SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-K





Mark
      One:x
            Annual
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the fiscal year ended December 31, 2008
      oro
            Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act
      of1934
      for the transition period from
  ____________to_____________.Commission
      File Number 333-139312





ROCK
CITY ENERGY CORP.


(Exact
name of registrant as specified in its charter)





NEVADA
            20-5503984(State
      of Incorporation)
            (IRS
      Employer Identification No.)3416
      Via Lido, Suite F, Newport Beach, California 92663-3976(Address
      of principal executive offices)(877)
      587-2517(Registrant’s
      telephone number, including area
code)





Securities
registered pursuant to Section 12(b) of the Act:  N/A





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





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





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





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





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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.




Large
      Accelerated Filer
              [  ]
              Accelerated
      Filer
              [  ]Non-accelerated
      Filer
              [  ]
              Smaller
      Reporting Company
              [X](Do
      not check if a smaller reporting company.)




Indicate
by checkmark whether the registrant is a shell company as defined in Rule 12b-2
of the Exchange Act. Yes [ ]  No [x]




State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.  As of June 30, 2008, the aggregate market value of the
voting and non-voting common equity held by non-affiliates was
$860,178.





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.  As of March 27, 2009, the
registrant had 8,000,000 shares of common stock outstanding.





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










CONTENTS




PageForward-Looking
      Statements
            
            iPart
      1Item
      1
            
            Business
            
            1Item
      1A
            
            Risk
      Factors
            
            5Item
      1B
            
            Unresolved
      Staff CommentsItem
      2
            
            Properties
            
            9Item
      3
            
            Legal
      Proceedings
            
            10Item
      4
            
            Submission
      of Matters to a Vote of Security Holders
            
            10Part
      IIItem
      5
            
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            
            10Item
      6
            
            Selected
      Financial Data
            
            11Item
      7
            
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
            
            11Item
      7A
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            24Item
      8
            
            Financial
      Statements and Supplementary Data
            
            24Item
      9
            
            Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure
            
            24Item
      9A(T)
            
            Controls
      and Procedures
            
            25Item
      9B
            
            Other
      Information
            
            26Part
      IIIItem
      10
            
            Directors,
      Executive Officers and Corporate Governance
            
            26Item
      11
            
            Executive
      Compensation
            
            29Item
      12
            
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            
            29Item
      13
            
            Certain
      Relationships and Related Transactions and Director
      Independence
            
            29Item
      14
            
            Principal
      Accounting Fees and Services
            
            30Item
      15
            
            Exhibits,
      Financial Statement Schedules
            
            30Signatures
      and Certifications
            
            31Consolidated
      Financial Statements
            
            F-1










FORWARD-LOOKING
STATEMENTS





This
Annual Report on Form 10-K filed by Rock City Energy Corp. contains
forward-looking statements.  These are statements regarding financial
and operating performance and results and other statements that are not
historical facts.  The words “expect,” “project,” “estimate,”
“believe,” “anticipate,” “intend,” “plan,” “forecast,” and similar
expressions are intended to identify forward-looking
statements.  Certain important risks could cause results to differ
materially from those anticipated by some of the forward-looking
statements.  Some, but not all, of these risks include, among
other things:


general
  economic conditions, because they may affect our ability to raise
  money,
        our
  reliance on Chesapeake Exploration Limited Partnership to successfully develop
  our oil and gas properties,
        our
  ability to raise enough money to continue our operations,
        changes
  in regulatory requirements that adversely affect our business,
        changes
  in the prices for oil and gas that adversely affect our business,
  and
        other
  uncertainties, all of which are difficult to predict and many of which are
  beyond our control.


We
caution you not to place undue reliance on these forward-looking statements,
which reflect our management’s view only as of the date of this
report.  We are not obligated to update these statements or publicly
release the results of any revisions to them to reflect events or circumstances
after the date of this report or to reflect the occurrence of unanticipated
events.  You should refer to and carefully review the information in
future documents we file with the Securities and Exchange
Commission.




i




PART
I





As used
in this report, references to “Rock City”, “the company,” “management,”
“we” and “our” refer to Rock City Energy Corp. and, where appropriate, its
subsidiaries.





ITEM
1. BUSINESS





Spin-Off





We were
incorporated on August 10, 2006 in the state of Nevada as a wholly owned
subsidiary of Brek Energy Corporation.  We were formed to acquire all
of the shares of capital stock that Brek then owned in Vallenar Energy Corp., an
oil and gas company.  We acquired the shares of Vallenar from Brek on
August 24, 2006 when we issued 4,000,000 shares of common stock to Brek in
exchange for 5,312,500 shares of Vallenar common stock and 733,333 shares of
Vallenar preferred stock.  On March 7, 2007, we issued an additional
4,000,000 shares of common stock to Brek in exchange for
$600,000.  Brek was required, as a condition of its merger with Gasco
Acquisition Inc., to dispose of its interest in Vallenar.  On November
30, 2007 Brek spun off our business and operations by distributing to its
shareholders holding 1,000 or more Brek shares on October 29, 2007 the 8,000,000
shares of Rock City common stock it owned.  The merger between Brek
and Gasco Acquisition, Inc. was completed on December 14, 2007.





Agreement
with Chesapeake Exploration Limited Partnership





We are a
holding company.  We hold a 51.53% interest in Vallenar, which was
formed in Nevada on January 27, 1999.  Other than our interest in
Vallenar, we have no operations.  Vallenar operates through its
subsidiary, Nathan Oil Partners LP, which was formed on October 31,
2001.  In February 2002, Nathan Oil acquired nineleases covering
approximately 9,191 gross and 8,865 net acres in the Rocksprings Prospect in the
Val Verde Basin of Edwards County, Texas.





We
acquired the leases with the intention of developing any heavy crude oil
reserves on the properties covered by the leases, although no studies have been
done to determine whether the properties contain heavy crude oil
reserves.  In 2005, natural gas was discovered nearby.  We
believe that these properties may have significant deposits of natural gas and
that finding and extracting the natural gas will be less costly than finding and
extracting heavy oil.





Our goal
is to develop our properties to fully exploit all of their resources, but to
date we have not had the working capital to do this; therefore, on May 8, 2006,
Nathan Oil entered into a letter agreement with Chesapeake Exploration Limited
Partnership for Chesapeake to initiate drilling operations for the deep
rights.   In this discussion, when we refer to the “letter
agreement”, we mean the letter agreement with Chesapeake; when we discuss the
“deep rights”, we mean the rights to develop and extract hydrocarbons from
depths below 1,500 feet, or the “deep zone”; and when we discuss the “shallow
rights”, we mean the rights to develop and extract hydrocarbons from the surface
to 1,500 feet, or the “shallow zone”.





In
exchange for Chesapeake’s promise to bear the costs of drilling the first 10
wells, to operate the wells and to market, transport and sell our share of the
production from the wells, on June 9, 2006, Nathan Oil assigned the deep rights
in eight of the leases.   The assigned leases are designated, for
purposes of this discussion, as follows:


The
  “deep Allar lease” refers to one lease conveying the rights to develop and
  extract hydrocarbons from depths below 1,500 feet on approximately 7,750
  acres.
        The
  “Baggett leases” refer to six leases conveying 50% of the rights to develop
  and extract hydrocarbons at any depth from approximately 651
  acres.
        The
  “new Driver lease” refers to one lease conveying the rights to develop and
  extract hydrocarbons at any depth from approximately 790 gross acres (632 net
  acres).  The original Driver Lease, covering 790 gross and net
  acres, expired in February 2007.  Chesapeake obtained a new lease
  covering the same acreage and has an undivided 80% interest in the mineral
  rights.  Our proportionate interest in the new Driver lease is 25%
  of Chesapeake’s interest in the deep rights (158 acres), or a net interest of
  20%, and 100% interest in the shallow rights (632 acres), or a net interest of
  80%.  We have
  the right to a pro rata interest in any additional interest that Chesapeake
  acquires.


1




All of
the leases include provisions that allow their primary terms to be extended for
so long as operations are conducted on the land with no cessation for more than
180 consecutive days in the case of the deep Allar lease and 60 consecutive days
in the case of the new Driver lease.  The Baggett leases no longer
require continuous development because the two wells on the property are
producing.  Operations are defined as drilling, testing, completing,
marketing, recompleting, deepening, plugging back or repairing of a well in
search for, or in an endeavor to obtain production of, oil, gas, sulphur or
other minerals, or the production of oil, gas, sulphur or other minerals,
whether or not in paying quantities.





As
required by the letter agreement, Chesapeake initiated drilling operations on
the land covered by the Allar and Baggett leases before their primary terms
ended in February 2007.  By December 2007, Chesapeake had successfully
completed three wells capable of producing hydrocarbons in commercial
quantities—two on the Baggett acreage and one on the Allar acreage—and
perpetuated their interest in the assigned leases. Chesapeake drilled two other
wells on the Allar acreage. These wells were dry holes.





Chesapeake
is entitled to recover all of the costs of drilling, completing, equipping and
operating the first 10 wells, commonly called payout.  After payout,
we are entitled to a 25% working interest in Chesapeake’s interest in the
wells.  We also have the right to participate in any wells that
Chesapeake drills after the first 10, with a 25% working interest if we elect to
participate from the outset and pay our proportionate share of the costs, or we
can back in to a 6.25% working interest after payout if we elect not to
participate and pay our proportionate share. To date, Chesapeake has recovered
$2.3 million of the $21.7 million it has spent to drill and operate the
wells.





The
letter agreement also permits us to propose a well if Chesapeake fails to begin
drilling a well on acreage covered by the assigned leases at least sixty days
before the expiration of the terms of the assigned leases.  Chesapeake
may participate in any proposed well, so long as it does so within fifteen days
of our proposal. On December 24, 2008, Chesapeake informed us that its
completion attempts on the fifth well, located on the acreage covered by the
deep Allar lease, have been unsuccessful and that it has no current plans to
develop the remaining acreage covered by this lease. As we do not have the
resources to conduct operations on the lease, we do not intend to conduct the
operations required to extend the term of the lease. As a result, the lease will
expire on April 6, 2009.





While we
retained the shallow rights to all of the leases, and, pursuant to the terms of
the letter agreement, we have the right to drill wells on the undeveloped
portion of the leased properties, we do not have the funds to develop these
rights.  We did not conduct operations on the ninth lease conveying
the rights to the shallow zone of the same acreage as the deep Allar lease. As a
result, it expired in 2007.





The
letter agreement also required Chesapeake to:


- obtain
  a 3-D seismic survey over the area covered by the assigned leases at its own
  expense,
- provide
  interpretive data relating to the acreage covered by the assigned leases, and,
  in the initial well, provide an array of logs, including a magnetic imaging
  log and sidewall cores in the shallow zone of the assigned lease,
- assign
  to us our proportionate interest in wellbores according to the level of
  participation that we have elected,
- transport
  our gas for $0.50/mcf (1,000 cubic feet), which includes processing fees and
  costs, and market our gas for $0.03/mcf, and
- once it
  has successfully completed a well capable of producing natural gas in
  commercial quantities, to immediately begin the process of building, or
  procuring, a pipeline to transport the gas to market.




2







Chesapeake
completed the 3-D seismic survey, provided interpretive data, has not assigned
any interest in wellbores to us as none of the wells has paid out, built the
pipeline and is transporting the gas produced.





Chesapeake
did not initiate drilling on the property covered by the original Driver lease
that we assigned to it.  Instead, Chesapeake, through a partner,
top-leased the acreage covered by the original Driver lease to February 2010.
Because Chesapeake didn’t drill on the Driver acreage, the top lease fell into
place when the Driver lease expired in February 2007. The new Driver lease
expires in February 2010.  Chesapeake has only an 80% interest in the
new Driver lease.  Our proportionate interest in the new Driver lease
is 25% of Chesapeake’s interest in the deep rights and 100% of Chesapeake’s
interest in the shallow rights, leaving us with a 20% interest in the deep
rights and an 80% interest in the shallow rights.  We are entitled to
our proportionate share of any additional interest that Chesapeake acquires in
the new Driver lease. We have not seen the agreement under which Chesapeake
takes its interest in the new Driver lease and are relying entirely on the terms
of the letter agreement and Chesapeake’s representations that we have an
interest in the new Driver lease.





As a
result of Chesapeake’s actions, all of the acreage covered by the assigned
leases has been secured beyond the original termination dates of the
leases.  However, as noted above, in order to continue the terms of
the assigned leases beyond the original termination dates, continuous operations
must be conducted for the periods of time specified in the leases.  On
December 24, 2008 Chesapeake informed us that its completion attempts on a well
located on the acreage covered by the Allar lease have been unsuccessful and
that it has no current plans to develop the remaining acreage covered by this
lease.  It is not required to drill again on the Baggett leases, as
they are held by production from the two wells on that acreage. We do not know
what plans Chesapeake has for drilling on the new Driver lease.





Table 1
illustrates the number of net productive and dry exploratory and development
wells that Chesapeake drilled on the assigned leases during the last three
fiscal years.




Table
      1: Net WellsYear
                                                          
                                                          Productive
                                                          
                                                          
                                                          Dry
                                                          
                                                          
                                                          Development2006
                                                          
                                                          
                                                          0
                                                          
                                                          
                                                          
                                                          0
                                                          
                                                          
                                                          
                                                          02007
                                                          
                                                          
                                                          1
                                                          
                                                          
                                                          
                                                          1
                                                          
                                                          
                                                          
                                                          02008
                                                          
                                                          
                                                          1
                                                          
                                                          
                                                          
                                                          1
                                                          
                                                          
                                                          
                                                          02
                                                          
                                                          
                                                          
                                                          2
                                                          
                                                          
                                                          
                                                          0





As we
noted above, once Chesapeake has recovered all of the costs of drilling,
completing, equipping and operating the first 10 wells, Nathan Oil is entitled
to a 25% working interest in Chesapeake’s interest in the wells.  Our
working interests would include 25% in wells drilled on approximately 7,750
acres covered by the deep Allar lease, 12.5% in wells drilled on approximately
651 acres covered by the Baggett leases, and 20% in wells drilled on
approximately 790 acres covered by the new Driver lease. Since Chesapeake
intends to let the Allar lease expire on April 6, 2009 and we do not intend to
conduct the operations necessary to extend the term, our working interest in the
Allar acreage will be limited to a 25% working interest after payout in the one
producing well located on the Allar lease.





Nathan
Oil may, at any time before the first ten wells have paid out, elect to pay 25%
of the drilling, completing and operating costs, less any revenue earned from
the wells to the date of the election, to earn an immediate 25% working interest
in the wells drilled as of the date of the election.  In all
subsequently drilled wells, Nathan Oil may participate by paying 25% of the
costs of drilling, completing, equipping and operating the wells to earn a 25%
working interest in the wells, or it may elect to pay nothing toward these costs
and earn a 6.25% working interest in these wells after
payout.  Chesapeake has made no representation that it will be
successful in drilling, completing, equipping and operating any wells in
accordance with the agreement or that it will complete the ten-well
program.




3





As is
customary in the oil and gas industry, only a preliminary title review was
conducted at the time Chesapeake entered into the agreement.  Before
it started its drilling operations, Chesapeake was responsible for examining the
title of the drill site tract and curing significant defects, if any, before
proceeding with the operations.





The
leasehold properties are subject to royalties, overriding royalties and other
outstanding interests customary in the industry.  The properties may
also be subject to burdens such as liens incident to operating agreements and
current taxes, development obligations under oil and gas leases and other
encumbrances, easements and restrictions.  We do not believe that any
of these burdens will materially interfere with our use of
these properties.





Operations





Getty Oil
drilled eleven wellbores between 1975 and 1981, for which we have no
information, and we drilled one bore hole in 2002, the results of which were
inconclusive.  In 2007 and 2008, Chesapeake drilled a total of five
wells, three of which are producing.  We will not receive any oil and
gas revenue until the first ten wells have paid out and we have earned our 25%
of Chesapeake’s interest in the ten wells.  The average cost of the
five wells drilled to date is more than $4.3 million, so we don’t expect to
reach payout soon.  We have not retained the services of an engineer
to determine if our property contains oil or gas reserves and we are unable to
assure that any such reserves exist.





We have
no oil and gas reserves or production subject to long-term supply, delivery or
similar agreements other than the letter agreement with
Chesapeake.  We have not filed estimates of our total proved oil and
gas reserves with or included them in reports to any federal authority or
agency.





Chesapeake
completed a well capable of producing hydrocarbons in commercial quantities in
December 2007 and perpetuated its interest in the deep zone of the assigned
leases. As a result, our interest in the deep zone is limited to our right to a
working interest after payout in the wells and wellbores that Chesapeake has
completed on the Baggett and Allar leases and the wells, if any, that Chesapeake
completes in the future on the new Driver lease.  Our remaining
leasehold interests are limited to the shallow zone of the Baggett and new
Driver leases.  Table 2 illustrates Nathan Oil’s gross and net acres
of developed and undeveloped gas and oil leases and Chesapeake’s gross and net
acres of developed and undeveloped gas and oil leases, all since Chesapeake
perpetuated its interest in the assigned leases.




Table
      2: Developed and Undeveloped AcreageShallow
      Zone (Nathan Oil)
            
            Deep
      Zone (Chesapeake)Developed
      Acres
            
            Undeveloped
      Acres
            
            Developed
      Acres
            
            Undeveloped
      AcresArea
            
            Gross
            
            Net
            
            Gross
            
            Net
            
            Gross
            
            Net
            
            Gross
            
            NetTexas
            
            0
            
            0
            
            1,441
            
            958
            
            1,291
            
            966
            
            7,900
            
            7,742*Chesapeake’s
      undeveloped acreage will reduce to 790 gross and 632 net acres when the
      deep Allar lease expires on April 6,
2009.





