Black Sea Metals 10K 2008 Annual report

ITEM 1B UNRESOLVED STAFF COMMENTS

We purchased a 100% interest in eight mineral claims known as the Peek Claims, located in Canada’s Yukon Territory, from Glen MacDonald of Vancouver, British Columbia, by an agreement dated November 2, 2001, for consideration of $2,500. At the time of the acquisition of the Peek Claims, we were seeking a potential high-grade gold/silver project. There was, at the time, an extensive technical file available detailing the history of exploration on the Peek Claims property. We also considered the

ITEM 2. PROPERTIES

PEEK CLAIMS

existence of a nearby milling plant as advantageous. Mr. Timmins, P.Eng. and Mr. Laurie Stephenson, P.Eng. were involved in assisting us in the selection process.

The YQMA and its regulations govern the procedures involved in the location, recording and maintenance of mineral titles in the Yukon Territory. The YQMA also governs the issuance of quartz mining licenses which are long-term licenses to produce minerals. Under the YQMA, title to Yukon quartz mineral claims can only be held by individuals or Yukon corporations. Because of this regulation, Barclay McDonald, Glen MacDonald’s son, is holding the mineral claim in trust for us until we can determine whether there are significant mineral reserves on our claim. If we determine that there are significant mineral reserves on our claim we will incorporate a Yukon subsidiary to hold title to the claim and Barclay MacDonald will transfer the mineral claim to the subsidiary. The transfer will be at no cost to us other than the costs associated with the incorporation of the Yukon subsidiary.

Location, Infrastructure and Access

The Peek Claims cover a broad northwest trending ridge south of Pugh Peak (referred to locally as “Gold Hill”), extending from the Wheaton River to Hodnett Lakes. The property lies 40 km south of Whitehorse, the capital of the Yukon Territory, at geographical coordinates 60 16’N latitude, 135 06’W longitude, see Figures 1 and 2 below. Whitehorse is a modern city with a population of 25,000, with most services available for conducting mineral exploration. Daily scheduled flights link the city with Vancouver, British Columbia, Edmonton, Alberta and Fairbanks, Alaska.

The Peek Claims are accessible via an all-weather gravel and paved government-maintained road system which includes a tidewater port road link to Skagway, Alaska. The claims are linked by a secondary road with the Mount Skukum gold mill approximately 12.4 miles away.The Mount Skukum gold mill is a modern gold and silver production facility that is capable of producing both doré bars and metal concentrates depending on the type of ore being processed. The mill is currently idle.

The Alaska and Klondike Highways, and the Wheaton River-Mount Skukum all-season gravel road provide access to the area. A four-wheel drive road follows Thompson Creek from the Wheaton Road to the property. Presently access to the Peek Claims is on foot, by all terrain vehicles or by helicopter because the road is closed by a slide. Further exploration of the property would require approximately $2,000 of road construction work to make the road accessible. We intend to initiate road construction work to make the road accessible prior to commencing Phase IV of our recommended exploration program, as described below.

Physiography, Climate and Vegetation

The Wheaton River district lies in the Boundary Ranges of the Coast Mountains, a rolling uplands area featuring prominent peaks and steep-walled stream and river valleys. Glacial action has modified major river valleys to deep U-shaped drainages with terrace and outwash deposits. Topographically, the area becomes progressively more severe to the southwest, culminating in mountains and ice fields at the headwaters of the Wheaton and Watson Rivers.

A maximum elevation of 6,069 feet is reached on the Peek Claims while the lowest lying feature nearby is Wheaton River at 2,900 feet. The claims cover a barren northwest-trending ridge extending from the Wheaton River to Hodnett Lakes. Outcrop is common on steep slopes descending from the rounded ridge top. The effects of local alpine glaciation are evident on the northern side of Pugh Peak, where cirques and tarns are present. The upland portion of Gold Hill is a rolling grassy plain with outcrop of less than 5%. Consequently most of the geological interpretation is based upon bulldozer trenches to expose bedrock at depths of ranging from six to sixteen feet.

