, 2007.
      These notes are not collateralized.
              
              
              323,315Notes
      payable to Mark Weller, the Chief Operating Officer and a significant
      stockholder of the Company. This note bears interest of 12% per year, and
      due in one time payments of principal and interest on December 31, 2007.
      These notes are not collateralized.
              
              
              86,427$
              528,041
 
 
 Accrued
interest payable to related parties of $126,730 at December 31, 2007 represents
interest accrued on the above notes payable to related parties. These notes were
renewed January 1, 2008 extending the due date of the notes to December 31,
2008.
 
 
 
 F-11
 PANGEA
PETROLEUM CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 6.         Income
Taxes
 
 The
Company has incurred losses since its inception and, therefore, has not been
subject to federal income taxes.  As of December 31, 2007, the Company
had net operating loss (“NOL”) carryforward for income tax purposes of
approximately $7,909,973 which expire in various tax years through
2027.  Additionally, because United States tax law limits the time
during which NOL carryforwards may be applied against future taxable income, the
Company will, in all likelihood, be unable to take full advantage of its NOL for
federal income tax purposes should the Company generate taxable
income.
 
 The
composition of deferred tax assets and the related tax effects at December 31,
2007 are as follows:
 
 Net
      operating losses
              
              $
              2,768,491Less
      valuation allowance
              
              
              (2,768,491
              )Net
      deferred tax asset
              
              $
              -
 
 7.         Commitments and
Contingencies
 
 Operating
Lease
 
 The
Company leased office space under a one year operating lease that expired in
March 31, 2007 for monthly rent of $763.  The lease was not renewed
due to rising costs and the company continued on a month to month basis until
June 2007.  The Company currently maintains mail service at the
location, but is sharing offices with Sage Office Services until additional
space is found. Rent expense incurred under operating leases during the years
ended December 31, 2007 and 2006 was $4,864 and $9,315,
respectively.
 
 
 Employment
Agreement
 
 The
Company entered into an employment agreement with its Chairman/Chief Executive
Officer and its President.  The employment agreements provide for
salaries of $10,000 each per month. The employees may convert any or all
salaries with accrued interest to common stock of the Company based on 30% off
the average closing bid price during the month prior to the month being
compensated. The conversion was analyzed for derivative accounting consideration
under SFAS 133 and EITF 00-19.  Since the Company has sufficient
authorized shares, derivative accounting is not applicable.
 
 Additionally,
the employment agreements provide for the issuance of 100,000 shares of
restricted stock per month as part of the base salary
compensation.  These shares were issued during the first half of 2007,
and accrued for in the latter half of 2007 as stock payable.
 
 8.
              Stockholders’
      Equity
 
 Preferred
Stock
 
 The
Company’s articles of incorporation authorize the issuance of up to 10,000,000
shares of series preferred stock, with a par value of $.001 and other
characteristics determined by the Company’s board of directors.  As of
December 31, 2007, there was no preferred stock issued or
outstanding.
 
 
 F-12
  PANGEA
PETROLEUM CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 Common
Stock
 
 During
the years ended December 31, 2007 and 2006, the Company issued shares for cash
under private placements of securities and as compensation to employees and
consultants.
 
 During
2007, Pangea:
 ·
              Issued
      25,080,978 shares of common stock valued at $229,440 to employees and
      consultants for services.
 
 During
2006:
 ·
              Sold
      13,700,000 shares of common stock and 9,000,000 warrants for $185,000 of
      cash.  The warrants have an exercise price ranging from $.01 -
      $.015 per share and expire 6 years from the date of grant.  The
      proceeds were allocated $111,059 to the common stock and $73,941 to the
      warrants based on their relative fair values.·
              Issued
      2,296,434 shares of common stock for the cashless exercise of 3,426,100
      warrants·
              34,239,244
      shares of common stock valued at $620,121 to employees and consultants for
      services.  $4,247 of this amount was deferred in connection with
      a 12 month service agreement with a third party.·
              20,000,000
      shares of common stock valued at $170,000 were issued for the purchase of
      working interests in two oil and gas properties.·
              11,653,998
      shares of common stock were cancelled under the termination provisions of
      a 2001 securities purchase
agreement.
 
 Stock
Options
 
 The
Company periodically issues incentive stock options to key employees, officers,
and directors to provide additional incentives to promote the success of the
Company’s business and to enhance the ability to attract and retain the services
of qualified persons.  The Board of Directors approves the issuance of
such options.  The exercise price of an option granted is determined
by the fair market value of the stock on the date of grant.
 
