UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549







FORM
10-Q





[ X ]
            QUARTERLY REPORT UNDER SECTION
      13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF
  1934





For the
quarterly period ended September30,
2008





[ 
       ]
            TRANSITION REPORT UNDER SECTION
      13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF
  1934





For the transition period
from_______to_______





Commission file number333-139312




ROCK CITY ENERGY
      CORP.(Exact
      name of registrant
      as specified in itscharter)




Nevada
              (State
      or other jurisdiction of
              incorporation
      or organization)
            20-5503984
              (I.R.S.
      Employer
              Identification
      No.)3416 Via Lido, 4th Floor,
      Newport Beach, California, 92663
              (Address
      of principal executive offices)877-587-2517
              (Issuer’s
      telephone number)____________________________________________________________
              (Former
      name, former address and former fiscal year, if changed since last
      report)





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


Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company in Rule 12b-2 of the Exchange
Act.
 Large
      accelerated filer
                o
                Accelerated
      filer
                oNon-accelerated
      filer
                o(Do not check if a smaller reporting
company)
                Smaller
      reporting company
                x


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




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.  As of November 7, 2008 the
registrant had 8,000,000 shares of common stock outstanding.
  
 PART
I - FINANCIAL INFORMATION
  Item
1. Financial
Statements.
 ROCK
CITY ENERGY CORP. (An
Exploration Stage Company) CONSOLIDATED
BALANCE SHEETS
   September
      30,
                  
                  
                  December
      31,2008
                  
                  
                  2007(Unaudited)ASSETSCurrent
      assetsCash
                  
                  $
                  307,442
                  
                  
                  $
                  472,108Total
      current assets
                  
                  
                  307,442
                  
                  
                  
                  472,108Unproved
      oil and gas properties
                  
                  
                  100
                  
                  
                  
                  100Total
      assets
                  
                  $
                  307,542
                  
                  
                  $
                  472,208LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
                  
                  $
                  4,714
                  
                  
                  $
                  17,663Accrued
      liabilities
                  
                  
                  400
                  
                  
                  
                  1,903Accrued
      professional fees
                  
                  
                  12,229
                  
                  
                  
                  28,117Due
      to related parties
                  
                  
                  200
                  
                  
                  
                  8,007Total
      current liabilities
                  
                  
                  17,543
                  
                  
                  
                  55,690Commitments
      and contingencies
                  
                  
                  -
                  
                  
                  
                  -Minority
      interest
                  
                  
                  37,940
                  
                  
                  
                  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 atSeptember
      30, 2008 and December 31, 2007
                  
                  
                  8,000
                  
                  
                  
                  8,000Additional
      paid-in capital
                  
                  
                  633,430
                  
                  
                  
                  633,430Deficit
      accumulated in the exploration stage
                  
                  
                  (389,371
                  )
                  
                  
                  (263,197
                  )Total
      stockholders' equity
                  
                  
                  252,059
                  
                  
                  
                  378,233Total
      liabilities and stockholders' equity
                  
                  $
                  307,542
                  
                  
                  $
                  472,208
   The
accompanying notes are an integral part of these consolidated financial
statements
  1




ROCK
CITY ENERGY CORP. (An
Exploration Stage Company) CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
 August
      10, 2006Three
      Months Ended
                
                
                Nine
      Months Ended
                
                
                (Inception)
      toSeptember
      30,
                
                
                September
      30,
                
                
                September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007
                
                
                2008ExpensesAdministrative
      fees
                
                $
                22,500
                
                
                $
                -
                
                
                $
                67,500
                
                
                $
                -
                
                
                $
                75,450Bank
      charges
                
                
                428
                
                
                
                -
                
                
                
                1,045
                
                
                
                84
                
                
                
                2,177Office
                
                
                (117
                )
                
                
                -
                
                
                
                143
                
                
                
                -
                
                
                
                200Professional
                
                
                11,455
                
                
                
                142,940
                
                
                
                47,352
                
                
                
                145,672
                
                
                