Competition





We have
no competitive presence in the oil and gas industry whatsoever.  Most
of our competitors have much greater experience than we have, are larger and
have significantly greater financial resources, staff and labor forces,
equipment, and other resources, including oil and gas producing properties, than
we do.  To date, we have earned no revenues from our operations and
cannot assure that we ever will.  We do not have the resources
necessary to develop the limited properties we have.





Even if
we had the resources necessary to develop our properties, the availability of a
ready market for oil and gas depends on numerous factors beyond our control,
including the extent of domestic production and imports of oil and gas,
proximity and capacity of pipelines, and the effect of federal and state
regulation of oil and gas sales, as well as environmental restrictions on
exploration and usage of oil and gas.




4





Government
Regulation and Environmental Matters





Oil and
gas operations generally are subject to a number of federal, state and local
regulations relating to the protection of the environment and to workplace
health and safety.  These types of operations are subject to extensive
federal, state and local laws and regulations governing waste disposal, the
release of emissions, the handling of hazardous substances, environmental
protection and remediation and workplace exposure.





Because
we have no operations, we believe that we are in substantial compliance with all
such laws and do not anticipate that we will be required to spend any
substantial amounts in the foreseeable future in order to meet environmental or
workplace health and safety requirements.





Although
no environmental claims have been made against us and we have not been named as
a potentially responsible party by the EPA or any other entity, it is possible,
as an owner of oil and gas leases, that we could be identified by the EPA, a
state agency or one or more third parties as a potentially responsible party
under CERCLA or under analogous state laws.  If so, we could incur
substantial litigation costs to prove that we were not responsible for the
environmental damage or we could be required to pay costs to remediate the
environmental damage if we are found to be responsible.





Intellectual
Property





We do not
own any patents, licenses, franchises, or concessions.  Our leases
call for the payment of royalties to the lessors, who are private
landowners.





Employees





We have
no employees.  Our president, Richard N. Jeffs, who is also a
director, our secretary, Shawne Malone, who is also a director, a company owned
by our treasurer, Joao daCosta, and
Susan Jeffs, the wife of our president, provide their administrative services to
us.  Messrs. Jeffs and Malone and Mrs. Jeffs provide their services
without charge.  Mr. da Costa’s company provides our accounting,
reporting and administrative services on a contract at the rate of $7,500 per
month plus disbursements.





ITEM
1A. RISK FACTORS





In
addition to the factors discussed elsewhere in this annual report, the following
risks and uncertainties could materially adversely affect our business,
financial condition and results of operations.  Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations and financial condition.





Vallenar
Energy Corp., through its subsidiary, Nathan Oil Partners LP, holds interests in
oil and gas leases which are being developed by a third
party.  However, we may never receive any revenue from these
leases.





Nathan
Oil holds interests in oil and gas leases.  It does not, however, have
the funds to develop these leases.  It has entered into an agreement
with an operator, Chesapeake Exploration Limited Partnership, for drilling,
completing, equipping and operating wells on its properties, but there is no
guarantee that these activities will be successful.  While Chesapeake
has drilled five wells, and three of them are producing, it may take years for
Chesapeake to recover the costs it paid to drill the wells or these costs may
never be recovered.  We will not receive any oil and gas revenue until
the first ten wells have paid out, at which time we will earn a 25% interest in
the wells.  The average cost of the five wells drilled to date exceeds
$4.3 million. Chesapeake has recovered approximately $2.3 million from revenue
to date, so we don’t expect to reach payout soon, if ever.  We have no
operations other than these.




5





Our
auditor has expressed doubt about our ability to continue as a going
concern.  We may never achieve profitable operations.





Our
consolidated financial statements have been prepared on a going concern basis
which contemplates the realization of assets and the liquidation of liabilities
in the ordinary course of business.  At December 31, 2008 we had an
accumulated deficit of $449,258.  We will require additional financing
to locate and purchase the rights to profitable oil and gas properties and to
support the development of those properties until we achieve positive cash flow
from operations.  These factors raise doubt about our ability to
continue as a going concern.  Our ability to emerge from the
exploration stage is dependent upon the continued financial support of our
shareholders, our ability to obtain necessary debt or equity financing to
continue our operations, and our achieving profitable operations.  We
may never be able to achieve these objectives.





In
order to extend the terms of our leases beyond the primary term, we need to
conduct operations on the properties.  We lost a portion of the
acreage covered by two of our leases.  We could suffer such losses
again in the future.  A loss of acreage could have a material adverse
affect on our business and results of operations.





While our
leases had varying terms, all of the primary terms were due to expire between
January 31, 2007 and February 8, 2007.  In order to extend the primary
term of each lease, we were required to conduct operations on the properties
covered by the leases.  We assigned all of our leases to Chesapeake
Exploration Limited Partnership in exchange for Chesapeake’s agreement to
initiate drilling operations on the land covered by the leases before the end of
the primary term.  During 2007 and 2008, Chesapeake drilled five
wells, which extended the terms of eight of the leases.  Chesapeake
did not initiate drilling on the ninth lease covering approximately 790
acres.  Instead, Chesapeake, through a partner, top-leased the acreage
covered by the ninth lease to February 2010 but has only an undivided 80%
interest in the mineral rights.  Our proportionate interest in the top
lease is 25% of Chesapeake’s interest in the deep rights, or a net interest of
20%, and 100% of Chesapeake’s interest in the shallow rights, or a net interest
of 80%.  We lost a portion of the acreage by failing to drill a well
that would extend the term and Chesapeake informed us in December 2008 that it
has no plans to conduct further development on the deep Allar lease, so we will
lose that lease on April 6, 2009. We also lost the shallow Allar lease in 2007
because we didn’t drill to extend the term.  We may lose more or all
of our rights in the leases if we do not have the resources to conduct
operations as required by the leases.  If we lose additional acreage
our business and results of operations could be materially adversely
affected.





Even
if our oil and gas properties are developed, we may never be
profitable.




Even if
our oil and gas properties are fully developed, there is no guarantee that we
would achieve profitability.  The reserves may prove to be lower than
expected, production levels may be lower than expected, the costs to exploit the
oil and gas may be higher than expected, new regulations may adversely impact
the ability to exploit these resources and the market price for crude oil and
natural gas may be lower than current prices.




We also
face competition from other oil and gas companies in all aspects of our
business, including obtaining oil and gas leases, marketing of oil and gas, and
obtaining goods, services and labor.  Many of our competitors have
substantially larger financial and other resources than we have, and we may not
be able to successfully compete against them.  Competition is also
presented by alternative fuel sources, which may be more efficient and less
costly and may result in our products becoming less desirable.




Any of
these factors could prevent us from attaining profitability.




6





The
development and exploitation of oil and gas properties is subject to many risks
that are beyond our control.  Any of these risks, if they materialize,
could adversely affect our results of operations.





Crude oil
and natural gas drilling and production activities are subject to numerous
risks, many of which are beyond the operator’s control.  These risks
include the following:


that no
  commercially productive crude oil or natural gas reservoirs will be
  found;
        that
  crude oil and natural gas drilling and production activities may be shortened,
  delayed or canceled; and
        that
  the ability to develop, produce and market reserves may be limited by title
  problems, weather conditions, compliance with governmental requirements, and
  mechanical difficulties or shortages or delays in the delivery of drilling
  rigs and other equipment.


We cannot
assure you that any new wells that Chesapeake may drill, or the wells that are
currently in existence, will be productive or that any portion of the investment
in them will be recovered.  Drilling for crude oil and natural gas may
be unprofitable.  Dry holes and wells that are productive but do not
produce sufficient net revenues after drilling, operating and other costs are
unprofitable.





The oil
and gas industry also experiences numerous operating risks including the risk of
fire, explosions, blow-outs, pipe failure, abnormally pressured formations and
environmental hazards.  Environmental hazards include oil spills,
natural gas leaks, ruptures or discharges of toxic gases.  If any of
these industry operating risks occur, they could result in substantial
losses.  Substantial losses also may result from injury or loss of
life, severe damage to or destruction of property, clean-up responsibilities,
regulatory investigation and penalties and suspension of
operations.





Any of
these events could adversely affect our business.





Oil
and natural gas prices are highly volatile.  Even if Chesapeake is
successful in developing our properties, prices for oil and gas may be so low
that exploitation will not be profitable.





Historically,
the markets for oil and natural gas have been volatile, and such markets are
likely to continue to be volatile in the future.  Prices are subject
to wide fluctuation in response to relatively minor changes in the supply of and
demand for oil and natural gas, market uncertainty and a variety of additional
factors that are beyond our control.  These factors include the level
of consumer product demand, weather conditions, domestic and foreign
governmental regulations, the price and availability of alternative fuels,
political conditions, the foreign supply of oil and natural gas, the price of
foreign imports and overall economic conditions.  Revenue,
profitability, cash flow, future growth and ability to borrow funds or obtain
additional capital, as well as the carrying value of the properties, are
substantially dependent upon prevailing prices of oil and natural
gas.  Declines in oil and natural gas prices may make exploitation of
these commodities unprofitable, which would have a material adverse affect on
our business.





Government
regulation and liability for environmental matters may adversely affect our
business.





Oil and
natural gas operations are subject to various federal, state and local
government regulations, which may be changed from time to
time.  Matters subject to regulation include discharge permits for
drilling operations, drilling bonds, reports concerning operations, the spacing
of wells, unitization and pooling of properties and taxation.  From
time to time, regulatory agencies have imposed price controls and limitations on
production by restricting the rate of flow of oil and natural gas wells below
actual production capacity in order to conserve supplies of oil and natural
gas.  There are federal, state and local laws and regulations relating
to protection of human health and the environment applicable to the development,
production, handling, storage, transportation and disposal of oil and natural
gas, by-products thereof and other substances and materials produced or used in
connection with oil and natural gas operations.  In addition, we may
be liable for environmental damages caused by previous owners of property we
purchase or lease.  As a result, we may incur substantial liabilities
to third parties or governmental entities.  While the regulations
governing our industry have not had a material adverse effect on our operations
to date, the implementation of new laws or regulations, or the modification of
existing laws or regulations, could have a material adverse effect on
us.




7





In
some instances members of the board of directors may be liable for losses
incurred by holders of our common stock.  If a shareholder were to
prevail in such an action in the U.S., it may be difficult for the shareholder
to enforce the judgment against any of our three board members who are not U.S.
residents.





In
certain instances, such as trading securities based on material non-public
information, a director may incur liability to shareholders for losses sustained
by the shareholders as a result of the director’s illegal or negligent
activity.  However, three of our directors, Richard N. Jeffs, Gregory
Pek and Ian Robinson, reside and maintain a substantial portion of their assets
outside the United States.  As a result it may be difficult or
impossible to effect service of process within the U.S. upon these directors or
to enforce in the U.S. courts any judgment obtained here against them predicated
upon any civil liability provisions of the U.S. federal securities
laws.


Foreign
courts may not entertain original actions predicated solely upon U.S. federal
securities laws against these directors; and judgments predicated upon any civil
liability provisions of the U.S. federal securities laws may not be directly
enforceable in foreign countries.





As a
result of the foregoing, it may be difficult or impossible for a shareholder to
recover from any of these directors if, in fact, the shareholder is damaged as a
result of the director’s negligent or illegal activity.





Our
president, chief financial officer and director, Richard N. Jeffs, is the
subject of an order issued by the British Columbia Securities Commission
preventing him from engaging in investor relations activities in British
Columbia until April 24, 2012.  If we need to raise funds in British
Columbia during the period prior to the expiration of the order, it may be
difficult to do so since Mr. Jeffs may be unable to communicate with potential
investors in British Columbia.





Richard
N. Jeffs, our president, chief financial officer and a director, is the subject
of an order dated April 24, 2007 that was issued by the British Columbia
Securities Commission.  Mr. Jeffs is required by the order to fully
comply with the British Columbia Securities Act, the rules and regulations
promulgated under the act and any other applicable regulations.  He is
also prohibited, for a period of five years from the date of the order, from
engaging in investor relations activities in British Columbia.  The
order stemmed from activities taken by Mr. Jeffs on behalf of Francis Jason Dean
Biller, a former resident of British Columbia, who is prohibited from trading
securities and engaging in investor relations in British Columbia until February
16, 2010.  The British Columbia Securities Commission alleged that Mr.
Jeffs assisted Mr. Biller in relocating from Costa Rica to British Columbia for
the purpose of promoting the securities of public companies to retail investors
on behalf of a company under the control of Mr. Jeffs’ brother.  As a
result of this order, Mr. Jeffs cannot directly communicate with the investment
community in British Columbia or promote the company in any way to investors
residing or located in British Columbia until April 24, 2012.  If we
need to raise funds in British Columbia for our operations during the period
prior to the expiration of the order, we may find it difficult to do so since
Mr. Jeffs is prohibited from communicating with potential investors residing or
located in British Columbia.





If
we are unable to provide financial and administrative support for Vallenar’s
day-to-day operations, our business could suffer.





Until we
became its parent on August 24, 2006, Vallenar was operated as a subsidiary of
Brek.  After the spin-off, we became an independent public
company.  Our ability to satisfy our obligations and achieve or
maintain profitability is now solely dependent upon the future performance of
our business, as we are no longer able to rely upon the financial and other
resources of Brek.  As of the date of this report, we have
approximately $220,000 in cash, which should be adequate to support our
operations for the next 15 months.





While it
owned Vallenar, Brek performed certain significant corporate functions for
Vallenar, including legal and accounting services and day-to-day operational
functions, such as administrative support.  In connection with the
spin-off, we were required to create our own, or to engage third parties to
provide, corporate business functions to replace those provided by
Brek.  As an independent public company, we are required to bear the
costs of obtaining these services.  If we are unable to perform, or
engage third parties to provide, these functions with the same level of
expertise and on the same or as favorable terms as they had been provided by
Brek, our business and operations could suffer.




ITEM
1B. UNRESOLVED STAFF COMMENTS




As a
smaller reporting company, we are not required to provide this
information.




8





ITEM
2. PROPERTIES





Our
office is located at 3416 Via Lido, Suite F, Newport Beach, California
92663.  We pay $500 per month for our office on a month-to-month
agreement.





Nathan
Oil’s registered office is located at 602 South Harbor Court, Granbury, Texas
76048.  We manage Nathan Oil’s operations from our Newport Beach
office.





Through
Nathan Oil, we have interests in eight leases covering approximately 9,191 gross
and approximately 8,708 net acres in the Rocksprings Prospect in the Val Verde
Basin of Edwards County, Texas.  Seven of the leases had a primary
term of five years ending in February 2007; the eighth lease has a primary term
ending in February 2010.  All of the leases include provisions that
allow the lease terms to be extended so long as operations are conducted on the
properties covered by the leases.  We believe that, through its
drilling operations on the properties covered by the leases, Chesapeake has
perpetuated the terms of Baggett leases until the wells cease to produce or the
unit spacing is reduced from 640 acres. Chesapeake has no current plans to
conduct operations on the deep Allar lease. As we do not intend to conduct
operations, the lease will expire on April 6, 2009 and our interest in the Allar
lease will reduce to the 640 acres around the one producing well. As a result,
our interest in the deep zone of the eight leases will reduce to approximately
2,081 gross acres (approximately 1,598 net acres). Our deep zone interest is
limited to the right to a 25% working interest after payout in Chesapeake’s
interest in wells and wellbores drilled on the leases. Our shallow zone interest
is limited to our leasehold interests in 1,441 gross (958 net) acres covered by
the Baggett leases and the new Driver lease.





Chesapeake
has an undivided 80% interest, rather than a 100% interest, in the rights
covered by the eighth lease, the new Driver lease, through a top-lease that
became effective when our lease expired on February 4, 2007.  This new
lease expires on February 1, 2010.  We had a ninth lease, the shallow
Allar lease, which conveyed the rights to the shallow zone of the same acreage
as the deep Allar lease.  We did not have the resources to conduct
operations on this lease and let it expire in 2007, which reduced our interest
in the shallow zone to 1,441 gross acres and 958 net acres.





All of
the leases, with the exception of the deep Allar lease, require the payment of a
royalty of one-sixth of all oil produced or, at the option of the lessor, the
payment of the average posted market price of such interest, less one-sixth of
the cost to render the oil marketable, one-sixth of the amount realized for the
sale of gas and casinghead gas, and one-tenth, either in kind or in value, of
all other minerals that are mined and marketed (with the exception of sulphur
that is mined and marketed, in which case the royalty is $1.00 per long
ton).  If, at any time after the expiry of the primary term, all the
wells are shut-in for a period of 90 consecutive days and no operations are
conducted on the leased property, then at or before the expiry of the 90-day
period, we must pay the lessor a royalty of $1.00 for each acre of land covered
by the leases.  We are entitled to pool or unitize any land covered by
six of the leases with any other land or leases to establish units of 80 surface
acres, or 40 acres in the case of one lease.





