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UNITED STATESSECURITIES
AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KSB

[X]ANNUAL REPORT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended November 30, 2006

[   ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________.

Commission file number 333-134175

LEXINGTON ENERGY SERVICES
INC.(Exact name of registrant as specified in its
charter)

|NEVADA                                        | N/A                                 
|--------------------------------------------- | ------------------------------------
|(State or Other Jurisdiction of Incorporation | (I.R.S. Employer Identification No.)
|of Organization)                              |                                     
|                                              |                                     
|207 West Hastings Street, Suite 1209          | V6B 1H7                             
|Vancouver, BC                                 |                                     
|(Address of principal executive offices)      | (ZIP Code)                          

604-899-4550(Registrants telephone
number, including area code)

Securities registered under Section 12(b) of the Exchange Act:
NoneSecurities registered under Section 12(g) of the Exchange
Act: None

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

Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no disclosure will
be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form-10KSB or any amendment to Form 10-KSB. ;

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

Issuers revenues for its most recent fiscal year: $0

Aggregate market value of the voting stock of the registrant
held by non-affiliates of the registrant at February 27, 2007 (computed by
reference to the closing price of the last sale recorded on the NASD OTC
Bulletin Board of the common shares on such date):$11,204,368

Number of common shares outstanding at February 27, 2007:
22,289,178

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TABLE OF CONTENTS

|Part I   |         |                                                                                                                      
|-------- | ------- | ---------------------------------------------------------------------------------------------------------------------
|         |         |                                                                                                                      
|         | Item 1  | Description of Business                                                                                              
|         | Item 2  | Description of Property                                                                                              
|         | Item 3  | Legal Proceedings                                                                                                    
|         | Item 4  | Submission of Matters to a Vote of Security Holders                                                                  
|         |         |                                                                                                                      
|         |         |                                                                                                                      
|Part II  |         |                                                                                                                      
|         |         |                                                                                                                      
|         | Item 5  | Market for Common Equity and Related Stockholder Matters                                                             
|         | Item 6  | Managements Discussion and Analysis or Plan of Operation                                                            
|         | Item 7  | Financial Statements                                                                                                 
|         | Item 8  | Changes In and Disagreements with Accountants on Accounting
      and Financial Disclosure                           
|         | Item 8A | Controls and Procedures                                                                                              
|         | Item 8B | Other Information                                                                                                    
|         |         |                                                                                                                      
|         |         |                                                                                                                      
|PART III |         |                                                                                                                      
|         |         |                                                                                                                      
|         | Item 9  | Directors, Executive Officers, Promoters and Control Persons;
      Compliance with Section 16(a) of the Exchange Act
|         | Item 10 | Executive Compensation                                                                                               
|         | Item 11 | Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters                 
|         | Item 12 | Certain Relationships and Related Transactions                                                                       
|         | Item 13 | Exhibits                                                                                                             
|         | Item 14 | Principal Accountant Fees and Services                                                                               

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PART I

Item 1. Description of Business

Cautionary Statement

This Annual Report on Form 10-KSB contains forward-looking
statements that involve risks and uncertainties. These statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology including, "could" "may",
"will", "should", "expect", "plan", "anticipate", "believe", "estimate",
"predict", "potential" and the negative of these terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially.

While these forward-looking statements, and any assumptions
upon which they are based, are made in good faith and reflect our current
judgment regarding the direction of our business, actual results will almost
always vary, sometimes materially, from any estimates, predictions, projections,
assumptions or other future performance suggested in this Annual Report.

Currency

All currency references in this Report are in US dollars unless
otherwise noted.

Introduction

Lexington Energy Services Inc. was incorporated as a Nevada
company on March 30, 2005. We have three wholly-owned subsidiaries, including
Lexcore Services Inc. (Lexcore), which was incorporated as a Nevada company on
April 28, 2006 and Lexcoil Inc. (Lexcoil), which was incorporated as a Nevada
company on October 3, 2006. Lexcore operates our activities relating to leasing
coring units. Lexcoil is currently inactive. We also own LXN2 LLC, which was set
up as a Michigan LLC on February 14, 2007. We plan to use LXN2 LLC for the
future growth of a manufacturing facility in Michigan, US for our nitrogen
generation system.

We have only recently begun our current operations and have had
operational losses to date, as well as an accumulated deficit. As of November
30, 2006, we had net losses since inception in the amount of ($2,048,560).

We are an oil field service company providing manufacturing and
leasing of oilfield service equipment to oil and gas and other oil field service
companies.

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Our Products and Services

Nitrogen Generation Unit

We recently completed building a nitrogen generation unit, and
we are now in negotiations to lease out this equipment. Nitrogen generation is a
process which extracts the nitrogen content from atmospheric air and purifies it
from its original content of 79% up to a purity of 99.5% . The oil industry uses
nitrogen in various applications. Nitrogen is an inert gas which does not allow
corrosion and displaces oxygen from wells and other hydrocarbon based
environments. Removing the oxygen from these environments and wells eliminates
the risk of causing a fire in a well or causing a surface explosion. In the case
of sour wells which contain Hydrogen sulfide gas, nitrogen is used to displace
oxygen. Removing oxygen from sour wells prevents corrosion of the well bore and
downhole equipment. Without nitrogen, sour wells can rapidly eat through steel
in a couple of days, which can result in a major loss of assets to an oil
company.

In Western Canada drilling operations, nitrogen is often used
daily and is in short supply. Most nitrogen generation plants are located over
500 kilometers from the markets where they are sold. The gas is compressed,
liquefied and stored under pressure so it can be transported to location and
converted from a liquid back to a gas and then sold to the customer. The remote
location and vast distance between point of manufacture and point of sale poses
a serious logistical problem to many oil companies. The liquid nitrogen systems
require trucking of thousands of gallons of product from the point of production
to a transfer station and then a field pumping unit. The liquid is handled three
times and thousands of kilometers are driven to get the product to location.

Our planned nitrogen generation system generates a continuous
supply of nitrogen without any of the additional costs associated with liquid
systems. Our system draws in a large volume of air at low pressures, super heats
the air to remove any contaminates such as oil, moisture and dirt. From there
the air is forced under pressure into a nitrogen membrane module. There modules
contain thousands of hair like fibers which only allow nitrogen molecules to
pass through. As the nitrogen is allowed to pass into the membrane, the waste
gas oxygen is dumped from the system back into the atmosphere. We believe this
system of nitrogen production will allow us to produce a constant uninterrupted
supply of nitrogen at the point of sale with low operating costs and no costs or
hazards associated with liquid units.

It is management's belief that the technology related to how
oxygen is used to create nitrogen in our nitrogen generation unit is too
commonly used and widely known to be patentable and therefore we do not own such
technology. However, we recently received a notice from counsel for Pacific
Consolidated Industries, LLC ("PCI"), giving us notice that PCI had obtained an
injunction against Innovative Nitrogen Systems, LLC ("INS") (the company who
built our Nitrogen Generation Unit) prohibiting INS from retaining, using or
disclosing any of PCI's trade secrets or other confidential information. In a
letter to us dated March 6, 2007, PCI has alleged that some of its proprietary
technology may have been used by INS in building our nitrogen generation unit,
and that we are therefore prohibited in using the unit. Based on a preliminary
review of PCI's allegations, our management does not believe that PCI's
injunction limits or curtails our ability to use or lease our nitrogen
generation equipment. Further details of this claim are described under the
heading "Legal Proceedings".

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Our nitrogen generation unit differs in several ways from the
closest comparably designed systems on the market. Our system is capable of
producing 99.5% nitrogen. The only company we are aware of that provides mobile
nitrogen generation services is Canadian Nitrogen Services Inc. According to
their website, Canadian Nitrogen Services provide mobile nitrogen generation
units which produce 95% nitrogen. This difference is significant as the purer
the nitrogen that is being used at an oil and gas site, the lower the risk of
explosion and corrosion. The other major difference is the diesel electric
system that will power our unit. We are able to use a single diesel burning
generator to provide electrical power to our system. This allows us to use
electric motors on our compressors instead of coupling diesel engines directly
to our compressors. This design allows us to have less moving parts on the
system as compared to traditional systems of our competitors. Our management
believes that the reduction in moving parts makes our system more efficient and
more reliable. Our management also believes that the key elements of the design
which make our unit more efficient than other systems are due to innovations
designed by our management, and do not come from our supplier, INS.

Our nitrogen generation system requires two people to operate
and has a ten hour supply of fuel on board which is complemented with an
auxiliary supply truck. Also, it has a diesel electric system which gives it the
flexibility to operate off of an auxiliary power supply, thus eliminating any
cost of generating the nitrogen except for labour costs. The nitrogen generation
unit is mobile (mounted on a 50 foot trailer) and has an operator/control
air-conditioned cabin with one room with a desk and one room for resting and
storage.

We are currently negotiating to lease our Nitrogen generation
unit to Nitro-Gen Technologies Group Inc., a company partly owned and run by
Brent Nimeck, our Chief Operating Officer and a Director of Lexington.

Mobile Well Production Testing Units

In 2006, we built and two mobile well testing units (p-tanks).
Oil and gas wells need to be tested for various lengths of time depending on the
well performance and repair times. This is done so that the oil companies can
estimate reservoir capabilities and size. Typically, the oil and well testing
procedure is cumbersome and difficult because of the size and volume of the
equipment required, which must be moved by large trucks to location. The p-tanks
which we built and sold were able to perform these tests.

The production testing package is comprised of three major
components, the pressure testing vessel (p-tank), flare stack and dog house.
When assembled on a well site location the components allow a testing company to
test the productivity of the well for the oil companies.

The mobile production testing units we built last year
consisted of all the equipment necessary to test a well attached to a tractor,
along with a mini mobile office with satellite internet access in our
proprietary packaging which allows us to eliminate the need for third party
trucking in the testing of oil and gas wells.

We previously entered into two agreements to lease out our
p-tanks. However, once we completed ordering all of the parts and assembling the
p-tanks, our management determined that it would be more beneficial for us at
that time to sell the units and terminate the lease agreements, and apply the
proceeds of the sales of the p-tanks towards our other divisions. The lease
agreements were terminated by the consent of all parties to the agreements.

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We plan to build more p-tanks on order from customers. We
currently do not have any orders to build any units. We also plan to build out
p-tank business through acquisition.

As of February 28, 2007 we did not have any p-tanks available
for lease or in production.

Coring Units

On April 28, 2006, we incorporated a wholly-owned subsidiary,
Lexcore Services Inc. ("Lexcore"), as a Nevada company, through which we operate
our activities relating to building and leasing coring units. Through Lexcore we
provide to oil and gas companies drilling services, including equipment rental
and provision of personnel to operate the equipment. The equipment we have
designed and are building will be suitable for use in a variety of drilling
operations, including coring, geothermal, coal methane beds and shallow natural
gas.

On September 13, 2006, Lexcore submitted a bid to Laricina
Energy Ltd., a Calgary, Alberta based oil and gas producing company, to lease
two coring/drilling rigs to Laricina Energy for a coring project during late
2006 and early 2007. Laricina Energy accepted the bid on September 22, 2006 (the
"Laricina Drill Program"). The Laricina Drill Program consists of an exploration
drill program on approximately 69 wells at Wabiskaw, Wandering River and Fort
McMurray in Alberta, Canada. Under the terms of the Laricina agreement, Lexcore
agreed to charge by the meter drilled and to charge by the hour for all day
work, including movement from area to area, and hole to hole, 3rd
party cementing, logging, towing and waiting on cement, loggers, and
instructions and waiting on Operator supplied services. Further, Lexcore agreed
to supply the drill rig, wireline core system, core unit (staff facilities),
drill pipe system unit, mud tank, genset for rig operations, and the crew.
Laricina agreed to supply at no expense to Lexcore mud and drill additives,
surface casing, all fuel, water source and disposal sumps, water and vac truck
services, waste disposal on site, logging services, towing services, all site
preparation and permits, site clean up and cuttings removal, accommodation and
food for all crew, and ambulance on site requirements.

Our fully equipped and manned rigs went out to location and
began the Laricina Drill Program in January 2007. As of February 28, 2007 the
Laricina Drill Program was ongoing but we expect it to end in middle to late
spring, depending on weather conditions.

On February 28, 2007, Lexcore entered into an agreement to
provide drilling equipment and personnel to Japan Canada Oil Sands Limited
(JACOS) for a drilling program in Alberta, Canada. Lexcore agreed to use all
reasonable efforts to commence operations for the drilling program on the first
JACOS operated well by March 1, 2007. The parties have agreed that each well
within the drilling program shall be drilled to a depth of approximately 400
meters, or to the Devonian formation, whichever is deeper, but Lexcore shall not
be required to drill any well below a maximum depth of 500 meters.

The Coring Units

We have plans to build four more coring units in the next 12
months. We have not yet ordered any parts, but anticipate that we will do in the
fall of 2007. Each coring unit (including the two which we have completed and
are in final testing) consists of four trucks, as follows:

- Drilling Rig Unit.This is the largest truck in the coring unit and
  is used to raise, lower and rotate the drill pipe in and out of the hole. It
  consists of a mud pump for circulating of drilling fluids. It is capable of
  handling all downhole drilling and coring tools, and is capable of drilling
  range 2 drill pipe and completions of wells with range 3 casing.

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A picture of a drilling rig is presented below.



- Pipe Handling System.This truck is fully automated and used to feed
  drill pipe to the drilling rig. Our pipe handling system is designed to carry
  up to 700 m of drill pipe.
- Core Van.This vehicle's purpose is primarily to pre-evaluate cored
  material and to prepare the material for transport to laboratories. Attached
  to the vehicle is a power generator, washroom and staff change room. Also
  attached is an automated blow out prevention system to handle a gas kick which
  can occur when drilling or coring into any hydro-carbon formation and can be
  easily controlled with a blow out prevention system.
- Boiler Unit Mud System.The boiler truck is used to carry the boiler
  unit which produces steam for heat in winter drilling. It has a self contained
  generator. It will pull the drilling fluids tank which is used to recirculate
  drilling fluid. Drilling fluid is piped down the hole while the drill pipe is
  being drilled into the ground.

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Coring

Oil and gas companies evaluate tar sands and coal bed methane
gas by drilling evaluation holes in the earth and removing core samples. Coring
involves the cutting of a vertical, cylindrical sample out of the earth of the
formations encountered as a well is drilled, to allow geological analysis of the
formation. The geological analysis of a core sample may determine porosity,
permeability, physical characteristics, fluid content, geological age, and
probable productivity of the formation.

Our coring unit systems are unique because of their drilling
capacities. We designed our units with our supplier and with suggestions from a
potential customer. Coring rigs are traditionally big and cumbersome with
excessive weight. Our rigs are unique in that we have converted water well
drilling rigs into an oil and gas coring rigs. Essentially, we have modified a
smaller, lighter rig to handle the same capacity work load as a traditional oil
and gas rig. Due to the fact that these modifications were done through our
supplier, we cannot apply for patent protection. We believe these lighter units
allow us to drill faster than a conventional drilling rig. Another advantage of
our system is that it uses a wireline coring method.

Wireline coring method

Our coring units use a wireline coring method. A wireline core
involves putting a drill pipe into the ground and pulling the earth core samples
out of the centre without moving the drill pipe. Our coring units each have a 30
ft drill pipe which can retrieve a 3 inch wide core up to 700 m deep into the
earth.

We believe wireline coring is faster and more efficient than
the conventional coring method which involves having coring tools at the bottom
of the drill pipe, and inserting the drill pipe into the ground, and then
retrieving only 9 m of core at a time. The disadvantage to this method is that
the drill operator must pull all the drill pipe out of the hole every 3 m. When
using a wireline core, the drill operator can leave the drill pipe in the
ground, and pull the core sample out from the inside of the drill pipe with the
wireline. Our management estimates that about 50% of coring in oil sands in
Alberta is done using the wireline coring method.