                290,532Regulatory
                
                
                2,394
                
                
                
                -
                
                
                
                3,066
                
                
                
                528
                
                
                
                19,230Rent
                
                
                1,500
                
                
                
                -
                
                
                
                3,500
                
                
                
                -
                
                
                
                3,500Telephone
                
                
                910
                
                
                
                -
                
                
                
                2,851
                
                
                
                -
                
                
                
                2,851Travel
                
                
                1,062
                
                
                
                -
                
                
                
                1,062
                
                
                
                -
                
                
                
                1,062Total
      expenses
                
                
                40,132
                
                
                
                142,940
                
                
                
                126,519
                
                
                
                146,284
                
                
                
                395,002Other
      incomeInterest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,716Net
      loss before franchise tax and minority interest
                
                
                (40,132
                )
                
                
                (142,940
                )
                
                
                (126,519
                )
                
                
                (146,284
                )
                
                
                (389,286
                )Franchise
      tax
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,021
                )Net
      loss before minority interest
                
                
                (40,132
                )
                
                
                (142,940
                )
                
                
                (126,519
                )
                
                
                (146,284
                )
                
                
                (390,307
                )Minority
      interest
                
                
                173
                
                
                
                116
                
                
                
                345
                
                
                
                959
                
                
                
                936Net
      loss for the period
                
                $
                (39,959
                )
                
                $
                (142,824
                )
                
                $
                (126,174
                )
                
                $
                (145,325
                )
                
                $
                (389,371
                )Basic
      and diluted loss per share
                
                $
                (0.00
                )
                
                $
                (0.02
                )
                
                $
                (0.02
                )
                
                $
                (0.03
                )Basic
      and diluted weighted average shares outstanding
                
                
                8,000,000
                
                
                
                8,000,000
                
                
                
                8,000,000
                
                
                
                5,684,982
   The
accompanying notes are an integral part of these consolidated financial
statements
  2
  ROCK
CITY ENERGY CORP. (An
Exploration Stage Company) CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY FOR
THE PERIOD FROM AUGUST 10, 2006 (INCEPTION) THROUGH SEPTEMBER 30, 2008 (UNAUDITED)
   DeficitCommon
                
                
                
                
                
                AccumulatedStock
      Issued
                
                
                Additional
                
                
                in
      theNumber
      of
                
                
                
                
                
                Paid-In
                
                
                ExplorationShares
                
                
                Amount
                
                
                Capital
                
                
                Stage
                
                
                TotalBalance
      at August 10, 2006 (Inception)
                
                
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Issuance
      of common stock
                
                
                4,000,000
                
                
                
                4,000
                
                
                
                37,430
                
                
                
                -
                
                
                
                41,430Net
      loss for the period ended December 31, 2006
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (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 for the nine months ended September 30, 2007
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (145,325
                )
                
                
                (145,325
                )Balance,
      September 30, 2007
                
                
                8,000,000
                
                
                
                8,000
                
                
                
                633,430
                
                
                
                (152,804
                )
                
                
                488,626Net
      loss for the three months ended December 31, 2007
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (110,393
                )
                
                
                (110,393
                )Balance,
      December 31, 2007
                
                
                8,000,000
                
                
                
                8,000
                
                
                
                633,430
                
                
                
                (263,197
                )
                
                
                378,233Net
      loss for the nine months ended September 30, 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (126,174
                )
                
                
                (126,174
                )Balance
      September 30, 2008
                
                
                8,000,000
                
                
                $
                8,000
                
                
                $
                633,430
                
                
                $
                (389,371
                )
                
                $
                252,059
 The
accompanying notes are an integral part of these consolidated financial
statements
  3
  ROCK
CITY ENERGY CORP. (An
Exploration Stage Company) CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
 August
      10, 2006Nine
      Months Ended
                
                
                (Inception)
      toSeptember
      30,
                
                
                September
      30,2008
                
                
                2007
                
                
                2008Cash
      flows from operating activities:Net
      loss
                
                $
                (126,174
                )
                
                $
                (145,325
                )
                