The deep
Allar lease requires the payment of a royalty of one-fifth of all oil and
associated products, one-fifth of the value of all gas (delivered free of cost
of production and delivery) and one-fifth of the value of all plant products
(including residue gas).  If residue gas is produced, the lessor must
receive not less than one-fifth of the value of the gas at the current market
price.  The lessor may, at its option, take the gas royalty in
kind.  If at any time there is a gas well on the property, and the
well is shut-in, we may pay an annual royalty of $5.00 for each acre of land
covered by the deep Allar lease and, for a period of one year from the date that
we make the payment, it will be considered that gas is being produced in paying
quantities.  We may continue paying this “shut-in royalty” on an
annual basis for a period of no more than two years.  The deep Allar
lease will remain in force at the expiry of the primary term or the termination
of continuous development so long as we are engaged in operations for drilling,
mining or reworking any well on the property and drilling, mining or reworking
do not cease for a period of more than 90 days or as long as oil, gas or other
minerals are produced.  “Continuous development” is defined in this
lease as the commencement of drilling operations of a new well within 180 days
of completion of the last well drilled on the property.  We are
entitled to unitize or pool the deep Allar lease and the property covered by it
with other leases and properties in the same area or field.  We have
agreed to indemnify the lessor for any damages incurred to persons or property
arising out of our operations.




9





Chesapeakehas conducted a 3-D
seismic survey over the lands covered by the leases and agreed to give us an
array of logs, including a magnetic imaging log, and sidewall cores in the
shallow oil zone covered by the leases and not transferred to
Chesapeake.  We sent the data to our petroleum consultants for review
and concluded after discussing the data with them that drilling into the shallow
zone would be unproductive.





We have
assigned an overriding royalty interest in all of the leases described above to
Florida Energy I, Inc., Richard N. Jeffs, our president and a director, and Marc
Bruner.  The assignment to Florida Energy I, Inc. assigns an
overriding royalty interest equal to 2% of all oil, gas and other minerals
produced and saved for our benefit pursuant to all of the leases.  The
assignments to Mr. Jeffs and Mr. Bruner assign to each of them an overriding
royalty interest equal to 3.17% of all oil, gas and other minerals produced and
saved for our benefit pursuant to all of the leases except the deep Allar lease
and equal to 1.5% of all oil, gas and other minerals produced and saved for our
benefit pursuant to the deep Allar lease.  We agreed to assign the
royalty interests to Florida Energy I, Inc., Mr. Jeffs and Mr. Bruner in 2001 in
exchange for their efforts in identifying, negotiating and acquiring the leases
and arranging the financing for the acquisitions.  The assigned leases
have just begun to generate royalties in 2008.  The royalty interests
in the leases that expired in 2007 expired at the same time.  The
surviving royalty interests cover oil, gas and other minerals produced and saved
for our benefit from seven leases covering approximately 8,401 gross acres
(8,075 net acres). The royalty interests will reduce further when the deep Allar
lease expires on April 6, 2009, thus limiting the royalty interests to the
production from the Baggett leases and the one producing well on the deep Allar
lease.





ITEM
3. LEGAL PROCEEDINGS





While we
may, from time-to-time, be involved in legal proceedings relating to our
business, we are not involved in any such proceedings as of the date of this
filing.





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





Not
applicable.





PART
II





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





Market
Information





Our
common stock has no public market.  We planned to apply for quotation
of our common stock on the OTC Bulletin Board upon the completion of the
spin-off, however, we have not yet done so and we can provide no assurance that
our shares will be quoted on the OTC Bulletin Board or through any other
quotation service or, if quoted, that a public market will develop.





None of
our common stock is subject to outstanding options or warrants to purchase, or
securities convertible into, common stock.  None of our common stock
may be sold pursuant to Rule 144 under the Securities Act of
1933.  All of our common stock became freely tradable on September 17,
2007, the date that the Securities and Exchange Commission declared effective
the registration statement we filed in conjunction with the
spin-off.




10





Dividends





We have
not paid cash dividends since our inception and we do not contemplate paying
dividends in the foreseeable future.  We intend to retain any future
earnings to finance the growth and development of our business.  Any
future determination to pay cash dividends will be at the discretion of our
board of directors and will depend upon our financial condition, results of
operation, capital requirements, contractual restrictions, general business
conditions and other factors that our board of directors may deem
relevant.





According
to section 78.288 of the Nevada Revised Statutes, a corporation cannot
distribute to its shareholders if, after the distribution, the corporation would
not be able to pay its debts as they become due in the usual course of business
or, except as otherwise specifically allowed by the articles of incorporation,
the corporation’s total assets would be less than the sum of its total
liabilities plus the amount that would be needed, if the corporation were to be
dissolved at the time of distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.





Shareholders





As of
March 27, 2009, we had approximately 90 record holders of our common
stock.  This does not include an indeterminate number of shareholders
whose shares are held by brokers in street name.





Sales
of Unregistered Securities





Not
applicable.





Equity
Compensation Plan Information





Not
applicable.





ITEM
6. SELECTED FINANCIAL DATA





As a
smaller reporting company we are not required to provide this
information.





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





Overview





We are involved in the oil and gas exploration
business.  Through our subsidiary we have an interest in several oil
and gas leases in the state of Texas.  We assigned our leases to
Chesapeake Exploration Limited Partnership.  Chesapeake is the
operator for the development of our oil and gas properties.





We are in
the early exploration stage.  In an exploration stage company,
management devotes most of its time to conducting exploratory work and
developing its business.  Our continuation as a going concern and our
ability to emerge from the exploration stage with our planned principal business
activity is dependent upon our continued financial support, ability to attain
profitable operations and ability to raise equity financing.




11




Our
Business





We were
incorporated on August 10, 2006 in the state of Nevada as Vallenar Holdings,
Inc. and changed our name to Rock City Energy Corp. on January 26,
2007.  On August 24, 2006, we acquired a 51.53% interest in Vallenar
Energy Corp., a corporation organized in the state of Nevada on January 27,
1999.  Vallenar owns all of Nathan Oil Operating Co. LLC, a limited
liability company organized in the state of Texas on October 31,
2001. Nathan Oil Operating Co. LLC is the general partner of Nathan Oil
Partners LP, a limited partnership formed in the state of Texas on October 31,
2001.  Vallenar is the only limited partner.  We are
involved in the oil and gas exploration business and, through Vallenar’s
subsidiary, Nathan Oil Partners LP, we have an interest in several oil and gas
leases in the state of Texas.  We assigned our leases to Chesapeake
who acts as the operator for the development of our oil and gas
properties.  A description of our agreement with Chesapeake is
included below in the section titled “Unproved Oil and Gas
Properties”.





Analysis
of Consolidated Statements of Operations





Our
operating results for the years ended December 31, 2008 and 2007 and the changes
between those years are summarized in Table 3.




Table
      3: Changes in Operations


Years
      Ended
              December
      31,
            
            
            
            Increase
      (Decrease)

              Between
      the
              Years
      Ended
              December
      31,2008
            
            
            
            2007
            
            
            
            2008
      and 2007ExpensesAdministrative
      fees
            
            $
            97,500
            
            
            $
            7,950
            
            
            $
            89,550Bank
      charges
            
            
            1,678
            
            
            
            711
            
            
            
            967Office
            
            
            207
            
            
            
            57
            
            
            
            150Professional
            
            
            73,301
            
            
            
            236,078
            
            
            
            (162,777)Regulatory
            
            
            4,031
            
            
            
            16,039
            
            
            
            (12,008)Rent
            
            
            5,000
            
            
            
            -
            
            
            
            5,000Telephone
            
            
            3,660
            
            
            
            -
            
            
            
            3,660Travel
            
            
            8,226
            
            
            
            -
            
            
            
            8,226Total
      Expenses
            
            
            193,603
            
            
            
            260,835
            
            
            
            (67,232)Other
      incomeInterest
      income
            
            
            -
            
            
            
            3,448
            
            
            
            (3,448)Net
      loss before minority interest
            
            
            (193,603)
            
            
            
            (257,387)
            
            
            
            (63,784)Minority
      interest
            
            
            7,542
            
            
            
            1,669
            
            
            
            5,873Net
      loss
            
            $
            (186,061)
            
            
            $
            (255,718)
            
            
            $
            (69,657)





Revenues





We did
not have any operating revenues from our inception on August 10, 2006 to the
date of this filing.  To date we have financed our activities with the
proceeds that we received from the sale of our securities and from the repayment
of a note receivable from a former related party.  Due to the nature
of our business we do not expect to have operating revenues within the next
year.





Expenses





We had
expenses of $193,603 for the year ended December 31, 2008 compared to expenses
of $257,387 for the year ended December 31, 2007.  The $63,784
decrease in net loss was due primarily to decreases in professional fees and
regulatory fees, offset by increases in administrative costs, rent, telephone
and travel.





Professional
fees and regulatory fees were higher during the year ended December 31, 2007 due
to filing fees and the legal, accounting and auditing costs associated with
our spin-off from Brek Energy Corp.  Our administrative fees, rent,
telephone and travel expenses were higher during the year ended December 31,
2008 because Brek Energy Corporation, our former parent, paid for these
functions until it spun off our business on November 30, 2007 as part of its
merger with Gasco Acquisition, Inc.




12





Interest
Income





During
the year ended December 31, 2007 we recognized interest income of $3,448 from
funds on deposit at our bank and interest earned on a note receivable from a
former related party.  We had no interest income during the year ended
December 31, 2008.





Liquidity
and Capital Resources





Going
Concern





We have
accumulated a deficit of $449,258 since inception and will require additional
financing to fund and support our operations until we achieve positive cash
flows from operations.  These factors raise substantial doubt about
our ability to continue as a going concern.  Our ability to achieve
and maintain profitability and positive cash flows depends upon our ability to
locate profitable oil and gas properties, generate revenues from oil and gas
production and control our drilling, production and operating
costs.  We have a joint operating agreement with Chesapeake in which
Chesapeake agreed to initiate drilling operations on our properties and pay the
exploration, drilling, completing, equipping and operating costs associated with
developing the properties.  Irrespective of this arrangement, we
expect to incur operating losses in future periods.  While our plan is
to develop our existing oil and gas producing properties and to find and acquire
other oil and gas producing properties, there is no assurance that we will be
able to obtain the financing necessary to implement this plan, locate profitable
oil and gas properties to acquire, generate revenues from oil and gas production
or control our drilling, production or operating costs.  We cannot
assure you that Chesapeake will successfully complete profitable drilling
operations or that it will undertake any extensive development of our oil and
gas properties.  Our consolidated financial statements do not include
any adjustments that might result from the realization of these
uncertainties.





Since May
8, 2006, the date of our agreement with Chesapeake, Chesapeake has conducted
drilling operations on two of our three properties, has built a pipeline and is
selling the gas produced, but to date it has recovered only 10.7% of the costs
associated with the wells.  Until Chesapeake drills at least 10 wells
and recovers from the revenue produced by those wells (net of taxes and
royalties) all of its costs in drilling, completing, equipping and operating the
wells, we will not have any interest in the production from the
wells.  The fluctuation of gas prices will impact the amount of
revenue earned from the leases.  If the resources required to develop
the wells are in high demand, the development costs will increase, which will
likely delay our earning any revenue.  We are dependent on Chesapeake
to both produce the gas and buy the gas produced.  We cannot be
certain that we will ever receive revenue from our agreement with Chesapeake. On
December 24, 2008, Chesapeake informed us that they have no current plans to
conduct operations on the deep Allar lease. As we do not have the resources to
conduct operations ourselves, the lease will expire on April 6,
2009.





At
December 31, 2008, we had a cash balance of $255,112 and negative cash flow from
operations of $216,996.  To date we have funded our operations with
cash that we received from the sale of our common stock and from the repayment
of a note receivable from a related party.




13




Sources
and Uses of Cash





Table 4
summarizes our sources and uses of cash for the years ended December 31, 2008
and 2007.




Table
      4: Sources and Uses of CashDecember
      31,2008
              
              
              2007Net
      cash provided by financing activities
              
              $
              -
              
              
              $
              600,000Net
      cash provided by investment activities
              
              
              -
              
              
              
              -Net
      cash used in operating activities
              
              
              (216,996)
              
              
              
              (228,183)Net
      (decrease) increase in cash
              
              $
              (216,996)
              
              
              $
              371,817





Net
cash used in operating activities





We used
net cash of $216,996 in operating activities during the year ended December 31,
2008, primarily to pay administrative and professional fees.





We used
net cash of $228,183 in operating activities during the year ended December 31,
2007, primarily to pay professional fees.





Net
cash used in investment activities





We had no
investment activities during the years ended December 31, 2008 and
2007.





Net
cash provided by financing activities





We had no
financing activities during the year ended December 31, 2008.





We
received $600,000 cash from the sale of 4,000,000 shares of our common stock at
$0.15 per share during the year ended December 31, 2007.





Unproved
Oil and Gas Properties





Through
Vallenar, we have interests in the deep zone in eight oil and gas leases
covering 9,191 gross acres (8,708 net acres) and in the shallow zone in seven
oil and gas leases covering 1,441 gross acres (958 net acres) in the Rocksprings
Prospect in the Val Verde Basin of Edwards County, Texas.  In this
discussion, when we discuss the deep rights, we mean the rights to develop and
extract hydrocarbons from depths below 1,500 feet and when we discuss the
shallow rights we mean the rights to develop and extract hydrocarbons from the
surface to 1,500 feet.  The eight leases are designated, for purposes
of this discussion, as follows:


The
  “deep Allar lease” refers to one lease conveying the rights to develop and
  extract hydrocarbons from depths below 1,500 feet on approximately 7,750
  acres.
        The
  “Baggett leases” refer to six leases conveying 50% of the rights to develop
  and extract hydrocarbons at any depth from approximately 651
  acres.
        The
  “new Driver lease” refers to one lease conveying the rights to develop and
  extract hydrocarbons at any depth from approximately 790 acres (632 net
  acres).  The original Driver Lease, covering 790 gross and net
  acres, expired in February 2007.  Chesapeake obtained a new lease
  covering the same acreage and has an undivided 80% interest in the mineral
  rights.  Our proportionate interest in the new Driver lease is 25%
  of Chesapeake’s interest (158 acres) in the deep rights, or a net interest of
  20%, and 100% interest (632 acres) in the shallow rights, or a net interest of
  80%.  We have
  the right to a pro rata interest in any additional interest that Chesapeake
  acquires.








14




All of
the leases include provisions that allow their primary terms to be extended for
so long as operations are conducted on the land with no cessation for more than
180 consecutive days in the case of the deep Allar lease and 60 consecutive days
in the case of the new Driver lease.  The Baggett leases no longer
require continuous development because the two wells on the property are
producing.  Operations are defined as drilling, testing, completing,
marketing, recompleting, deepening, plugging back or repairing a well in search
for, or in an endeavor to obtain production of, oil, gas, sulphur or other
minerals, or the production of oil, gas, sulphur or other minerals, whether or
not in paying quantities.




While our
goal is to develop our properties to fully exploit all of their resources, we
have not been able to do this to date because we lack working
capital.  Our plan is to earn revenue by assigning our rights to
develop the properties covered by our leases, rather than by undertaking the
expense and the risk of the exploration and development.  Accordingly,
on May 8, 2006, we entered into a letter agreement with Chesapeake for the
exploration and development of the deep rights associated with the deep Allar
lease, the Baggett leases and the original Driver lease.  In
conjunction with the letter agreement, we executed an assignment of the deep
Allar lease and the
deep rights included in the Baggett leases and the original Driver lease
(collectively, the assigned leases) to Chesapeake on June 9,
2006.  The assignment is subject to all the applicable terms and
provisions of the letter agreement. This plan has generated no revenue to date
and won’t until the wells drilled under the Chesapeake letter agreement have
paid out and we have acquired our 25% working interest in the wellbores. We have no assurance that
we will ever acquire a working interest in the wellbores because they may never
pay out.





As
required by the letter agreement, Chesapeake initiated drilling operations on
the land covered by the assigned leases before the end of their primary terms in
February 2007. Chesapeake successfully completed a well capable of
producing hydrocarbons in commercial quantities in December 2007 and perpetuated
the assignment of the assigned leases.  The assignment contained no
other specific provisions governing expiration or
termination.  Although Chesapeake has successfully completed three
wells—two on the Baggett leases and one on the deep Allar lease—we cannot
guarantee that Chesapeake will successfully develop all of the oil and gas
reserves on the properties covered by the assigned leases.





Chesapeake
is entitled to recover from revenue all of the costs of drilling, completing,
equipping and operating the first 10 wells, otherwise known as
payout.  Thereafter, we are entitled to a 25% working interest in
Chesapeake’s interest in the wells.  We have the right to participate
in any wells that Chesapeake drills after the first 10, with a 25% working
interest if we elect to participate from the outset and pay our proportionate
share of the costs, or a 6.25% working interest after payout if we elect not to
participate and pay our proportionate share.





The
letter agreement permits us to propose a well if Chesapeake fails to begin
drilling a well on acreage covered by the assigned leases at least sixty days
before the expiration of the terms of the assigned leases.  Chesapeake
may participate in any proposed well, so long as it consents within fifteen days
of our proposal. On December 24, 2008, Chesapeake informed us that they have no
current plans to develop the deep Allar lease on which they have drilled three
wells, two of which are dry holes. As we do not have the resources to develop
the lease, it will expire on April 6, 2009.





We
retained the shallow rights to the Bagget and Driver leases and have, under the
terms of the letter agreement, the right to drill wells on the undeveloped
portion of the leased properties. We do not, however, have the funds to develop
these rights.