Southwestern Yukon has a dry sub-arctic climate, locally modified by the Pacific Ocean. Summer temperatures average 12°C and annual precipitation totals approximately sixteen inches. The exploration season lasts from May until October.

Vegetation in the upland consists of dwarf grasses, moss and lichen. Timber is restricted to the main valleys at elevations below 3,936 feet.

History of Exploration

The Peek Claims property has been progressively explored since 1983 with work to date including road construction, bulldozer trenching, grid controlled geophysical, geochemical, and geological surveying and prospecting.

The Wheaton River/Lake Bennett district was first explored by prospectors traveling along the major lakes and rivers of southwestern Yukon in the early 1890’s. More intensive exploration began in 1906 after the discovery of free gold and gold-silver tellurides on Gold Hill. Wagon roads were built along the Wheaton River, Thompson Creek and Stevens Creek to provide access to numerous adits and pits on Mount Anderson. Limited mining of high grade gold and silver bearing ore occurred on the Gold Reef vein at the northeastern end of Gold Hill and on the Becker-Cochran (Whirlwind) property on the west face of Mount Anderson.

From the mid-1920’s to the late 1960’s, little exploration of significance took place. By the 1970’s, many of the old showings were restaked as an increase in the value of base and precious metals rekindled the interest of prospectors and mining companies in the area. The Venus and Arctic mines again operated on Montana Mountain between 1969 to 1971. The Venus Mine was again rehabilitated during 1980 to 1981 and a new mill was installed at the southern end of Windy Arm, but no ore was processed.

On the area covered by the Peek Claims, recent exploration started in 1984 to 1985 when the Wheaton River Joint Venture performed prospecting, grid development, mapping, geochemical and geophysical surveys, bulldozer trenching and road building. Mineralized quartz veins and stockworks were discovered in several locations along a five kilometre long ridge on the claim property. The property was owned by the Wheaton River Syndicate from 1983 to 1986.

During 1987 and 1988, Ranger Pacific Minerals Ltd. and others conducted additional geochemical and geophysical surveys. Also, blast trenching work was undertaken to better define target zones previously identified and to further explore the property. The Peek Claims property was owned by Ranger Pacific Minerals Ltd. from 1987 to 1990.

During the period from 1991 to 2001, the property was owned by Glen MacDonald of Vancouver, British Columbia. From 1991 to 2001, exploration work on the property has included bulldozer trenching, road construction, geological mapping and prospecting. Exploration work conducted from 1984 to 1998 covered most of the Gold Hill area, including but not limited to, the area of the Peek Claims.

In 2001, we purchased a 100% interest in the Peek Claims from Glen MacDonald by way of a purchase agreement dated November 2, 2001.

Although exploratory work on the claims conducted by prior owners has indicated some potential showings of mineralization, we are uncertain as to the reliability of these prior exploration results and thus we are uncertain as to whether a commercially viable mineral deposit exists on our mineral claims. Further exploration of these mineral claims is required before a final determination as to their viability can be made.

Mineralization

Precious metal values to date have occurred on the Peek Claims in two types of quartz veins: (i) quartz veins up to 6.5 feet wide in granite and meta-sedimentary/metavolcanic rocks, and (ii) narrow quartz and/or quartz-calcite veins in limestones, quartzites and schists; and silver occurs disseminated in siliceous pyritic schist.

Quartz veins in the first group have a general northwest orientation and are continuous over long distances. The Gold Reef vein on the northwest end of Gold Hill is considered a typical example, and has been traced by underground workings, and surface pits for over 984 feet where the average width has been 5 feet.

Quartz and quartz-calcite veins appear less continuous and have more random orientations. They are generally spatially related to Eocene intrusive rocks.

Alteration and accessory minerals present around the vein systems include clays (kaolinite, alunite) black and green chalcedonic breccias, fluorite, barite, pyrite and hematite. Carbonatization is common in andesitic rocks near veins, and carbonatization and massive chloritization are present in the shear zones in andesitic rocks.