                $
                (389,371
                )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Cash
      acquired on acquisition of subsidiary
                
                
                -
                
                
                
                -
                
                
                
                294Minority
      interest
                
                
                (345
                )
                
                
                (959
                )
                
                
                (936
                )Changes
      in operating assets and liabilities:Accounts
      payable
                
                
                (12,949
                )
                
                
                (2,596
                )
                
                
                (66,708
                )Accrued
      liabilities
                
                
                (1,503
                )
                
                
                (8,500
                )
                
                
                400Accrued
      professional fees
                
                
                (15,888
                )
                
                
                -
                
                
                
                12,229Due
      to related parties
                
                
                (7,807
                )
                
                
                151,605
                
                
                
                (9,014
                )Net
      cash used in operating activities
                
                
                (164,666
                )
                
                
                (5,775
                )
                
                
                (453,106
                )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
                
                
                (164,666
                )
                
                
                594,225
                
                
                
                307,442Cash,
      beginning of period
                
                
                472,108
                
                
                
                100,291
                
                
                
                -Cash,
      end of period
                
                $
                307,442
                
                
                $
                694,516
                
                
                $
                307,442Supplemental
      cash flow information:Cash
      paid during the period for:Franchise
      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.
  4
  ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)
 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.
 
 Basis
of Presentation
 
 The
unaudited consolidated financial statements included herein have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 8 of Regulation S-X.  They do not include all information and
notes required by generally accepted accounting principles for complete
financial statements.  However, except as disclosed herein, there have
been no material changes in the information disclosed in the notes to the
audited consolidated financial statements included on Form 10-KSB of Rock City
Energy Corp. for the year ended December 31, 2007.  In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included and are of a normal recurring nature.  Operating results
for thethree
and ninemonths ended September 30, 2008 are not necessarily indicative
of the results that may be expected for any other interim period or the entire
year.  For further information, these unaudited consolidated financial
statements and the related notes should be read in conjunction with the
Company’s audited consolidated financial statements for the year ended December
31, 2007, included in the Company’s annual report  on Form
10-KSB.
 
 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.
  5
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)
 2.
                SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
 
 A summary
of the Company’s significant accounting policies is included in the Company’s
Form 10-KSB dated and filed on March 31, 2008 for the fiscal year ended December
31, 2007.  Additional significant accounting policies that affect the
Company or that have been developed since December 31, 2007 are summarized
below.
 
 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.
 
 Recent
Accounting Pronouncements
 
 In
February 2007, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (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 consolidated financial statements as the
Company did not elect the fair value option for any of its 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 must 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 must 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 adoption of
EITF 07-03 did not have a material effect 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.  SFAS 161 will be effective for the
Company on January 1, 2009. Early adoption of this provision is prohibited.
The Company is currently evaluating the impact adoption of SFAS 161 may have on
its consolidated financial statement disclosures.
  6
 
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)
 2.
                SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES,
continued
 
 Recent
Accounting Pronouncements, continued
  On March
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)).
 
 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 that
are developed based on the best information available in the circumstances
(unobservable inputs). The fair value hierarchy consists of three broad levels,
which give 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
 
 7
 
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)
 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
 
 Recent
Accounting Pronouncements, continued
 
 In
March 2008, the FASB, affirmed the consensus of FASB Staff Position (FSP)
Accounting Principles Board Opinion No. 14-1 (APB 14-1), Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement), which applies to all convertible debt instruments that have
a net settlement
feature; which means that such convertible debt instruments, by their
terms, may be settled either wholly or partially in cash upon conversion. FSP
APB 14-1 requires issuers of convertible debt instruments that may be settled
wholly or partially in cash upon conversion to separately account for the
liability and equity components in a manner reflective of the issuer’s
nonconvertible debt borrowing rate. Previous guidance provided for accounting
for this type of convertible debt instrument entirely as debt. FSP APB 14-1
is effective for financial statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal years. We do not
expect the adoption of FSP APB 14-1 to have a material impact on our
consolidated financial statements.
  In May,
2008, FASB issued SFAS No. 162 (SFAS 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 generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). SFAS 162 is effective 60 days following
the SEC's approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting
Principles. The Company is currently reviewing the effect, if any, the
proposed guidance will have on its consolidated financial statements
disclosures.
 