The terms
of the letter agreement also required that Chesapeake:


- obtain
  a 3-D seismic survey over the area covered by the assigned leases at its own
  expense,
- provide
  interpretive data relating to the acreage covered by the assigned leases, and,
  in the initial well, provide an array of logs, including a magnetic imaging
  log and sidewall cores in the shallow zone of the assigned
leases,
- assign
  to us our proportionate interest in wellbores according to the level of
  participation that we have elected,
- transport
  our gas for $0.50/mcf (mcf means 1,000 cubic feet), which includes processing
  fees and costs, and market our gas for $0.03/mcf, and
- immediately
  begin building or procuring a pipeline to transport the gas to market once it
  has successfully completed a well capable of producing natural gas in
  commercial quantities.

15




Chesapeakeobtained the 3-D seismic survey, provided
interpretive data, has not assigned any wellbore interests to us as none of the
wells has paid out, has built a pipeline and transports the gas produced from
the leases.




Chesapeake
has drilled five wells—two on the acreage covered by the Baggett leases, and
three on the acreage covered by the deep Allar lease. In 2007, Chesapeake paid
shut in royalties to perpetuate the terms of the Baggett leases until they were
connected to the pipeline on December 21, 2007, and conducted continuous
operations to perpetuate the terms of the deep Allar lease.  Two of
the wells on the Allar acreage were completed as dry holes and one was connected
to a pipeline on January 10, 2008. The two wells on the Baggett leases were
connected to a pipeline on December 21, 2007, thus perpetuating the terms of the
Baggett leases.  According to the payout information we received from
Chesapeake, it has recovered from the revenue generated by the three producing
wells approximately 10.7% of the drilling, production and operating costs of all
five wells.  To date, the average cost of drilling and operating the
wells exceeds $4.3 million.  Chesapeake has informed us that, after
careful review by management, they have no current plans to develop the
remaining acreage of the lease.  As we do not have the resources to
continue the drilling program on our own, the lease will expire on April 6,
2009.  With the expiry of the deep Allar lease, our deep interests
will be limited to our proportionate working interest in the three producing
wells and wellbores after payout and any wells and wellbores that Chesapeake
develops on the new Driver lease.




Chesapeake
did not initiate drilling on the property covered by the original Driver lease
that we assigned to it.  Instead, Chesapeake, through a partner,
top-leased the acreage covered by the original Driver lease to February 2010 but
obtained only an undivided 80% interest in the oil, gas and all other mineral
rights.  Our proportionate interest in the new Driver lease is 25% of
Chesapeake’s interest in the deep rights and 100% of Chesapeake’s interest in
the shallow rights.  We are entitled to our proportionate share of any
additional interest that Chesapeake acquires in the new Driver
lease.   We have not seen the agreement under which Chesapeake takes
its interest in the new Driver lease and are relying entirely on the terms of
the letter agreement and Chesapeake’s representations that we have an interest
in the new Driver lease.





Challenges
and Risks





Chesapeake
paid a shut-in royalty to extend the terms of the Baggett leases until the two
wells on the Baggett acreage were connected to the pipeline on December 21,
2007, and has conducted continuous operations on the deep Allar
acreage.  As a result of Chesapeake’s actions, all of the acreage
covered by the assigned leases has been secured beyond the original termination
dates of the leases.  However, as noted under the discussion titled
“Unproved Oil and Gas Properties” above, since Chesapeake intends to let the
Allar lease expire on April 6, 2009 and we do not intend to conduct the
operations necessary to extend the term, our working interest in the Allar
acreage will be limited to a 25% working interest after payout in the one
producing well located on the Allar lease. The primary term of the new Driver
lease expires in 2010. We do not know what plans Chesapeake has for drilling on
the new Driver lease.





We plan
to seek other oil and gas projects as our financial condition permits, and to
find experienced operators to develop the properties in exchange for a working
interest on terms similar to the agreement we have with Chesapeake.





We have
no other operations.  If our oil and gas leases are not successfully
developed, we will earn no revenue.




16





In March
2007, we sold 4,000,000 shares of our common stock to Brek Energy Corporation,
our former parent, at $0.15 per share for gross proceeds of
$600,000.  We estimate that our annual operating costs will be about
$200,000, which does not include the costs of acquiring future oil and gas
leases or properties.  These costs include our administrative, legal
and regulatory costs.  We believe that we can continue our operations
for at least 12 months with our cash on hand.  However, we do not have
enough cash to acquire additional properties and we may not have the funds to
pay our proportionate share of the costs to develop the leases we assigned to
Chesapeake.




We cannot
guarantee that Chesapeake will successfully develop the oil and gas reserves on
our properties or that we will be able to rely on any other source for cash to
cover our cash requirements if we were unable to do so with the cash we have on
hand.





We do not
expect to purchase a plant or any significant equipment or to have any
significant changes in the number of our employees over the next twelve
months.




Other
Trends, Events or Uncertainties that may Impact Results of Operations or
Liquidity Trends,
Events, and Uncertainties




The
economic crisis in the United States and the resulting economic uncertainty and
market instability may make it harder for us to raise capital as and when we
need it and have made it difficult for us to assess the impact of the crisis on
our operations or liquidity and on Chesapeake’s ability or willingness to
continue to conduct operations.  If Chesapeake does not continue
operations on our properties and we are unable to raise cash, we may be required
to cease our operations.  Other than as discussed in this report, we
know of no other trends, events or uncertainties that have or are reasonably
likely to have a material impact on our short-term or long-term
liquidity.





Off-Balance
Sheet Arrangements





We have
no off-balance sheet arrangements and no non-consolidated, special-purpose
entities.





INCOME
TAXES





Income
tax expense has not been recognized for the years ended December 31, 2008 and
2007 and no taxes were payable at December 31, 2008 or 2007 because we have
incurred losses since its inception.





Table 5
sets out our net tax losses at December 31:




Table
      5: Net Tax Losses2008
            
            
            2007Net
      tax losses
            
            $
            193,603
            
            
            $
            257,387





Table 6
sets out our deferred tax assets as of December 31, 2008 and 2007.  We
have established a 100% valuation allowance as we believe it is more likely than
not that the deferred tax assets will not be realized.




Table
      6: Deferred Tax Assets2008
            
            
            2007Net
      loss carryforwards
            
            $
            284,336
            
            
            $
            218,511Less:  valuation
      allowance
            
            
            (284,336)
            
            
            
            (218,511)$
            -
            
            
            $
            -





Our valuation allowance increased during 2008 and
2007 by $65,825 and $87,512 respectively.




17





Table 7
sets out our net operating loss (NOLs) carryforwards at December
31:





Table
      7: Net Operating Loss Carryforwards2008
            
            
            2007Net
      operating loss carryforwards
            
            $
            901,552
            
            
            $
            707,949





The
federal NOLs expire at various dates up to December 31, 2028.





NOLs
incurred before August 24, 2006 are subject to an annual limitation due to the
ownership change (as defined under Section 382 of the Internal Revenue Code of
1986) which resulted in a change in business direction. Unused annual
limitations may be carried over to future years until the net operating losses
expire. Alternative minimum tax rules could limit the use of net operating
losses in any one year.





Contingencies
and Commitments





We had no
contingencies or long-term commitments at December 31, 2008, and have none as of
the date of this filing.





As noted
above, our leases require us to continuously conduct operations on our leased
properties.  Operations are defined as drilling, testing, completing,
marketing, recompleting, deepening, plugging back or repairing of a well in
search for, or in an endeavor to obtain production of, oil, gas, sulphur or
other minerals, or the production of oil, gas, sulphur or other minerals,
whether or not in paying quantities.  If we fail to operate the
properties (or to pay royalties instead, if so permitted), we would lose our
rights to extend the lease terms.





As is
customary in the oil and gas industry, the Company may at times have commitments
to preserve or earn certain acreage positions or wells. If the Company does not
pay such commitments, it may lose the acreage positions or wells.





Contractual
Obligations





We did
not have any contractual obligations at December 31, 2008, and do not have any
as of the date of this filing.





Internal
and External Sources of Liquidity





We have
funded our operations solely through the issuance of shares of our common
stock.  We have no commitments for financing.




Critical
Accounting Policies and Estimates





The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles of the United States (GAAP) requires estimates
and assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities in the consolidated financial statements and accompanying notes. The
SEC has defined a company’s critical accounting policies as the ones that are
most important to the portrayal of the company’s financial condition and results
of operations, and which require the company to make its most difficult and
subjective estimates, often as a result of the need to make estimates of matters
that are inherently uncertain. Based on this definition, we have identified the
critical accounting policies and judgments addressed below. We also have other
key accounting policies, which involve the use of estimates, judgments, and
assumptions that are significant to understanding our
results.  Although we believe that our estimates, assumptions, and
judgments are reasonable, they are based upon information presently
available.  Actual results may differ significantly from these
estimates under different assumptions, judgments, or conditions.




18





Accounting
for Unproved Oil and Gas Properties





We follow
the full cost method of accounting whereby all costs related to the acquisition
and development of oil and gas leases and acquisition and development of oil and
gas properties are capitalized into a single cost center (full cost pool). Such
costs include lease acquisition costs, geological and geophysical expenses,
overhead directly related to exploration and development activities, and the
costs of drilling both productive and non-productive wells. Proceeds from
property sales are generally credited to the full cost pool without gain or loss
recognition unless such a sale would significantly alter the relationship
between capitalized costs and the proved reserves attributable to these costs. A
significant alteration would typically involve a sale of 25% or more of the
proved reserves related to a single full cost pool. We did not incur any costs
associated with production or general corporate activities nor did we capitalize
any internal costs during the years ended December 31, 2008 or
2007.





Depletion
of exploration and development costs is computed using the units-of-production
method based upon estimated proven oil and gas reserves. The costs of unproved
properties are withheld from the depletion base until it is determined whether
proved reserves can be assigned to the properties. The properties are reviewed
quarterly for impairment. During the years ended December 31, 2008 and 2007, we
did not record any impairment charges against the unproven oil and gas
properties.





Total
well costs are transferred to the depletable pool even when all targeted zones
have not been fully evaluated. For depletion and depreciation purposes, relative
volumes of oil and gas production and reserves are converted at the energy
equivalent rate of six thousand cubic feet of natural gas to one barrel of crude
oil.





Under the
full cost method of accounting, capitalized oil and gas property costs less
accumulated depletion and net of deferred income taxes (full cost pool) may not
exceed an amount equal to the present value, discounted at 10%, of estimated
future net revenues from proved gas reserves plus the cost or estimated fair
value, if lower, of unproven properties. In accordance with SFAS 143 and Staff
Accounting Bulletin No. 106 (SAB 106), future cash outflows associated with
settling asset retirement obligations that have been accrued on the balance
sheet have been excluded from the present value of estimated future net cash
flows used in the ceiling test calculation. Should capitalized costs exceed this
ceiling, impairment is recognized. The present value of estimated future net
revenues is computed by applying current prices of oil and gas to estimated
future production of proved oil and gas reserves as of period-end, less
estimated future expenditures to be incurred in developing and producing the
proved reserves assuming the continuation of existing economic
conditions.





Financial
Instruments





Foreign
Exchange Risk





We are
subject to foreign exchange risk for sales and purchases denominated in foreign
currencies. Foreign currency risk arises from the fluctuation of foreign
exchange rates and the degree of volatility of these rates relative to the
United States dollar. We do not believe that we have any material risk to our
foreign currency exchange.





Fair
Value of Financial Instruments





Our
financial instruments include cash, accounts payable, accrued liabilities and
accrued professional fees. The fair value of these financial instruments
approximates their carrying values due to their short maturities.





Concentration
of Credit Risk





Financial
instruments that potentially subject us to significant concentrations of credit
risk consist principally of cash.





At
December 31, 2008 and 2007, we had approximately $250,000 and $467,000,
respectively, in cash that was not insured. This cash is on deposit with a major
chartered Canadian bank. As part of our cash management process, we perform
periodic evaluations of the relative credit standing of this financial
institution. We have not lost any cash and do not believe that our cash is
exposed to any significant credit risk.




19





Recent
Accounting Standards and Pronouncements





In
September 2006, the FASB issued SFAS 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106, and 132(R). This statement requires an
employer to recognize the over funded or under funded status of a defined
benefit postretirement plan as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income of a business entity. This
statement also requires an employer to measure the funded status of a plan as of
the date of its year end statement of financial position, with limited
exceptions.  We are required to initially recognize the funded status
of a defined benefit postretirement plan and to provide the required disclosures
as of the end of the fiscal year ending after December 15,
2006.  The requirement to measure plan assets and benefit obligations
as of the date of the employer’s fiscal year end statement of financial position
is effective for fiscal years ending after December 15, 2008. The adoption
of SFAS 158 did not have a material impact on our consolidated financial
statements.





In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement
No. 115. SFAS 159 permits measurement of certain
financial assets and financial liabilities at fair value.  If the fair
value option is elected, the unrealized gains and losses are reported in
earnings at each reporting date.  Generally, the fair value option may
be elected on an instrument-by-instrument basis, as long as it is applied to the
instrument in its entirety.  The fair value option election is
irrevocable, unless a new election date occurs.  SFAS 159 was
effective for us on January 1, 2008. The adoption of SFAS 159 did not have
a material impact on our consolidated financial statements as we did not elect
the fair value option for any of our financial assets or
liabilities.





In
June 2007, the Emerging Issues Task Force (EITF) of the FASB reached a
consensus on Issue No. 07-3, Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Use in Future Research and
Development Activities(EITF 07-3). EITF 07-3 requires that
non-refundable advance payments for goods or services that will be used or
rendered for future research and development activities should be deferred and
capitalized. As the related goods are delivered or the services are performed,
or when the goods or services are no longer expected to be provided, the
deferred amounts would be recognized as an expense. This issue is effective for
financial statements issued for fiscal years beginning after December 15,
2007 and earlier application is not permitted. This consensus is to be applied
prospectively for new contracts entered into on or after the effective
date.  EITF 07-03 was effective for us on January 1,
2008.  The pronouncement did not have a material effect on our
consolidated financial statements.




In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which
replaces SFAS 141, Business
Combinations. SFAS 141(R) requires an acquirer to recognize the assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions. This statement also requires the acquirer in a business
combination achieved in stages to recognize the identifiable assets and
liabilities, as well as the non-controlling interest in the acquiree, at the
full amounts of their fair values. SFAS 141(R) makes various other amendments to
authoritative literature intended to provide additional guidance or to confirm
the guidance in that literature to that provided in this statement. This
statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  This statement
was effective for us on January 1, 2009.  We expect SFAS 141(R) will
have an impact on our accounting for future business combinations once adopted,
but the effect is dependent upon the acquisitions that are made in the
future.




20





In
December 2007, the EITF of the FASB reached a consensus on Issue
No. 07-1, Accounting for
Collaborative Arrangements. The EITF concluded on the definition of a
collaborative arrangement and that revenues and costs incurred with third
parties in connection with collaborative arrangements would be presented gross
or net based on the criteria in EITF 99-19 and other accounting literature.
Based on the nature of the arrangement, payments to or from collaborators would
be evaluated and its terms, the nature of the entity’s business, and whether
those payments are within the scope of other accounting literature would be
presented. Companies are also required to disclose the nature and purpose of
collaborative arrangements along with the accounting policies and the
classification and amounts of significant financial-statement amounts related to
the arrangements. Activities in the arrangement conducted in a separate legal
entity should be accounted for under other accounting literature; however
required disclosure under EITF 07-1 applies to the entire collaborative
agreement. This Issue is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those
fiscal years, and is to be applied retrospectively to all periods presented for
all collaborative arrangements existing as of the effective date. EITF 07-1 was
effective for us on January 1, 2009.  We do not expect the adoption of
EITF 07-1 to have a significant impact on our consolidated financial
statements.




In
December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, which amends Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, to improve the relevance, comparability, and transparency of
the financial information that a reporting entity provides in its consolidated
financial statements. SFAS 160 establishes accounting and reporting standards
that require the ownership interests in subsidiaries not held by the parent to
be clearly identified, labeled and presented in the consolidated statement of
financial position within equity, but separate from the parent’s equity. This
statement also requires the amount of consolidated net income attributable to
the parent and to the non-controlling interest to be clearly identified and
presented on the face of the consolidated statement of income. Changes in a
parent’s ownership interest while the parent retains its controlling financial
interest must be accounted for consistently, and when a subsidiary is
deconsolidated, any retained non-controlling equity investment in the former
subsidiary must be initially measured at fair value. The gain or loss on the
deconsolidation of the subsidiary is measured using the fair value of any
non-controlling equity investment. The statement also requires entities to
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. This
statement applies prospectively to all entities that prepare consolidated
financial statements and applies prospectively for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008.
This statement will be effective for us on January 1, 2009.  We do not
expect adoption of SFAS 160 to have a significant impact on our consolidated
financial statements.




On
January 1, 2008, we adopted SFAS No. 157, Fair Value
Measurements.  SFAS 157 relates to financial assets and
financial liabilities. In February 2008, the FASB issued FASB Staff Position
(FSP) FAS 157-2, Effective
Date of FASB Statement No. 157, which delayed the effective date of
SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on at
least an annual basis, until January 1, 2009 for calendar year-end
entities. Also in February 2008, the FASB issued FSP FAS 157-1, Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13, which states that SFAS No. 13, Accounting for Leases, and
other accounting pronouncements that address fair value measurements for
classifying or measuring leases under SFAS 13 are excluded from the provisions
of SFAS 157, except for assets and liabilities related to leases assumed in a
business combination that are required to be measured at fair value under SFAS
No. 141, Business
Combinations, or SFAS No. 141 (revised 2007), Business Combinations. SFAS
157 defines fair value, establishes a framework for measuring fair value in
GAAP, and expands disclosures about fair value measurements. The provisions of
this standard apply to other accounting pronouncements that require or permit
fair value measurements and are to be applied prospectively with limited
exceptions.