 A summary
of the Company’s stock option activity and related information for the years
ended December 31, 2007 and 2006 follows:
 
 Number
      of
              
              
              
              
              
              WeightedShares
              
              
              
              
              
              AverageUnder
              
              
              Exercise
              
              
              ExerciseOption
              
              
              Price
              
              
              PriceBalance
      outstanding atJanuary
      1, 2006
              
              
              350,000
              
              
              $
              0.200-$1.000
              
              
              $
              0.56Balance
      outstanding atDecember
      31, 2006
              
              
              350,000
              
              
              $
              0.200-$1.000
              
              
              $
              0.56Balance
      outstanding atDecember
      31, 2007
              
              
              350,000
              
              
              $
              0.200-$1.000
              
              
              
              0.56
 
 
 
 F-13
 
 PANGEA PETROLEUM
CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 8.
              Stockholders’
      Equity, continued
 
 All
outstanding stock options are exercisable at December 31, 2007.  A
summary of outstanding stock options at December 31, 2007 follows:
 
 RemainingNumber
      of Common
              
              
              
              ContractedStock Equivalents
              
              Expiration Date
              
              Life (Years)
              
              Exercise Price50,000
              
              May
      2010
              
              2.1
              
              $0.500100,000
              
              May
      2010
              
              2.1
              
              1.000100,000
              
              August
      2010
              
              2.6
              
              0.200100,000
              
              January
      2011
              
              2.9
              
              0.500350,000
 
 Effective
June 1, 2005, the Company adopted the 2005 Equity Compensation Plan (the “Plan”)
under which stock in lieu of cash compensation awards may be granted from time
to time to employees and consultants of the Company.  The Plan allows
for grants to other individuals contributing to the success of the Company at
the discretion of the Company’s board of directors.  The purpose of
the Plan is to provide additional incentives to promote the success of the
Company and to enhance the Company’s ability to attract and retain the services
of qualified individuals.  The Company has reserved 25,000,000 shares
of stock for issuance under the Plan and until 2013.
 
 There are
no non-vested shares at December 31, 2007.
 
 
 Stock
Warrants
 
 The
Company did not grant any warrants in 2007.
 
 In
January 2006, the Company granted a warrant to Charles Taylor to purchase
2,000,000 shares of the Company's common stock exercisable at $0.01 per share,
at which time the trading price was averaging $0.01 per share. The warrant vests
on and is exercisable on January 30, 2007 and expires on January 30, 2012. In
January 2006, the Company granted a
 warrant
to White Star to purchase 7,000,000 shares of the Company's common stock
exercisable at $0.015 per share, at which time the trading price was averaging
$0.01 per share. The warrant vests on and is exercisable on February 17, 2007
and expires on February 17, 2012. The warrants fair value was $249,036
determined by using the Black Scholes option pricing model. The weighted average
fair value of the warrants granted was $.03 per share. Variables used in the
Black−Scholes option−pricing model include (1) risk−free interest rate, (2)
expected warrant life is the actual remaining life of the warrants as of the
year end, (3) expected volatility was 255%−261%, and (4) zero expected
dividends.
 
 In April
2006, Charles Taylor exercised 828,635 shares at an exercise price ranging from
$0.007 to $.015 per share out of a total granted 1,285,550 in prior years. In
April 2006, Patricia Taylor exercised 928,678 shares at an exercise price
ranging from $0.007 to $0.016 per share out of a total granted 1,540,550 in
prior years. In April 2006, Duane Street Group
exercised 539,131 shares at an exercise price ranging from $0.012 to $0.019 per
share out of a total granted 800,000 in prior years. All exercises were on a
cashless basis. In
February 2006, a warrant granted to Generation Capital December 31, 2001 for
3,428,000 shares expired.
 
 
 F-14
 PANGEA
PETROLEUM CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 8.    Stockholders’ Equity
(continued)
 
 Stock
Warrants
 
 A summary
of the Company’s stock warrant activity and related information for the years
ended December 31, 2007 and 2006 follows:
 
 
 Number
      of
              
              
              
              
              
              WeightedShares
              
              
              
              
              
              AverageUnder
              
              
              Exercise
              
              
              ExerciseWarrant
              
              
              Price
              
              
              PriceWarrants
      outstanding atDecember
      31, 2005
              
              
              22,589,487
              
              
              $
              0.008-$3.75
              
              
              
              0.015Issued
              
              
              9,000,000
              
              
              $
              0.010-$0.015
              
              
              
              0.014Exercised
              
              
              (3,626,100
              )
              
              $
              0.007-$0.019
              
              
              
              0.015Expired
              
              
              (3,428,000
              )
              
              $
              3.75
              
              
              
              0.016Warrants
      outstanding atDecember
      31, 2006
              
              
              24,535,387
              
              
              $
              0.008-$0.02
              
              
              
              0.016Issued
              
              
              0Exercised
              
              
              0Expired
              
              
              (0
              )Warrants
      outstanding atDecember
      31, 2007
              
              
              24,535,387
              
              
              $
              0.008-$0.02
              
              
              
              0.016
 
 All stock
warrants are exercisable at December 31, 2007. A summary of outstanding stock
warrants at December 31, 2007 follows:
  RemainingNumber
      of Common
              
              
              
              ContractedStock Equivalents
              
              Expiration Date
              
              Life (Years)
              
              Exercise Price600,000
              
              December
      2008
              
              0.9
              
              0.0201,740,387
              
              February
      2009
              
              1.0
              
              0.0102,250,000
              
              March
      2009
              
              1.2
              
              0.0081,200,000
              
              April
      2009
              
              1.2
              
              0.0102,520,000
              
              July
      2009
              
              1.2
              
              0.010800,000
              
              September
      2009
              
              1.3
              
              0.015800,000
              
              October
      2009
              
              1.4
              
              0.0103,600,000
              
              December
      2009
              
              1.5
              
              0.010600,000
              
              January
      2010
              
              1.6
              
              0.010300,000
              
              February
      2010
              
              1.7
              
              0.1201,125,000
              
              June
      2010
              
              1.9
              
              0.0082,000,000
              
              January
      2012
              
              3.8
              
              0.017,000,000
              
              February
      2012
              
              3.9
              
              0.01524,535,387
 
 
 