A conventional coring unit would usually require six or seven
trucks (two or three more trucks than our wireline coring unit) since the
conventional method requires more equipment. Because more trucks are needed,
either more personnel are required, or several trips have to be made by some
drivers. Also, with conventional coring the trucks are typically larger, and
require bigger roads to be built to allow them access into remote areas. In
Alberta, most core samples need to be transported to Calgary for evaluation.
Coring in oil fields usually requires travel into remote areas, often areas so
remote that roads need to be built to allow the coring unit to get there. Once
there, a coring unit must usually travel anywhere from 300 m to 2 km to obtain
each core sample. We believe that our wireline coring unit (consisting of only
four trucks) will be attractive to oil companies because our units are smaller
and require less fuel, less manpower and smaller roads than conventional coring
units.

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Another distinct benefit to wireline coring is that with the
smaller unit, there is a smaller environmental footprint. Oil companies are
required to pay stumpage fees related to the number of trees that are cut down
in oil exploration and production. Also, there are regulations on how many trees
may be cut down in each area. For the wireline coring unit, the work area needed
is about half the size of conventional coring units. The work area is usually
created by cutting down trees to make a clearing. The smaller size of our
wireline coring units will allow oil companies that use our equipment to
construct smaller areas to set up the coring unit for sampling.

Growth

We expect our business strategy will continue to include growth
through selective acquisitions. Our continued rate of growth will depend on our
ability to identify attractive acquisition opportunities and to acquire
identified targets at commercially reasonable prices. We plan to integrate
future acquisitions into our existing operations. We have extra space in our
facility in Calgary and we expect to have extra space in our planned facility in
Brooks, Alberta in which we can house the development of new products or
businesses that we acquire.

The Oil and Gas Services Industry

We provide products and services to onshore oil and natural gas
exploration and production companies and other oil service companies for use in
the drilling and production of oil and natural gas. The main factor influencing
demand for well services in our industry is the level of drilling activity by
oil and natural gas companies, which, in turn, depends largely on current and
anticipated future crude oil and natural gas prices and depletion rates. Current
market indicators suggest an increasing demand for oil and natural gas coupled
with a flat or declining production curve, which we believe should result in the
continuation of historically high crude oil and natural gas commodity prices.
For example, in its International Energy Outlook 2006, the Energy Information
Agency of the U.S. Department of Energy (the EIA) forecasts that North American
gas consumption is projected to increase an average annual rate of 1.1 percent
between 2003 and 2030. According to the same report, Canada is currently the
source of almost 90% of net natural gas imports to the U.S., although that
percentage is expected to drop significantly over the next 25 years.

Our Distribution Method

For our current Laricina Drill Program, our rigs and crews
traveled from our Calgary office to the location of the project. We intend to
also set up a facility in Brooks, Alberta. In the future, we anticipate that
some customers will pick up equipment they lease from us from either our Brooks,
Alberta location or our Calgary, Alberta location. For some projects for which
we also provide a crew, we will travel to location.

New Products and Services

All of our products and services are new, as we have only
recently begun operations. We intend to actively seek new products and services
currently offered by other companies and attempt to acquire them by payment of
cash or shares or by purchasing a company.

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Competition

Our competition includes small and mid-size independent
contractors as well as major oilfield services companies with international
operations. We compete with over 100 testing companies that provide services to
oil and gas companies in Western Canada, and many more companies that provide
oil field services internationally. We believe that the principal competitive
factors in the market areas that we serve are price, product and service
quality, efficiency and availability of equipment and technical proficiency.

We differentiate ourselves from our major competition by our
unique equipment. Much of our equipment, including some of our mobile well
testing equipment and our nitrogen generation unit has been designed by our
management, or designed by our suppliers on the instructions of our management.
We have not created any new technology in designing our proposed equipment, but
rather, we have combined existing equipment and technologies to produce better
overall results such as higher purities and pressures. We use some off-the-rack
products so we can easily get replacement parts. Our management does not believe
that we would be able to obtain patents for any of the systems or processes that
we have designed.

Our target market is independent oil and gas companies. Based
on the experience of our directors, these independents typically are
relationship driven and make decisions at the local level. We believe this
business model will enable us to grow our business. However, we are a minor
participant in the industry and compete in the oil and natural gas industry with
many other companies having far greater financial, technical and other
resources.

Marketing

We have been active in building awareness of our services
through press releases and other publicity materials which we send regularly to
industry trade papers and magazines. We have attended, and plan to attend mining
and oil and gas trade shows in North America. We also feature our services at
our website at www.lexingtonenergyservices.com. We intend to develop future
business through the existing contacts of our management team.

Research and Development

Since our inception, we have not spent any money on research or
development. However, we intend to spend approximately $900,000 during the next
year on research and development to improve the design of our planned equipment
and manufacturing processes so that both are more efficient and effective.

Intellectual Property

We have not filed for any protection of our trademarks. We do
not believe we could obtain a patent on the assembly design for any of our
equipment. We own the intellectual property associated with our trade names and
our website at www.lexingtonenergyservices.com.

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Legislation and Government Regulation

Canada has regulatory provisions relating to permits for the
drilling of wells, the spacing of wells, the prevention of oil and natural gas
waste, allowable rates of production and other matters. The amount of oil and
natural gas produced is subject to control by regulatory agencies in each
province that periodically assign allowable rates of production. The Province of
Alberta and Government of Canada also monitor and regulate the volume of natural
gas that may be removed from the province and the conditions of removal.

The right to explore for and develop oil and natural gas on
lands in Alberta, Saskatchewan and British Columbia is controlled by the
governments of each of those provinces. Changes in royalties and other terms of
provincial leases, permits and reservations may have a substantial effect on the
operations of our customers, which in turn could affect the demand for our
products and services and have a substantial effect on our operations. In
addition to the foregoing, in the future, our Canadian operations may be
affected from time to time by political developments in Canada and by Canadian
Federal, provincial and local laws and regulations, such as restrictions on
production and export, oil and natural gas allocation and rationing, price
controls, tax increases, expropriation of property, modification or cancellation
of contract rights, and environmental protection controls. Furthermore,
operations may also be affected by United States import fees and restrictions.

We are also subject to safety policies of the Alberta Workers
Compensation Board that regulates the protection of the health and safety of
workers.

Environmental Law Compliance

As our business plan involves offering equipment for lease to
oil and gas companies, we do not expect that we will be governed by the
comprehensive federal, provincial and local laws that regulate the discharge of
materials into the environment or otherwise relate to health and safety or the
protection of the environment. Our well testing equipment has been developed to
assist oil and gas companies in Western Canada to comply with "Guide 40:
Pressure and Deliverability Testing - Oil and Gas Wells" as developed by theAlberta Energy and Utilities Board. Guide 40 provides the requirements and
recommended practices for pressure and deliverability testing of oil and gas
wells. We need to ensure that the equipment which we create assists our clients
in meeting these regulations. The Alberta Energy and Utilities Board is an
independent, quasi-judicial agency of the Government of Alberta which regulates
the safe, responsible, and efficient development of Alberta's energy resources.

To the extent which environmental compliance may be necessary,
we do not anticipate any significant compliance expense.

Employees

We currently employ approximately six people at our Vancouver
office in the areas of management, accounting, marketing and administration and
six people in our Calgary office in the areas of management, operations,
administration, investor and media relations, and research and development. We
also currently employ a team of 25 full time rig personnel who are currently
working in Fort McMurray on a service contract though our subsidiary Lexcore.

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Over the next 12 months, we anticipate that we will hire two to
three more people in the areas of media, publicity and marketing. We are also
currently reviewing potential candidates to serve on our Board of Directors and
join our executive management team. Over the next 12 months, we hope to add at
least two more directors to our Board, as well as a new Chief Financial Officer
and several Vice Presidents. We also expect to hire a customer service
representative and a facility manager for our planned facility in Brooks,
Alberta once our facility is built. If we are successful in raising additional
capital to build more equipment and expand, we will likely hire skilled
technical workers to assemble the equipment on a short term contract basis. We
currently engage independent contractors in the areas of accounting, bookkeeping
and legal services.

Item 2. Description of Property.

Our properties are as follows:

Vancouver, British Columbia

Lexington’s principal executive offices are located at
  207 West Hastings Street, Suite 1209, Vancouver, British Columbia, V6B 1H7,
  Canada. Our office is approximately 2,000 square feet in size. We are currently
  negotiating a three lease agreement which we expect to be for monthly rent of
  $2,500.

Calgary, Alberta

Lexcores head office is located at 34125 Wrangler Road SE, RR
#5, Calgary, Alberta T2P 2G6. The facility in Calgary is approximately 9,500
square feet in size. The lease is for a term of four years and ends on July 31,
2010 and we pay an annual rent of approximately $165,000, for monthly
installments of approximately $13,600, plus taxes and utilities.

Brooks, Alberta

On February 23, 2006 we entered into an agreement to purchase a
property in Brooks, Alberta for a purchase price of $221,528. The property is
comprised of raw land and is approximately 8.2 acres. We have paid a deposit of
approximately $183,000 and we expect to pay the remaining $39,000 after the
seller of the property has successfully obtained titles for subdivided parcels
of land which will allow us to close the transaction. The seller has indicated
that it will grant us possession of the land with no further payment due until
the seller is ready to close the transaction.

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Item 3. Legal Proceedings.

On March 6, 2007, we received a letter from counsel for Pacific
Consolidated Industries, LLC ("PCI"), giving us notice that PCI had obtained an
Order of Preliminary Injunction issued by the U.S. District Court for the
Central District of California on February 7, 2007 an injunction in U.S. against
Innovative Nitrogen Systems, LLC and two of its executives, Bill Brigham and
Michael Schroeder, and all persons acting in convert with any of them, from
taking a number of actions, including: "approaching, for purposes of marketing,
selling or providing any type of services, including consultant, subcontractor
or advisory services.to those customers set forth at Exhibit A hereto."
Lexington is listed as one of the customers that INS is prohibited from
contacting. Further, the court preliminarily enjoined INS from "retaining any of
PCI's trade secrets or other confidential information[or] using or disclosing,
directly or indirectly, any of PCI's trade secrets or other confidential or
proprietary information." In its letter dated March 6, 2007, PCI has alleged
that some of its proprietary technology may have been used by INS in building
our nitrogen generation unit, and that our proposed lease of the unit to
Nitro-Gen would constitute a transfer of PCI's technology in breach of the
injunction. As of today's date, we are not a party to the proceedings, nor has
PCI threatened to add us or any of our agents or directors as a party.

Based on a preliminary review of PCI's allegations, our
management does not believe that PCI's injunction limits or curtails our ability
to use or lease our nitrogen generation equipment. Further, it is management's
belief that the technology related to how oxygen is used to create nitrogen in
our nitrogen generation unit is commonly used and widely known and has not been
patented and cannot be patented. Further, the key elements of the design which
make our unit more efficient than other systems we believe are due to
innovations designed by our management, and do not come from our supplier, INS,
and therefore do not originate with PCI and are not subject to any injunction.
We intend to correspond with counsel for PCI to see if a settlement regarding
interpretation of PCI's injunction can be reached.

Management is not aware of any legal proceedings contemplated
by any governmental authority against us. None of our directors, officers or
affiliates are (i) a party adverse to us in any legal proceedings, or (ii) have
an adverse interest to us in any legal proceedings.

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

None

PART II

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

There is a limited public market for our common shares. Our
common shares are quoted for trading on the NASD OTC Bulletin Board under the
symbol LXES. Our common shares became eligible for quotation on November 30,
2006, but no quotes of our stock appeared on the OTC Bulletin Board until
December 2006.

The following table shows the high and low prices of our common
shares on the NASD OTC Bulletin Board. The following quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions:

11

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Period
    High
    LowDec. 1, 2006  Feb. 28, 2007
    $1.66
    $0.75


As of February 27, 2007, there were 22,289,178 common shares
outstanding, held by approximately 278 shareholders of record.

To date, we have not paid any dividends on our common shares
and do not expect to declare or pay any dividends on our common shares in the
foreseeable future. Payment of any dividends will depend upon future earnings,
if any, our financial condition, and other factors as deemed relevant by our
Board of Directors.

Equity Compensation Plans

On January 16, 2007, we filed with the SEC a Form S-8
registering 3,000,000 common shares to be issued to employees and consultants,
approved by the Board on January 11, 2007. Of the 3,000,000 common shares
registered, 2,000,000 common shares were registered pursuant to Lexingtons 2007
Non-Qualified Stock Option Plan and 1,000,000 common shares were registered
pursuant to Lexingtons 2007 Non-Qualified Stock Compensation Plan. As of
February 27, 2007 20,000 shares had been issued pursuant to the 2007
Non-Qualified Stock Option Plan and no shares had yet been issued under the 2007
Non-Qualified Stock Compensation Plan. As of February 27, 2007 no options were
issued and outstanding under the 2007 Non-Qualified Stock Option Plan.

Recent Sales of Unregistered Securities

On December 1, 2006, we issued 484,642 shares of common stock
at $1.00 per share to investors, for cash proceeds of approximately $484,642.

On December 7, 2006, we issued 43,860 common shares pursuant to
the exercise of options by a former consultant. The shares were issued at $0.50
per share for cash proceeds of approximately $21,930.

On December 29, 2006, we issued 255,755 common shares pursuant
to the exercise of warrants by an investor. The warrants were exercised pursuant
to two warrant certificates and were exercised at a price of $0.85 per share,
for cash proceeds of approximately $217,392.

On February 15, 2007, we issued 330,957 shares of common stock
at $1.00 per share to investors, for cash proceeds of approximately $330,957.

We did not employ an underwriter in connection with the
issuance of the securities described above. The issuance of the foregoing
securities were exempt from registration under Regulation S of the Securities
Act. Our other securities issuances were registered on one of the two
Registration Statements on Form SB-2 that were declared effective during the
past year.

12

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

Management's Discussion and Analysis or Plan of Operation

We are a development stage corporation and we are dependent on
our ability to raise capital to sustain operations. Since our fiscal year end of
November 30, 2006, we received revenues of approximately $785,000 pursuant to
the Laricina Drill Program through our subsidiary Lexcore. At November 30, 2006,
however, we had not yet generated any revenues and had accumulated losses of
$2,048,560 since our inception. Although we expect to continue to generate
revenues, we will need to raise additional capital to carry out our business
plan. There is no assurance that any additional financing will be available or
if available, on terms that will be acceptable to us. Obtaining additional
financing will be subject to a number of factors including market conditions,
investor acceptance of our business plan, investor sentiment, and as noted
above, the potential approval of our senior equity securities. These factors may
make the timing, amount, terms and conditions of additional financing
unattractive or unavailable to us. If we are unable to raise additional
financing, we will have to significantly reduce our spending, delay or cancel
planned activities or substantially change our current corporate structure. In
such an event, we intend to implement expense reduction plans in a timely
manner. However, these actions would have material adverse effects on our
business, revenues, operating results, and prospects, resulting in a possible
failure of our business.

We anticipate that the demand for our services over the next
year will be primarily determined by current and anticipated oil and gas prices
and the related general production spending and level of drilling activity in
Western Canada, where we intend to initially focus our operations. Volatility or
weakness in oil and gas prices (or the perception that oil and gas prices will
decrease) may affect the spending patterns of our customers and may result in
the drilling of fewer new wells or lower production spending on existing wells.
This, in turn, could result in lower demand for our services and may cause lower
rates and lower utilization of our well service equipment.

Results of Operations

Results of Operations for the year ended November 30, 2006
and for the Period from March 30, 2005 (Date of Inception) to November 30,
2006

Since our inception on March 30, 2005 to November 30, 2006, we
did not generate any revenues, although we received interest income of $8,788
and we received gross proceeds of $628,070 from the sale of equipment, which
resulted in a net capital gain of $75,459, for the year ended November 30, 2006.
For the year ended November 30, 2006 we incurred a net loss of ($1,971,446).
From March 30, 2005 (date of inception) to November 30, 2006, we incurred a net
loss of ($2,048,560) compared to a net loss of ($77,114) for the period from
March 30, 2005 (date of inception) to November 30, 2005. Our net loss per share
was ($0.13) for the year ended November 30, 2006 and ($0.01) for the period from
March 30, 2005 (date of inception) to November 30, 2005.