21





SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. This standard is now the single source in GAAP for the
definition of fair value, except for the fair value of leased property as
defined in SFAS 13. SFAS 157 establishes a fair value hierarchy that
distinguishes between (1) market participant assumptions developed based on
market data obtained from independent sources (observable inputs) and
(2) an entity’s own assumptions about market participant assumptions
developed based on the best information available in the circumstances
(unobservable inputs). The fair value hierarchy consists of three broad levels,
giving the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair value hierarchy
under SFAS 157 are described below:


- Level 1
  - Unadjusted quoted prices in active markets that are accessible at the
  measurement date for identical, unrestricted assets or
liabilities
- Level 2
  - Inputs other than quoted prices included within Level 1 that are observable
  for the asset or liability, either directly or indirectly, including quoted
  prices for similar assets or liabilities in active markets; quoted prices for
  identical or similar assets or liabilities in markets that are not active;
  inputs other than quoted prices that are observable for the asset or liability
  (e.g., interest rates); and inputs that are derived principally from or
  corroborated by observable market data by correlation or other
  means
- Level 3
  - Inputs that are both significant to the fair value measurement and
  unobservable



The
adoption of SFAS 157 as it relates to financial assets and financial liabilities
had no impact on our consolidated financial statements.





In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – An Amendment of FASB Statement No. 133
(SFAS 133). This statement is intended to improve financial
reporting of derivative instruments and hedging activities by requiring enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS 133
and its related interpretations and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and
cash flows. The provisions of SFAS 161 are effective for fiscal years beginning
after November 15, 2008.  This statement was effective for
us on January 1, 2009.   We do not expect this statement to have a
material impact on our consolidated financial statements.





In April
2008, the FASB issued FSP 142-3, Determination of the Useful Life of
Intangible Assets. FSP 142-3 amends the factors to be considered in
developing renewal or extension assumptions used to determine the useful life of
intangible assets under SFAS No. 142, Goodwill and Other Intangible
Assets. Its intent is to improve the consistency between the useful life
of an intangible asset and the period of expected cash flows used to measure its
fair value. This FSP is effective prospectively for intangible assets acquired
or renewed after January 1, 2009. We do not expect FSP 142-3 to have a
material impact on our accounting for future acquisitions of intangible
assets.





In May,
2008, FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP. This statement was effective for us on
November 15, 2008 and did not have a material impact on our consolidated
financial statements.




On May 9,
2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement).FSP APB 14-1 clarifies that convertible debt instruments
that may be settled in cash upon conversion (including partial cash settlement)
are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants.  Additionally, FSP
APB 14-1 specifies that issuers of such instruments should separately account
for the liability and equity components in a manner that will reflect the
entity’s nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. FSP APB14-1 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. FSP APB 14-1 was effective for us on January 1,
2009.  The adoption of FSP APB 14-1 is not expected to have a material
impact on our consolidated results of operations or financial
position.




22





On June
16, 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,
to address the question of whether instruments granted in share-based payment
transactions are participating securities prior to vesting. FSP EITF 03-6-1
indicates that unvested share-based payment awards that contain rights to
dividend payments should be included in earnings per share calculations. The
guidance will be effective for fiscal years beginning after December 15, 2008.
FSP EITF 03-6-1 was effective for us on January 1, 2009.  The adoption
of FSP EITF 03-6-1 is not expected to have a material impact on our consolidated
results of operations or financial position.





In June
2008, the FASB issued EITF Issue 07-5, Determining whether an Instrument
(or Embedded Feature) is indexed to an Entity’s Own
Stock.  EITF No. 07-5 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years.Paragraph 11(a) of SFAS No. 133 Accounting for Derivatives and
Hedging Activities, specifies that a contract that would otherwise meet
the definition of a derivative but is both (1) indexed to the company’s own
stock and (2) classified in stockholders’ equity in the statement of financial
position would not be considered a derivative financial instrument. EITF 07-5
provides a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock and thus
able to qualify for the SFAS No. 133 paragraph 11(a) scope
exception.  EITF 07-5 was effective for us on January 1,
2009.  Adoption of EITF 07-5 is not expected to have a material impact
on our consolidated financial statements.





In June
2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities.
FSP EITF 03-6-1 clarifies that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and are to be included in the computation
of earnings per share under the two-class method described in SFAS No. 128,
Earnings Per
Share.  This FSP was effective for us on January 1, 2009
and requires that all prior-period earnings-per-share data that are presented be
adjusted retrospectively. We do not expect FSP EITF 03-6-1 to have a material
impact on our earnings per share calculations.





In
October 2008, the FASB issued FSP 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active. FSP 157-3
clarifies the application of SFAS 157 in a market that is not active and
provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for that financial asset is not
active. As it relates to our financial assets and liabilities recognized or
disclosed at fair value in our financial statements on a recurring basis (at
least annually), the adoption of FSP 157-3 did not have a material impact on our
consolidated financial statements.





In
December 2008, the FASB issued FASB Staff Position FAS 140-4 and
FIN 46(R)-8, Disclosures
by Public Entities (Enterprises) About Transfers of Financial Assets and
Interest in Variable Interest Entities. FSP 140-4 requires
additional disclosure about transfers of financial assets and an enterprise’s
involvement with variable interest entities. FSP 140-4 was effective for
the first reporting period ending after December 15, 2008. The adoption of
FSP 140-4 did not have a material impact on our consolidated financial
statements.





On
December 31, 2008, the SEC issued a final rule for the modernization of oil
and gas reporting, which adopts revisions to the SEC’s oil and gas reporting
disclosure requirements and is effective for annual reports on Form 10-K
for years ending on or after December 31, 2009. Early adoption of the final
rule is prohibited. The revisions are intended to provide investors with a more
meaningful and comprehensive understanding of oil and gas reserves to help
investors evaluate their investments in oil and gas companies. The amendments
are also designed to modernize the oil and gas disclosure requirements to align
them with current practices and changes in technology. Revised requirements in
the final rule include the following provisions:
  23


- Oil and
  gas reserves must be reported using the average price over the prior
  12 months, rather than year-end prices.
- Companies
  will be permitted to report, on an optional basis, probable and possible
  reserves.
- The
  definition of “oil and gas producing activities” will include non-traditional
  reserves, such as oil and gas extracted from coal and shales.
- Companies
  will be permitted to use new technologies to determine proved reserves, as
  long as those technologies have been demonstrated empirically to lead to
  reliable conclusions with respect to reserve volumes.
- Companies
  will be required to disclose, in narrative form, additional details on their
  proved undeveloped reserves (PUDs), including the total number of PUDs at year
  end, any material changes to PUDs that occurred during the year, investments
  and progress made to convert PUDs to developed oil and gas reserves and an
  explanation of the reasons why material concentrations of PUDs in individual
  fields or countries have remained undeveloped for five years or more after
  disclosure as PUDs.
- Companies
  will be required to report the qualifications and measures taken to assure the
  independence and objectivity of any business entity or employee primarily
  responsible for preparing or auditing the reserves
estimates.

We are
evaluating the potential impact of adopting the final rule. The SEC is
discussing the final rule with the FASB staff to align FASB accounting standards
with the new SEC rules.  These discussions may delay the required
compliance date. Absent any change in the effective date, we will begin
complying with the disclosure requirements in our annual report on
Form 10-K for the year ended December 31, 2009.





In
December 2008, the FASB issued FSP 132 (R)-1, Employers’ Disclosures about
Pensions and Other Postretirement Benefits. FSP 132R-1 requires enhanced
disclosures about the plan assets of a Company’s defined benefit pension and
other postretirement plans. The enhanced disclosures required by this FSP are
intended to provide users of financial statements with a greater understanding
of (1) how investment allocation decisions are made, including the factors
that are pertinent to an understanding of investment policies and strategies,
(2) the major categories of plan assets, (3) the inputs and valuation
techniques used to measure the fair value of plan assets, (4) the effect of
fair value measurements using significant unobservable inputs (Level 3) on
changes in plan assets for the period, and (5) significant concentrations
of risk within plan assets. This FSP is effective for us for the year ending
December 31, 2009 and is not expected to have a material impact on our
consolidated financial statements.





ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





As a
smaller reporting company, we are not required to provide this
information.





ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





The
financial statements and supplementary data required to be included in this Item
7 are set forth at page F-1 of this Annual Report.




24





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





Not
applicable.





ITEM
9A(T). CONTROLS AND PROCEDURES





Report
on controls and procedures





We
carried out an evaluation, under the supervision and with the participation of
our management, including our president and our chief financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report.  The
evaluation was undertaken in consultation with our accounting
personnel.  Based on that evaluation, the president and the chief
financial officer concluded that, as of the evaluation date, our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s
rules and forms.





Report
on internal control over financial reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles.  Internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of our assets, (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance with
authorizations of our management and directors, and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial
statements.  Because of its inherent limitations, internal control
over financial reporting is not intended to provide absolute assurance that a
misstatement of our financial statements would be prevented or detected. 
In addition, projections of any evaluation of effectiveness to future periods
are subject to the risk that, owing to changes in conditions, controls may
become inadequate, or that the degree of compliance with policies or procedures
may deteriorate.





Management assessed our
internal control over financial reporting as of the end of our fiscal
year.Management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission.  Management's
assessment included the evaluation of such elements as the design and operating
effectiveness of key financial reporting controls, process documentation,
accounting policies, and our overall control environment.





Based on
our assessment, management has concluded that our internal control over
financial reporting was effective as of the end of the fiscal year to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes in
accordance with generally accepted accounting principles.





This
Form 10-K does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary
rules of the SEC that permit us to provide only management’s report in this
Form 10-K.




25





Changes
to Internal Control Over Financial Reporting





We have
made no changes in our internal control over financial reporting during the
fourth quarter of the 2008 fiscal year that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





ITEM
9B. OTHER INFORMATION





Not
applicable.





PART
III





ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





Below is
information about our directors, executive officers and significant
employees.  There are no family relationships among our executive
officers and directors.





The
number of directors required by our bylaws may not be less than one or more than
eight.  We have set the number of directors at six.





Table 8
sets forth certain information regarding our directors and executive
officers.




Table
      8: Directors and OfficersName
            Age
            PositionRichard
      N. Jeffs
            63
            Director,
      president, chief financial officerGregory
      M. Pek
            54
            DirectorIan
      G. Robinson
            69
            DirectorMichael
      L. Nazmack
            59
            DirectorEugene
      Sweeney
            41
            DirectorShawne
      P. Malone
            40
            Director,
      secretaryJoao
      da Costa
            44
            Treasurer





Except as
discussed below, during the past five years, none of our officers or directors
has:


been
  convicted in a criminal proceeding and is not subject to a pending criminal
  proceeding,
        been
  subject to any order, judgment, or decree, not subsequently reversed,
  suspended or vacated, of any court of competent jurisdiction, permanently or
  temporarily enjoining, barring, suspending or otherwise limiting his
  involvement in any type of business, securities, futures, commodities or
  banking activities,
        been
  found by a court of competent jurisdiction (in a civil action), the Securities
  and Exchange Commission or the Commodity Futures Trading Commission to have
  violated a federal or state securities or commodities law, and the judgment
  has not been reversed, suspended, or vacated, or
        had any
  bankruptcy petition filed by or against any business of which he was a general
  partner or executive officer, either at the time of the bankruptcy or within
  two years prior to that time.


On April
24, 2007 the British Columbia Securities Commission issued an order prohibiting Mr. Jeffs from
engaging in investor relations activities for a period of five years from the
date of the order.  Information relating to the circumstances
surrounding the order is discussed at page 8 of this
report.




26





Biographical
Information





Richard N.
Jeffs.Mr. Jeffs has been our president, chief financial
officer and a director since August 2006.  Mr. Jeffs was the president
and chief executive officer of Brek Energy Corporation from February 2004 and a
director and the chief financial officer from January 2005, until Brek Energy
Corporation merged with Gasco Acquisition, Inc. on December 14,
2007.  In the past five years, Mr. Jeffs has been a self-employed
businessman (since 1990) and a director of a private venture capital company
(since 1999).





Gregory M. Pek.  Mr.
Pek has been a director since August 2006. Mr. Pek was a co-founder of Brek
Energy Corporation and held various positions with Brek Energy Corporation,
including president, chief executive officer, chief financial officer and a
director, from March 1999 to December 14, 2007.  Since December 2002,
Mr. Pek has been a director and officer of Global Financial Network Limited, a
private Hong Kong company.  From 1994 to 1999, Mr. Pek was an
executive officer of both David Resources Company Limited, a petroleum and wine
trading company, and Kong Tai International Holdings Company Limited, a real
property investment company.  From September 1998 to February 1999,
Mr. Pek was a director of Singapore Hong Kong Properties Investment Limited,
another real property investment company. Mr. Pek obtained a Bachelor of
Commerce degree from the University of British Columbia in 1978 and his
chartered accountant designation in 1981 after articling with Clarkson
Gordon.





Ian G.
Robinson.  Mr. Robinson has been a director since August
2006.  From April 2001 to December 14, 2007 Mr. Robinson was also a
director of Brek Energy Corporation.  Since 1995, Mr. Robinson has
been the owner and managing director of Robinson Management Limited, a business
consulting firm in Hong Kong.  Mr. Robinson received his CA
designation from the Institute of Chartered Accountants of Australia in 1962. He
joined Arthur Young (later Ernst & Young) in 1965, became a partner in 1975,
and was seconded to the firm’s Hong Kong office in 1980 where he was a senior
partner and the partner in charge of insolvency and corporate rescue. He retired
when he reached the firm’s retirement age in 1994.





Michael L.
Nazmack.  Mr. Nazmack has been a director since August
2006.  From March 2003 until December 14, 2007, Mr. Nazmack was a
director of Brek Energy Corporation.  Mr. Nazmack, a graduate of Penn
State University with degrees in mechanical and civil and structural
engineering, was granted his Professional Engineer’s Certificate from the states
of California and Alaska in 1979.  From 1977 until 1984 he worked for
Santa Fe International Corporation on a number of oil and gas related projects
and was the project engineer for the North Slope of Alaska’s oil field
development, responsible for the planning, engineering and construction of over
one billion dollars worth of oil and gas pipelines.  From 1986 to
2003, Mr. Nazmack was the president of Longstown Development Corporation, a
developer of 300 retirement condominium units.  From 1993 to 2002, Mr.
Nazmack was also the vice-president of York Condominium Constructors, Inc.,
which built another 300 retirement condominium units.  For both these
projects, Mr. Nazmack designed the units and the site layout, did the
construction surveying and personally handled the permitting, sales, and the
business, legal, and engineering matters on a daily basis.  Mr.
Nazmack was the chairman of the board of York Industries, Inc. from February
1997 until he retired in May 2005.Since November 2008, Mr.
Nazmack has been the oil and gas manager for Alaska Interstate Construction LLC
in Anchorage, Alaska.





Eugene Sweeney. Mr. Sweeney
has been a director since August 2006.  He was a director of Brek
Energy Corporation from October 2004 to December 14, 2007.  Mr.
Sweeney has been an investment strategist for Griffin Asset Management LLC since
September 2004.  Mr. Sweeney was an equity and options trader from
September 1999 to September 2004.





Shawne P.
Malone.  Mr. Malone has been a director since August
2006.  He was a director of Brek Energy Corporation from October 2004
to December 14, 2007  From March 1999 through June 2004, Mr. Malone
was an options specialist for TD Options LLC in New York, a subsidiary of TD
Bank, a large multinational bank with headquarters in Toronto,
Canada.  Mr. Malone has experience trading options on a variety of
assets from equities to commodities to convertible bonds.  Mr. Malone
is a co-founder of, and since July 2004, has been the co-CEO of, Griffin
Asset Management LLC, a money management firm headquartered in Chicago. 
Mr. Malone graduated from Pennsylvania State University in 1997 with a BS in
finance and international business.




Joao
da Costa.  Mr. da Costa has been our treasurer since August
2006.  From 2003 to the present, Mr. DaCosta has been the owner and
operator of Da Costa Management Corp. providing administrative and accounting
services to a variety of companies operating in North America, South America and
Europe.


27





Election
of Directors





At a
meeting of shareholders at which a quorum is present, directors are elected by a
plurality of the votes cast by the shares entitled to vote in an
election.





Committees
of the Board of Directors





Our board
of directors does not have an audit committee, a compensation committee or a
nominating committee.  Of our six directors, four are “independent”,
as that term is defined in Section 303A of the NYSE Alternext US Listed Company
Manual, therefore, in order for any action to be approved by our board, at least
two of our four independent members must vote for it.  Our board of
directors has not determined that any of its members would meet the definition
of an audit committee financial expert.





Compensation
of Directors





We do not
have a plan pursuant to which members of our board of directors are compensated
and members of the board of directors do not receive cash compensation for their
services as board members.  Our directors may receive reimbursement
for reasonable out-of-pocket expenses in attending meetings of the board of
directors.  From time to time we may engage certain members of the
board of directors to perform services on our behalf.  In such cases,
we would compensate the members for their services at rates no more favorable
than could be obtained from unaffiliated parties.





Recommendations
by Security Holders of Nominees to the Board of Directors





We have
no procedure by which shareholders may recommend nominees to our board of
directors, and there has been no change in this policy.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) is not applicable.  We do not have a class of equity security
that is registered pursuant to section 12 of the Securities Exchange Act of
1934.