 
 
 F-15
 PANGEA
PETROLEUM CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 9.         Related Party
Transactions
 
 During
the years ended December 31, 2007 and 2006, the Company engaged in transactions
with Sage Office Services, a company controlled by one of Pangea’s shareholders,
as follows:
 
 The
Company entered into a consulting agreement to receive record-keeping and other
administrative services.  During the years ended December 31, 2007 and
2006, the Company incurred under this record-keeping and administrative services
agreement a total of $74,705 and $164,400, respectively.  The Company
paid for these services by issuing 7,281,190 and 11,200,000, respectively,
shares of the Company’s common stock and incurring a liability of $15,000 in
2007 as stock payable.
 
 In
addition to record-keeping services described above, the Company has related
party notes payable at December 31, 2007 (See Note 5).
 
 10.
              Supplemental Oil and
      Gas Information - Unaudited
 
 The
following supplemental information regarding the oil and gas activities of the
Company is presented pursuant to the disclosure requirements promulgated by the
Securities and Exchange Commission (“SEC”) and SFAS No. 69, Disclosures about
Oil and Gas Producing Activities (“Statement 69”).
 
 Production
from one field accounted for 46% and 31% of the Company's oil and gas sales
revenues for the years ended December 31, 2007 and 2006,
respectively.
 
 Estimated Quantities of
Proved Oil and Gas Reserves
 
 Set forth
below is a summary of the changes in the estimated quantities of the Company's
crude oil and condensate, and gas reserves for the periods indicated, as
estimated by the Company as of December 31, 2007.  All of the
Company's reserves are located within the United States.  Proved
reserves cannot be measured exactly because the estimation of reserves involves
numerous judgmental determinations.  Accordingly, reserve estimates
must be continually revised as a result of new information obtained from
drilling and production history, new geological and geophysical data and changes
in economic conditions.
 
 Proved
reserves are estimated quantities of gas, crude oil, and condensate, which
geological and engineering data demonstrate, with reasonable certainty, to be
recoverable in future years from known reservoirs under existing economic and
operating conditions.  Proved developed reserves are proved reserves
that can be expected to be recovered through existing wells with existing
equipment and operating methods.
  Oil
              
              
              GasQuantity of Oil and Gas
      Reserves
              
              (Bbls)
              
              
              (Mcf)Total
      proved reserves at December 31, 2006
              
              
              75
              
              
              
              35,743Discoveries
      and Purchase Property
              
              
              1,410
              
              
              
              181Production
              
              
              (147
              )
              
              
              (2,682
              )Revision
      of previous estimates
              
              
              (276
              )
              
              
              (28,296
              )Sales
      of Property
              
              
              -
              
              
              
              -Total
      proved reserves at December 31, 2007
              
              
              1,062
              
              
              
              4,946Discoveries
      and Purchase Property
              
              
              -
              
              
              
              5,585Production
              
              
              (452
              )
              
              
              (2,670
              )Revision
      of previous estimates
              
              
              153
              
              
              
              (2,903
              )Sales
      of Property
              
              
              -
              
              
              
              -Total
      proved reserves at December 31, 2007
              
              
              763
              
              
              
              4,958Proved
      developed reserves:December
      31, 2007
              
              
              763
              
              
              
              4,958
 
 
  
 
 F-16
 PANGEA
PETROLEUM CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 10.
              Supplemental Oil and
      Gas Information – Unaudited
(continued)
 
 Capitalized Costs of Oil and
Gas Producing Activities
 
 The
following table sets forth the aggregate amounts of capitalized costs relating
to the Company's oil and gas producing activities and the related accumulated
depletion as of December 31, 2007:
 
 2007Unproved
      properties and prospect generation costsnot
      being depleted
              
              $
              171,462Proved
      properties being depleted
              
              
              179,120Less
      accumulated depletion
              
              
              (138,642
              )Net
      capitalized costs
              
              $
              211,940
 
 
 Costs Incurred in Oil and
Gas Producing Activities
 
 The
following table reflects the costs incurred in oil and gas property acquisition,
exploration and development activities during the years ended December 31, 2007
and 2006:
 
 2007
              
              
              2006Exploration
      costs
              
              $
              -
              
              
              $
              -Development
      costs
              
              
              17,202
              
              
              
              172,506$
              17,202
              
              
              $
              172,506
 
 Standardized Measure of
Discounted Future Net Cash Flows
 
 The
following table reflects the Standardized Measure of Discounted Future Net Cash
Flows relating to the Company's interest in proved oil and gas reserves as of
December 31, 2007 and 2006:
 
 2007
              
              
              2006Future
      cash inflows
              
              $
              60,360
              
              
              $
              53,000Future
      production and development costs
              
              
              (10,193
              )
              
              
              (9,943
              )Future
      income taxes
              
              
              -
              
              
              
              -10%
      discount factor
              
              
              (8,860
              )
              
              
              (11,000
              )Standardized
      measure of discounted future netcash
      inflow
              
              $
              41,307
              
              
              $
              32,057
 
 Future
net cash flows at each year end, as reported in the above schedule, were
determined by summing the estimated annual net cash flows computed by: (1)
multiplying estimated quantities of proved reserves to be produced during each
year by current year end prices, and (2) deducting estimated expenditures to be
incurred during each year to develop and produce the proved reserves (based on
current costs).
 