Mineralization on the Peek Claims occurs as either of the following veins and siliceous stockworks:

1.	Epithermal gold-silver veins associated with northeast-trending normal faults hosted with bi-modal calc-alkaline andesitic volcanics of the Skukum Group and associated with Eocene rhyolite porphyry dykes outside the volcanic complex.

2.	Gold-silver and telluride bearing quartz veins spatially related to the “Tally-Ho Shear Zone”, sheared and chloritized mafic volcanic rocks and nearby sheared or unsheared granitic rocks and Jurassic Laberge Group arkosic sedimentary rocks.

Compliance with Governmental Regulation

We will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals in the Yukon Territory. The main agency that governs the exploration of minerals in the Yukon Territory, Canada, is the Minerals Management Branch of the Yukon Department of Energy Mines and Resources.

The material legislation applicable to us is the Yukon Quartz Mining Act (the “YQMA”), administered by the Minerals Management Branch. The YQMA and its regulations govern the procedures involved in the location, recording and maintenance of mineral titles in the Yukon Territory. The Government of the Yukon Territory retains freehold ownership of the land which is subject to the mineral claims.

All mineral exploration activities carried out on a mineral claim or mining lease in the Yukon must be in compliance with the Yukon Quartz Mining Land Use Regulations (the “Yukon Regulations”). The Yukon Regulations apply to all mines during exploration, development, construction, production, closure, reclamation and abandonment. Also, the Yukon Regulations contain standards for exploration activities including construction and maintenance, site preparation, drilling, trenching and work in and about a water body. An annual exploration expenditure of approximately $80 per claim is required by the YQMA to maintain the claims in good standing. Alternatively an annual payment of approximately $80 per claim in lieu of work is sanctioned by the YQMA to maintain claims in good standing. Our annual cost of compliance with the YQMA is presently approximately $672 per year.

We will also have to sustain the cost of reclamation and environmental remediation for all exploration work undertaken. Reclamation is the process of bringing the land back to its natural state after completion of exploration activities. Environmental remediation refers to the physical activity of taking steps to remediate, or remedy, any environmental damage caused, i.e. refilling trenches after sampling or cleaning up fuel spills.

Recommendation of Geological Report and Geological Exploration Program

In June 2002, we hired Mr. W. Timmins, P.Eng to provide an initial Geological Report on the Peek Claims. Mr. Timmins has 39 years experience as a consulting geologist. He graduated from the Provincial Institute of Mining in Haileybury, Ontario, Canada in 1956 and attended Michigan Technological University from 1962 to 1965. He has been a licensed professional Engineer (Geology) in British Columbia since 1969. The purpose of this report was to evaluate the area of the claim group, and the prior exploration work conducted on the claims, and to recommend an exploration program. This review was based upon previous explorations performed on the Peek Claims, including soil geochemical and electromagnetic surveys, geological mapping, bulldozer and blast trenching and underground drifting. Mr. Timmins is familiar with the Peek Claims, having consulted on exploration programs conducted there during the 1980’s and later visited the property in 1999 and 2001. In his geological report, Mr. Timmins, recommended that a four phase exploration program, at an estimated cost of $140,000, be undertaken on the property to assess its potential to host high grade gold mineralization within quartz and sulphide veins. The four phase program consists of the following:

Phase	Exploration Program	Status	Cost
Phase I	Compilation of previous exploration data, and geological analysis of the data.	Completed in August 2002.	$5,000
Phase II	Detailed field examination and study of known mineral zones including localized geophysical surveys.	Completed in December 2003.	$10,000
Phase III	Detailed field examination of potential exploration sites, including geological mapping, localized geophysical surveys and sampling using the knowledge obtained from the known exploration areas.	Completed April 2006.	$5,000
Phase IV	Test diamond drilling (to 1,200 metres) of the targets delineated within the potential exploration sites.	To be determined subject to availability of exploration funds and the results of exploratory work.	$120,000