Code
of Ethics





We have
adopted a code of ethics that applies to all of our employees, including our
principal executive officer and principal financial officer.  We will
provide to any person, upon request and without charge, a copy of our code of
ethics.  Requests should be in writing and addressed to Richard N.
Jeffs, c/o Rock City Energy Corp., 3416 Via Lido, Suite F, Newport Beach,
California 92663, or by email to rick@rockcityenergy.com.




ITEM
11. EXECUTIVE COMPENSATION





Officer
and Director Compensation





Executive
Compensation





Since our
inception on August 10, 2006, we have not paid any compensation to our executive
officers.We have
no employment agreements with any of our executive officers, nor have we issued
any options or other equity-based awards to our executive officers.





Option
Grants and Exercises


As
disclosed above, we have granted no options to our officers or directors since
our inception on August 10, 2006.


28





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





Table 9
shows the beneficial ownership, on March 27, 2009, of shares of our common stock
held by all five-percent shareholders, executive officers and
directors.





Beneficial
ownership is determined under the rules of the Securities and Exchange
Commission and generally includes voting or investment power over
securities.  Except in cases where community property laws apply or as
indicated in the footnotes to this table, we believe that each shareholder
identified in the table possesses sole voting and investment power over all
shares of common stock shown as beneficially owned by the
shareholder.





Shares of
common stock subject to options or warrants that are currently exercisable or
exercisable within 60 days of March 27, 2009 are considered outstanding and
beneficially owned by the person holding the options for the purpose of
computing the percentage ownership of that person but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person. The company has issued no options or warrants.




Table
      9: Beneficial OwnershipName
      and Address* of Beneficial Owner
            Number
              of
      Shares
            Percentage
              of
      Class**Richard
      N. Jeffs(1)
            1,085,399
            13.57Ian
      G. Robinson(2)
            101,522
            1.27Gregory
      M. Pek
            170,659
            2.13Michael
      L. Nazmack(3)
            101,654
            1.27Shawne
      P. Malone(4)
            353,312
            4.42Eugene
      Sweeney(5)
            446,931
            5.59


Joao
      da Costa
              1100
      Melville Street, Suite 610
              Vancouver BC V6E
      4A6
            6,002
            0.07Directors
      and executive officers as a group
            2,265,479
            28.32Edmund
      Sweeney(6)
              200
      West Adams Street, Suite 1015
              Chicago IL 60606
            834,242
            10.43Directors,
      executive officers and 5% holders as a group
            3,099,721
            38.75


*Unless
otherwise noted, the address for each of our directors and officers is 3416 Via
Lido, Suite F, Newport Beach, California 92663.


**
Percentages are based on 8,000,000 shares of common stock issued and outstanding
as of March 27, 2009.


(1)
              Mr. Jeffs’ holdings include 124,640 shares
      held by Wet Coast Management Corp., wholly owned by Mr.
      Jeffs.
 (2)
              Mr.
      Robinson’s holdings include 1,465 shares held by Robinson Management Ltd.
      and 17,199 shares held by Patarin Ltd., both wholly owned by Mr.
      Robinson.
 (3)
              Mr.
      Nazmack’s holdings include 902 shares held as custodian for his
      children.
 (4)
              Mr.
      Malone’s holdings include 280,518 shares held by First Griffin Group LLC,
      in which Mr. Malone has a 2.49% interest; and 35,142 shares held by
      Griffin Asset Management LLC, in which Mr. Malone has a 33.33%
      interest.
 (5)
              Mr.
      Sweeney’s holdings include 280,518 shares held by First Griffin Group LLC,
      in which Mr. Sweeney has an 8.5% interest; 35,142 shares held by Griffin
      Asset Management LLC, in which Mr. Sweeney has a 66.67% interest; and
      62,752 shares held by Griffin Management Services LLC, in which Mr.
      Sweeney has a 100% interest.
 (6)
              Mr.
      Sweeney is the brother of Eugene Sweeney and is included here because he
      controls more than 5% of the company’s stock. His holdings include 280,518
      shares held by First Griffin Group LLC, in which Mr. Sweeney has a 30.32%
      interest; and 276,109 shares held by Griffin Equity Investments LLC,
      in
      which Mr. Sweeney has a 100%
  interest.
 ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSAND
DIRECTOR INDEPENDENCE
  With the
exception of Richard N. Jeffs and Shawne Malone, the members of our board of
directors are independent, as that term is defined in Section 303A of the NYSE
Alternext US Listed Company Manual.
  No
transactions have occurred since January 1, 2007, and none are proposed, in
which the company was or is to be a participant and the amount involved exceeds
the lesser of $120,000 or 1% of the average of our total assets at December 31,
2008 or December 31, 2007 and in which any related person, including officers or
directors and persons related to them, had or will have a direct or indirect
material interest.
 29


ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





Table 10
sets forth fees that Mendoza Berger & Company LLP has charged us during the
fiscal years ended December 31, 2008 and December 31, 2007 for (i) services
rendered for the audit of our annual financial statements and the review of our
quarterly financial statements, (ii) services that were reasonably related to
the performance of the audit or review of our financial statements and that are
not reported as audit fees, (iii) services rendered in connection with tax
compliance, tax advice and tax planning, and (iv) all other fees for services
rendered.




Table
      10: Auditors’ FeesDecember
      31Fees
                
                2008
                
                
                2007Audit
      fees
                
                $
                47,590
                
                
                $
                22,313Audit-related
      fees
                
                
                3,000
                
                
                
                -Tax-related
      fees
                
                
                1,361
                
                
                
                3,880All
      other fees
                
                
                -
                
                
                
                -Total
      fees
                
                $
                51,951
                
                
                $
                26,192




ITEM
15. EXHIBITS





Exhibit
      No.
            Title3.1
            Articles
      of Incorporation(1)3.2
            Bylaws(1)10.1
            Paid
      Up Oil and Gas Lease dated February 1, 2002 between The Allar Company, et
      al. and Nathan Oil Partners LP(1)10.2
            Paid
      Up Oil and Gas Lease dated February 1, 2002 between The Allar Company, et
      al. and Nathan Oil Partners LP(1)10.3
            Oil,
      Gas and Mineral Lease dated February 8, 2002 between Candace Baggett and
      Nathan Oil Partners LP(1)10.4
            Oil,
      Gas and Mineral Lease dated February 8, 2002 between Pam Rhoades Davis and
      Nathan Oil Partners LP(1)10.5
            Oil,
      Gas and Mineral Lease dated February 4, 2002 between Anita V. Driver,
      individual and administratrix, and Nathan Oil Partners
    LP(1)10.6
            Oil,
      Gas and Mineral Lease dated February 8, 2002 between Richard Nichols and
      Nathan Oil Partners LP(1)10.7
            Oil,
      Gas and Mineral Lease dated February 6, 2002 between Margie L. Rhoades,
      attorney in fact, and Nathan Oil Partners LP(1)10.8
            Oil,
      Gas and Mineral Lease dated February 6, 2002 between Dale Robert Rhoades,
      Jr. and Nathan Oil Partners LP(1)10.9
            Oil,
      Gas and Mineral Lease dated February 8, 2002 between Eddie Thomas and
      Nathan Oil Partners LP(1)10.10
            Assignment
      of Overriding Royalty Interests in favor of Richard N. Jeffs dated April
      21, 2006 (management contract)(1)10.11
            Assignment
      of Overriding Royalty Interests in favor of Marc Alan Bruner dated April
      21, 2006(1)10.12
            Assignment
      of Overriding Royalty Interests in favor of Florida Energy I, Inc. dated
      October 4, 2002(1)10.13
            Letter
      agreement dated April 3, 2006 between Chesapeake Exploration Limited
      Partnership and Nathan Oil Partners LP (including Model Form Operating
      Agreement)(1)10.14
            Assignment
      of Oil and Gas Leases in favor of Chesapeake Exploration Limited
      Partnership and dated June 9, 2006(1)10.15
            Promissory
      Note dated June 28, 2002 from Brek Energy Corporation in favor of Vallenar
      Energy Corp.(1)10.16
            Subscription
      Agreement dated March 7, 2007 between Brek Energy Corporation and Rock
      City Energy Corporation(1)10.17
            Corrected
      Assignment of Overriding Royalty Interests in favor of Richard N. Jeffs
      dated November 1, 2007 (management contract)(2)10.18
            Corrected
      Assignment of Overriding Royalty Interests in favor of Marc Alan Bruner
      dated November 1, 2007(2)21
            List
      of significant subsidiaries of Rock City Energy
Corp.(3)31.1
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
    2002(3)31.2
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
    2002(3)32
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002(3)(1)
      Incorporated by reference to our registration statement on Form SB-2 filed
      with the Securities and Exchange Commission on December 13, 2006 as file
      number 333-139312.
              (2)
      Incorporated by reference to our Annual Report on Form 10-K filed with the
      Securities and Exchange Commission on March 31, 2008 as file number
      333-139312.
              (3)
      Filed herewith.





30




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




ROCK
      CITY ENERGY CORP.Date:  March
      30, 2009
              By:
              /s/ Richard
      N. JeffsRichard
      N. Jeffs,
                President and Chief Financial Officer




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated on this 31st day of March 2009.




SIGNATURE
              
              TITLE
              
              DATE/s/
      Richard N. Jeffs
              
              President,
      Chief Financial Officer andDirector
              
              March
      30, 2009Richard
      N. Jeffs/s/
      Shawne P. Malone
              
              Secretary
      and Director
              
              March
      30, 2009Shawne
      P. Malone/s/
      Ian G. Robinson
              
              Director
              
              March
      30, 2009Ian
      G. Robinson


/s/
      Gregory M. Pek
                
                Director
                
                March
      30, 2009Gregory
      M Pek/s/
      Michael L. Nazmack
                
                Director
                
                March
      30, 2009Michael
      L. Nazmack
 31




ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 CONSOLIDATED
FINANCIAL STATEMENTS
 
 AS
OF DECEMBER 31, 2008 AND 2007,
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 AND
FOR THE PERIOD FROM AUGUST 10, 2006 (INCEPTION)
 THROUGH
DECEMBER 31, 2008
  PageREPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              F-1CONSOLIDATED
      BALANCE SHEETS
              F-2CONSOLIDATED
      STATEMENTS OF OPERATIONS
              F-3CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY
              F-4CONSOLIDATED
      STATEMENTS OF CASH FLOWS
              F-5NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
              F-6
  32




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors and Stockholders
 Rock City
Energy Corp.
 
 We have
audited the accompanying consolidated balance sheets of Rock City Energy Corp.
(an exploration stage company), as of December 31, 2008 and 2007 and the related
consolidated statements of operations, stockholders’ equity and cash flows for
the years then ended and for the period from inception (August 10, 2006) through
December 31, 2008.  These consolidated financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits 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 audits 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 includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements.  An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Rock City
Energy Corp. (an exploration stage company) as of December 31, 2008 and 2007,
and the results of its consolidated operations and its cash flows for the years
then ended and for the period from inception (August 10, 2006) through December
31, 2008 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 more fully described
in Note 3, the Company has incurred recurring operating losses and has an
accumulated deficit.  These conditions raise substantial doubt about
the Company’s ability to continue as a going concern.  Management’s
plans in regard to these matters are also described in Note 3.  The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
  /s/
      Mendoza Berger &
      Company, LLPMendoza Berger & Company,
      LLP
                Irvine,
      California
                  March
      25, 2009
  F-1


ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company) CONSOLIDATED
BALANCE SHEETS DECEMBER
31, 2008 AND 2007


2008
                
                
                2007ASSETSCurrent
      assetsCash
                
                $
                255,112
                
                
                $
                472,108Total
      current assets
                
                
                255,112
                
                
                
                472,108Unproved
      oil and gas properties
                
                
                100
                
                
                
                100Total
      assets
                
                $
                255,212
                
                
                $
                472,208LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
                
                $
                6,196
                
                
                $
                17,663Accrued
      liabilities
                
                
                1,299
                
                
                
                1,903Accrued
      professional fees
                
                
                24,602
                
                
                
                28,117Due
      to related parties
                
                
                200
                
                
                
                8,007Total
      current liabilities
                
                
                32,297
                
                
                
                55,690Commitments
      and contingencies
                
                
                -
                
                
                
                -Minority
      interest
                
                
                30,743
                
                
                
                38,285Stockholders'
      equityPreferred
      stock, 25,000,000 shares authorized; $0.001 par value,0
      shares issued and outstanding
                
                
                -
                
                
                
                -Common
      stock, 200,000,000 shares authorized; $0.001 par value,8,000,000
      shares issued and outstanding at December 31, 2008 and
2007
                
                
                8,000
                
                
                
                8,000Additional
      paid-in capital
                
                
                633,430
                
                
                
                633,430Deficit
      accumulated in the exploration stage
                
                
                (449,258
                )
                
                
                (263,197
                )Total
      stockholders' equity
                
                
                192,172
                
                
                
                378,233Total
      liabilities and stockholders' equity
                
                $
                255,212
                
                
                $
                472,208
   The
accompanying notes are an integral part of these consolidated financial
statements
  F-2




ROCK
CITY ENERGY CORP. (An
Exploration Stage Company) CONSOLIDATED
STATEMENTS OF OPERATIONS




August
      10, 2006Years
      Ended
                      
                      
                      (Inception)
      toDecember
      31,
                      
                      
                      December
      31,2008
                      
                      
                      2007
                      
                      
                      2008ExpensesAdministrative
      fees
                      
                      $
                      97,500
                      
                      
                      $
                      7,950
                      
                      
                      $
                      105,450Bank
      charges
                      
                      
                      1,678
                      
                      
                      
                      711
                      
                      
                      
                      2,810Office
                      
                      
                      207
                      
                      
                      
                      57
                      
                      
                      
                      264Professional
                      
                      
                      73,301
                      
                      
                      
                      236,078
                      
                      
                      
                      316,481Regulatory
                      
                      
                      4,031
                      
                      
                      
                      16,039
                      
                      
                      
                      20,195Rent
                      
                      
                      5,000
                      
                      
                      
                      -
                      
                      
                      
                      5,000Telephone
                      
                      
                      3,660
                      
                      
                      
                      -
                      
                      
                      
                      3,660Travel
                      
                      
                      8,226
                      
                      
                      
                      -
                      
                      
                      
                      8,226Total
      expenses
                      
                      
                      193,603
                      
                      
                      
                      260,835
                      
                      
                      
                      462,086Other
      incomeInterest
                      
                      
                      -
                      
                      
                      
                      3,448
                      
                      
                      
                      5,716Net
      loss before income tax and minority interest
                      
                      
                      (193,603
                      )
                      
                      
                      (257,387
                      )
                      
                      
                      (456,370
                      )Income
      tax
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,021
                      )Net
      loss before minority interest
                      
                      
                      (193,603
                      )
                      
                      
                      (257,387
                      )
                      
                      
                      (457,391
                      )Minority
      interest
                      
                      
                      7,542
                      
                      
                      
                      1,669
                      
                      
                      
                      8,133Net
      loss for the period
                      
                      $
                      (186,061
                      )
                      
                      $
                      (255,718
                      )
                      
                      $
                      (449,258
                      )Loss
      per share:Basic
      and diluted
                      
                      $
                      (0.02
                      )
                      
                      $
                      (0.04
                      )Weighted
      average shares outstanding:Basic
      and diluted
                      
                      
                      8,000,000
                      
                      
                      
                      6,279,452






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




F-3




ROCK
CITY ENERGY CORP. (An
Exploration Stage Company) CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY FOR
THE PERIOD FROM AUGUST 10, 2006 (INCEPTION) THROUGH DECEMBER 31, 2006 AND FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


DeficitAccumulatedCommonStock
      Issued
                  
                  
                  Additional
                  
                  
                  in
      theNumber
      of
                  
                  
                  
                  
                  
                  Paid-In
                  
                  
                  ExplorationShares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Stage
                  
                  
                  TotalAugust
      10, 2006 (Inception)
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Issuance
      of common stock
                  
                  
                  4,000,000
                  
                  
                  
                  4,000
                  
                  
                  
                  37,430
                  
                  
                  
                  -
                  
                  
                  
                  41,430Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (7,479
                  )
                  
                  
                  (7,479
                  )Balance,
      December 31, 2006
                  
                  
                  4,000,000
                  
                  
                  
                  4,000
                  
                  
                  
                  37,430
                  
                  
                  
                  (7,479
                  )
                  
                  
                  33,951Issuance
      of common stock
                  
                  
                  4,000,000
                  
                  
                  
                  4,000
                  
                  
                  
                  596,000
                  
                  
                  
                  -
                  
                  
                  
                  600,000Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (255,718
                  )
                  
                  
                  (255,718
                  )Balance,
      December 31, 2007
                  
                  
                  8,000,000
                  
                  
                  
                  8,000
                  
                  
                  
                  633,430
                  
                  
                  
                  (263,197
                  )
                  
                  
                  378,233Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (186,061
                  )
                  
                  
                  (186,061
                  )Balance,
      December 31, 2008
                  
                  
                  8,000,000
                  
                  
                  $
                  8,000
                  
                  
                  $
                  633,430
                  
                  
                  $
                  (449,258
                  )
                  
                  $
                  192,172






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




F-4




ROCK
CITY ENERGY CORP. (An
Exploration Stage Company) CONSOLIDATED
STATEMENTS OF CASH FLOWS