 Income
taxes were computed by applying year-end statutory rates to pretax net cash
flows, reduced by the tax basis of the properties and available net operating
loss carryforwards.  The annual future net cash flows were discounted,
using a prescribed 10% rate, and summed to determine the standardized measure of
discounted future net cash flow.
 
 
 F-17
 
 The
following reconciles the change in the standardized measure of discounted net
cash flow for the year ended December 31, 2007 and 2006
    2007
              
              
              2006Beginning
      of the year
              
              $
              32,057
              
              
              $
              168,157Acquisition
      of oil and gas properties
              
              
              17,082
              
              
              
              172,506Sales,
      net of production costs
              
              
              (24,372
              )
              
              
              (16,644
              )Net
      change in prices and production costs
              
              
              0
              
              
              
              0Change
      in future development costs
              
              
              (2,000
              )
              
              
              (2,000
              )Revision
      of quantity estimates
              
              
              26,733
              
              
              
              (282,019
              )Disposal
      of oil and gas properties
              
              
              (8,193
              )
              
              
              (7,943
              )Ending
      of year
              
              $
              41,307
              
              
              $
              32,057
 
 
 
 
 
 The
Company cautions readers that the standardized measure information which places
a value on proved reserves is not indicative of either fair market value or
present value of future cash flows.  Other logical assumptions could
have been used for this computation which would likely have resulted in
significantly different amounts.  Such information is disclosed solely
in accordance with Statement 69 and the requirements promulgated by the SEC to
provide readers with a common base for use in preparing their own estimates of
future cash flows and for comparing reserves among
companies.  Management of the Company does not rely on these
computations when making investment and operating decisions.
 
 F-18
 
 ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
 
 There
have been no changes in or disagreements with accountants on accounting and
financial disclosure.
 
 ITEM 8A.
CONTROLS AND PROCEDURES
 
 Our
management, with the participation of our Chief Executive Officer and Principal
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Principal Financial Officer,
concluded that our disclosure controls and procedures as of the end of the
period covered by this report were not effective because the information
required to be disclosed by us in reports filed under the Exchange Act was not
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.
  A
controls system cannot provide absolute assurance, however, that the objectives
of the controls system are met, and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within a company have been detected.
  
 -12-
 
 Management’s
Annual Report on Internal Control over Financial Reporting
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
using accounting principles generally accepted in the United
States.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control
objectives.
 
 As of the
end of the period of this report, our principal executive and principal
financial officer carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures. This evaluation was
carried out under the supervision and with the participation of our management,
including our Chief Executive Officer and Principal Financial Officer. Based on
that evaluation, our Chief Executive Officer and Principal Financial Officer
concluded that our disclosure controls and procedures are not effective in
timely alerting them to material information required to be included in the
Company’s periodic reports to the Securities and Exchange Commission. During the
fourth fiscal quarter, there were no changes in our internal control over
financial reporting that have materially affected, or are reasonably likely to
materially affect our internal control over financial reporting.
 
 In
addition, there were adjustments at year end and so management considers the
controls in place are not adequate for the company.  A stock
adjustment to account for shares due at the yearend was not processed along with
an oil and gas property adjustment.
 
 Management
uses a separation of function approach to insure adequate
controls.  There were no material weaknesses identified during the
preparation of year end financial reports.
 
 The
weaknesses noted for the year ended December 31, 2007 were specifically
the monitoring controls that ensured journal entries were posted accurately
and in a timely fashion.  These controls were ineffective during the
fiscal 2006 and first quarter 2007 closing process.  This resulted in
a missed entry to depreciation of oil and gas properties and an incorrect entry
to common stock.  Although the missed or incorrect entries were not
prevented or detected by the Company's existing system of internal controls, the
entries were identified by the Company’ independent registered certified public
accounting firm, and were corrected and properly reflected in the fiscal 2007
year end financial statements.
 
 The
Company instituted additional training and purchased software to successfully
address the issues identified. We will make an additional assessment to ensure
the success during the preparation of the 2008 quarterly and annual
reports.
 
 We
previously reported that we had material weaknesses in our disclosure controls
and procedures and that they were not effective as of the end of fiscal year
2006 and the first quarter of 2007.  The Company continues to address
these issues and continues to take steps to remediate the material weaknesses in
our disclosure controls and procedures, including the steps to adopt policies
for controls over accounting review and training personnel in the processing of
transactions involving oil and gas properties and issuance of
stock.
 
 This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal controls 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 the company to provide only management’s
report in the annual report.
 
 -13-
 
 ITEM 8B. OTHER
INFORMATION
 
 None.
 