 In May,
2008, FASB issued SFAS No. 163 (SFAS 163), Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No.
60.  Diversity exists in practice in accounting for financial
guarantee insurance contracts by insurance enterprises under FASB Statement No.
60, Accounting and Reporting
by Insurance Enterprises. That diversity results in inconsistencies in
the recognition and measurement of claim liabilities because of differing views
about when a loss has been incurred under FASB Statement No. 5, Accounting for Contingencies.
This Statement requires that an insurance enterprise recognize a claim liability
prior to an event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. This Statement
also clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account for
premium revenue and claim liabilities. Those clarifications will increase
comparability in financial reporting of financial guarantee insurance contracts
by insurance enterprises. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements. SFAS 163 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years; disclosure requirements in paragraphs
30(g) and 31 are effective for the first period (including interim periods)
beginning after May 23, 2008. We do not expect the adoption of SFAS 163 to have
a significant impact on our consolidated financial statements.
 
 On
June 16, 2008, the FASB issued FASB Staff Position No. 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. The Company is currently evaluating the requirements of FSP
No. EITF 03-6-1 and the impact that its adoption will have on its results of
operations and financial position.
  8
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)
 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
 
 Recent
Accounting Pronouncements, continued
 
 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.  The Company is currently evaluating the impact that
adoption of EITF 07-5 will have on its consolidated financial
statements.
 
 In June
2008, FASB released a proposed SFAS, Disclosure of Certain Loss
Contingencies, an amendment of FASB Statements No. 5 and 141) (the
proposed Statement),
for a comment period that ended during August 2008. The proposed Statement would
(a) expand the population of loss contingencies that are required to be
disclosed, (b) require disclosure of specific quantitative and qualitative
information about those loss contingencies, (c) require a tabular
reconciliation of recognized loss contingencies and (d) provide an
exemption from disclosing certain required information if disclosing that
information would be prejudicial to an entity's position in a dispute. The
proposed Statement would be effective for financial statements issued for fiscal
years ending after December 15, 2008, and for interim and annual periods in
subsequent fiscal years. When and if the proposed Statement is approved in final
form by FASB, the Company will evaluate whether the adoption of the proposed
Statement will have any material impact on its financial position and results of
operations.
  3.
                GOING
      CONCERN
 
 The
Company has accumulated a deficit of $389,371 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 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.
  9
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)
 4.
                UNPROVED
      OIL AND GAS PROPERTIES
 
 The
Company has interests in eight oil and gas leases, covering 9,191 gross acres
(8,233 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 September 30, 2008, sufficient
operations had been conducted to extend the term of the lease until March 29,
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 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.
 
 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. If
the operator successfully completes a well capable of producing hydrocarbons in
commercial quantities, this assignment of oil and gas leases will become
permanent.
  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).
  10
 
 ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)
 4.
                UNPROVED
      OIL AND GAS PROPERTIES, continued
 
 The
following table presents information regarding the Company’s unproved property
leasehold acquisition costs in the area indicated:
 
 September
      30, 2008
                
                
                December
      31, 2007Texas
                
                $
                100
                
                
                $
                100
 
 The Company’s unproven properties are evaluated
periodically for the possibility of impairment. During the nine months ended
September 30, 2008 and the year ended December 31, 2007, no impairment charges
were recorded against the unproven oil and gas properties.
  5.
                RELATED
      PARTY TRANSACTIONS
 
 Due
from Related Party
 
 The
following amounts were due to related parties at September 30, 2008 and December
31, 2007:
 
 September
      30,
                  2008
                
                
                December
      31,
                  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 nine months ended September 30, 2008 and 2007 the Company paid
$67,500 and $0 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.
  11
  ROCK
CITY ENERGY CORP.
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)
 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 September 30, 2008 or December 31,
2007.
 12
 