August
      10, 2006Year
      Ended
                      
                      
                      (Inception)
      toDecember
      31,
                      
                      
                      December
      31,2008
                      
                      
                      2007
                      
                      
                      2008Cash
      flows from operating activities:Net
      loss
                      
                      $
                      (186,061
                      )
                      
                      $
                      (255,718
                      )
                      
                      $
                      (449,258
                      )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Cash
      acquired on acquisition of subsidiary
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      294Minority
      interest
                      
                      
                      (7,542
                      )
                      
                      
                      (1,669
                      )
                      
                      
                      (8,133
                      )Changes
      in operating assets and liabilities:Accounts
      payable
                      
                      
                      (11,467
                      )
                      
                      
                      13,588
                      
                      
                      
                      (65,226
                      )Accrued
      liabilities
                      
                      
                      (604
                      )
                      
                      
                      1,903
                      
                      
                      
                      1,299Accrued
      professional fees
                      
                      
                      (3,515
                      )
                      
                      
                      19,617
                      
                      
                      
                      24,602Due
      to related parties
                      
                      
                      (7,807
                      )
                      
                      
                      (5,904
                      )
                      
                      
                      (9,014
                      )Net
      cash used in operating activities
                      
                      
                      (216,996
                      )
                      
                      
                      (228,183
                      )
                      
                      
                      (505,436
                      )Cash
      flows from investment activities:Proceeds
      of note receivable from related party
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      160,548Net
      cash provided by investment activities
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      160,548Cash
      flows from financing activities:Cash
      received on issuance of common stock
                      
                      
                      -
                      
                      
                      
                      600,000
                      
                      
                      
                      600,000Net
      cash provided by financing activities
                      
                      
                      -
                      
                      
                      
                      600,000
                      
                      
                      
                      600,000Net
      (decrease) increase in cash
                      
                      
                      (216,996
                      )
                      
                      
                      371,817
                      
                      
                      
                      255,112Cash,
      beginning of period
                      
                      
                      472,108
                      
                      
                      
                      100,291
                      
                      
                      
                      -Cash,
      end of period
                      
                      $
                      255,112
                      
                      
                      $
                      472,108
                      
                      
                      $
                      255,112Supplemental
      cash flow information:Cash
      paid during the period for:Income
      taxes
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      1,021Interest
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Non-cash
      items:Common
      shares issued on acquisition of subsidiary
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      41,430Net
      assets acquired on acquisition of subsidiaries (net of
    cash)
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (80,012
                      )Minority
      interest
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      38,876






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




F-5




ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 1.
              ORGANIZATION
      AND BASIS OF PRESENTATION
 
 Organization
 
 Rock City
Energy Corp. was incorporated in the state of Nevada on August 10, 2006 as
Vallenar Holdings, Inc. On August 24, 2006, Rock City acquired a 51.53% interest
in Vallenar Energy Corp., a company incorporated in the state of Nevada on
January 27, 1999. Vallenar owns all of Nathan Oil Operating Co. LLC, a company
organized in the state of Texas on October 31, 2001. Vallenar has a 99% interest
in Nathan Oil Partners LP, a limited partnership formed in the state of Texas on
October 31, 2001. Nathan Oil Operating Co. LLC has a 1% interest in Nathan Oil
Partners LP.
 
 Rock City
is involved in the oil and gas exploration business. Through Vallenar’s
subsidiary, Nathan Oil Partners LP, Rock City has an interest in several oil and
gas leases in the state of Texas. In these notes, the terms “Company”, “we”,
“us” or “our” mean Rock City Energy Corp. and its subsidiary whose operations
are included in these consolidated financial statements.
 
 Exploration
Stage
 
 These
consolidated financial statements and related notes are presented in accordance
with accounting principles generally accepted in the United States of America,
and are expressed in United States dollars. The Company has not produced any
revenues from its principal business and is an exploration stage company as
defined by SEC Industry Guide 7, and follows Statement of Financial Accounting
Standard (SFAS) No. 7.
 
 The
Company is in the early exploration stage. In an exploration stage company,
management devotes most of its time to conducting exploratory work and
developing its business. These consolidated financial statements have been
prepared on a going concern basis, which implies the Company will continue to
realize its assets and discharge its liabilities in the normal course of
business. The Company has never paid any dividends and is unlikely to pay
dividends or generate earnings in the immediate or foreseeable future. The
Company’s continuation as a going concern and its ability to emerge from the
exploration stage with any planned principal business activity is dependent upon
the continued financial support of its shareholders and its ability to obtain
the necessary equity financing and attain profitable
operations.
  2.
              SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
 
 Reclassifications
 
 Certain
prior period amounts in the accompanying consolidated financial statements have
been reclassified to conform to the current period’s presentation. These
reclassifications had no effect on the consolidated results of operations or
financial position for any period presented.
 
 Principles
of Consolidation
 
 The
consolidated financial statements include the financial statements of Rock City
and Vallenar, its majority owned subsidiary, and Vallenar’s subsidiaries, Nathan
Oil Partners LP and Nathan Oil Operating Co. LLC. All significant intercompany
balances and transactions have been eliminated.
 
 Cash
and Cash Equivalents
 
 For
purposes of the balance sheet and statement of cash flows, the Company considers
all amounts on deposit with financial institutions and highly liquid investments
with maturities of 90 days or less to be cash equivalents. At December 31, 2008,
the Company did not have any cash equivalents.
  F-6
  ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Financial
Instruments
 
 Foreign
Exchange Risk
 
 The
Company is subject to foreign exchange risk for sales and purchases denominated
in foreign currencies. Foreign currency risk arises from the fluctuation of
foreign exchange rates and the degree of volatility of these rates relative to
the United States dollar. The Company does not believe that it has any material
risk to its foreign currency exchange.
 
 Fair
Value of Financial Instruments
 
 The
Company’s financial instruments include cash, accounts payable, accrued
liabilities and accrued professional fees. The fair value of these financial
instruments approximates their carrying values due to their short
maturities.
 
 Concentration
of Credit Risk
 
 Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash.
 
 At
December 31, 2008 and 2007, the Company had approximately $250,000 and $467,000,
respectively in cash that was not insured. This cash is on deposit with a major
chartered Canadian bank. As part of its cash management process, the Company
performs periodic evaluations of the relative credit standing of this financial
institution. The Company has not lost any cash and does not believe its cash is
exposed to any significant credit risk.
 
 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 and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
 
 The
Company’s consolidated financial statements are based on a number of significant
estimates, including an estimate for accrued liabilities and accrued
professional fees.
 
 Long-lived Assets
 
 At
December 31, 2008 and 2007, the Company’s only long-lived asset was its unproved
oil and gas properties. Unproved properties whose costs are individually
significant are assessed individually. Where it is not practicable to assess
individually, such properties may be grouped for an assessment of impairment.
Impairment of unproved properties is estimated based on primary lease terms,
geologic data and average holding periods. The Company’s unproved properties are
evaluated quarterly for the possibility of potential impairment. The Company has
no other long-lived assets and has not recognized any impairment losses with
respect to its unproved properties. See related disclosures under the caption
“Unproved Oil and Gas Properties.”
  F-7


ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Revenue
Recognition
 
 Oil and
gas revenue will be recognized as income when oil or gas is produced and
sold.
 
 Income
Taxes
 
 Income
tax expense is based on pre-tax financial accounting income. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets,
including tax loss and credit carryforwards, and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Deferred income tax
expense represents the change during the period in the deferred tax assets and
deferred tax liabilities. The components of the deferred tax assets and
liabilities are individually classified as current and non-current based on
their characteristics. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
 
 Stock-based
Compensation
 
 The
Company accounts for stock-based compensation in accordance with the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 123(R), Share-Based Payment (SFAS
123(R)), which requires recording expense for stock compensation based on a fair
value based method.
 
 The
Company uses the modified prospective method which requires the Company to
recognize compensation costs for all stock-based payments granted, modified or
settled in financial statements.
 
 Comprehensive
Income
 
 Comprehensive
income reflects changes in equity that result from transactions and economic
events from non-owner sources. The Company had no comprehensive income for the
year ended December 31, 2008.
 
 Unproved
Oil and Gas Properties
 
 The
Company follows the full cost method of accounting whereby all costs related to
the acquisition and development of oil and gas leases and acquisition and
development of oil and gas properties are capitalized into a single cost center
(full cost pool). Such costs include lease acquisition costs, geological and
geophysical expenses, overhead directly related to exploration and development
activities, and the costs of drilling both productive and non-productive wells.
Proceeds from property sales are generally credited to the full cost pool
without gain or loss recognition unless such a sale would significantly alter
the relationship between capitalized costs and the proved reserves attributable
to these costs. A significant alteration would typically involve a sale of 25%
or more of the proved reserves related to a single full cost pool. We did not
incur any costs associated with production or general corporate activities nor
did we capitalize any internal costs during the years ended December 31, 2008 or
2007.
  F-8
 
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Unproved Oil and Gas Properties(continued)
 
 Depletion
of exploration and development costs is computed using the units-of-production
method based upon estimated proven oil and gas reserves. The costs of unproved
properties are withheld from the depletion base until it is determined whether
proved reserves can be assigned to the properties. The properties are reviewed
quarterly for impairment. During the years ended December 31, 2008 and 2007, we
did not record any impairment charges against the unproven oil and gas
properties.
 
 Total
well costs are transferred to the depletable pool even when all targeted zones
have not been fully evaluated. For depletion and depreciation purposes, relative
volumes of oil and gas production and reserves are converted at the energy
equivalent rate of six thousand cubic feet of natural gas to one barrel of crude
oil.
 
 Under the
full cost method of accounting, capitalized oil and gas property costs less
accumulated depletion and net of deferred income taxes (full cost pool) may not
exceed an amount equal to the present value, discounted at 10%, of estimated
future net revenues from proved gas reserves plus the cost or estimated fair
value, if lower, of unproven properties. In accordance with SFAS 143 and Staff
Accounting Bulletin No. 106 (SAB 106), future cash outflows associated with
settling asset retirement obligations that have been accrued on the balance
sheet have been excluded from the present value of estimated future net cash
flows used in the ceiling test calculation. Should capitalized costs exceed this
ceiling, impairment is recognized. The present value of estimated future net
revenues is computed by applying current prices of oil and gas to estimated
future production of proved oil and gas reserves as of period-end, less
estimated future expenditures to be incurred in developing and producing the
proved reserves assuming the continuation of existing economic
conditions.
  Asset Retirement Obligation
 
 The
Company follows SFAS No. 143, Accounting for Asset Retirement
Obligations, which requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. The increase in carrying value of a property associated with
the capitalization of an asset retirement cost is included in proved oil and gas
properties in the consolidated balance sheets. The Company did not have any
proved oil and gas properties or asset retirement obligations at December 31,
2008 or 2007.
 
 Basic
and Diluted Net Loss per Common Share
 
 Basic net
loss per share is computed by dividing the net loss attributable to the common
stockholders by the weighted average number of common shares outstanding during
the reporting period. Diluted net income per common share includes the dilution
that could occur upon the exercise of options and warrants to acquire common
stock, computed using the treasury stock method which assumes that the increase
in the number of shares is reduced by the number of shares that the Company
could have repurchased with the proceeds from the exercise of options and
warrants (which are assumed to have been made at the average market price of the
common shares during the reporting period).
 
 Potential
common shares are excluded from the diluted loss per share computation in net
loss periods as their inclusion would be anti-dilutive.
 
 At
December 31, 2008, the Company had 8,000,000 shares of common stock issued and
outstanding and no outstanding options, warrants or convertible
debt.
  F-9
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
  Recent
Accounting Pronouncements
 
 In
September 2006, the FASB issued SFAS 158 (SFAS 158), Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106, and 132(R). This statement requires an
employer to recognize the over funded or under funded status of a defined
benefit postretirement plan as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income of a business entity. This
statement also requires an employer to measure the funded status of a plan as of
the date of its year end statement of financial position, with limited
exceptions. The Company is required to initially recognize the funded status of
a defined benefit postretirement plan and to provide the required disclosures as
of the end of the fiscal year ending after December 15,
2006.  The requirement to measure plan assets and benefit obligations
as of the date of the employer’s fiscal year end statement of financial position
is effective for fiscal years ending after December 15, 2008. The adoption
of SFAS 158 did not have a material impact on the Company’s consolidated
financial statements.
 
 In
February 2007, the FASB issued SFAS No. 159 (SFAS 159), The Fair Value Option for Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement
No. 115. SFAS 159 permits measurement of certain
financial assets and financial liabilities at fair value.  If the fair
value option is elected, the unrealized gains and losses are reported in
earnings at each reporting date.  Generally, the fair value option may
be elected on an instrument-by-instrument basis, as long as it is applied to the
instrument in its entirety.  The fair value option election is
irrevocable, unless a new election date occurs.  SFAS 159 was
effective for the Company on January 1, 2008. The adoption of SFAS 159 did
not have a material impact on the Company’s financial statements as the Company
did not elect the fair value option for any of its consolidated financial assets
or liabilities.
 
 In
June 2007, the Emerging Issues Task Force (EITF) of the FASB reached a
consensus on Issue No. 07-3, Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Use in Future Research and
Development Activities(EITF 07-3). EITF 07-3 requires that
non-refundable advance payments for goods or services that will be used or
rendered for future research and development activities should be deferred and
capitalized. As the related goods are delivered or the services are performed,
or when the goods or services are no longer expected to be provided, the
deferred amounts would be recognized as an expense. This Issue is effective for
financial statements issued for fiscal years beginning after December 15,
2007 and earlier application is not permitted. This consensus is to be applied
prospectively for new contracts entered into on or after the effective
date.  EITF 07-03 was effective for the Company on January 1,
2008.  The pronouncement did not have a material effect on our
consolidated financial statements.
  In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations(SFAS
141(R)), which replaces SFAS 141, Business Combinations, and
which requires an acquirer to recognize the assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree at the acquisition
date, measured at their fair values as of that date, with limited exceptions.
This statement also requires the acquirer in a business combination achieved in
stages to recognize the identifiable assets and liabilities, as well as the
non-controlling interest in the acquiree, at the full amounts of their fair
values. SFAS 141(R) makes various other amendments to authoritative literature
intended to provide additional guidance or to confirm the guidance in that
literature to that provided in this statement. This statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.  This statement is effective for us on January
1, 2009.  We expect SFAS 141(R) will have an impact on our accounting
for future business combinations once adopted, but the effect is dependent upon
the acquisitions that are made in the future.
  F-10
  ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Recent Accounting Pronouncements,(continued)
 
 In
December 2007, the EITF of the FASB reached a consensus on Issue
No. 07-1, Accounting for
Collaborative Arrangements(EITF 07-1). The EITF concluded on the
definition of a collaborative arrangement and that revenues and costs incurred
with third parties in connection with collaborative arrangements would be
presented gross or net based on the criteria in EITF 99-19 and other accounting
literature. Based on the nature of the arrangement, payments to or from
collaborators would be evaluated and its terms, the nature of the entity’s
business, and whether those payments are within the scope of other accounting
literature would be presented. Companies are also required to disclose the
nature and purpose of collaborative arrangements along with the accounting
policies and the classification and amounts of significant financial-statement
amounts related to the arrangements. Activities in the arrangement conducted in
a separate legal entity should be accounted for under other accounting
literature; however required disclosure under EITF 07-1 applies to the entire
collaborative agreement. This issue is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years, and is to be applied retrospectively to all periods
presented for all collaborative arrangements existing as of the effective date.
EITF 07-1 will be effective for the Company on January 1, 2009.  We do
not expect the adoption of EITF 07-1 to have a significant impact on our
consolidated financial statements.
 
 In
December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements(SFAS 160), which amends Accounting
Research Bulletin No. 51, Consolidated Financial
Statements, to improve the relevance, comparability, and transparency of
the financial information that a reporting entity provides in its consolidated
financial statements. SFAS 160 establishes accounting and reporting standards
that require the ownership interests in subsidiaries not held by the parent to
be clearly identified, labeled and presented in the consolidated statement of
financial position within equity, but separate from the parent’s equity. This
statement also requires the amount of consolidated net income attributable to
the parent and to the non-controlling interest to be clearly identified and
presented on the face of the consolidated statement of income. Changes in a
parent’s ownership interest while the parent retains its controlling financial
interest must be accounted for consistently, and when a subsidiary is
deconsolidated, any retained non-controlling equity investment in the former
subsidiary must be initially measured at fair value. The gain or loss on the
deconsolidation of the subsidiary is measured using the fair value of any
non-controlling equity investment. The statement also requires entities to
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. This
statement applies prospectively to all entities that prepare consolidated
financial statements and applies prospectively for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008.
This statement will be effective for us on January 1,
2009.
  On
January 1, 2008, the Company adopted SFAS No. 157 (SFAS 157), Fair Value
Measurements.  SFAS 157 relates to financial assets and
financial liabilities. In February 2008, the FASB issued FASB Staff Position
(FSP) No. FAS 157-2, Effective
Date of FASB Statement No. 157, which delayed the effective date of
SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on at
least an annual basis, until January 1, 2009 for calendar year-end
entities. Also in February 2008, the FASB issued FSP No. FAS 157-1, Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13, which states that SFAS No. 13, Accounting for Leases, (SFAS
13) and other accounting pronouncements that address fair value measurements for
purposes of lease classification or measurement under SFAS 13 are excluded from
the provisions of SFAS 157, except for assets and liabilities related to leases
assumed in a business combination that are required to be measured at fair value
under SFAS No. 141, Business Combinations, (SFAS
141) or SFAS No. 141 (revised 2007), Business Combinations, (SFAS
141(R)).
  F-11
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Recent Accounting Pronouncements,(continued)
 
 SFAS 157
defines fair value, establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America (GAAP),
and expands disclosures about fair value measurements. The provisions of this
standard apply to other accounting pronouncements that require or permit fair
value measurements and are to be applied prospectively with limited exceptions.
The adoption of SFAS 157, as it relates to financial assets and financial
liabilities, had no impact on the Company’s consolidated financial
statements.
 
 SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. This standard is now the single source in GAAP for the
definition of fair value, except for the fair value of leased property as
defined in SFAS 13. SFAS 157 establishes a fair value hierarchy that
distinguishes between (1) market participant assumptions developed based on
market data obtained from independent sources (observable inputs) and
(2) an entity’s own assumptions about market participant assumptions
developed based on the best information available in the circumstances
(unobservable inputs). The fair value hierarchy consists of three broad levels,
giving the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair value hierarchy
under SFAS 157 are described below:
  •
              
              Level
      1 - Unadjusted quoted prices in active markets that are accessible at the
      measurement date for identical, unrestricted assets or
      liabilities.
  •
              
              Level
      2 - Inputs other than quoted prices included within Level 1 that are
      observable for the asset or liability, either directly or indirectly,
      including quoted prices for similar assets or liabilities in active
      markets; quoted prices for identical or similar assets or liabilities in
      markets that are not active; inputs other than quoted prices that are
      observable for the asset or liability (e.g., interest rates); and inputs
      that are derived principally from or corroborated by observable market
      data by correlation or other means.
  •
              
              Level
      3 - Inputs that are both significant to the fair value measurement and
      unobservable.
 
 We do not
expect the adoption of SFAS 160 to have a significant impact on our consolidated
financial statements.
 
 In
March 2008, the FASB issued SFAS No. 161 (SFAS 161), Disclosures about Derivative
Instruments and Hedging Activities – An Amendment of FASB Statement No. 133
(SFAS 133). This statement is intended to improve financial
reporting of derivative instruments and hedging activities by requiring enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS 133
and its related interpretations and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and
cash flows. The provisions of SFAS 161 are effective for fiscal years beginning
after November 15, 2008.  This statement is effective for us
on January 1, 2009.  Early adoption of this provision is prohibited.
We do not expect this statement to have a material impact on our consolidated
financial statements.
  F-12
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Recent Accounting Pronouncements,(continued)
 
 In April
2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3). FSP 142-3 amends the factors to be
considered in developing renewal or extension assumptions used to determine the
useful life of intangible assets under SFAS No. 142, Goodwill and Other Intangible
Assets. Its intent is to improve the consistency between the useful life
of an intangible asset and the period of expected cash flows used to measure its
fair value. This FSP is effective prospectively for intangible assets acquired
or renewed after January 1, 2009. We do not expect FSP 142-3 to have a
material impact on our accounting for future acquisitions of intangible
assets.
 
 In May,
2008, FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). This statement was effective for us on
November 15, 2008 and did not have a material impact on our consolidated
financial statements.
  On May 9,
2008, the FASB issued FSP APB 14-1 (FSP APB 14-1), Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement).FSP APB 14-1 clarifies that convertible debt instruments
that may be settled in cash upon conversion (including partial cash settlement)
are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants.  Additionally, FSP
APB 14-1 specifies that issuers of such instruments should separately account
for the liability and equity components in a manner that will reflect the
entity’s nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. FSP APB14-1 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. FSP APB 14-1 will be effective for the Company on January 1,
2009.  The adoption of FSP APB 14-1 is not expected to have a material
impact on our consolidated results of operations or financial
position.
 
 On June
16, 2008, the FASB issued FSP EITF 03-6-1 (FSP No. EITF 03-6-1), Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,
to address the question of whether instruments granted in share-based payment
transactions are participating securities prior to vesting. FSP EITF 03-6-1
indicates that unvested share-based payment awards that contain rights to
dividend payments should be included in earnings per share calculations. The
guidance will be effective for fiscal years beginning after December 15, 2008.
FSP EITF 03-6-1 will be effective for the Company on January 1,
2009.  The adoption of FSP EITF 03-6-1 is not expected to have a
material impact on our consolidated results of operations or financial
position.
 
 In June
2008, the FASB issued EITF Issue 07-5 (EITF 07-5), Determining whether an Instrument
(or Embedded Feature) is indexed to an Entity’s Own
Stock.  EITF No. 07-5 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. Early application is not permitted. Paragraph 11(a)
of SFAS No. 133 Accounting for
Derivatives and Hedging Activities, specifies that a contract that would
otherwise meet the definition of a derivative but is both (a) indexed to the
Company’s own stock and (b) classified in stockholders’ equity in the statement
of financial position would not be considered a derivative financial instrument.
EITF 07-5 provides a new two-step model to be applied in determining whether a
financial instrument or an embedded feature is indexed to an issuer’s own stock
and thus able to qualify for the SFAS No. 133 paragraph 11(a) scope
exception.  EITF 07-5 is effective for us on January 1,
2009.  The adoption of EITF 07-5 is not expected to have a material
impact on our consolidated financial statements.
  F-13
  ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Recent Accounting Pronouncements,(continued)
 
 In June
2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities
(FSP 03-6-1). FSP 03-6-1 clarifies that unvested share-based payment awards that
contain nonforfeitable rights to dividends or dividend equivalents (whether paid
or unpaid) are participating securities and are to be included in the
computation of earnings per share under the two-class method described in SFAS
No. 128, Earnings Per
Share.  This FSP is effective for us on January 1, 2009
and requires that all prior-period earnings-per-share data that are presented be
adjusted retrospectively. We do not expect FSP 03-6-1 to have a material impact
on our earnings per share calculations.
 
 In
October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active (FSP 157-3).
FSP 157-3 clarifies the application of SFAS 157 in a market that is not active
and provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for that financial asset is not
active. As it relates to our financial assets and liabilities recognized or
disclosed at fair value in our financial statements on a recurring basis (at
least annually), the adoption of FSP 157-3 did not have a material impact on our
consolidated financial statements.
 
 In
December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities
(Enterprises) About Transfers of Financial Assets and Interest in Variable
Interest Entities (FSP 140-4). FSP 140-4 requires additional
disclosure about transfers of financial assets and an enterprise’s involvement
with variable interest entities. FSP 140-4 was effective for the first
reporting period ending after December 15, 2008. The adoption of
FSP 140-4 did not have a material impact on our consolidated financial
statements.
 
 On
December 31, 2008, the SEC issued a final rule for the modernization
of oil and gas reporting, which adopts revisions to the SEC’s oil and gas
reporting disclosure requirements and is effective for annual reports on
Form 10-K for years ending on or after December 31, 2009. Early
adoption of the final rule is prohibited. The revisions are intended to provide
investors with a more meaningful and comprehensive understanding of oil and gas
reserves to help investors evaluate their investments in oil and gas companies.
The amendments are also designed to modernize the oil and gas disclosure
requirements to align them with current practices and changes in technology.
Revised requirements in the final rule include the following
provisions:
  F-14
 
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 2.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(Continued)
 
 Recent Accounting Pronouncements,(continued)
  •
              Oil
      and gas reserves must be reported using the average price over the prior
      12 months, rather than year-end prices.•
              Companies
      will be permitted to report, on an optional basis, probable and possible
      reserves.•
              The
      definition of “oil and gas producing activities” will include
      non-traditional reserves, such as oil and gas extracted from coal and
      shales.•
              Companies
      will be permitted to use new technologies to determine proved reserves, as
      long as those technologies have been demonstrated empirically to lead to
      reliable conclusions about reserve volumes.•
              Companies
      will be required to disclose, in narrative form, additional details on
      their proved undeveloped reserves (PUDs), including the total number of
      PUDs at year end, any material changes to PUDs that occurred during the
      year, investments and progress made to convert PUDs to developed oil and
      gas reserves and an explanation of the reasons why material concentrations
      of PUDs in individual fields or countries have remained undeveloped for
      five years or more after disclosure as PUDs.•
              Companies
      will be required to report the qualifications and measures taken to assure
      the independence and objectivity of any business entity or employee
      primarily responsible for preparing or auditing the reserves
      estimates.
  The
Company is evaluating the potential impact of adopting the final rule. The SEC
is discussing the final rule with the FASB staff to align FASB accounting
standards with the new SEC rules.  These discussions may delay the
required compliance date. Absent any change in the effective date, the Company
will begin complying with the disclosure requirements in its annual report on
Form 10-K for the year ended December 31, 2009.
 
 In
December 2008, the FASB issued FSP No.132 (R)-1, Employers’ Disclosures about
Pensions and Other Postretirement Benefits (FSP 132R-1). FSP 132R-1
requires enhanced disclosures about the plan assets of a Company’s defined
benefit pension and other postretirement plans. The enhanced disclosures
required by this FSP are intended to provide users of financial statements with
a greater understanding of: (1) how investment allocation decisions are
made, including the factors that are pertinent to an understanding of investment
policies and strategies; (2) the major categories of plan assets;
(3) the inputs and valuation techniques used to measure the fair value of
plan assets; (4) the effect of fair value measurements using significant
unobservable inputs (Level 3) on changes in plan assets for the period; and
(5) significant concentrations of risk within plan assets. This FSP is
effective for us for the year ending December 31, 2009 and is not expected
to have a material impact on our consolidated financial statements.
  F-15
  ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 3.
              GOING
      CONCERN
 
 The
Company has accumulated a deficit of $449,258 since inception and will require
additional financing to fund and support its operations until it achieves
positive cash flows from operations. These factors raise substantial doubt about
the Company’s ability to continue as a going concern. The Company’s ability to
achieve and maintain profitability and positive cash flows is dependent upon its
ability to locate profitable oil and gas properties, generate revenues from oil
and gas production and control its drilling, production and operating costs.
Based upon its current plans, the Company expects to incur operating losses in
future periods and there is no assurance that the Company will be able to obtain
additional financing, locate profitable oil and gas properties, generate
revenues from oil and gas production and control its drilling, production or
operating costs.  The Company plans to mitigate its losses in future
through its joint operating agreement with a Texas oil and gas company
(operator) pursuant to which the operator agreed to initiate drilling operations
on the oil and gas properties and pay the exploration, drilling, completing,
equipping and operating costs associated with developing the oil and gas
properties.  There is no assurance, however, that the operator will be
able to profitably develop the properties.  These consolidated
financial statements do not include any adjustments that might result from the
realization of these uncertainties.
  4.
              UNPROVED
      OIL AND GAS PROPERTIES
 
 The
Company has interests in eight oil and gas leases, covering 9,191 gross acres
(8,708 net deep acres and 958 net shallow acres) in Edwards County in
Texas.
 
 The Deep
Allar Lease is one lease covering the rights to develop and extract hydrocarbons
from depths below 1,500 feet from approximately 7,750 acres.  The
primary term of the Deep Allar lease ended in January 2007. Included in the
lease is a provision that allows the primary term of the lease to be extended
for so long as operations are conducted on the land with no cessation for more
than 180 consecutive days.  At December 31, 2008, sufficient
operations had been conducted to extend the term of the lease until April 6,
2009.
 
 The
Baggett Leases are six leases covering the rights to develop and extract
hydrocarbons at any depth from approximately 651 acres.  The Baggett
Leases do not require continuous development because the two wells on the
property are producing.  Operations are defined as drilling, testing,
completing, marketing, recompleting, deepening, plugging back or repairing of a
well in search for or in an endeavor to obtain production of oil, gas, sulphur
or other minerals, or the production of oil, gas, sulphur or other minerals,
whether or not in paying quantities.
 
 The
Driver Lease is one lease covering the rights to develop and extract
hydrocarbons at any depth from approximately 158 deep acres and 632 shallow
acres. The Company’s original Driver Lease, covering 790 gross and net acres,
expired in February 2007. The Company’s operator obtained a new lease, which
expires February 1, 2010, covering the same acreage and has an undivided 80%
interest in the mineral rights. The Company’s proportionate interest in this
eighth lease is 25% of the operator’s interest (158 acres) in the deep rights,
or a net interest of 20%, and 100% interest (632 acres) in the shallow rights,
or a net interest of 80%.
 
 On May 8,
2006, the Company entered into a letter agreement dated April 3, 2006 with a
Texas oil and gas company (operator) for the development of the Company’s oil
and gas properties in Texas. Under the agreement, the operator can earn a 100%
leasehold interest in the leases to depths below 1,500 feet in exchange for
drilling until it has completed a well capable of producing hydrocarbons in
commercial quantities. When the operator has completed the first 10 wells and
recovered 100% of the costs to drill the wells (payout), the Company can back in
for a 25% working interest in the wells. On future wells, the Company can either
participate from the outset to earn a 25% working interest, or back in after
payout to earn a 6.25% working interest.
  F-16
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 4.
              UNPROVED OIL AND GAS
      PROPERTIES,(Continued)
 
 Pursuant
to an assignment of oil and gas leases dated June 9, 2006, the Company assigned
all of its oil and gas leases, so far as they cover depths below 1,500 feet, to
the operator in exchange for the operator’s initiating drilling operations on
the land covered by the leases before the primary terms of the leases expire.
The operator successfully completed a well capable of producing hydrocarbons in
commercial quantities and has perpetuated its interest in the
leases.
  The
following table presents information regarding the Company’s net property
acquisition costs incurred during the years ended December 31, 2008 and 2007on
its unproved properties:
 2008
              2007Unproved
      oil and gas properties
              $   -
              $   -
 
 The
following table presents information regarding the Company’s unproved property
leasehold acquisition costs in the area indicated at December
31:
 2008
              2007Texas
              $100
              $100
 
 The
following table summarizes oil and gas property costs not being amortized by the
year in which the costs were incurred:
 2008
              2007
              2006Acquisition
      costs
              $   -
              $   -
              $100
 
 The
Company periodically evaluates its unproven properties for the possibility of
impairment.  During the years ended December 31, 2008 and 2007, no
impairment charges were recorded against the unproven oil and gas
properties.
 
 Overriding
royalty interests in the oil and gas leases totaling between 5% and 8.33% of all
oil, gas and other minerals produced, were assigned to three parties, one a
related party, between October 4, 2002 and April 21, 2006 (see Note
5).
  F-17
 
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 5.
              RELATED
      PARTY TRANSACTIONS
 
 Due
from Related Party
 
 The
following amounts were due to related parties at December 31:
 
 2008
                  
                  
                  2007Due
      to a company controlled by an officer (a)
                  
                  $
                  -
                  
                  
                  $
                  8,007Due
      to the wife of a director
                  
                  
                  200
                  
                  
                  
                  -Total
      due to related parties
                  
                  $
                  200
                  
                  
                  $
                  8,007
 
 (a)
During the years ended December 31, 2008 and 2007 the Company paid or accrued
$97,500 and $7,950 respectively, in administrative fees to a company controlled
by an officer.
 
 Overriding
Royalty Interest
 
 The
president of the Company has overriding royalty interests in all oil, gas and
other minerals produced of 3.17% in six of the oil and gas leases and 1.5% in
one of the oil and gas leases (see Note 4).
 
 6.
              COMMON
      STOCK
 
 On August
24, 2006, the Company issued 4,000,000 common shares to Brek Energy Corporation,
its former parent, in exchange for 5,312,500 shares of common stock and 733,333
shares of preferred stock in Vallenar Energy Corp.
 
 On June
7, 2007 the Company issued 4,000,000 common shares at $0.15 per share to Brek,
its former parent, for cash of $600,000.
  7.
              COMMITMENTS
 
 Oil
and Gas Commitments
 
 As is
customary in the oil and gas industry, the Company may at times have commitments
to preserve or earn certain acreage positions or wells. If the Company does not
pay such commitments, it may lose the acreage positions or wells.
 
 Lease
Commitments
 
 The
Company had no lease commitments at December 31, 2008 or
2007.
  F-18
 
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 8.
              INCOME
      TAXES
 
 Income
tax expense has not been recognized for the years ended December 31, 2008 and
2007 and no taxes were payable at December 31, 2008 or 2007 because the Company
has incurred losses since its inception.
 
 The
following table sets out the Company’s net tax losses at December
31:
  2008
                  
                  
                  2007Net
      tax losses
                  
                  $
                  193,603
                  
                  
                  $
                  257,387
 
 At
December 31, 2008 and 2007, the Company had the following deferred tax assets
that primarily relate to net operating losses. The Company established a 100%
valuation allowance, as management believes it is more likely than not that the
deferred tax assets will not be realized:
  2008
                
                
                2007Net
      loss carryforwards
                
                $
                284,336
                
                
                $
                218,511Less:
      valuation allowance
                
                
                (284,336)
                
                
                
                (218,511)$
                —
                
                
                $
                —
 
 The
Company’s valuation allowance increased during 2008 and 2007 by $65,825 and
$87,512 respectively.
 
  At
December 31, 2008 and 2007, the Company had the following net operating loss
carryforwards (NOLs):
 
 2008
                
                
                2007Net
      operating loss carryforwards
                
                $
                901,552
                
                
                $
                707,949
 
 The
federal NOLs expire at various dates up to December 31, 2028.
 
 NOLs
incurred before August 24, 2006 are subject to an annual limitation due to the
ownership change (as defined under Section 382 of the Internal Revenue Code of
1986) which resulted in a change in business direction. Unused annual
limitations may be carried over to future years until the net operating losses
expire. Alternative minimum tax rules could limit the use of net operating
losses in any one year.