Our total expenses were $2,055,693 for the year ended November
30, 2006, including $252,066 in professional fees, $343,380 in management fees,
$62,668 in consulting fees, $535,826 in promotion and marketing, $339,492 in
travel, and $508,528 in general and administrative fees.

Our expenses since March 30, 2005 (date of inception) to
November 30, 2006 were $2,132,807

13

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compared to $77,114 for the period from March 30, 2005 (date of
inception) to November 30, 2005.

Our general and administrative expenses included office rent,
office supplies, communication expenses (cellular, internet, fax, telephone),
travel and entertainment, courier and postage costs, salaries for our officers
and for our administrative assistant. From March 30, 2005 (date of inception) to
November 30, 2006, our general and administrative fees were $514,464 compared to
$5,936 for the period from March 30, 2005 (date of inception) to November 30,
2005. Our expenses for the year ended November 30, 2006 were $2,055,693.

Our professional fees of $252,066 for the year ended November
30, 2006 consisted primarily of legal, accounting and auditing fees. From March
30, 2005 (date of inception) to November 30, 2006, our professional fees totaled
$289,002, compared to $36,936 for the period from March 30, 2005 (date of
inception) to November 30, 2005.

Our management fees of $343,380 for the year ended November 30,
2006 and $370,154 from March 30, 2005 (date of inception) to ended November 30,
2006 consisted mainly of amounts paid to the former CFO, and fees paid to our
current officers. From March 30, 2005 (date of inception) to November 30, 2005,
our management expenses were $26,774.

Our consulting fees for the year ended November 30, 2006 were
$62,668. Our consulting fees for the period from March 30, 2005 (date of
inception) to November 30, 2006 were $62,668. From March 30, 2005 (date of
inception) to November 30, 2005, we did not incur any consulting expenses.

During the period from our inception to November 30, 2006, we
hired consultants in the areas of bookkeeping and accounting. We also retained
an attorney for the preparation of our registration statements, and an auditor
to audit our financial statements.

Plan of Operation

We plan to grow our business to offer a complete range of
products and services for the entire lifecycle of oil and gas wells including
exploration and development, production, operation, maintenance, refining and
abandonment.

Our corporate strategy for the next 12 months (beginning the
early 2007) includes the following:

- build a manufacturing, warehouse and office facility in Brooks, Alberta;
- complete our drilling program for Laricina Energy through our coring
  division;
- build 4 more coring units for Lexcore;
- acquire Southern Well Testing Ltd. and Southern Well Testing (2005) Ltd.
  and add 2 p- tanks to their fleet;
- add 9 nitrogen generation units;
- identify acquisitions which will benefit from having in-house construction
  capabilities and develop personnel and equipment in-house to meet market
  demands; and
- create additional service lines to complement current operations.

14

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Mobile Well Production Testing Units

We completed the construction on two mobile well production testing
  units. We sold one unit after August 31, 2006 for approximately $255,000 and
  second unit in November 2006 for approximately $373,000. We made a capital gain
  on the sale of $75,459.

We had entered into two agreements to lease out our p-tanks,
but both agreements were terminated by mutual agreement.

We plan to build more p-tanks on order from customers. We
currently do not have any orders to build any units. We also plan to build out
p-tank business through acquisition. On February 7, 2007, we entered into a non
binding letter of intent to acquire the assets of both of Southern Well Testing
Ltd. and Southern Well Testing (2005) Ltd. Both companies are majority owned and
managed by Brent Nimeck, who is also our Chief Operating Officer and a director
on our Board. We believe that these companies would be a good asset for us to
acquire since the companies have both a fleet of p-tank units, and established
relationships with customers who lease the units. Together, the Southern Well
Testing companies own eight mobile p-tank test units (which have similar
features to the p-tanks we recently built and sold) and one high stage
combination test vessel. At this time we are negotiating to purchase the
Southern Well companies through the issuance of our restricted common stock.
There is no guarantee that we will be successful in negotiating a legally
binding agreement to acquire the Southern Well companies, or that we will be
successful in completing the acquisition of the Southern Well companies. If we
do acquire these companies, we will likely add two more p-tank units to the
Southern Well fleet, at a cost to us of approximately $600,000 in total.

As of February 28, 2007 we did not have any p-tanks available
for lease or in production.

Nitrogen Generation Unit

Over the next 12 months, if we are successful in raising
sufficient capital, we intend to build nine nitrogen generation units at an
estimated cost of $1,730,000 per unit for total costs of approximately
$15,570,000.

We are currently negotiating the lease of our nitrogen
generation unit to a company partly owned by our Chief Operating Officer, Brent
Nimeck. If we are successful in leasing the unit, we will apply the revenues to
our general operating expenses.

Coring Units

If we are successful in raising additional financing, through
Lexcore, we plan to build four more coring units at a cost of approximately
$2,875,000 each in the fall of 2007.

15

---

Since our fiscal year end of November 30, 2006, we received
revenues of approximately $785,000 pursuant to the Laricina Drill Program, and
the provision of our coring rigs and crew through our subsidiary Lexcore. We
expect to continue to generate revenues pursuant to the Laricina Drill Program
through early or mid spring of 2007, depending on weather conditions. We have
recently entered into an agreement to provide equipment and crew for drilling
services to another company, JACOS. We intend to begin working on this project
once one of our coring rigs has ceased working on the Laricina Drill Program. We
intend to direct revenues from our coring division towards our general and
administrative expenses, labour and maintenance expenses for the drilling
program, and to for parts and labour to build more coring units.

New Facility

Lexington will be headquartered in Brooks, Alberta. Brooks is a
small town located one and a half hours south of Calgary, Alberta, Canada.
Brooks is located in the centre of Southern Alberta and accesses the largest
areas of Alberta which extends into Saskatchewan and to the US border. We intend
to build a 10,000 square foot manufacturing and repair facility with a connected
2,000 square foot office space for our use and for possible lease to other
companies, depending on how much space we need ourselves. We intend to design
the facility to be used for in-house engineering and design staff, human
resources, accounting and an in-house employee office and development centre.
This combination of manufacturing space, warehouse, repair, in-house design
facility and office may enable us to have direct feedback from clients,
employees and engineers to facilitate a fast reaction to the changing needs of
clients and the market.

On February 23, 2006 we entered into an agreement to purchase a
property in Brooks, Alberta for a purchase price of $221,528. The property is
comprised of raw land and is approximately 8.2 acres. We have paid a deposit of
approximately $183,000 and we expect to pay the remaining $39,000 after the
seller of the land has successfully obtained titles for subdivided parcels of
land which will allow us to close the transaction. The seller has indicated that
it will grant us possession of the land with no further payment due until the
seller is ready to close the transaction.

We intend to complete the construction of the facility, which
we estimate will cost approximately $1,061,000, including design. Our intention
is to complete design of this facility and obtain building permits in March
2007, and to begin construction at that time. We anticipate that the
construction will take approximately five months. Once it is complete, we intend
to hire a customer service representative and a manager to oversee the offices.
We anticipate the management costs would be $8,000 per month. We intend to
contract with other companies for maintenance and cleaning services once the
facility is built.

We have entered into an agreement to lease a facility in
Calgary, Alberta for our wholly owned subsidiary, Lexcore. The agreement with
First Truck Centre (Edmonton) Inc., effective as of July 1, 2006, is a sublease
granting us lease of premises at 234125 Wrangler Road, RR #5, Calgary, Alberta
T2P 2G6 for a term of four years from July 1, 2006 and ending July 1, 2010, for
an annual rent of approximately $165,000, for monthly installments of
approximately $13,750, plus taxes and utilities.

16

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Limited operating history; need for additional
capital

There is limited historical financial information about us upon
which to base an evaluation of our performance. We cannot guarantee we will be
successful in our business operations. Our business is subject to risks inherent
in the establishment of a new business enterprise, including limited capital
resources and possible cost overruns due to price and cost increases in services
and products.

We have no assurance that future financing will be available to
us on acceptable terms. If financing is not available on satisfactory terms, we
may be unable to continue, develop or expand our operations. Equity financing
could result in additional dilution to existing shareholders.

Our independent certified public accountants have stated in
their report dated February 16, 2007 included herein, that we have incurred
operating losses from our inception and that we are dependent upon our ability
to raise capital from stockholders or other sources to sustain operations. These
factors raise substantial doubt about our ability to continue as a going
concern.

Liquidity and Capital Resources

Lexcore, our wholly owned subsidiary, received revenues of
approximately $785,000 in February 2007 pursuant to Lexcore's provision of
services to February 19, 2007 pursuant to the Laricina Drill Program. In
addition to providing to Laricina Lexcore's two recently manufactured coring
units, Lexcore also has a team of 25 full time rig personnel working on the
project. The personnel are currently working in Fort McMurray. We anticipate we
will continue providing services to Laricina until early or mid spring, 2007,
depending on weather conditions. Lexcore entered into an agreement with JACOS,
whereby Lexcore will provide drilling equipment and personnel to JACOS, for
JACOS drilling operations in Alberta, Canada. Lexcore will begin work on the
JACOS drilling program once at least one of its rigs can be moved from the
Laricina Drill Program.

As of November 30, 2006, we had a working capital deficit of
  $329,465. Our accumulated deficit was $2,048,560 as at November 30, 2006. Our
  net loss of $2,048,560 from March 30, 2005 (inception) to November 30, 2006
  was funded by a combination of our equity and debt financing. During the year
  ended November 30, 2006, we raised $6,357,044 in equity finance. The increase
  in cash during the year ended November 30, 2006 was $567,649. The increase was
  due to our equity financing activities.

On September 22, 2006 we registered on Form SB-2, 4,963,626
shares to be sold by selling shareholders. We also registered 4,000,000 shares
to be sold by our directors, but only 250,000 shares were sold and the remaining
shares were removed from registration. On the September 22, 2006 Form SB-2 we
also registered a direct offering for 5,000,000 shares. We sold 1,790,182 shares
pursuant to this direct offering for proceeds of approximately $1,521,655 and
removed the balance of the shares from registration.

We used net cash of $1,030,073 in operations for the year ended
November 30, 2006 and net cash of $4,720,643 in investing activities. Investing
activities during the year ended November 30, 2006 included $5,173,275 for
equipment purchase and deposit and $175,438 for deposit on land. We also
received proceeds from the sale of equipment of $628,070. During the year ended
November 30, 2006 our monthly cash requirement was approximately $479,000,
including $86,000 monthly in operating activities and $393,000 in equipment and
land purchases. At the end of the year as at November 30, 2006, we had cash of
$639,499.

17

---

By a registration statement on Form SB-2 declared effective on
January 10, 2007, we registered 6,753,064 shares to be sold by selling
shareholders. Of those shares registered, 500,000 were shares underlying
warrants and 910,000 were shares underlying options. Since the effective date of
the SB-2, 351,732 of those options or warrants have been exercised.

As of November 30, 2006, we had approximately $589,060 in our
  bank accounts. This is an increase of $517,210 from November 30, 2005. Our cash
  balance increased as a result of capital that we raised, less expenses we paid
  during the year ended November 30, 2006. During this period we raised $6,077,727
  in capital through share subscriptions. During the period from December 1, 2005
  to February 27, 2007 we raised capital pursuant to the following share issuances:

Period of Issuance
    Number of Common Shares
      Sold
    Price per Share
    Total ProceedsDecember 2005
    460,000
    $0.20
    $92,000February 2006
    516,000
    $0.50
    $258,000March 2006
    1,155,930
    $0.50
      $577,965April 2006
    870,696
    $0.50
    $435,348August 2006
    2,567,952
    $0.85
    $2,182,759October 2006
    1,790,182
    $0.85
    $1,521,655November 2006
    1,176,470
    $0.851
    $1,000,000December 2006
    484,642
    $1.00
    $484,642December 2006
    43,860
    $0.502
    $21,930December 2006
    255,755
    $0.851
    $217,392January 2007
    244,245
    $0.851
    $207,608February 2007
    107,489
    $0.502
    $53,745February 2007
    330,957
    $1.00
    $330,957February 2007
    20,000
    $0.852
    $17,000Total:
    
    
    $7,399,001


1 Issued pursuant to the exercise of a convertible
debenture. 2 Issued pursuant to the exercise of options or
warrants.

18

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If we are successful in raising significant capital, over the
next twelve months beginning March 1, 2007 we intend to build four additional
coring units and nine more nitrogen generation units, acquire Southern Well
Testing and build two more p-tank units, build a new manufacturing facility in
Brooks, Alberta. Total cash requirements to complete those steps will be
approximately $34,300,000 set out as follows:

Expense
    Amount ($)New Manufacturing Facility in Brooks, Alberta
    1,100,000Build two Portable Well Testing Packages (p-tanks)
    700,000Build nine Truck Mounted Nitrogen Generation Units
    15,600,000Build four Coring/Drilling Rigs
    11,500,000Research and Development
    900,000Costs associated with Acquisitions
    500,000Professional Fees
    500,000General and Administrative Expenses
    4,000,000Total
    34,300,000


The administrative expenses will consist of marketing and
promotion, tradeshow costs, salaries, leases, travel, meals and entertainment,
office maintenance, communication expenses (cellular, internet, fax, telephone),
office supplies, courier and postage costs and office equipment. The
professional fees will consist of consulting fees, accounting and audit fees,
legal fees. We had $639,499 in cash or cash equivalents and a working capital
deficiency of $329,465 as of November 30, 2006.

Any money currently in our bank accounts will likely to applied
to our accounts payable. Any future revenues we receive we plan to use towards
covering our administrative and operating expenses. We require an additional
34,300,000 to carry out our planned business operations and expansion over the
next 12 months. We intend to try to obtain this financing through a combination
of bank financing and equity investment through the sale of our common shares.
Currently none of our assets are encumbered by any loans and we are in the
process of contacting banks to determine what type of bank financing is
available and on what terms. We are active in contacting broker/dealers in the
US and elsewhere regarding possible financing arrangements.

We have no assurance that future financing will be available to
us on acceptable terms. If financing is not available on satisfactory terms, we
may be unable to continue, develop or expand our operations. Equity financing
could result in additional dilution to existing shareholders.

Known Material Trends and Uncertainties

As of February 27, 2007, we had no off balance sheet
transactions that have or are reasonably likely to have a current or future
effect on our financial condition, changes in our financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital
resources.

19

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In view of the uncertainties concerning our continued existence
as a going concern, our management plans to mitigate the effect of such
conditions, management intends to take the following steps in the event that we
are not able to raise sufficient funds to meet the needs of our business plans:

- negotiate with suppliers to delay deposit due dates;
- lease some equipment as individual pieces, as opposed to entire units, if
  we are unable to build and purchase the entire units; and
- negotiate with our management and consultants to pay parts of salaries and
  fees with stock and stock options instead of cash.

We believe that the above discussion contains a number of
forward-looking statements. Our actual results and our actual plan of operations
may differ materially from what is stated above. Factors which may cause our
actual results or our actual plan of operations to vary include, among other
things, decision of the Board of Directors not to pursue a specific course of
action based on a re-assessment of the facts or new facts, changes in oil and
gas prices or general economic conditions.

Critical Accounting Policies

Our financial statements are impacted by the accounting
policies used and the estimates and assumptions made by management during their
preparation. A complete summary of these policies is included in the notes to
our financial statements as of November 30, 2006. We have identified below the
accounting policies that are of particular importance in the presentation of our
financial position, results of operations and cash flows and which require the
application of significant judgment by management.