 PART
III
 
 ITEM 9.  DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
 
 DIRECTORS
AND EXECUTIVE OFFICERS
 
 The
following table sets forth the name, age, and position of each executive officer
and director of the Company as of December 31, 2007
 
 Name
                Age
                OfficeCharles
      B.  Pollock
                68
                Chief
      Executive Officerand
      Chairman ofthe
      Board of DirectorsMark
      F.  Weller
                57
                Former
      President and DirectorScott
      Duncan
                40
                Chief
      Financial OfficerEdward
      R.  Skaggs
                41
                Director
 
 Charles B.  Pollockwas appointed our Chief Executive Officer and Chairman of the Board in
June 1999.  From January 1994 to September 1995, Mr. Pollock was
President of Praxair Indonesia, an industrial gas company.  From
October 1995 to August 1996, he was General Manager of Praxair,
Inc.  His responsibilities included strategic marketing and
competition analysis.  From September 1996 to May 1999, Mr. Pollock
was self-employed as a consultant and managed projects including the acquisition
and sale of businesses, competitive analysis and strategic
marketing.  Mr. Pollock received his Bachelor of Science degree in
1962 from North Carolina State University, his Master of Science degree in
Ceramic Engineering from North Carolina State University in 1968 and his PhD in
Material Engineering from North Carolina State University in 1972.
  Mark F.  Weller was
appointed our President and Director in March 2002.  Mr. Weller
resigned his position on March 10, 2008.  Mr. Weller was employed by
Texaco, Inc. for over thirty years until his departure in early
2002.  His last position with Texaco was as general manager for new
project development for West Africa.  His background includes all
phases of oil and gas operations and development, both onshore and offshore on
the U.S. gulf and west coasts, as well as international project development
assignments.  He holds a Bachelor of Science in mechanical engineering
from the University of California, Davis.
   Scott Duncan was appointed our
Chief Financial Officer in February 2003.  In addition, Mr. Duncan has
been employed as the cost accounting manager for Farouk Systems since February
2004.  From September 2001 to February 2004, Mr. Duncan handled
financial and cost accounting for Goodman Manufacturing. From December 1998
to April 2001, Mr. Duncan was a Programmer Analyst with RHI Refractories
America.  From 1991 to December 1998, Mr. Duncan was the MIS Manager,
Controller and Cost Accountant for Garlock. Mr. Duncan has a total of ten years
of experience in financial and cost accounting for manufacturing companies along
with a total of 6 years of experience with computer programming. He is actively
involved with various organizations offering accounting,
programming and consulting services. He received a BBA in accounting from
Southwest Texas State University in 1989 and his CPA license in
1992.
  Edward R.  Skaggs
was appointed to our Board of Directors in December 2000.  Mr. Skaggs
has worked for an investigative consulting firm, Skaggs & Associates since
1991.  Mr. Skaggs has over ten years of experience in investigations
and security.  In addition, he has extensive experience in retail
management specifically dealing in personnel issues and security matters. He
received a Bachelor of Arts degree in Political Science from Texas Tech
University in 1992.
  -14-
 
  BOARD
OF DIRECTORS
 
 The
members of the Board of Directors of the Company serve until the next annual
meeting of stockholders, or until their successors have been elected. The
officers serve at the discretion of the Board of Directors.
 
 We do not
an audit committee or any other committees.   In the future, we
may designate committees as necessary to conduct business.  We
currently pay one director, Edward Skaggs, 100,000 shares of our restricted
common stock on a quarterly basis which we value at $100 per
month.  We believe this structure is adequate based on the size of our
company.  In the future, Directors may be paid their expenses, if any,
of attendance at such meeting of the Board of Directors, and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as Director.  No such payment shall preclude any Director from serving
the Corporation in any other capacity and receiving compensation.
 
 There
have been no material changes to the procedures by which security holders may
recommend nominees to the board of directors.
 
 COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
 
 Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
requires the Company's officers, directors and persons who own more than 10% of
the Company's Common Stock to file reports of ownership and changes in ownership
with the SEC and the National Association of Securities Dealers,
Inc.  Officers, directors and greater than 10% stockholders are
required by regulation to furnish the Company with copies of all forms they file
pursuant to Section 16(a) of the Exchange Act.  Based solely on the
reports we have received and on written representations from certain reporting
persons, we believe that the directors, executive officers, and our greater than
ten percent beneficial owners have complied with all applicable filing
requirements for the fiscal year ended December 31, 2007.
 
 CODE
OF ETHICS
 
 We
adopted a Code of Ethics for our Principal Executive and Senior Financial
Officers on February 6, 2005.  A copy of the Code of Ethics was with
our Form 10-KSB for the fiscal year ended December 31, 2005.
 
 ITEM
10.  EXECUTIVE COMPENSATION
 
 The
following table sets forth cash compensation as paid by our Company to executive
officers as of the fiscal year ended December 31, 2007.
 