Contingent upon favorable results of Phase I and Phase II of our geological exploration program, Mr. Timmins recommended a further Phase III program of geological mapping, geophysical surveying and sampling, to select targets for the Phase IV drilling program consisting of 1,200 metres (approximately 3,936 feet) of diamond drilling, again contingent upon favorable results of Phase III. A Phase IV drilling program would be dependent upon a number of factors such as the geologists’ recommendations based upon previous phases and our available funds. See “Present Condition of the Property and Current State of Exploration” below.

The projected costs of each phase of our exploration program included provision for mobilization and support costs. The expenditures made by us in the exploration of our mineral claim may not result in the discovery of mineral deposits. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. If the results of exploration do not reveal viable commercial mineralization, we may decide to abandon our claim and acquire new claims for new exploration. The acquisition of additional claims will be dependent upon our possessing sufficient capital resources at the time in order to purchase such claims. If no funding is available, we may be forced to abandon our operations.

We have complete Phases I through III of the recommended exploration program. In the event that we proceed with Phase IV, we intend to implement a drilling program which will target any mineralized zones or zones of interest identified in earlier phases’ exploration results. The results of any drilling will be used to assess whether further geological exploration and drilling of identified mineralized areas is warranted. The funding required for the drilling program and our ability to complete the drilling program is expected to be dependent on the amount of funds we have available for exploration and our exploration priorities. Completion of our planned Phase IV drilling program is estimated to cost $120,000 and is expected to include the following:

(a)

Hiring of local contractors familiar with the mining region and drill conditions to perform the drilling operations and supply the drill and all other equipment and drill technicians required to perform the drilling operations;

(b)

Oversight of drilling program by a Professional Mining Engineer or Certified Geologist;

(c)

Outside laboratory analysis, particularly for prospective lode gold;

(d)

In-house and external review of results, including any feasibility studies; and

(e)

Hiring of lab technicians.

The primary expenses related to the drilling program are expected to be labor and contract costs, including transportation and on-site support.

The number of personnel involved in the drilling is expected to be four drilling personnel and/or a foreman and geologist. All personnel are expected to be contract employees. The geologist is expected to be the onsite technical person who will be able to evaluate and direct the program. We believe these types of contract employees are readily available, if needed.

Due to our strategic priority of closing the REX acquisition prior to June 30, 2009, we currently do not plan to execute our Phase IV exploration strategy during fiscal 2009. Raising the $40,000,000 to fund that transaction precludes a competing effort to raise the funds necessary to embark upon a continuing exploration program. We cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our either of these activities. We believe that debt financing will not be an alternative for funding. The risky nature of this enterprise and lack of tangible assets places debt financing beyond the credit-worthiness required by most banks or typical investors of corporate debt at this time. We presently do not have any arrangements in place for any future equity financing.

Present Condition of the Property and Current State of Exploration

In years prior to 2008, we conducted exploration activities on the Peek Claims to determine whether there is commercially exploitable gold and silver mineralization or other metals. The following is a summary of the status of our exploration program on the Peek Claims:

Summary of Phase I – Exploration Program Results

The results of our Phase I exploration program delineated three main zones of mineralization in addition to other mineralized showings that warrant additional exploration work. The three main mineralization zones identified by our geologist are described as follows:

(i)

the North grid, containing moderate gold-silver and silver-lead soil geochemical anomalies and include intense “spot” highs;

(ii)

the north end of Gold Hill which has a moderate to strong VLF-EM conductor and significant gold and silver values in quartz veins carrying galena and tetrahedrite occurring in the gully at the north end of Gold Hill and in float trains on the ridge top of Gold Hill; and

(iii)

the south end of Gold Hill, in which gold-silver bearing galena and tetrahedrite mineralization has been identified.

Our geologist concluded that the results of Phase I warranted a further program of exploration.