Foreign Currency Translation

Our functional currency is the Canadian dollar and reporting
  currency is the United States dollar. Foreign currency transactions are primarily
  undertaken in Canadian dollars and are translated into United States dollars,
  in accordance with Statement of Accounting Standards ("SFAS") No.
  52 “Foreign Currency Translation,” using exchange rates at the date
  of the transaction. Monetary assets and liabilities denominated in foreign currencies
  are remeasured at each balance sheet date at the exchange rate prevailing at
  the balance sheet date. Foreign currency exchange gains and losses are charged
  to operations. We have not, as of November 30, 2006, entered into derivative
  instruments to offset the impact of foreign currency fluctuations.

Stock-based Compensation

We have elected to apply the intrinsic value method of APB No.
25, Accounting for Stock Issued to Employees (APB 25) and
related interpretations in accounting for our stock options on options granted
to employees and directors. Under APB 25, compensation expense will be not
recorded to the extent that the exercise price is high than the market value of
the underlying stock on the measurement date, which is usually the date of
grant.

Stock-based compensation for employees is recognized on an
accelerated basis over the vesting period of the individual options. Stock
options granted to non-employees are accounted for under Statement of Financial
Accounting Standards (FAS) No. 123 Accounting for Stock-Based

20

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Compensation and are recognized at the fair value of the
options as determined by an option pricing model as the related services are
provided and the options earned.

Item 7. Financial Statements.

Our consolidated financial statements for the year ended
November 30, 2006, together with the Report of Independent Registered Public
Accounting Firm thereon, are included in this report commencing on page F-1.

Lexington Energy Services Inc. Consolidated Financial
Statements (Expressed in United States dollars)

November 30, 2006

|                                                              | Index
|------------------------------------------------------------- | -----
|                                                              |      
|Report of Independent Registered Public Accounting
      Firm | F1  
|                                                              |      
|Consolidated Balance Sheets                                   | F2  
|                                                              |      
|Consolidated Statements of Operations                         | F3  
|                                                              |      
|Consolidated Statements of Cash Flows                         | F4  
|                                                              |      
|Consolidated Statement of Stockholders Equity                | F6  
|                                                              |      
|Notes to the Consolidated Financial Statements                | F9  

21

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LEXINGTON ENERGY SERVICES INC.

(A Development Stage Company)

REPORT AND CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2006 and 2005

(Stated in US Dollars)

---

|A PARTNERSHIPOFINCORPORATEDPROFESSIONALS | AMISANOHANSON       
|---------------------------------------- | --------------------
|                                         | CHARTEREDACCOUNTANTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders, 
  Lexington Energy Services Inc. 
  (A Development Stage Company)

We have audited the accompanying consolidated balance sheets
  of Lexington Energy Services Inc. (A Development Stage Company) and subsidiaries
  as of November 30, 2006 and 2005 and the related consolidated statements of
  operations, stockholders' equity and cash flows for the year ended November
  30, 2006, the period from March 30, 2005 (Date of Inception) to November 30,
  2005 and for the period from March 30, 2005 (Date of Inception) to November
  30, 2006. These financial statements are the responsibility of the Company's
  management. Our responsibility is to express an opinion on these financial statements
  based on our audits.

We conducted our audits in accordance with the standards of the
  Public Company Accounting Oversight Board (United States of America). Those
  standards require that we plan and perform an audit to obtain reasonable assurance
  about whether the financial statements are free of material misstatement. An
  audit includes examining, on a test basis, evidence supporting the amounts and
  disclosures in the financial statements. An audit also includes assessing the
  accounting principles used and significant estimates made by management, as
  well as evaluating the overall financial statement presentation. We believe
  that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  Lexington Energy Services Inc. and subsidiaries as of November 30, 2006 and
  2005 and the results of their operations and their cash flows for the year ended
  November 30, 2006, the period from March 30, 2005 (Date of Inception) to November
  30, 2005 and for the period from March 30, 2005 (Date of Inception) to November
  30, 2006, in conformity with accounting principles generally accepted in the
  United States of America.

The accompanying consolidated financial statements referred to
  above have been prepared assuming that the Company will continue as a going
  concern. As discussed in Note 1 to the financial statements, the Company is
  in the development stage and is dependent on its ability to raise capital from
  stockholders or other sources to sustain operations. These factors, along with
  other matters as set forth in Note 1, raise substantial doubt that the Company
  will be able to continue as a going concern. Management plans in regard to their
  planned financing and other matters are also described in Note 1. The financial
  statements do not include any adjustments that might result from the outcome
  of this uncertainty.

|Vancouver, Canada | AMISANO HANSON     
|----------------- | ---------------------
|February 16, 2007 | CHARTERED ACCOUNTANTS

|750 WEST PENDER STREET, SUITE 604 | TELEPHONE: 604-689-0188  
|--------------------------------- | -------------------------
|VANCOUVER CANADA                  | FACSIMILE: 604-689-9773  
|V6C 2T7                           | E-MAIL: amishan@telus.net

F-1


---

|LEXINGTON ENERGY SERVICES INC.
|------------------------------
|(A Development Stage Company) 
|CONSOLIDATED BALANCE SHEETS   
|November 30, 2006 and 2005    
|(Stated in US Dollars)        

|ASSETS                                                          |   | 2006       |   |   | 2005    |  
|--------------------------------------------------------------- | - | ---------- | - | - | ------- | -
|                                                                |   |            |   |   |         |  
|Current                                                         |   |            |   |   |         |  
|Cash and cash equivalents                                       | $ | 639,499    |   | $ | 71,850  |  
|GST receivable                                                  |   | 241,764    |   |   | -       |  
|Prepaid expenses and refundable deposits                        |   | 36,193     |   |   | 4,042   |  
|                                                                |   |            |   |   |         |  
|                                                                |   | 917,456    |   |   | 85,892  |  
|Due from related parties  Note 4                               |   | 38,218     |   |   | -       |  
|Equipment  Note 3                                              |   | 3,249,779  |   |   | 3,307   |  
|Deposits on equipment  Note 7                                  |   | 1,360,459  |   |   | -       |  
|Deposit on land  Note 7                                        |   | 175,438    |   |   | -       |  
|                                                                |   |            |   |   |         |  
|                                                                | $ | 5,741,350  |   | $ | 89,199  |  
|                                                                |   |            |   |   |         |  
|LIABILITIES                                                     |   |            |   |   |         |  
|                                                                |   |            |   |   |         |  
|Current                                                         |   |            |   |   |         |  
|Accounts payable and accrued
      liabilities  Note 4         | $ | 1,246,921  |   | $ | 8,404   |  
|Due to related parties  Note 4                                 |   | -          |   |   | 10,909  |  
|                                                                |   |            |   |   |         |  
|                                                                |   | 1,246,921  |   |   | 19,313  |  
|                                                                |   |            |   |   |         |  
|STOCKHOLDERS EQUITY                                            |   |            |   |   |         |  
|                                                                |   |            |   |   |         |  
|Capital stock  Notes 5, 6, 7 and 9                             |   |            |   |   |         |  
|Authorized:                                                     |   |            |   |   |         |  
|20,000,000 preferred shares with a
      par value of $0.0001   |   |            |   |   |         |  
|100,000,000 common
      shares with a par value of $0.0001     |   |            |   |   |         |  
|Issued:                                                         |   |            |   |   |         |  
|20,802,230 common
      shares (2005: 12,365,000 common shares) |   | 2,080      |   |   | 1,237   |  
|Additional paid-in capital                                      |   | 6,294,047  |   |   | 155,763 |  
|Stock subscriptions received  Note 7                           |   | 279,317    |   |   | -       |  
|Stock subscriptions receivable                                  |   | -          |   |   | (20,000 | )
|Accumulated other comprehensive loss                            |   | (32,455    | ) |   | -       |  
|Deficit accumulated during the development stage                |   | (2,048,560 | ) |   | (77,114 | )
|                                                                |   |            |   |   |         |  
|                                                                |   | 4,494,429  |   |   | 69,886  |  
|                                                                |   |            |   |   |         |  
|                                                                | $ | 5,741,350  |   | $ | 89,199  |  
|                                                                |   |            |   |   |         |  
|Nature and Continuance of Operations  Note 1                   |   |            |   |   |         |  
|Commitments  Notes 5, 6 and 7                                  |   |            |   |   |         |  
|Contingencies  Note 8                                          |   |            |   |   |         |  
|Subsequent Events  Notes 7 and 9                               |   |            |   |   |         |  

SEE ACCOMPANYING NOTES

F-2

---

|LEXINGTON ENERGY SERVICES INC.                                              
|----------------------------------------------------------------------------
|(A Development Stage Company)                                               
|CONSOLIDATED STATEMENTS OF OPERATIONS                                       
|for the year ended November 30, 2006,                                       
|the period March 30, 2005 (Date of Inception) to November
      30, 2005 and
|for the period March 30, 2005 (Date of Inception) to November
      30, 2006
|(Stated in US Dollars)                                                      

|                                              |   |            |   |   | March 30,     |   |   | March 30,     |  
|--------------------------------------------- | - | ---------- | - | - | ------------- | - | - | ------------- | -
|                                              |   |            |   |   | 2005(Date of  |   |   | 2005(Date of  |  
|                                              |   |            |   |   | Inception) to |   |   | Inception) to |  
|                                              |   |            |   |   | November 30,  |   |   | November 30,  |  
|                                              |   | 2006       |   |   | 2005          |   |   | 2006          |  
|                                              |   |            |   |   |               |   |   |               |  
|Expenses                                      |   |            |   |   |               |   |   |               |  
|Depreciation                                  | $ | 13,733     |   | $ | 1,654         |   | $ | 15,387        |  
|Consulting fees 
      Note 4                |   | 62,668     |   |   | -             |   |   | 62,668        |  
|Management fees  Note 4                      |   | 343,380    |   |   | 26,774        |   |   | 370,154       |  
|Professional fees                             |   | 252,066    |   |   | 36,936        |   |   | 289,002       |  
|Promo and marketing                           |   | 535,826    |   |   | 2,467         |   |   | 538,293       |  
|Travel                                        |   | 339,492    |   |   | 3,347         |   |   | 342,839       |  
|General and administrative                    |   | 508,528    |   |   | 5,936         |   |   | 514,464       |  
|                                              |   |            |   |   |               |   |   |               |  
|                                              |   | 2,055,693  |   |   | 77,114        |   |   | 2,132,807     |  
|                                              |   |            |   |   |               |   |   |               |  
|Loss before other items                       |   | (2,055,693 | ) |   | (77,114       | ) |   | (2,132,807    | )
|                                              |   |            |   |   |               |   |   |               |  
|Other items:                                  |   |            |   |   |               |   |   |               |  
|Interest income                               |   | 8,788      |   |   | -             |   |   | 8,788         |  
|Gain on sale of equipment                     |   | 75,459     |   |   | -             |   |   | 75,459        |  
|                                              |   |            |   |   |               |   |   |               |  
|Net loss for the period                       |   | (1,971,446 | ) |   | (77,114       | ) |   | (2,048,560    | )
|                                              |   |            |   |   |               |   |   |               |  
|Foreign currency translation adjustment       |   | (32,455    | ) |   | -             |   |   | (32,455       | )
|                                              |   |            |   |   |               |   |   |               |  
|Comprehensive loss for the period             | $ | (2,003,901 | ) | $ | (77,114       | ) | $ | (2,081,015    | )
|                                              |   |            |   |   |               |   |   |               |  
|Basic and diluted loss per share              | $ | (0.13      | ) | $ | (0.01         | ) |   |               |  
|                                              |   |            |   |   |               |   |   |               |  
|Weighted average number of shares outstanding |   | 15,364,000 |   |   | 7,629,000     |   |   |               |  

SEE ACCOMPANYING NOTES

F-3

---

|LEXINGTON ENERGY SERVICES INC.                                              
|----------------------------------------------------------------------------
|(A Development Stage Company)                                               
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                       
|for the year ended November 30, 2006,                                       
|the period March 30, 2005 (Date of Inception) to November
      30, 2005 and
|for the period March 30, 2005 (Date of Inception) to November
      30, 2006
|(Stated in US Dollars)                                                      

|                                                    |   |            |   |   | March 30,     |   |   | March 30,     |  
|--------------------------------------------------- | - | ---------- | - | - | ------------- | - | - | ------------- | -
|                                                    |   |            |   |   | 2005(Date of  |   |   | 2005(Date of  |  
|                                                    |   |            |   |   | Inception) to |   |   | Inception) to |  
|                                                    |   |            |   |   | November 30,  |   |   | November 30,  |  
|                                                    |   | 2006       |   |   | 2005          |   |   | 2006          |  
|                                                    |   |            |   |   |               |   |   |               |  
|Operating Activities                                |   |            |   |   |               |   |   |               |  
|Net loss for the period                             | $ | (1,971,446 | ) | $ | (77,114       | ) | $ | (2,048,560    | )
|Adjustments to reconcile
      loss to cash used by |   |            |   |   |               |   |   |               |  
|operating activities:                               |   |            |   |   |               |   |   |               |  
|Depreciation                                        |   | 13,733     |   |   | 1,654         |   |   | 15,387        |  
|Stock based
      compensation                      |   | 56,400     |   |   | -             |   |   | 56,400        |  
|Interest                                            |   | 25,000     |   |   | -             |   |   | 25,000        |  
|Gain on sale
      of equipment                     |   | (75,459    | ) |   | -             |   |   | (75,459       | )
|Changes in non-cash working
      capital items:    |   |            |   |   |               |   |   |               |  
|GST receivable                                      |   | (243,338   | ) |   | -             |   |   | (236,821      | )
|Prepaid
      expenses and refundable deposits      |   | (32,637    | ) |   | (4,042        | ) |   | (35,453       | )
|Accounts payable
      and accrued liabilities      |   | 1,247,359  |   |   | 8,404         |   |   | 1,221,427     |  
|Due
      to/from related parties                   |   | (49,685    | ) |   | 10,909        |   |   | (37,437       | )
|                                                    |   |            |   |   |               |   |   |               |  
|Cash flows used in operating activities             |   | (1,030,073 | ) |   | (60,189       | ) |   | (1,115,516    | )
|                                                    |   |            |   |   |               |   |   |               |  
|Investing Activities                                |   |            |   |   |               |   |   |               |  
|Purchase of equipment                               |   | (3,812,816 | ) |   | (4,961        | ) |   | (3,817,777    | )
|Proceeds from sale of equipment                     |   | 628,070    |   |   | -             |   |   | 628,070       |  
|Deposits on equipment                               |   | (1,360,459 | ) |   | -             |   |   | (1,360,459    | )
|Deposit on land                                     |   | (175,438   | ) |   | -             |   |   | (175,438      | )
|                                                    |   |            |   |   |               |   |   |               |  
|Cash flows used in investing activities             |   | (4,720,643 | ) |   | (4,961        | ) |   | (4,725,604    | )
|                                                    |   |            |   |   |               |   |   |               |  
|Financing Activities                                |   |            |   |   |               |   |   |               |  
|Common stock issued for cash                        |   | 6,077,727  |   |   | 157,000       |   |   | 6,214,727     |  
|Common stock subscription
      received            |   | 279,317    |   |   | (20,000       | ) |   | 279,317       |  
|                                                    |   |            |   |   |               |   |   |               |  
|Cash flows provided by financing activities         |   | 6,357,044  |   |   | 137,000       |   |   | 6,494,044     |  