 
 Summary
Compensation Table
  Name
      and Principal Position
                  (a)
                Year
                  (b)
                Salary
                  ($)
                  (c)
                Bonus
                  ($)
                  (d)
                Stock
      Awards
                  ($)
                  (e)
                Option
      Awards
                  ($)
                  (f)
                Non-Equity
      Incentive Plan Compensation
                  ($)
                  (g)
                Nonqualified
      Deferred Compensation Earnings
                  ($)
                  (h)
                All
      other compensation
                  ($)
                  (i)
                Total
                  ($)
                  (j)
 Charles
      B. Pollock, Chief Executive Officer
                2006
                  
                  2007
                -
                  
                  -
                -
                  
                  -
                $211,408(1)
                  
                  $79,058(2)
                -
                  
                  -
                -
                  
                  -
                -
                  
                  -
                -
                  
                  -
                $211,408(1)
                  
                  $79,058(2)Mark
      F. Weller, President
                2006
                  
                  2007
                -
                  
                  -
                -
                  
                  -
                $211,408(1)
                  
                  $79,058(2)
                -
                  
                  -
                -
                  
                  -
                -
                  
                  -
                -
                  
                  -
                $211,408(1)
                  $79,058(2)Scott
      Duncan,
                  Chief
      Financial Officer
                2006
                  
                  2007
                -
                  
                  -
                -
                  
                  -
                $8,676
                  
                  $4020
                -
                  
                  -
                -
                  
                  -
                -
                  
                  -
                -
                  
                  -
                $8,676
                  $4020
 
 (1) 8,459,894
shares o f restricted common stock were issued in lieu of cash
salary.
 (2) 8,459,894
shares of restricted common stock were issued in lieu of cash
salary.
 
 -15-
 Outstanding
Equity Awards at Fiscal Year End
 
 The
following table sets forth outstanding equity awards as paid by our Company as
of the fiscal year ended December 31, 2007.
 
 
 OPTION
      AWARDS
                STOCK
      AWARDSName
                  (a)
                Number
      of Securities Underlying Unexercised Options (#) Exercisable
                  (b)
                Number
      of Securities Underlying Unexercised Options (#) Unexercisable(c)
                Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options
                  (#)
                  (d)
                Option
      Exercise Price ($)
                  (e)
                Option
      Expiration Date
                  (e)
                Number
      of Shares or Units of Stock that have not Vested (#)
                  (g)
                Market
      Value of Shares or Units of Stock that have not Vested
                  ($)
                  (h)
                Equity
      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
      that have not Vested
                  ($)
                  (i)
                Equity
      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
      Other Rights that have not Vested
                  ($)
                  (j)Charles
      Pollock
                300,000
                  
                  750,000
                  
                  600,000
                  
                  600,000
                  
                  1,800,000
                -
                -
                .02
                  
                  .008
                  
                  .01
                  
                  .01
                  
                  .01
                12/31/08
                  
                  3/14/09
                  
                  4/21/09
                  
                  7/30/09
                  
                  12/22/09
                -
                -
                -
                -Mark
      Weller
                300,000
                  
                  1,500,000
                  
                  600,000
                  
                  1,200,000
                  
                  1,800,000
                  
                  1,125,000
                -
                -
                .02
                  
                  .008
                  
                  .01
                  
                  .01
                  
                  .01
                  
                  .01
                12/17/08
                  
                  3/10/09
                  
                  4/21/09
                  
                  7/18/09
                  
                  12/22/09
                  
                  6/28/10
                -
                -
                -
                -Scott
      Duncan
                -
                -
                -
                -
                -
                -
                -
                -
                -
 
  
 -16-
 Director
Compensation
 
 The
following table sets forth director compensation paid during the fiscal year
ended December 31, 2007.
 
 Name
                  (a)
                Fees
      Earned or Paid in Cash
                  ($)
                  (b)
                Stock
      Awards
                  ($)
                  (c)
                Option
      Awards
                  ($)
                  (d)
                Non-Equity
      Incentive Plan Compensation
                  ($)
                  (e)
                Nonqualified
      Deferred Compensation Earnings
                  ($)
                  (f)
                All
      Other Compensation
                  ($)
                  (g)
                Total
                  ($)
                  (h)Charles
      Pollock
                -
                -
                -
                -
                -
                -
                -Mark
      Weller
                -
                -
                -
                -
                -
                -
                -Edward
      Skaggs
                -
                $3,350(1)
                -
                -
                -
                -
                -
 
 (1)
400,000 shares of our restricted common stock.
 
 EMPLOYMENT
AGREEMENTS
 
 We have
entered into employment agreements with Mr. Charles Pollock and Mr. Mark
Weller.  The following sets forth the terms of the employment
agreements:
 
 Charles
B.  Pollock-On January 1, 2007, we entered into an employment
agreement with Mr. Pollock to act as our Chief Executive Officer that expires on
December 31, 2008 and provides for a salary of $10,000 per month. Mr. Pollock
may convert any or all salaries with accrued interest to common stock of the
Company based on 30% off the average closing bid price during the month prior to
the month being compensated.  Additionally, the employment agreement
provides for the issuance of 100,000 shares of restricted stock per month as
part of the base salary compensation.
 
 Mark
F.  Weller-On January 1, 2007, we entered into an employment agreement
with Mr. Weller to act as our President that expires on December 31, 2008 and
provides for a salary of $10,000 per month. Mr. Weller may convert any or all
salaries with accrued interest to common stock of the Company based on 30% off
the average closing bid price during the month prior to the month being
compensated.  Additionally, the employment agreement provides for the
issuance of 100,000 shares of restricted stock per month as part of the base
salary compensation.  Mr. Weller resigned from Pangea on March 10,
2008.
 