 Item
2.  Management’s Discussion and Analysis or Plan of
Operation
 
 Forward-Looking
Statements
 
 Certain
information included in this Form 10-Q and other materials that we have filed or
will file with the Securities and Exchange Commission (as well as information
included in oral or written statements that we have made or others have made on
our behalf), may contain forward-looking statements about our current and
expected prospects, performance trends, growth plans, business goals and other
matters.  These statements may be contained in our filings with the
Securities and Exchange Commission, in our press releases, in other written
communications, and in oral statements made by or with the approval of one of
our authorized officers.  Words or phrases such as “believe,” “plan,”
“will likely result,” “expect,” “intend,” “will continue,” “is anticipated,”
“estimate,” “project,” “may,” “could,” “would,” “should,” and similar
expressions are intended to identify forward-looking
statements.  These statements, and any other statements that are not
historical facts, are forward-looking statements.
 
 We have
identified important factors, risks and uncertainties that could cause our
actual results to differ materially from those projected in the forward-looking
statements that we have made (see the section of our Form 10-KSB titled “Factors
Affecting our Business, Operating Results and Financial Condition” filed with
the Securities and Exchange Commission on March 31, 2008).  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.
 
 Because
of these factors, risks and uncertainties, we caution against placing undue
reliance on forward-looking statements.  Although we believe that the
assumptions underlying forward-looking statements are reasonable, any of the
assumptions could be incorrect, and there can be no assurance that
forward-looking statements will prove to be accurate.
 
 Forward-looking
statements speak only as of the date on which they are made.  We do
not undertake any obligation to modify or revise any forward-looking statement
to take into account or otherwise reflect subsequent events or circumstances
arising after the date that the forward-looking statement was made.
 
 General
 
 You
should read this discussion and analysis in conjunction with our interim
unaudited consolidated financial statements and related notes included in this
Form 10-Q and the audited consolidated financial statements and related notes
included in our annual report on Form 10-KSB for the fiscal year ended December
31, 2007.  The inclusion of supplementary analytical and related
information in this report may require us to make estimates and assumptions to
enable us to fairly present, in all material respects, our analysis of trends
and expectations with respect to the results of our operations and financial
position taken as a whole.
 
 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.
  13
 
 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.
  “We”,
“us” or “our” where used throughout this discussion means Rock City Energy Corp.
and its subsidiaries.
 
 Overview
 
 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.  As stated
above, 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”.
 
 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.
 
 Results
of Operations
 
 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 related party.  Due to the nature of our
business we do not expect to have operating revenues within the next
year.
 
 Operating
Expenses
 
 Our
operating results for the three and nine months ended September 31, 2008 and
2007 and the changes between those periods for the expenses are summarized in
Table 1.
  Table
      1: Changes in Operating ExpensesFor
      the three
                months
      ended
                September
      30,
              
              
              Increase
                (decrease)
                betweenthe
      three
                months
      ended
                September
      30,
              
              
              For
      the nine
                months
      ended
                September
      30,
              
              
              Increase
      (decrease) between the nine months ended September
      30,2008
              
              
              2007
              
              
              2008
      and 2007
              
              
              2008
              
              
              2007
              
              
              2008
      and 2007Administration
              
              $
              22,500
              
              
              $
              -
              
              
              $
              22,500
              
              
              $
              67,500
              
              
              $
              -
              
              
              $
              67,500Bank
      charges
              
              
              428
              
              
              
              -
              
              
              
              428
              
              
              
              1,045
              
              
              
              84
              
              
              
              961Office
              
              
              (117)
              
              
              
              -
              
              
              
              (117)
              
              
              
              143
              
              
              
              -
              
              
              
              143Professional
              
              
              11,455
              
              
              
              142,940
              
              
              
              (131,485)
              
              
              
              47,352
              
              
              
              145,672
              
              
              
              (98,320)Regulatory
              
              
              2,394
              
              
              
              -
              
              
              
              2,394
              
              
              