/contd

SEE ACCOMPANYING NOTES

F-4

---





Continued

|LEXINGTON ENERGY SERVICES INC.                                              
|----------------------------------------------------------------------------
|(A Development Stage Company)                                               
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                       
|for the year ended November 30, 2006,                                       
|the period March 30, 2005 (Date of Inception) to November
      30, 2005 and
|for the period March 30, 2005 (Date of Inception) to November
      30, 2006
|(Stated in US Dollars)                                                      

|                                                              |   |         |   |   | March 30,     |  |   | March 30,     |  
|------------------------------------------------------------- | - | ------- | - | - | ------------- |  | - | ------------- | -
|                                                              |   |         |   |   | 2005(Date of  |  |   | 2005(Date of  |  
|                                                              |   |         |   |   | Inception) to |  |   | Inception) to |  
|                                                              |   |         |   |   | November 30,  |  |   | November 30,  |  
|                                                              |   | 2006    |   |   | 2005          |  |   | 2006          |  
|                                                              |   |         |   |   |               |  |   |               |  
|                                                              |   |         |   |   |               |  |   |               |  
|Effect of exchange rate changes on cash                       |   | (38,679 | ) |   | -             |  |   | (13,425       | )
|                                                              |   |         |   |   |               |  |   |               |  
|Increase in cash and cash equivalents during
      the period |   | 567,649 |   |   | 71,850        |  |   | 639,499       |  
|                                                              |   |         |   |   |               |  |   |               |  
|Cash and cash equivalents, beginning of the
      period      |   | 71,850  |   |   | -             |  |   | -             |  
|                                                              |   |         |   |   |               |  |   |               |  
|Cash and cash equivalents, end of the period                  | $ | 639,499 |   | $ | 71,850        |  | $ | 639,499       |  
|                                                              |   |         |   |   |               |  |   |               |  
|Cash and cash equivalents consist of:                         |   |         |   |   |               |  |   |               |  
|Cash                                                          | $ | 589,060 |   | $ | 71,850        |  |   |               |  
|Term deposits                                                 |   | 50,439  |   |   | -             |  |   |               |  
|                                                              |   |         |   |   |               |  |   |               |  
|                                                              | $ | 639,499 |   | $ | 71,850        |  |   |               |  

SEE ACCOMPANYING NOTES

F-5

---

|LEXINGTON ENERGY SERVICES INC.                                              
|----------------------------------------------------------------------------
|(A Development Stage Company)                                               
|CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY                              
|for the period March 30, 2005 (Date of Inception) to November
      30, 2006
|(Stated in US Dollars)                                                      

|                                          |  |            |  |   |              |  |   |               |   |   |            |  |   |               |  |   | Deficit     |   |   |         |  
|----------------------------------------- |  | ---------- |  | - | ------------ |  | - | ------------- | - | - | ---------- |  | - | ------------- |  | - | ----------- | - | - | ------- | -
|                                          |  |            |  |   | Common Stock |  |   |               |   |   |            |  |   | Accumulated   |  |   | Accumulated |   |   |         |  
|                                          |  |            |  |   |              |  |   | Stock         |   |   | Additional |  |   | Other         |  |   | During the  |   |   |         |  
|                                          |  | Number of  |  |   |              |  |   | Subscriptions |   |   | Paid in    |  |   | Comprehensive |  |   | Development |   |   |         |  
|                                          |  | Shares     |  |   | Amount       |  |   | Received      |   |   | Capital    |  |   | Loss          |  |   | Stage       |   |   | Total   |  
|                                          |  |            |  |   |              |  |   |               |   |   |            |  |   |               |  |   |             |   |   |         |  
|Issuance of common shares for cash        |  |            |  |   |              |  |   |               |   |   |            |  |   |               |  |   |             |   |   |         |  
|- at $0.0001 per share at June 1, 2005    |  | 10,000,000 |  | $ | 1,000        |  | $ | -             |   | $ | -          |  | $ | -             |  | $ | -           |   | $ | 1,000   |  
|Issuance of common shares for cash        |  |            |  |   |              |  |   |               |   |   |            |  |   |               |  |   |             |   |   |         |  
|- at $0.03 per share at November 2, 2005  |  | 1,150,000  |  |   | 115          |  |   | -             |   |   | 34,385     |  |   | -             |  |   | -           |   |   | 34,500  |  
|Issuance of commons shares for cash       |  |            |  |   |              |  |   |               |   |   |            |  |   |               |  |   |             |   |   |         |  
|- at $0.10 per share at November 16, 2005 |  | 1,215,000  |  |   | 122          |  |   | (10,000       | ) |   | 121,378    |  |   | -             |  |   | -           |   |   | 111,500 |  
|Net loss for the period                   |  | -          |  |   | -            |  |   | -             |   |   | -          |  |   | -             |  |   | (77,114     | ) |   | (77,114 | )
|                                          |  |            |  |   |              |  |   |               |   |   |            |  |   |               |  |   |             |   |   |         |  
|Balance, November 30, 2005                |  | 12,365,000 |  |   | 1,237        |  |   | (10,000       | ) |   | 155,763    |  |   | -             |  |   | (77,114     | ) |   | 69,886  |  

/contd

SEE ACCOMPANYING NOTES

F-6

---





Continued

|LEXINGTON ENERGY SERVICES INC.                                              
|----------------------------------------------------------------------------
|(A Development Stage Company)                                               
|CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY                              
|for the period March 30, 2005 (Date of Inception) to November
      30, 2006
|(Stated in US Dollars)                                                      

|                                                |  |  |            |   |           |       |   |              |         |   |               |           |   |            |   |  |               |         |   | Deficit     |           |   |       | 
|----------------------------------------------- |  |  | ---------- | - | --------- | ----- | - | ------------ | ------- | - | ------------- | --------- | - | ---------- | - |  | ------------- | ------- | - | ----------- | --------- | - | ----- | 
|                                                |  |  |            |   |           |       |   | Common Stock |         |   |               |           |   |            |   |  | Accumulated   |         |   | Accumulated |           |   |       | 
|                                                |  |  |            |   |           |       |   |              |         |   | Stock         |           |   | Additional |   |  | Other         |         |   | During the  |           |   |       | 
|                                                |  |  |            |   | Number of |       |   |              |         |   | Subscriptions |           |   | Paid in    |   |  | Comprehensive |         |   | Development |           |   |       | 
|                                                |  |  |            |   | Shares    |       |   | Amount       |         |   | Received      |           |   | Capital    |   |  | Loss          |         |   | Stage       |           |   | Total | 
|                                                |  |  |            |   |           |       |   |              |         |   |               |           |   |            |   |  |               |         |   |             |           |   |       | 
|Balance, November 30, 2005                      |  |  | 12,365,000 |   |           | 1,237 |   |              | (10,000 | ) |               | 155,763   |   |            | - |  |               | (77,114 | ) |             | 69,886    |  
|Common shares cancelled                         |  |  | (100,000   | ) |           | (10   | ) |              | -       |   |               | (9,990    | ) |            | - |  |               | -       |   |             | (10,000   | )
|Share subscriptions received                    |  |  | -          |   |           | -     |   |              | 10,000  |   |               | -         |   |            | - |  |               | -       |   |             | 10,000    |  
|Issuance of common shares for cash              |  |  |            |   |           |       |   |              |         |   |               |           |   |            |   |  |               |         |   |             |           |  
|- at $0.20 per share at December
      12, 2005 |  |  | 260,000    |   |           | 26    |   |              | -       |   |               | 51,974    |   |            | - |  |               | -       |   |             | 52,000    |  
|Issuance of common shares for cash              |  |  |            |   |           |       |   |              |         |   |               |           |   |            |   |  |               |         |   |             |           |  
|- at $0.20 per share at December
      21, 2005 |  |  | 200,000    |   |           | 20    |   |              | -       |   |               | 39,980    |   |            | - |  |               | -       |   |             | 40,000    |  
|Issuance of common shares for cash              |  |  |            |   |           |       |   |              |         |   |               |           |   |            |   |  |               |         |   |             |           |  
|- at $0.50 per share at February
      17, 2006 |  |  | 516,000    |   |           | 51    |   |              | -       |   |               | 257,949   |   |            | - |  |               | -       |   |             | 258,000   |  
|Issuance of common shares for cash              |  |  |            |   |           |       |   |              |         |   |               |           |   |            |   |  |               |         |   |             |           |  
|- at $0.50 per share at March 8,
      2006     |  |  | 225,000    |   |           | 22    |   |              | -       |   |               | 112,478   |   |            | - |  |               | -       |   |             | 112,500   |  
|Issuance of common shares for cash              |  |  |            |   |           |       |   |              |         |   |               |           |   |            |   |  |               |         |   |             |           |  
|- at $0.50 per share at March 24,
      2006    |  |  | 930,930    |   |           | 93    |   |              | -       |   |               | 465,372   |   |            | - |  |               | -       |   |             | 465,465   |  
|Issuance of common shares for cash              |  |  |            |   |           |       |   |              |         |   |               |           |   |            |   |  |               |         |   |             |           |  
|- at $0.50 per share at April 18,
      2006    |  |  | 866,696    |   |           | 87    |   |              | -       |   |               | 433,261   |   |            | - |  |               | -       |   |             | 433,348   |  
|Issuance of common shares for cash              |  |  |            |   |           |       |   |              |         |   |               |           |   |            |   |  |               |         |   |             |           |  
|- at $0.50 per share at April 25,
      2006    |  |  | 4,000      |   |           | 1     |   |              | -       |   |               | 1,999     |   |            | - |  |               | -       |   |             | 2,000     |  
|Issuance of common shares for cash              |  |  |            |   |           |       |   |              |         |   |               |           |   |            |   |  |               |         |   |             |           |  
|- at $ 0.85 per share at August 1,
      2006   |  |  | 431,618    |   |           | 43    |   |              | -       |   |               | 366,832   |   |            | - |  |               | -       |   |             | 366,875   |  
|Issuance of common shares for cash              |  |  |            |   |           |       |   |              |         |   |               |           |   |            |   |  |               |         |   |             |           |  
|- at $ 0.85 per share at August 28,
      2006  |  |  | 2,136,334  |   |           | 213   |   |              | -       |   |               | 1,815,671 |   |            | - |  |               | -       |   |             | 1,815,884 |  
|                                                |  |  |            |   |           |       |   |              |         |   |               |           |   |            |   |  |               |         |   |             |           |  
|Subtotal                                        |  |  | 17,835,578 |   |           | 1,783 |   |              | -       |   | $             | 3,691,289 |   |            | - |  |               | (77,114 | ) |             | 3,615,958 |  

/contd

SEE ACCOMPANYING NOTES

F-7

---





Continued

|LEXINGTON ENERGY SERVICES INC.                                              
|----------------------------------------------------------------------------
|(A Development Stage Company)                                               
|CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY                              
|for the period March 30, 2005 (Date of Inception) to November
      30, 2006
|(Stated in US Dollars)                                                      

|                                                |  |            |  |   |              |  |   |               |  |   |            |  |   |               |   |   | Deficit     |   |   |            |  
|----------------------------------------------- |  | ---------- |  | - | ------------ |  | - | ------------- |  | - | ---------- |  | - | ------------- | - | - | ----------- | - | - | ---------- | -
|                                                |  |            |  |   | Common Stock |  |   |               |  |   |            |  |   | Accumulated   |   |   | Accumulated |   |   |            |  
|                                                |  |            |  |   |              |  |   | Stock         |  |   | Additional |  |   | Other         |   |   | During the  |   |   |            |  
|                                                |  | Number of  |  |   |              |  |   | Subscriptions |  |   | Paid in    |  |   | Comprehensive |   |   | Development |   |   |            |  
|                                                |  | Shares     |  |   | Amount       |  |   | Received      |  |   | Capital    |  |   | Loss          |   |   | Stage       |   |   | Total      |  
|                                                |  |            |  |   |              |  |   |               |  |   |            |  |   |               |   |   |             |   |   |            |  
|                                                |  |            |  |   |              |  |   |               |  |   |            |  |   |               |   |   |             |   |   |            |  
|Subtotal                                        |  | 17,835,578 |  |   | 1,783        |  |   | -             |  |   | 3,691,289  |  |   | -             |   |   | (77,114     | ) |   | 3,615,958  |  
|Issuance of common stock for cash               |  |            |  |   |              |  |   |               |  |   |            |  |   |               |   |   |             |   |   |            |  
|- at $0.85 per share at
      October 16, 2006  |  | 800,612    |  |   | 80           |  |   | -             |  |   | 680,440    |  |   | -             |   |   | -           |   |   | 680,520    |  
|Issuance of common stock for cash               |  |            |  |   |              |  |   |               |  |   |            |  |   |               |   |   |             |   |   |            |  
|- at $0.85 per share at
      October 24, 2006  |  | 989,570    |  |   | 99           |  |   | -             |  |   | 841,036    |  |   | -             |   |   | -           |   |   | 841,135    |  
|Fair value of detachable warrants issued with   |  |            |  |   |              |  |   |               |  |   |            |  |   |               |   |   |             |   |   |            |  
|convertible debentures  Note 6                 |  | -          |  |   | -            |  |   | -             |  |   | 25,000     |  |   | -             |   |   | -           |   |   | 25,000     |  
|Issuance of common stock pursuant to conversion |  |            |  |   |              |  |   |               |  |   |            |  |   |               |   |   |             |   |   |            |  
|of convertible debentures                       |  |            |  |   |              |  |   |               |  |   |            |  |   |               |   |   |             |   |   |            |  
|- at $0.85 per share at November 23, 2006       |  | 1,176,470  |  |   | 118          |  |   | -             |  |   | 999,882    |  |   | -             |   |   | -           |   |   | 1,000,000  |  
|Stock based compensation                        |  | -          |  |   | -            |  |   | -             |  |   | 56,400     |  |   | -             |   |   | -           |   |   | 56,400     |  
|Stock subscriptions received                    |  | -          |  |   | -            |  |   | 279,317       |  |   | -          |  |   | -             |   |   | -           |   |   | 279,317    |  
|Foreign currency translation adjustment         |  | -          |  |   | -            |  |   | -             |  |   | -          |  |   | (32,455       | ) |   |             |   |   | (32,455    | )
|Net loss for the period                         |  | -          |  |   | -            |  |   | -             |  |   | -          |  |   | -             |   |   | (1,971,446  | ) |   | (1,971,446 | )
|                                                |  |            |  |   |              |  |   |               |  |   |            |  |   |               |   |   |             |   |   |            |  
|Balance, November 30, 2006                      |  | 20,802,230 |  | $ | 2,080        |  | $ | 279,317       |  | $ | 6,294,047  |  | $ | (32,455       | ) | $ | (2,048,560  | ) | $ | 4,494,429  |  

SEE ACCOMPANYING NOTES

F-8

---

|LEXINGTON ENERGY SERVICES INC.                
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|November 30, 2006 and 2005                    
|(Stated in US Dollars)                        

|Note 1 | Nature and Continuance of Operations
|------ | ------------------------------------

The Company was incorporated in the State
  of Nevada on March 30, 2005 under the name Lexington Media, Inc. On September
  30, 2005, the Company changed its name to Lexington Energy, Inc., and on January
  5, 2006, the Company changed its name to Lexington Energy Services Inc. The
  Company is a development stage company and, as at November 30, 2006, is building
  a nitrogen generation unit which it intends to lease to third parties. The Companys
  subsidiary, Lexcore Services Inc., is building two coring rigs to provide drilling
  services including equipment rental. The equipment that the Company is designing
  and building are suitable for use in a variety of drilling operations and applications.
  The Company plans to further build other coring rigs and equipment and lease
  the equipment to third parties. The Companys common shares are publicly
  traded on the OTC Bulletin Board under the ticker symbol LXES.

These financial statements have been
  prepared in accordance with generally accepted accounting principles applicable
  to a going concern, which assumes that the Company will be able to meet its
  obligations and continue its operations for its next fiscal year. Realization
  values may be substantially different from carrying values as shown and these
  financial statements do not give effect to adjustments that would be necessary
  to the carrying values and classification of assets and liabilities should the
  Company be unable to continue as a going concern. At November 30, 2006, the
  Company had not yet achieved profitable operations, has accumulated losses of
  $2,048,560 since its inception, has a working capital deficiency of $329,465
  and expects to incur further losses in the development of its business, all
  of which casts substantial doubt about the Companys ability to continue
  as a going concern. The Companys ability to continue as a going concern
  is dependent upon its ability to generate future profitable operations and/or
  to obtain the necessary financing to meet its obligations and repay its liabilities
  arising from normal business operations when they come due. Management has no
  formal plan in place to address this concern but considers that the Company
  will be able to obtain additional funds by equity financing and/or related party
  advances, however there is no assurance of additional funding being available.

|Note 2 | Significant Accounting Policies
|------ | -------------------------------

These consolidated financial statements
  have been prepared in accordance with generally accepted accounting principles
  in the United States of America and are stated in US dollars. Because a precise
  determination of many assets and liabilities is dependent upon future events,
  the preparation of financial statements for a period necessarily involves the
  use of estimates which have been made using careful judgment. Actual results
  may differ from these estimates.