  On June
1, 2007, we entered into a one year consulting agreement with Mr. Scott Duncan
to serve as Chief Financial Officer on financial matters pertaining to the our
business and to provide advice. The terms of his employment are based on
payment in the form of the Company’s common stock at the rate of 40,000 shares
of our restricted common stock per month.
  -17-
 
 ITEM 11.  SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
 The
following table sets forth certain information as of March 20, 2008 with respect
to the beneficial ownership of shares of the Company’s common stock by (i) each
person known to us who owns beneficially more than 5% of the outstanding shares
of the Company’s common stock, (ii) each of our Directors, (iii) each of our
Executive Officers and (iv) all of our Executive Officers and Directors as a
group. Unless otherwise indicated, each stockholder has sole voting and
investment power with respect to the shares shown.  As of March 20,
2008, there were 306,339,544 shares of the Company’s common stock issued and
outstanding.
 
 
 Title
      of class
                Name
      of Beneficial Owner
                Amount
      and Nature of Beneficial Ownership
                Percentage
      of Class (1)Common
      Stock
                Charles
      B. Pollock
                  Chairman
      and CEO
                37,792,610(2)
                20.5%Common
      Stock
                Mark
      F. Weller
                  President
      and Director
                56,152,091(3)
                20.3%Common
      Stock
                Scott
      Duncan
                  CFO
                2,060,000
                Less
      than 1%.Common
      Stock
                Edward
      Skaggs
                  Director
                1,400,000
                Less
      than 1%.Common
      Stock
                All
      Officers and Directors as a group (total of 4)
                97,404,701
                40.8%
 
 (1) Under
Rule 13d-3 promulgated under the Exchange Act, a beneficial owner of a security
includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise has or shares: (i) voting
power, which includes the power to vote, or to direct the voting of shares; and
(ii) investment power, which includes the power to dispose or direct the
disposition of shares.  Certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons share the
power to vote or the power to dispose of the shares).  In addition,
shares are deemed to be beneficially owned by a person if the person has the
right to acquire the shares (for example, upon exercise of an option) within 60
days of the date as of which the information is provided.  In
computing the percentage ownership of any person, the amount of shares is deemed
to include the amount of shares beneficially owned by such person (and only such
person) by reason of these acquisition rights.  As a result, the
percentage of outstanding shares of any person as shown in this table does not
necessarily reflect the person’s actual ownership or voting power with respect
to the number of shares of common stock actually outstanding on March 20,
2008.  As of March 20, 2008 there were 306,339,544 shares of our
common stock issued and outstanding.
 
 (2)Includes  37,792,610 restricted common shares held directly and
4,050,000 warrants which include 300,000 warrants at an exercise price of $0.02
that expire December 31, 2008; 750,000 warrants with an exercise price of $0.008
that expire March 14, 2009; 600,000 warrants with an exercise price of $0.01
that expire April 21, 2009; 600,000 warrants with an exercise price of $0.01
that expire July 30, 2009 and 1,800,000 warrants with an exercise price of $0.01
that expire December 22, 2009
 
 (3)Includes
56,152,091 restricted common shares and 6,525,000warrants that include 300,000
warrants with an exercise price of $0.02 that expire December 17, 2008;
1,500,000 warrants with an exercise price of $0.008 that expire March 10, 2009;
600,000 warrants with an exercise price of $0.01 that expire April 21, 2009;
1,200,000 warrants with an exercise price of $0.01 that expire July 18, 2009;
1,800,000 warrants with an exercise price of
 $0.01
that expire December 22, 2009 and 1,125,000 warrants with an exercise price of
$0.01 that expire June 28, 2010.
 
 ITEM 12.  CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
 
 Except as
described below, none of the following persons has any direct or indirect
material interest in any transaction to which we were or are a party since the
beginning of the last fiscal year, or in any proposed transaction to which we
propose to be a party:
 
 (A)   
any of our directors or executive officers;
 
 (B)    
any nominee for election as one of our directors;
 
 (C)
    any person who is known by us to beneficially own, directly
or indirectly, shares carrying more than 5% of the voting rights attached to our
common stock; or
 
 (D)   
any member of the immediate family (including spouse, parents, children,
siblings and in-laws) of any of the foregoing persons named in paragraph (A),
(B) or (C)  above.
 
 -18-
 We had
the following related party notes payable at December 31, 2007 totaling $528,041
and related accrued interest of $126,730.   We replaced these
notes payable including accrued interest through December 31, 2005, effective
January 1, 2006 with new notes at 12% due December 31, 2007.
 
 Notes
      payable to Mary Pollock Merritt, daughter of the chief
      executiveofficer.
      This note bears interest at rates of 12% per year andis
      due in a one time payment of principal and interest on
      December31,
      2007.  These notes are not collateralized.
                $
      118,299Notes
      payable to Charles Pollock, the Chief Executive Officer and
    asignificant
      stockholder of the Company. This note bears interestof
      12% per year, and due in one time payment of principal andinterest
      on December 31, 2007. These notes are not collateralized.
                323,315Notes
      payable to Mark Weller, the former President and asignificant
      stockholder of the Company. This note bears interestof
      12% per year, and due in one time payments of principal
andinterest
      on December 31, 2007. These notes are not collateralized.
                86,427$ 528,041
 
 We
entered into a consulting agreement on January 1, 2005 with Sage Office
Services, an entity comprised of ownership of Mary Pollock Merritt and Sage
Office Management, to provide record-keeping and other administrative
services.  During the year ended December 31, 2007, the Company
incurred under this record-keeping and administrative services agreement a total
of $74,705.  We paid for most of these services by issuing 7,281,190
common shares registered on Form S8. Stock is calculated using a 30% discount
off closing bid price.
  DIRECTOR
INDEPENDENCE
   One of
our Board of Directors is an independent Director pursuant to the standards
applicable to Regulation S-B.  Edward Skaggs is the independent Board
member.
  