              3,066
              
              
              
              528
              
              
              
              2,538)Rent
              
              
              1,500
              
              
              
              -
              
              
              
              1,500
              
              
              
              3,500
              
              
              
              -
              
              
              
              3,500Telephone
              
              
              910
              
              
              
              -
              
              
              
              910
              
              
              
              2,851
              
              
              
              -
              
              
              
              2,851Travel
              
              
              1,062
              
              
              
              -
              
              
              
              1,062
              
              
              
              1,062
              
              
              
              -
              
              
              
              1,062Net
      loss before minority interest
              
              
              40,132
              
              
              
              142,940
              
              
              
              (102,808)
              
              
              
              126,519
              
              
              
              146,284
              
              
              
              (19,765)Minority
      interest
              
              
              (173)
              
              
              
              (116)
              
              
              
              (57)
              
              
              
              (345)
              
              
              
              (959)
              
              
              
              614Net
      loss
              
              $
              39,959
              
              
              $
              142,824
              
              
              $
              (102,865)
              
              
              $
              126,174
              
              
              $
              145,325
              
              
              $
              (19,151)
 
 14
  We had a
net loss of $39,959 for the three months ended September 30, 2008 compared to a
net loss of $142,824 for the three months ended September 30,
2007.  The $102,865 decrease in net loss was due primarily to a
decrease in professional fees offset by an increase in administrative
fees.
 
 We had a
net loss of $126,174 for the nine months ended September 30, 2008 compared to a
net loss of $145,325 for the nine months ended September 30,
2007.  The $19,151 decrease in net loss was due primarily to a
decrease in professional fees offset by an increase in administrative
fees.
 
 Professional
fees were higher during the three and nine months ended September 30, 2007 due
to the legal, accounting and auditing costs associated with our spin-off from
Brek Energy Corp.  Our administrative fees were higher during the
three and nine months ended September 30, 2008 because we outsourced our
administrative and accounting functions to Da Costa Management Corp, a company
owned by an officer.  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.
 
 Liquidity
and Capital Resources
 
 Going
Concern
 
 We have
accumulated a deficit of $389,371 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 begun
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 15% 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.
 
 At
September 30, 2008, we had a cash balance of $307,442 and negative cash flow
from operations of $164,666.  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.
  15
 
 Sources
and Uses of Cash
 
 Table 2
summarizes our sources and uses of cash for the nine months ended September 30,
2008 and 2007.
  Table
      2: Sources and Uses of CashSeptember
      30,2008
              
              
              2007Net
      cash provided by financing activities
              
              $
              -
              
              
              $
              600,000Net
      cash provided by investment activities
              
              
              -
              
              
              
              -Net
      cash used in operating activities
              
              
              (164,666)
              
              
              
              ( 5,775)Net
      (decrease) increase in cash
              
              $
              (164,666)
              
              
              $
              594,225
 
 Net
cash used in operating activities
 
 We used
net cash of $164,666 in operating activities during the nine months ended
September 30, 2008, primarily to pay administrative and professional
fees.
 
 We used
net cash of $5,775 in operating activities during the nine months ended
September 30, 2007, primarily to pay professional fees.
 
 Net
cash used in investment activities
 
 We had no
investment activities during the nine months ended September 30, 2008 and
2007.
 
 Net
cash provided by financing activities
 
 We had no
financing activities during the nine months ended September 30,
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 nine months ended September 30, 2007.
 
 Unproved
Oil and Gas Properties
 
 Through
Vallenar, we have interests in the deep zone in eight oil and gas leases and in
the shallow zone in seven oil and gas leases covering 9,191 gross acres (8,233
net deep acres and 958 net shallow 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 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 158 deep acres and
      632 shallow 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.
 
 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.
  16
  Our goal
is to develop our properties to fully exploit all of their resources, but 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.
 
 In the
letter agreement, Chesapeake agreed to initiate drilling operations on the land
covered by the assigned leases before the end of their primary terms in February
2007.  If Chesapeake successfully completes a well capable of
producing hydrocarbons in commercial quantities, Chesapeake will perpetuate the
assignment of the assigned leases.  No other specific provisions in
the assignment govern 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.
 