F-9



---

|Lexington Energy Services Inc.                
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|November 30, 2006 and 2005                    
|(Stated in US Dollars)  Page 2               

|Note 2 | Significant Accounting Policies (contd)
|------ | -----------------------------------------

The financial statements have, in managements
  opinion, been properly prepared within the framework of the significant accounting
  policies summarized below:

| | a) | Development Stage Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | The Company is a development stage company as defined
        in the Statements of Financial Accounting Standards (SFAS)
        No. 7. The Company is devoting substantially all of its present efforts
        to establish its business and its planned principal operations have not
        commenced. All losses accumulated since inception have been considered
        as part of the Companys development stage activities.                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | b) | Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | These consolidated financial statements include the
        accounts of the Company and its wholly owned subsidiaries, Lexcore Services
        Inc. and Lexcoil Inc. All inter-company transactions and account balances
        have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | c) | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | The carrying values of cash and cash equivalents, accounts
        payable and accrued liabilities and due to/from related parties approximate
        fair value because of the short- term nature of these instruments. Management
        is of the opinion that the Company is not exposed to significant interest,
        currency or credit risks arising from these financial instruments.                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | d) | Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | Equipment is recorded at cost. Depreciation is provided
        on a straight-line basis over three years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | e) | Impairment of Long-Lived Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | In accordance with Financial Accounting Standards Board
        (FASB) Statement of Financial Accounting Standards (SFAS)
        No. 144, Accounting for the Impairment or Disposal of Long-Lived
        Assets, the carrying value of intangible assets and other long-lived
        assets are reviewed on a regular basis for the existence of facts or circumstances
        that may suggest impairment. The Company recognizes impairment when the
        sum of the expected undiscounted future cash flows is less than the carrying
        amount of the asset. Impairment losses, if any, are measured as the excess
        of the carrying amount of the asset over its estimated fair value.



F-10

---

|Lexington Energy Services Inc.                
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|November 30, 2006 and 2005                    
|(Stated in US Dollars)  Page 3               

|Note 2 | Significant Accounting Policies (contd)
|------ | -----------------------------------------

| | f) | Basic and Diluted Net Income (Loss) Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The Company computes net loss per share in accordance
        with SFAS No. 128, "Earnings Per Share". SFAS 128 requires presentation
        of both basic and diluted earnings per share (EPS) on the
        face of the income statement. Basic loss per share is computed by dividing
        net loss available to common shareholders by the weighted average number
        of common shares outstanding during the year. Diluted EPS gives effect
        to all dilutive potential common shares outstanding during the year including
        stock options, using the treasury stock method, and convertible preferred
        stock, using the if-converted method. In computing diluted EPS, the average
        stock price for the year is used in determining the number of shares assumed
        to be purchased from the exercise of stock options or warrants. Diluted
        EPS excludes all dilutive potential common shares if their effect is anti
        dilutive.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | g) | Comprehensive Loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | SFAS No. 130, Reporting Comprehensive Income,
        establishes standards for the reporting and display of comprehensive loss
        and its components in the financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | h) | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The Company considers all highly liquid instruments
        with maturity of three months or less at the time of issuance to be cash
        equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | i) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The Company follows SFAS No. 109, Accounting for
        Income Taxes which requires the use of the asset and liability method
        of accounting for income taxes. Under the asset and liability method of
        SFAS 109, deferred tax assets and liabilities are recognized for future
        tax consequences attributable to temporary differences between the financial
        statements carrying amounts of existing assets and liabilities and loss
        carry forwards and their respective tax bases. Deferred tax assets and
        liabilities are measured using enacted tax rates expected to apply to
        taxable income in the year in which those temporary differences are expected
        to be recovered or settled.                                                                                                                                                                                                                                      



F-11

---

|Lexington Energy Services Inc.                
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|November 30, 2006 and 2005                    
|(Stated in US Dollars)  Page 4               

|Note 2 | Significant Accounting Policies (contd)
|------ | -----------------------------------------

| | j) | Foreign Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | The Companys functional currency is the Canadian
        dollar as substantially all of the Companys operations are in Canada.
        The Companys reporting currency is the United States dollar. Foreign
        currency transactions undertaken in Canadian dollars are translated into
        United States dollars, in accordance with SFAS No. 52 Foreign Currency
        Translation, using exchange rates at the date of the transaction.
        Monetary assets and liabilities denominated in foreign currencies are
        re-measured at each balance sheet date at the exchange rate prevailing
        at the balance sheet date. Foreign currency exchange gains and losses
        are charged to operations. The Company has not, to the date of these financials
        statements, entered into derivative instruments to offset the impact of
        foreign currency fluctuations. Translation adjustments arising from the
        use of differing exchange rates from period to period are included in
        the accumulated other comprehensive gain (loss) account in Stockholders
        Equity.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | k) | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | In December 2004, the FASB issued SFAS No. 123R, Share
        Based Payment, that addresses the accounting transactions in which
        a company exchanges its equity instruments for goods or services. SFAS
        No. 123R requires that such transactions be accounted for using a fair
        value based method. Adoption of SFAS No. 123R is effective for periods
        beginning after December 15, 2005. The Company will adopt this pronouncement
        for the fiscal year commencing December 1, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | In June 2005, FASB issued SFAS No. 154, Accounting
        Changes and Error Corrections, a replacement of APB Opinion No.
        20 and FASB Statement No. 3. SFAS 154 applies to all voluntary changes
        in accounting principle and changes the requirements for accounting for
        and reporting of a change in accounting principle. SFAS No. 154 requires
        retrospective application to prior periods financial statements
        of a voluntary change in accounting principle unless it is impracticable.
        SFAS No. 154 is effective for accounting changes and corrections of errors
        made in fiscal years beginning after December 15, 2005. The Company does
        not expect the adoption of SFAS No. 154 to have a material effect on the
        financial statements.                                                                                                                                                                                                                                                                                                                  

F-12

---

|Lexington Energy Services Inc.                
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|November 30, 2006 and 2005                    
|(Stated in US Dollars)  Page 5               

|Note 3 | Equipment
|------ | ---------

| |                              |   | November 30, 2006 | 
| | ---------------------------- | - | ----------------- | 
| |                              |   |                   | 
| |                              |   | Cost              | 
| |                              |   |                   | 
| | Computer and equipment       | $ | 27,450            | 
| | Office equipment             |   | 6,279             | 
| | Furniture                    |   | 26,966            | 
| | Software                     |   | 10,352            | 
| | Tools and equipment          |   | 6,025             | 
| | Leasehold improvements       |   | 28,220            | 
| | Machinery under construction |   | 3,159,874         | 
| |                              |   |                   | 
| |                              | $ | 3,265,166         | 

| |                    |   | November 30, 2005 | 
| | ------------------ | - | ----------------- | 
| |                    |   |                   | 
| |                    |   | Cost              | 
| |                    |   |                   | 
| | Computer equipment | $ | 4,961             | 

Machinery under construction has not
  been depreciated as it is not yet available for use.

|Note 4 | Related Party Transactions Notes
      7 and 9
|------ | -----------------------------------------------

During the year ended November 30, 2006:

The Company incurred $14,000 for management
  fees to the former Secretary and former CFO of the Company. The former Secretary
  and former CFO of the Company resigned on March 31, 2006.

The Company incurred $122,735 (2005:
  $10,000) for management fees to the President and CEO of the Company. At November
  30, 2006, $30,657 was due from and accrued liabilities include $50,000 owing
  to the President and CEO.

The Company incurred $20,162 for consulting
  fees and $82,050 (2005: $5,000) for management fees to the Senior Vice President
  of Operations and Secretary. At November 30, 2006, $6,873 was due from and accrued
  liabilities include $50,000 owing to the Senior Vice President of Operations
  and Secretary.

The amounts due to related parties of
  $Nil (2005: $10,909) are unsecured, non-interest bearing and due on demand.

F-13

---

|Lexington Energy Services Inc.                
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|November 30, 2006 and 2005                    
|(Stated in US Dollars)  Page 6               

|Note 4 | Related Party Transactions Notes
      7 and 9  (contd)
|------ | ----------------------------------------------------------

The Company incurred $108,630 for management
  fees to the Vice President of Operations of the Companys subsidiary. At
  November 30, 2006, $688 was due from the Vice President of Operations.

|Note 5 | Stock Options Note 9
|------ | ---------------------

The Company has elected to apply the
  intrinsic value method of APB No. 25, Accounting for Stock Issued
  to Employees (APB 25) and related interpretations in
  accounting for its stock options on options granted to employees and directors.
  Under APB 25, compensation expense is only recorded to the extent that the exercise
  price is less than the market value of the underlying stock on the measurement
  date, which is usually the date of grant. Stock-based compensation for employees
  is recognized on an accelerated basis over the vesting period of the individual
  options. Stock options granted to non-employees are accounted for under Statement
  of Financial Accounting Standards (FAS) No. 123 Accounting
  for Stock-Based Compensation and are recognized at the fair value of the
  options as determined by an option pricing model as the related services are
  provided and the options earned.

The following table summarizes the continuity
  of the Companys stock options:

| |                                |  | Number of |   |   | Weighted       | 
| | ------------------------------ |  | --------- | - | - | -------------- | 
| |                                |  | Common    |   |   | Average        | 
| |                                |  | Shares    |   |   | Exercise Price | 
| |                                |  |           |   |   |                | 
| | Outstanding, November 30, 2005 |  | 875,000   |   | $ | 0.10           | 
| | Granted                        |  | 2,720,000 |   | $ | 0.58           | 
| | Cancelled                      |  | (125,000  | ) | $ | 0.10           | 
| |                                |  |           |   |   |                | 
| | Outstanding, November 30, 2006 |  | 3,470,000 |   |   |                | 

The fair value of the stock options granted
  during the periods ended November 30, 2006 and 2005 was determined using the
  Black-Scholes option pricing model with the following assumptions:

| |                                 | 2006           | 2005   
| | ------------------------------- | -------------- | -------
| |                                 |                |        
| | Expected dividend yield         | 0.0%           | 0.0%   
| | Risk-free interest rate         | 2.18%  3.18 % | 4.09%  
| | Expected volatility             | 0.0%           | 0.0%   
| | Expected option life (in years) | 2 years        | 2 years

The compensation charge associated with
  consultants stock options in the amount of $56,400 is included in the
  statement of operations for the year ended November 30, 2006.

F-14

---

|Lexington Energy Services Inc.                
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|November 30, 2006 and 2005                    
|(Stated in US Dollars)  Page 7               

|Note 5 | Stock Options Note 9  (contd)
|------ | --------------------------------

The compensation charge associated with
  directors and employees stock options in the amount of $26,600 is
  not recognized in the financial statements, but included in the pro forma amounts
  below.

Had compensation cost associated with
  directors and employee stock options been determined based on fair value
  at the grant date, pro forma loss and loss per share would have been as follows:

| |                              |   | 2006       |   |   | 2005    |  
| | ---------------------------- | - | ---------- | - | - | ------- | -
| | Net loss                     | $ | (1,971,446 | ) | $ | (77,114 | )
| | Pro forma compensation cost  |   | (26,600    | ) |   | -       |  
| | Pro forma net loss           | $ | (1,998,046 | ) | $ | (77,114 | )
| | Pro forma net loss per share | $ | (0.13      | ) | $ | (0.01   | )

Additional information regarding stock
  options outstanding as at November 30, 2006 is as follows:

| | Number of     |                 |                  
| | ------------- | --------------- | -----------------
| | Common Shares | Exercise Prices | Expiry Date      
| |               |                 |                  
| | 500,000       | $0.10           | October 1, 2007  
| | 250,000       | $0.10           | October 20, 2007 
| | 150,000       | $0.20           | December 30, 2007
| | 370,000       | $0.50           | March 13, 2008   
| | 860,000       | $0.50           | April 5, 2008    
| | 620,000       | $0.50           | May 17, 2008     
| | 200,000       | $0.85           | May 17, 2008     
| | 400,000       | $0.85           | August 1, 2008   
| | 10,000        | $0.85           | October 3, 2008  
| | 65,000        | $0.85           | October 13, 2008 
| | 20,000        | $0.85           | October 16, 2008 
| | 25,000        | $0.85           | November 15, 2008
| |               |                 |                  
| | 3,470,000     |                 |                  

F-15

---

|Lexington Energy Services Inc.                
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|November 30, 2006 and 2005                    
|(Stated in US Dollars)  Page 8               

|Note 6 | Convertible Debentures Note 9
|------ | ------------------------------

The Company entered into two Secured
  Convertible Debenture Purchase Agreements dated November 6, 2006 and November
  7, 2006, totalling $1,000,000. Both convertible debentures were converted on
  November 23, 2006 at $0.85 per share and the Company issued 1,176,470 common
  shares.

Attached to each Secured Convertible
  Debenture was a Warrant Agreement. Each Warrant Agreement entitles the holder
  the right to purchase 250,000 common shares of the Company at $0.85 per share.
  At November 30, 2006, 500,000 warrants were outstanding.

In accordance with Accounting Principles
  Board Opinion No. 14, Accounting for Convertible debt and Debt Issued
  with Stock Purchase Warrants, the proceeds received from the issuance
  of the convertible debentures were allocated between the convertible debentures
  and warrants on a basis of their relative fair values. At the date of issuance,
  $25,000 of the proceeds was allocated to the warrants.

|Note 7 | Commitments Notes 5 and 6
|------ | --------------------------

| | a) | The Company entered into an employment agreement dated
        June 1, 2006 with the President and CEO of the Company for $7,200 per
        month and the option to buy 250,000 common shares of the Company at $0.50
        per share. Subsequent to November 30, 2006, the Company entered into a
        new employment agreement dated March 6, 2007, which replaced the agreement
        dated June 1, 2006, for $18,900 per month and the option to buy 500,000
        common shares of the Company at $0.85 per share. The Company also entered
        into an employment agreement dated June 1, 2006 with the Senior Vice President
        of Operations of the Company for $5,400 per month and the option to buy
        250,000 common shares of the Company at $0.50 per share. Either party
        can terminate the agreement at any time with 14 days notice.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | b) | The Company paid $69,369 in respect to non-refundable
        deposits on equipment purchases with a total cost commitment of $99,098.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | c) | The Company paid $175,438 in respect to a refundable
        deposit on a purchase of land with a total cost of $210,526.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | d) | The Company incorporated a wholly owned subsidiary in
        the State of Nevada on April 28, 2006, named Lexcore Services Inc. The
        subsidiary entered into an employment agreement effective May 1, 2006
        with the Vice-President of Operations for $16,900 per month and the option
        to buy 200,000 common shares of the Company at $0.85 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | e) | The Company entered into an office lease agreement effective
        July 1, 2006 to July 31, 2010 for basic rent of $13,600 per month.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F-16

---

|Lexington Energy Services Inc.                
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|November 30, 2006 and 2005                    
|(Stated in US Dollars)  Page 9               

|Note 7 | Commitments Notes 5 and 6 
      (contd)
|------ | -------------------------------------------

| | f) | During the year ended November 30, 2006, the Company
        received cash proceeds totalling $279,317 in respect to a private placement
        of 279,317 common shares at $1.00 per share. Subsequent to November 30,
        2006, the Company issued these shares.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 8 | Contingencies
|------ | -------------

| | a) | An officer of a subsidiary of the Company has claimed
        that he has been constructively dismissed at the end of December 2006
        and seeks one years salary as compensation, which amounts to $196,988
        (CDN$225,000). The Company contends that the Vice- President voluntarily
        resigned. There has been no liability recorded in the financial statements
        related to this contingency and any unfavourable settlement of this matter
        will be recorded in the period in which the contingency is resolved.                                                                                                                                                                                       
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | b) | The Company received a notice that a third party had
        obtained an injunction against a supplier of certain equipment for the
        Company that prohibits the supplier from retaining, using or disclosing
        any trade secrets or other confidential information. It has been alleged
        that some of its proprietary technology may have been used by the supplier
        in building certain equipment for the Company and that the Company is,
        therefore, prohibited in using the equipment. Based on preliminary review
        of these allegations, management of the Company does not believe that
        the injunction limits or curtails the Companys ability to use or
        lease the equipment.

|Note 9 | Subsequent Events
|------ | -----------------

Subsequent to November 30, 2006:

| | a) | the Company received cash proceeds totalling $536,282
        in respect to a proposed private placement of 536,282 common shares at
        $1.00 per share.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                              
| | b) | the Company received cash proceeds totalling $75,675
        in respect to an exercise of stock options at $0.50 per share for 151,349
        common shares.
| |    |                                                                                                                                                              
| | c) | the Company received cash proceeds totalling $17,000
        in respect to an exercise of stock options at $0.85 per share for 20,000
        common shares. 
| |    |                                                                                                                                                              
| | d) | the Company received cash proceeds totalling $425,000
        in respect to the exercise of warrants at $0.85 per share for 500,000
        common shares.   