 ITEM
13.  EXHIBITS
 
 (a)
                The
      following documents are filed as part of this
  report
 
 Exhibit
      10.1  --
                Employment
      Agreement with Mark Weller “incorporated by reference to our Form 10KSB
      filing for the fiscal year ended December 31, 2005.”Exhibit
      10.2  --
                Employment
      Agreement with Charles Pollock “incorporated by reference to our Form
      10KSB filing for the fiscal year ended December 31,
  2005.”Exhibit
      10.3  --
                Consulting
      Agreement with Scott Duncan “incorporated by reference to our Form 10KSB
      filing for the fiscal year ended December 31, 2006.”Exhibit
      14.1  --
                Code
      of Ethics “incorporated by reference to our Form 10KSB filing for the
      fiscal year ended December 31, 2005.”Exhibit  31.1  --
                Certification
      of Chief Executive Officer of Pangea Petroleum Corporation required by
      Rule 13a - 14(1) or Rule 15d - 14(a) of the Securities Exchange Act of
      1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.Exhibit  31.2  --
                Certification
      of Chief Financial Officer of Pangea Petroleum Corporation required by
      Rule 13a - 14(1) or Rule 15d - 14(a) of the Securities Exchange Act of
      1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.Exhibit  32.1  --
                Certification
      of Chief Executive Officer of Pangea Petroleum Corporation pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18
      U.S.C. 63.Exhibit  32.2  --
                Certification
      of Chief Financial Officer of Pangea Petroleum Corporation pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18
      U.S.C. 63.
  
 -19-
 
 ITEM
14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
 AUDIT
FEES
 
 Malone
and Bailey, P.C. billed us in the aggregate amount of $25,000 for professional
services rendered for their audit of our annual financial statements and their
reviews of the financial statements included in our Forms 10-KSB for the year
ended December 31, 2006.
 
 Malone
and Bailey, P.C. billed us in the aggregate amount of $43,378 for professional
services rendered for their audit of our annual financial statements and their
reviews of the financial statements included in our Forms 10-KSB for the year
ended December 31, 2007.
 
 AUDIT-RELATED
FEES
 
 Malone
and Bailey, P.C. did not bill us for, nor perform professional services rendered
for assurance and related services that were reasonably related to the
performance of audit or review of the Company’s financial statements for the
fiscal years ended December 31, 2006.
 
 Malone
and Bailey, P.C. did not bill us for, nor perform professional services rendered
for assurance and related services that were reasonably related to the
performance of audit or review of the Company’s financial statements for the
fiscal years ended December 31, 2007.
 
 FINANCIAL
INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
 
 For the
fiscal year ended December 31, 2006 and 2007, Malone and Bailey, P.C. did not
bill us for, nor perform, any financial information systems design or
implementation.  For the fiscal year ended December 31, 2006 and 2007,
we were not billed for professional services from any other accounting firm for
information systems design or implementation.
 
 ALL
OTHER FEES
 
 We were
not billed for any other professional services for the fiscal year ended
December 31, 2006 or December 31, 2007.
 
 AUDITOR
INDEPENDENCE
 
 Our Board
of Directors considers that the work done for us in the year ended December 31,
2006 and 2007 by Malone and Bailey, P.C. is compatible with maintaining Malone
and Bailey’s independence.
 
 AUDITOR'S
TIME ON TASK
 
 All of
the work expended by Malone and Bailey, P.C. on our December 31, 2006 and 2007
audit was attributed to work performed by Malone and Bailey’s full-time,
permanent employees.
 
 -20-
 
 
 SIGNATURES
 
 Pursuant
to the requirements of section 13 or 15(d) of the Securities Exchange Act of
1934, the undersigned has duly caused this Form 10-KSB to be signed on its
behalf by the undersigned, there unto duly authorized, in the City of Houston,
Texas, on May 2, 2008.
 
  PANGEA
PETROLEUM CORPORATION
  
 By: /s/
Charles B.PollockDate:
May 2, 2008
 Charles
B.  Pollock,
 Chairman
of the Board and Chief Executive Officer
 
 
 Pursuant
to the requirements of the Securities Exchange Act of 1933, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
 
 Date:  May
2, 2008
 
 
 By:
/s/ Charles B. Pollock
 Charles
B. Pollock, Chairman of the Board, and Chief Executive Officer
 
 
 Date: May
2, 2008
 
 By:
/s/ Scott Duncan
 Scott
Duncan, Chief Financial Officer and Principal Financial Officer
 
 
 Date:  May
2, 2008
 
 By:
/s/ Edward R.
Skaggs
 Edward R.
Skaggs, Director
 
 -21-