 If
Chesapeake successfully develops the properties in accordance with the terms of
the letter agreement, Chesapeake is entitled to recover 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.
 
 While 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 have the funds to develop these
rights.
 
 Under the
terms of the letter agreement, aside from initiating drilling operations,
Chesapeake is required 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
      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.
 
 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.  One of
the wells on the Allar acreage was completed as a dry hole, the second was
connected to a pipeline on January 10, 2008, and the third was started in April
2008 and completed on October 9, 2008. Chesapeake has not yet informed us of the
status of the third Allar well. 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 15% of the drilling, production and operating costs of all
five wells.  To date, the average cost of drilling, production and
operating the wells exceeds $4 million.  Chesapeake has informed us
that they intend to continue to maintain the 180-day continuous development
provision required by the deep Allar lease, which requires that operations begin
again by April 7, 2009.
  17
 
 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 68.75% 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.  Chesapeake informed us in November 2007 that it acquired an
additional 11.25% interest in the new Driver lease, for a total of 80%, which
increases our interest in the deep rights to 20% and in the shallow rights to
80%.  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, in order to continue the terms of the
assigned leases beyond the original termination dates, operations cannot cease
for the periods of time specified in the leases. The primary term of the
new Driver lease expires in 2010, so no operations are required on the Driver
acreage until then.
 
 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.
 
 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
$180,000, 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 our existing
properties.
  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.
 18
 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 quarterly
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.
 
 Contingencies
and Commitments
 
 We had no
contingencies or long-term commitments at September 30, 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.
 
 Contractual
Obligations
 
 We did
not have any contractual obligations at September 30, 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.
  Recently
Adopted and Recently Issued Accounting Standards
 
 Refer to
Note 2 of our Notes to Consolidated Financial Statements included in our Form
10-KSB for the fiscal year ended December 31, 2007 for a discussion of recent
accounting standards and pronouncements.  Accounting pronouncements
that have been issued or adopted since December 31, 2007 are described
below:
 
 In
February 2007, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement
No. 115. SFAS 159 permits the 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 must 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 must 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 adoption of EITF 07-03
did not have a material effect on our consolidated financial
statements.
  19
 
 In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – An Amendment of FASB Statement No.
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.  SFAS 161 will be effective for us
on January 1, 2009.  Early adoption of this provision is prohibited.
We are evaluating the impact that the adoption of SFAS 161 may have on our
consolidated financial statement disclosures.
 
 On March
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) 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, 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, or
SFAS No. 141 (revised 2007), Business
Combinations.
 
 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 our 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 that
are developed based on the best information available in the circumstances
(unobservable inputs). The fair value hierarchy consists of three broad levels,
which give 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
 
 20
  In
March 2008, the FASB, affirmed the consensus of FASB Staff Position (FSP)
Accounting Principles Board Opinion No. 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement), which applies to all convertible debt instruments that have
a net settlement
feature; which means that such convertible debt instruments, by their
terms, may be settled either wholly or partially in cash upon conversion. APB
14-1 requires issuers of convertible debt instruments that may be settled wholly
or partially in cash upon conversion to separately account for the liability and
equity components in a manner reflective of the issuer’s nonconvertible debt
borrowing rate. Previous guidance provided for accounting for this type of
convertible debt instrument entirely as debt. APB 14-1 is effective for
financial statements issued for fiscal years beginning after December 15,
2008 and interim periods within those fiscal years. We do not expect the
adoption of APB 14-1 to have a material impact on our consolidated financial
statements.
  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 generally accepted accounting principles in the
United States (the GAAP hierarchy). SFAS 162 is effective 60 days following the
SEC's approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles. We are reviewing the effect, if any, the proposed guidance
will have on our consolidated financial statements disclosures.
 