F-17

---

|Lexington Energy Services Inc.                
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|November 30, 2006 and 2005                    
|(Stated in US Dollars)  Page 10              

|Note 10 | Income Taxes
|------- | ------------

Potential benefits of income tax losses
  are not recognized in the accounts until realization is more likely-than-not.
  The Company has accumulated net operating losses totalling $2,048,560 for US
  tax purposes which expire starting in 2025. Pursuant to SFAS No. 109, the Company
  is required to compute tax asset benefits for net operating losses carried forward.
  The potential benefit of net operating losses have not been recognized in these
  financial statements because the Company cannot be assured it is more likely-than-not
  it will utilize the net operating losses carried forward in future years.

The components of the net deferred tax
  asset at November 30, 2006 and the statutory tax rate, the effective tax rate
  and the elected amount of the valuation allowance are scheduled below:

| |                        |   | 2006      |  
| | ---------------------- | - | --------- | -
| |                        |   |           |  
| | Net operating loss     | $ | 2,048,560 |  
| |                        |   |           |  
| | Statutory tax rate     |   | 35%       |  
| | Effective tax rate     |   | -         |  
| | Deferred tax asset     | $ | 716,996   |  
| | Valuation allowance    |   | (716,996  | )
| |                        |   |           |  
| | Net deferred tax asset | $ | -         |  

F-18

---

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

Not applicable.

Item 8A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, we carried
out an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of November 30, 2006, being the date of
our fiscal year end covered by this Annual Report. This evaluation was carried
out under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective in timely alerting management to material information
relating to us required to be included in our periodic SEC filings.

Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted 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.

During our fiscal year ended November 30, 2006, there were no
changes in our internal control over financial reporting that have materially
affected, or are reasonably likely to affect, our internal control over
financial reporting.

The term "internal control over financial reporting" is defined
as a process designed by, or under the supervision of, the registrant's
principal executive and principal financial officers, or persons performing
similar functions, and effected by the registrant's board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:

| | (1) | Pertain to the maintenance of records that in reasonable
      detail accurately and fairly reflect the transactions and dispositions of
      the assets of the registrant;                                                                                                                                                                                                   
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                
| | (2) | Provide reasonable assurance that transactions are
      recorded as necessary to permit preparation of financial statements in
      accordance with generally accepted accounting principles, and that
      receipts and expenditures of the registrant are being made only in
      accordance with authorizations of management and directors of the
      registrant; and
| |     |                                                                                                                                                                                                                                                                                                                                                                                
| | (3) | Provide reasonable assurance regarding prevention or
      timely detection of unauthorized acquisition, use or disposition of the
      registrant's assets that could have a material effect on the financial
      statements.                                                                                                                                              

22

---

Item 8B. Other Information.

None.

PART III

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

|(a) | The following table sets forth the name, age, and
      position of the executive officers and directors of Lexington as of
      February 27, 2007.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|Name          | Age | Position                                                                                                                             
|------------- | --- | -------------------------------------------------------------------------------------------------------------------------------------
|              |     |                                                                                                                                      
|Larry Kristof | 36  | Director,
      President, Chief Executive Officer, Chief Financial Officer, Secretary,
      Treasurer, Principal Accounting Officer
|              |     |                                                                                                                                      
|Brent Nimeck  | 29  | Director, Senior
      Vice President of Operations, Chief Operating Officer                                                         

The directors will serve as directors until our next annual
shareholder meeting or until a successor is elected who accepts the position.
Directors are elected for one-year terms. Officers hold their positions at the
will of the Board of Directors. There are no arrangements, agreements or
understandings between non-management shareholders and management under which
non-management shareholders may directly or indirectly participate in or
influence the management of Lexington's affairs.

Larry Kristof, President and CEO, CFO, Treasurer,
Principal Accounting Officer

Larry Kristof has acted as our President and Chief Executive
Officer since October 1, 2005, and on March 31, 2006 was appointed as our Chief
Financial Officer, Treasurer and Principal Accounting Officer. From 2003 to
2005, Mr. Kristof co-founded Lexington Communications Ltd., a company in the
business of providing investor and corporate communications expertise to public
companies. From 1998 to 2001 Larry Kristof was the founder and President of
Westec Venture Group Inc., a company which provided business development and
venture capital services. Mr. Kristof did not participate in any business
activities in 2002. In early 2003, Mr. Kristof worked as Corporate
Communications Manager for Trivello Ventures Inc. (TRV.V), a company engaged in
the extraction development of energy from resource exploration.

23

---

Brent Nimeck, Senior Vice President of Operations, Chief
Operating Officer, Secretary

Brent Nimeck was appointed as our Senior Vice President of
Operations on October 20, 2005. Mr. Nimeck was appointed secretary on October 3,
2006. He was appointed Chief Operating Officer January 23, 2007. From 2002 to
the present, Mr. Nimeck has been the general manager of Southern Well Testing
Ltd., a company whose main focus is production testing of oil and gas wells.
Southern Well Testing also designs and fabricates oil well testing packages. Mr.
Nimeck has been personally involved in every aspect of building all six of the
mobile oil well testing units currently owned by Southern Well Testing, from
negotiating with suppliers to physically assembling the equipment. From 1997 to
2002, Mr. Nimeck worked as a supervisor and equipment operator with Schlumberger
International, a supplier of services and technology to the international
petroleum industry, and was responsible for crew supervision offshore and on
land.

Family Relationships

There are no family relationships among directors, executive
officers, or persons nominated or chosen by Lexington to become directors or
executive officers.

No Legal Proceedings

None of our directors, executive officers, promoters or control
persons have been involved in any of the following events during the past five
years:

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

Board of Directors and Its Committees

The Board of Directors met in person or via telephone regularly
during our fiscal year ended November 30, 2006. Each member of the Board of
Directors attended at least 75% of the meetings. The Board of Directors
currently does not have a nominating committee or a compensation committee.

24

---

Audit Committee

The functions of the Audit Committee are currently carried out
by our Board of Directors. Our Board of Directors has determined that we do not
have an audit committee financial expert on our Board of Directors carrying out
the duties of the Audit Committee. Our Board of Directors has determined that
the cost of hiring a financial expert to act as a director of Lexington and to
be a member of the Audit Committee or otherwise perform Audit Committee
functions outweighs the benefits of having a financial expert on the Audit
Committee.

Director Nominees

We do not have a nominating committee. The Board of Directors,
sitting as a Board, selects those individuals to stand for election as members
of our Board. Since the Board of Directors does not include a majority of
independent directors, the decision of the Board as to director nominees is made
by persons who have an interest in the outcome of the determination. The Board
will consider candidates for directors proposed by security holders, although no
formal procedures for submitting candidates have been adopted. Until otherwise
determined, not less than 90 days prior to the next annual Board of Directors'
meeting at which the slate of Board nominees is adopted, the Board accepts
written submissions that include the name, address and telephone number of the
proposed nominee, along with a brief statement of the candidate's qualifications
to serve as a director and a statement of why the shareholder submitting the
name of the proposed nominee believes that the nomination would be in the best
interests of shareholders. If the proposed nominee is not the security holder
submitting the name of the candidate, a letter from the candidate agreeing to
the submission of his or her name for consideration should be provided at the
time of submission. The letter should be accompanied by a résumé supporting the
nominee's qualifications to serve on the Board of Directors, as well as a list
of references.

The Board identifies director nominees through a combination of
referrals, including by management, existing Board members and security holders,
where warranted. Once a candidate has been identified, the Board reviews the
individual's experience and background and may discuss the proposed nominee with
the source of the recommendation. If the Board believes it to be appropriate,
Board members may meet with the proposed nominee before making a final
determination whether to include the proposed nominee as a member of
management's slate of director nominees submitted to shareholders for election
to the Board.

Among the factors that the Board considers when evaluating
proposed nominees are their knowledge of and experience with and knowledge of
and experience in business matters, finance, capital markets and mergers and
acquisitions. The Board may request additional information from the candidate
prior to reaching a determination. The Board is under no obligation to formally
respond to all recommendations, although as a matter of practice, it will
endeavor to do so.

25

---

Code of Ethics

Lexington has not yet adopted a code of ethics that applies to
Lexingtons principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions
because it has not yet finalized the content of such a code. Companies whose
equity securities are listed for trading on the OTC Bulletin Board are not
currently required to do so. However, we are in the process of drafting a code
of ethics.

Item 10. Executive Compensation.

The following Summary Compensation Table sets forth the total
annual compensation paid or accrued by us to or for the account of the Chief
Executive Officers who held this position during Fiscal 2006 and each other
executive officer whose total cash compensation exceeds $100,000:

Summary Compensation Table

Annual
        Compensation
      
      Long
        Term CompensationAwards
      
      Payout(s)Name and
      
      
      
      
      
      
      
      Other
      
      Restricted
      
      SecuritiesPrincipal
      
      
      
      
      
      
      
      Annual
      
      Stock
      
      Underlying
      
      LTIP
      
      All OtherPosition
      
      Year
      
      Salary
      
      Bonus
      
      Compensation
      
      Award(s)
      
      Options/SARs
      
      Payouts
      
      Compensation$
      
      $
      
      $
      
      $
      
      (#)
      
      $
      
      $Larry
      
      2006
      
      122,735
      
      50,000
      
      0
      
      0
      
      400,000
      
      0
      
      0Kristof (1)
      
      (2)2005
      
      10,000
      
      0
      
      0
      
      0
      
      250,000
      
      0
      
      0(3)Brent
      
      2006Nimeck (4)
      
      (2)
      
      102,212
      
      50,000
      
      0
      
      0
      
      400,000
      
      0
      
      02005(3)
      
      5,000
      
      0
      
      0
      
      0
      
      250,000
      
      0
      
      0


| | (1) | Larry Kristof was appointed as Chief Executive Officer on
      October 1, 2005                                                                               
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | For the year ended November 30, 2006                                                                                                                          
| | (3) | For the period from Inception (March 30, 2005) to
      November 30, 2005                                                                                     
| | (4) | Brent Nimeck is our Senior VP of Operations and was
      appointed our Secretary on October 3, 2006 and our Chief Operating Officer
      on January 23, 2007

Option Grants in the Last Fiscal Year

The following table sets forth the stock options that were
granted to the named executive officers in fiscal year 2006.

Number of
    % of Total Options
    Exercise orSecurities Underlying
    Granted to Employees
    Base PriceName
    Options Granted (#)
    In Fiscal Year 2006
    ($/Sh)
    Expiration DateLarry Kristof
    150,000
    17%
    $0.50
    April 5, 2008250,000
    28%
    $0.50
    May 17, 2008Brent Nimeck
    150,000
    17%
    $0.50
    April 5, 2008250,000
    28%
    $0.50
    May 17, 2008


26

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Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values

The following table sets forth certain information concerning
unexercised stock options held by the named executive officers as of November
30, 2006. None of the named executive officers exercised any of their stock
options during the period from inception (March 30, 2005) to November 30, 2006.

|               | Number Of Securities      |                               
|-------------- | ------------------------- | ------------------------------
|               | Underlying Unexercised    | Value Of Unexercised          
|               | Options At 2006 Fiscal    | In-The-Money Options          
|               | Year-End(#)               | At 2006 Fiscal Year-End ($)(1)
|Name           | Exercisable/Unexercisable | Exercisable/Unexercisable     
|Larry Kristof  | 650,000/0                 | $377,000/0                    
|Tannisah Kruse | 250,000/0                 | $145,000/0                    
|Brent Nimeck   | 650,000/0                 | $377,000/0                    

(1)         The
calculation of the value of unexercised options held by the named executive
officers is based upon the average sales of our unregistered stock at prices of
$0.58 per share in December 2006.

Employment Agreements

On October 1, 2005, we entered into a management agreement with
  Larry Kristof as President and Chief Executive Officer, and on June 1, 2006
  this was replaced by an employment agreement. The employment agreement provides
  that Mr. Kristof will receive a monthly salary of approximately $7,200 per month,
  an increase of $2,200 per month more than the initial agreement. Under the employment
  agreement, Mr. Kristof will also receive a monthly car allowance of approximately
  $1,280 per month. On December 4, 2006, we issued a cash bonus of $50,000 to
  Mr. Kristof for his services. On March 6, 2007, we entered into a new employment
  agreement which replaced the agreement dated June 1, 2006. The new employment
  agreement provides that Mr. Kristof will receive a monthly salary of approximately
  $18,900, an increase of $11,700 per month. Mr. Kristof will no longer receive
  a monthly car allowance. In addition, Mr. Kristof will receive 500,000 options
  to purchase our common shares at a price of US$0.85 per share, good for two
  years, or until his position with us is terminated, whichever occurs earlier.

On October 1, 2005, we entered into a management agreement with
Tannisah Kruse as Chief Financial Officer, Secretary and Treasurer. Ms. Kruse
resigned these positions on March 28, 2006. We entered into a settlement
agreement with Ms. Kruse relating to her resignation. The key terms of the
settlement agreement were:

- Ms. Kruse was allowed to retain her options to purchase 250,000 shares at
  an exercise price of $0.10 per share, exercisable until October 1, 2007;
- Ms. Kruse was allowed to sell 4,750,000 shares in a private transaction;
- Lexington agreed to register on Form SB-2 250,000 of the remaining 500,000
  shares Ms. Kruse owns; and
- both parties agreed to release each other from any claims.

On October 20, 2005, we entered into a management agreement with
  Brent Nimeck as Senior Vice-President of Operations, and on June 1, 2006 this
  was replaced by an employment agreement. The new agreement provides that Mr.
  Nimeck will receive approximately $5,400 per month. On December 4, 2006, we
  issued a cash bonus of $50,000 to Mr. Nimeck for his services. We are currently
  negotiating a new employment agreement with Mr. Nimeck which may involve increasing
  his monthly salary to approximately $18,900.

27

---

On November 17, 2005, we entered into a management agreement
  with Douglas Blackman as Vice-President of Business Development. The agreement
  provides that Mr. Blackman will receive an hourly salary of approximately $45
  per hour, to be invoiced monthly. In November 2006, we terminated the management
  agreement with Douglas Blackman.