Summary of Phase II – Exploration Program Results

The second phase consisted of detailed geophysical surveys utilizing new and more sensitive geophysical techniques to enhance the data that previously existed on the claims. Our work focused specifically upon the already known areas which our consultant had indicated may host minerals. This phase also included a detailed field examination and study of known mineral zones including localized geophysical surveys. Phase II was completed in late 2003 and we received a geological report on the results in April, 2004.

The results of our Phase II exploration program confirmed the anomaly concerning the gold-silver bearing galena and tetrahedrite mineralization developing along the contacts on the north and south ends of Gold Hill. The anomaly was confirmed in the more detailed “vector geophysics survey” and warrants further exploration according to our geologist. Our geologist concluded that the results of Phase II confirmed that the geological review identified areas which warranted a further program of exploration. The report recommends further evaluation of data obtained from the detailed geophysical surveying, which demonstrated that the areas evaluated have a geophysical signature that could indicate an unseen depth or length extent, and recommended further geological surveying and sampling to identify and confirm targets for the Phase IV drilling.

Summary of Phase III – Exploration Program Results

In 2005, our geologist visited the Peek Claims property to conduct testing on areas of interest indicated by Phase II of our geological program for prospective gold-silver mineralization. New showings were located and sampled. The samples were submitted for analysis and we received our geologist’s report with the assay result of Phase III in April 2006.

According to the Phase III report, during the 2005 exploration season, our geologist completed detailed prospecting and geological investigation of a portion of the claims with geophysical anomalies identified during 2003. Samples of vein material present as “float” were collected, reviewed and submitted for geochemical analysis. Our geologist confirmed that the original epithermal vein systems contained copper, whereas the 2005 discovery contained copper in silver-deficient chalcopyrite. Six samples

returned copper values ranging from 1,030 parts per million (ppm) (0.100%) to 4,974 ppm (0.497%) while two samples contained trace amounts.

In April 2006, we received the geological report on the results of Phase III of our 2005 exploration program. During the 2005 exploration season we completed detailed prospecting and geological investigation of a portion of the claims with geophysical anomalies identified during 2003. Samples of vein material present as “float” were collected, reviewed and submitted for geochemical analysis. Our geologist concluded that these results confirm earlier sample analyses by Texada and others. Prior to proceeding with Phase IV, our geologist recommends further geological engineering on the Peek Claims properties to define the exact source areas for the known and new vein float material because frost action may have moved the vein material further than originally assumed. Our geologist recommends a total of $10,000 to be reserved for a two stage delineation program.

During the summer exploration season of 2006, we proceeded with the first phase of the delineation program. A field crew selected one of the sample sites and excavated a pit nearby, upslope, to examine the soil profile and suggest where the bedrock source for the float might occur. Boulder-rich overburden was present to a depth of seven feet, including more fragments of sulphide-rich quartz. Below seven feet the ground is frozen by permafrost and the quartz vein fragments discontinued. Thus, our geologist concluded the source of the float lies further upslope and perhaps is within the geophysical conductors located earlier. A detailed, close-spaced, soil geochemical survey over the conductors using a plugger style overburden sampling drill was recommended to locate the bed rock source of the mineralization.

Phase IV – Exploration Program

In the event that we proceed with Phase IV of our exploration program, we will implement a drilling program expected to take place over a period of two weeks, which will target any mineralized zone or zones of interest identified in our Phase I, II and III exploration results. The results of any drilling will be used to assess whether further geological exploration and drilling of identified mineralized areas is warranted. The funding required for the drilling program and our ability to complete the drilling program will be dependent on the amount of funds we have available for exploration and our corporate priorities.

We will not be able to determine whether or not our mineral claims contain a commercially exploitable mineral deposit, or reserve, until appropriate exploratory work is done and an economic evaluation based on that work concludes economic viability.