 In May,
2008, FASB issued SFAS No. 163, Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No.
60.  Diversity exists in practice in accounting for financial
guarantee insurance contracts by insurance enterprises under FASB Statement No.
60, Accounting and Reporting
by Insurance Enterprises. That diversity results in inconsistencies in
the recognition and measurement of claim liabilities because of differing views
about when a loss has been incurred under FASB Statement No. 5, Accounting for Contingencies.
This statement requires that an insurance enterprise recognize a claim liability
prior to an event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. This statement
also clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account for
premium revenue and claim liabilities. Those clarifications will increase
comparability in financial reporting of financial guarantee insurance contracts
by insurance enterprises. This statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the statement will improve the quality of information provided
to users of financial statements. SFAS 163 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years; disclosure requirements in paragraphs
30(g) and 31 are effective for the first period (including interim periods)
beginning after May 23, 2008. We do not expect the adoption of SFAS 163 to have
a significant impact on our consolidated financial statements.
 
 On
June 16, 2008, the FASB issued FASB Staff Position 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. 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.
We are evaluating the requirements of EITF 03-6-1 and the impact that its
adoption will have on the results of our operations and financial
position.
  21
 
 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 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.  We are evaluating the impact that adoption of EITF 07-5
will have on our consolidated financial statements.
 
 In June
2008, FASB released a proposed SFAS, Disclosure of Certain Loss
Contingencies, an amendment of FASB Statements No. 5 and 141 for a
comment period that ended during August 2008. The proposed statement would
(a) expand the population of loss contingencies that are required to be
disclosed, (b) require disclosure of specific quantitative and qualitative
information about those loss contingencies, (c) require a tabular
reconciliation of recognized loss contingencies and (d) provide an
exemption from disclosing certain required information if disclosing that
information would be prejudicial to an entity's position in a dispute. The
proposed statement would be effective for financial statements issued for fiscal
years ending after December 15, 2008, and for interim and annual periods in
subsequent fiscal years. When and if the proposed statement is approved in final
form by FASB, we will evaluate whether the adoption of the proposed statement
will have any material impact on our financial position and results of
operations.
 
 Item
3.  Quantitative and Qualitative Disclosures about Market
Risk
 
 As a
smaller reporting company, we are not required to include this
information.
 
 Item
4.  Controls and Procedures
 
 Disclosure
Controls and Procedures
 
 Richard
N. Jeffs, our chief executive officer and chief financial officer, has evaluated
the effectiveness of our disclosure controls and procedures (as the term is
defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934) as
of the end of the period covered by this quarterly report (the “evaluation
date”).  Based on his evaluation, Mr. Jeffs has 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 Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms.
 
 Item
4 (T).  Controls and Procedures
 
 Changes
in Internal Controls
 
 During
the quarter of the fiscal year covered by this report, there were no changes to
our internal control over financial reporting that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
 
 PART
II - OTHER INFORMATION
 
 Item
1.  Legal Proceedings.
 
 Not
applicable
  22
 
 Item
1A.  Risk Factors.
 
 Not
applicable
 
 Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds.
 
 Not
applicable
 
 Item
3.  Defaults Upon Senior Securities.
 
 Not
applicable
 
 Item
4.  Submission of Matters to a Vote of Security Holders.
 
 Not
applicable
 
 Item 5. Other Information
 
 Not
applicable
 
 Item
6. Exhibits
 
 Exhibit
      No.
              Title3.1
              Articles
      of Incorporation(1)3.2
              Bylaws(1)31.1
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
    2002(2)31.2
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
    2002(2)32.1
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002(2)32.2
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002(2)
 (1)
Incorporated by reference from the registrant’s registration statement on Form
SB-2, SEC File No. 333-139312, filed with the Securities and Exchange Commission
on December 13, 2006
 (2) Filed
herewith
 
 23
  SIGNATURES
 
 In
accordance with the requirements 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:
      November 13, 2008
              By:
              /s/ Richard
      N. JeffsRichard
      N. JeffsDirector,
      President and
                Chief
      Financial Officer
                (Principal
      Executive Officer and
                Principal
      Financial Officer)