On May 17, 2006 our subsidiary Lexcore Services Inc. entered
into an employment agreement to hire Doug Chernesky as the VP, Operations for
Lexcore. He is entitled to receive an annual salary of approximately $205,000.
He also received 200,000 options to purchase common stock at $0.85 per share,
exercisable for a period of two years. On December 22, 2006, Mr. Chernesky
informed Lexcore that he would no longer attend work as he considered himself
constructively dismissed. Lexcore takes the position that he resigned as of
December 22, 2006.

On August 15, 2006, our subsidiary Lexcore entered into an
employment agreement to hire Denis Desrosiers as its Drilling Rig Supervisor to
oversee operation of drilling rigs. He is entitled to receive an annual salary
of approximately $108,000. He also received 25,000 options to purchase common
stock at $0.85 per share, exercisable for a period of two years. His contract
may be cancelled on 30 days notice.

Compensation of Directors

None of our directors received compensation for their service
  as directors during the fiscal year ended November 30, 2006.

Compensation Committee

We currently do not have a compensation committee of the Board
of Directors. The Board of Directors as a whole determines executive
compensation.

Termination of Employment and Change of Control
Arrangement

There is no compensatory plan or arrangement with respect to
any individual named above which results or will result from the resignation,
retirement or any other termination of employment with us, or from a change in
our control.

28

---

Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.

Security Ownership of Certain Beneficial Owners and
Management

The following table sets forth the ownership, as of February
27, 2007, of our common stock by each of our directors, and by all executive
officers and directors as a group, and by each person known to us who is the
beneficial owner of more than 5% of any class of our securities. As of February
27, 2007, there were 22,289,178 common shares issued and outstanding. All
persons named have sole voting and investment power with respect to the shares,
except as otherwise noted. The number of shares described below includes shares
which the beneficial owner described has the right to acquire within 60 days of
the date of this report.

Amount andTitle of
    Name and Address of
    Nature of
    Percent ofClass
    Beneficial Owner
    Beneficial
    ClassOwnership
    (%)Common
      Larry Kristof (1)
      5,360,000
      23%Suite 1209  207 West Hastings St.
      (2)Vancouver, BC V6B 1H7Common
      Brent Nimeck (3)
      5,600,000
      24%Suite 1209  207 West Hastings St.
      (4)Vancouver, BC V6B 1H7Common
      Alliance World Ltd.
      1,893,861
      8%12/F Golden Star Building20 Lockhart RoadWanchai, Hong KongAll
      Officers and Directors as a Group
    10,960,000
    47%


| | (1) | Larry Kristof is a director, President, CEO and CFO of
      Lexington.                          
| | --- | -------------------------------------------------------------------------------------------------
| |     |                                                                                                  
| | (2) | Includes:                                                                                        
| |     |                                                                                                  
| |     | a.                                                                                               
| |     |                                                                                                  
| |     | b.                                                                                               
| |     |                                                                                                  
| |     | c.                                                                                               
| |     |                                                                                                  
| | (3) | Brent Nimeck is a director, Chief Operating Officer and
      Senior VP, Operations of Lexington.
| |     |                                                                                                  
| | (4) | Includes:                                                                                        
| |     |                                                                                                  
| |     | a.                                                                                               

29

---



| |     | b.                                                                                                              | 4,650,000 common shares held by Greystone Holdings Ltd.,
      a company controlled by Brent Nimeck; and                                                                                                        
| | --- | --------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                 |                                                                                                                                                                                                                 
| |     | c.                                                                                                              | 250,000 options to purchase shares at $0.10 until October
      20, 2007, 150,000 options to purchase shares at $0.50 until April 5, 2008,
      250,000 options to purchase shares at $0.50 until May 17, 2008.
| |     |                                                                                                                 |                                                                                                                                                                                                                 
| | (5) | Doug Chernesky is the VP, Operations for our subsidiary,
      Lexcore Services Inc.                           
| |     |                                                                                                                 |                                                                                                                                                                                                                 
| | (6) | Consists of options to purchase 200,000 shares of our
      common stock at $0.85 per share until May 17,
2008.

Changes In Control

There are currently no arrangements which would result in a
change in control of Lexington.

Item 12. Certain Relationships and Related Transactions.

During the fiscal year ended November 30, 2006, we entered into
the following transactions in which certain of our officers or directors have a
direct or indirect material interest.

In 2006, we entered into two agreements to lease out part of
our mobile p-tanks with companies partly owned and controlled by our Chief
Operating Officer, and both agreements have been terminated by mutual agreement.
On January 5, 2006, Southern Well Testing Ltd., a company controlled by our
director and Chief Operating Officer, Brent Nimeck, entered into an agreement
with us whereby it agreed to lease a p-tank for 48 months for $6,105 per month
commencing on June 1, 2006, or later if the p-tank was not ready by then. On
November 1, 2006, both parties agreed to terminate the agreement, effective
immediately, with no penalty or costs to be paid by either party.

Southern Well Testing (2005) Ltd., also partly owned and
controlled by our director Brent Nimeck, entered into an agreement with us on
February 3, 2006 to lease a p-tank mobile testing unit on similar terms. The
agreement, which will become effective once we have completed and insured the
p-tank, provides for the lease of a p-tank mobile testing unit for 48 months for
$6,105 per month commencing on July 1, 2006 or the first of the month following
the month in which the p-tank is made available by us to the customer. In
November 2006, both parties agreed to terminate the agreement, effective
immediately, with no penalty or costs to be paid by either party.

On February 7, 2007, we entered into a non binding letter of
intent to acquire the assets of both of Southern Well Testing Ltd. and Southern
Well Testing (2005) Ltd. Both companies are partly owned and managed by Brent
Nimeck, who is also our Chief Operating Officer and a director on our Board of
Directors. We intend to continue to negotiate to acquire the assets of these
companies.

In addition, we are currently negotiating to lease our Nitrogen
generation unit to NitroGen Technologies Group Inc., a company partly owned and
run by Brent Nimeck, our Chief Operating Officer and a director on our Board.

30

---

Alliance World

As of February 27, 2007, Alliance World Limited ("Alliance")
owned 1,893,861 of our common stock, which amounts to approximately 8% of our
outstanding common shares.

Secured Convertible Debenture - November 6, 2006

On November 6, 2006, Lexington, Lexcore and Alliance entered
into a secured convertible debenture purchase agreement (Debenture Purchase
Agreement) whereby Alliance loaned $500,000 to Lexington. Alliance had the
option to have the $500,000 loan repaid in our common stock. At any time, at
Alliances option, Alliance was entitled to choose to have all or any part of
the outstanding principal and accrued interest repaid in shares of our common
stock at a conversion rate equal to:

(1) ten percent below the fair market value of our common stock
at the time of conversion, as calculated according to the average closing market
price of the five business days preceding the conversion date, or if there has
been no sales of our stock for five days, the price shall be determined
according to the price of the last trade of our stock or,

(2) at $0.85 per share.Lexington and Alliance also entered
into a secured convertible debenture and a warrant certificate pursuant to the
Debenture Purchase Agreement. Interest was to accrue on the debenture at the
rate of 10% per annum.

In consideration of Alliances investment in the debenture, we
also issued a warrant certificate to Alliance for 250,000 warrants to purchase
shares of our common stock at an exercise price of $0.85 per share. The warrant
certificate represents the 250,000 warrants issued pursuant to the Debenture
Purchase Agreement.

Secured Convertible Debenture - November 7,
2006

On November 7, 2006, we entered into a second Debenture
Purchase Agreement, debenture, security agreement and warrant certificate with
Lexcore and Alliance. The November 7, 2006 debenture and associated agreements
contain exactly the same terms as that for the November 6, 2006 debenture and
associated agreements, the only difference being the description of the security
interest pursuant to the security agreement and the date. Under this second
convertible debenture, we issued a further 250,000 warrants to purchase common
shares of Lexington at $0.85 per share until November 1, 2008.

At the end of November 2006, Alliance chose to have both
$500,000 loans, for a total of $1,000,000 repaid in our common stock, so we
issued 1,176,470 common shares to Alliance upon the conversion of two
convertible debentures at a price of $0.85 per share. At the time of the
conversion, no interest had yet accrued.

By a Registration Statement declared effective on January 10,
  2007, we registered the 500,000 shares underlying the warrants we granted to
  Alliance. On December 29, 2006, Alliance exercised warrants to purchase 255,755
  common shares by paying us $217,391.75, and on January 16, 2007, Alliance exercised
  warrants to purchase 244,245 common shares by paying us $207,608.25. As of February
  27, 2006, Alliance had no outstanding convertible securities.

31

---

Other than these agreements described above, and the employment
  agreements described above, we have not entered into any transactions with our
  officers, directors, persons nominated for these positions, beneficial owners
  of 5% or more of our common stock, or family members of these persons wherein
  the amount involved in the transaction or a series of similar transactions exceeded
  $120,000.

Item 13. Exhibits.

Exhibits

|Exhibit | Exhibit                                                                                                        
|------- | ---------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                    
|        |                                                                                                                
|3.1     | Certificate (Articles) of Incorporation as filed with the
      Nevada Secretary of State on March 30, 2005 (1)
|        |                                                                                                                
|3.2     | Certificate of Amendment to Articles of Incorporation
      filed September 30, 2005 (1)                       
|        |                                                                                                                
|3.3     | Certificate of Amendment to Articles of Incorporation
      filed January 11, 2006 (1)                         
|        |                                                                                                                
|3.4     | Bylaws (1)                                                                                                     
|        |                                                                                                                
|10.1    | P-tank Lease Agreement between Lexington and Southern
      Well Testing Ltd. dated January 5, 2006 (1)        
|        |                                                                                                                
|10.2    | P-tank Lease Agreement between Lexington and Southern
      Well Testing (2005) Ltd. dated February 3, 2006 (1)
|        |                                                                                                                
|10.3    | Real Estate Purchase Contract between Lexington and
      Jackson Cattle Co. Ltd. dated February 3, 2006 (1)   
|        |                                                                                                                
|10.4    | Douglas Blackman Management Agreement dated November 17,
      2005 (1)                                        
|        |                                                                                                                
|10.5    | Larry Kristof Management Agreement dated October 1, 2005
      (1)                                             
|        |                                                                                                                
|10.6    | Tannisah Kruse Management Agreement dated October 1, 2005
      (1)                                            
|        |                                                                                                                
|10.7    | Brent Nimeck Management Agreement dated October 20, 2005
      (1)                                             
|        |                                                                                                                
|10.8    | Settlement Agreement with Tannisah Kruse dated March 31,
      2006 (1)                                        

32

---

|10.9  | Larry Kristof Employment Agreement (2)                                                                 
|----- | -------------------------------------------------------------------------------------------------------
|      |                                                                                                        
|10.10 | Brent Nimeck Employment Agreement (2)                                                                  
|      |                                                                                                        
|10.11 | Nitrogen Generation Unit Invoice dated June 23, 2006 (2)                                               
|      |                                                                                                        
|10.12 | Drilling Rig 1 Invoice (2)                                                                             
|      |                                                                                                        
|10.13 | Drilling Rig 2 Invoice (2)                                                                             
|      |                                                                                                        
|10.14 | Addendum to Real Estate Purchase Agreement with Jackson
      Cattle Co. Ltd. (2)                      
|      |                                                                                                        
|10.15 | Agreement to purchase Horizontal Separator from Bromley
      Mechanical Services (2)                  
|      |                                                                                                        
|10.16 | Amendment dated August 2, 2006 to Real Estate Purchase
      Agreement with Jackson Cattle Co. Ltd. (3)
|      |                                                                                                        
|10.17 | Letter of Intent dated August 2, 2006 with Laricina
      Energy Ltd. (4)                              
|      |                                                                                                        
|10.18 | Sub-lease Agreement with First Truck Centre (Edmonton)
      Inc. (3)                                  
|      |                                                                                                        
|10.19 | Amendment to Real Estate Purchase Agreement with Jackson
      Cattle Co. dated August 31, 2006 (4)    
|      |                                                                                                        
|10.20 | Doug Chernesky Employment Agreement (4)                                                                
|      |                                                                                                        
|10.21 | Virgil Cuerrier Employment Agreement (4)                                                               
|      |                                                                                                        
|10.22 | Denis Desrosiers Employment Agreement (4)                                                              
|      |                                                                                                        
|10.23 | Secured Convertible Debenture Purchase Agreement dated
      November 6, 2006 (5)                      
|      |                                                                                                        
|10.24 | Secured Convertible Debenture Purchase Agreement dated
      November 7, 2006                          
|      |                                                                                                        
|10.25 | Notice of Conversion under Convertible Debenture dated
      November 6, 2006 (5)                      
|      |                                                                                                        
|10.26 | Notice of Conversion under Convertible Debenture dated
      November 7, 2006 (5)                      

33

---

|10.27 | Addendum to Real Estate Purchase Contract
        between Lexington and Jackson Cattle Co. Ltd. dated November 30, 2006
        (5)                                                                                 
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                     
|10.28 | Agreement to terminate p-tank lease
        agreement dated November 1, 2006 (5)                                                                                                                                    
|      |                                                                                                                                                                                                                     
|10.29 | Agreement to terminate p-tank lease
        agreement dated December 19, 2006 (5)                                                                                                                                   
|      |                                                                                                                                                                                                                     
|31.1  | Certification
        of the Chief Executive Officer and the Chief Financial Officer Pursuant
        to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of
        the Sarbanes-Oxley Act of 2002
|      |                                                                                                                                                                                                                     
|32.1  | Certification
        of the Chief Executive Officer and the Chief Financial Officer Pursuant
        to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-
        Oxley Act of 2002       

| | (1) | Included as exhibits on our Form SB-2 filed May 16,
      2006.     
| | --- | --------------------------------------------------------------------
| | (2) | Included as exhibits on our Form SB-2 filed July 7,
      2006.     
| | (3) | Included as exhibits on our Form SB-2 filed August 9,
      2006.   
| | (4) | Included as exhibits on our Form SB-2 filed September 1,
      2006.
| | (5) | Included as exhibits on our Form SB-2 filed December 21,
      2006.

Item 14. Principal Accountant Fees and Services.

Audit and Non-Audit Fees

The aggregate fees billed for the two most recently completed
  fiscal years ended November 30 for professional services rendered by the principal
  accountant for the audit of our company's annual financial statements and review
  of the financial statements included our Annual Report on Form 10-KSB and services
  that are normally provided by the accountant in connection with statutory and
  regulatory filings or engagements for these fiscal periods were as follows:

|                   |   | Year Ended | 
|------------------ | - | ---------- | 
|                   |   | November   | 
|                   |   | 30,        | 
|                   |   | 2006 (1)   | 
|Audit Related Fees | $ | 11,696     | 
|Tax Fees           |   | 0          | 
|All Other Fees     |   | 22,380     | 
|Total              |   | 34,076     | 

(1) estimated.

Since our inception, our Board of Directors, performing the
duties of the Audit Committee, reviews all audit and non-audit related fees at
least annually. The Board of Directors as the Audit Committee pre-approved all
audit related services in Fiscal 2006.

34

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SIGNATURES

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

|                     | Lexington Energy Services Inc.               
|-------------------- | ---------------------------------------------
|                     | (Registrant)                                 
|                     |                                              
|                     | /s/ Larry Kristof                            
|Date: March 12, 2007 | Larry Kristof                                
|                     | Director , President, Chief Executive Officer
|                     | Chief Financial Officer, Principal Accounting
|                     | Officer                                      

Pursuant to the requirements of the Exchange Act this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

|Signature              | Title                             | Date          
|---------------------- | --------------------------------- | --------------
|                       |                                   |               
|/s/Larry
      Kristof | President, Chief Executive        | March 12, 2007
|Larry Kristof          | Officer, Chief Financial Officer, |               
|                       | Director and Principal            |               
|                       | Accounting Officer                |               
|                       |                                   |               
|                       |                                   |               
|/s/Brent
      Nimeck  | Director, Chief Operating Officer | March 12, 2007
|Brent Nimeck           |                                   |               

35

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