Peek Claim Status

The Peek claims are located in the Whitehorse Mining District of Yukon Territory. The property consists of eight claims as detailed in Table 1 below. Claims such as these are administered under the provisions of the YQMA by the supervising mining recorder located in Whitehorse. An annual exploration expenditure of approximately $80 per claim is required by the YQMA to maintain the claims in good standing. Alternatively an annual payment of approximately $80 per claim in lieu of work is sanctioned by the YQMA to maintain claims in good standing. Our annual cost of compliance with the YQMA is presently approximately $672 per year.

Table 1 - Claim Status

Claim Name	Grant Numbers	Current Expiry Date
PEEK 1-8	YC 19158 – 165	August 19, 2009

Anglo Energy Agreement

On March 21, 2007, the Company entered into a Term Sheet Agreement with Anglo Energy Refining Corp., a Panamanian corporation (“Anglo”), to acquire all of Anglo’s rights and interests in a Production

Sharing Agreement (the “PSA”) to be entered into between Anglo and a joint venture partner. The PSA related to a 40% production sharing interest an Ecuadorian oil and gas field to be obtained by Anglo’s joint venture partner. On August 31, 2008, the Company abandoned the Anglo Agreement and recognized an impairment of $115,000 associated with that property abandonment by both parties. No further expenditures will be incurred.

COMPETITION

We are an exploration stage company. We compete with other mineral resource exploration and development companies for financing and for the acquisition of new mineral properties. Many of the mineral resource exploration and development companies with whom we compete have greater financial and technical resources than us. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral properties. In addition, they may be able to afford greater geological expertise in the targeting and exploration of mineral properties. This competition could result in competitors having mineral properties of greater quality and interest to prospective investors who may finance additional exploration and development. This competition could adversely impact on our ability to finance further exploration and to achieve the financing necessary for us to develop our mineral properties.

EMPLOYEES

We have no employees as of the date of this annual report. We generally conduct our business through agreements with consultants and arms-length third parties.

ITEM 3. LEGAL PROCEEDINGS

Neither we nor any of our properties are currently subject to any material legal proceedings or other regulatory proceedings.

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

None.

PART II

ITEM 5.

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

Our common stock is quoted on the Over the Counter (OTC) Bulletin Board which is sponsored by the National Association of Securities Dealers (NASD). The OTC Bulletin Board is a network of security dealers who buy and sell stock. The dealers are connected by a computer network which provides information on current “bids” and “asks” as well as volume information. The OTC Bulletin Board is not considered a “national exchange.”

Our Common stock is traded on the NASD OTC Bulletin Board under the symbol “TXDV”. The following table shows the high and low bid information for the Common stock for each quarter of the fiscal years 2007 and 2008.

Fiscal Year		Low Closing	High Closing
2007
	First Quarter	$0.01	$1.02
	Second Quarter	$0.98	$1.05
	Third Quarter	$0.85	$2.30
	Fourth Quarter	$0.75	$1.02
2008
	First Quarter	$0.70	$1.25
	Second Quarter	$1.01	$1.25
	Third Quarter	$0.42	$1.01
	Fourth Quarter	$0.40	$0.79

The above quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.

Holders of Record

As of November 30, 2008 there were 4 shareholders of record of our common stock with an unknown number of additional shareholders who hold shares through brokerage firms.

Dividends

We have not paid any dividends and do not anticipate the payment of dividends in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

None.

Issuer Purchase of Equity Securities

During 2008, neither the Company nor any of its affiliates repurchased common shares of the Company registered under Section R of the Exchange Act.

ITEM 6. SELECTED FINANCIAL DATA

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

General

This discussion and analysis should be read in conjunction with the accompanying financial statements and related notes. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. The discussion and analysis of the financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis the Company reviews its estimates and assumptions. The estimates were based on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but the Company does not believe such differences will materially affect our financial position or results of operations. Critical accounting policies, the policies the Company believes are most important to the presentation of its financial statements and require the most difficult, subjective and complex judgments, are outlined below in “Critical Accounting Policies,” as disclosed in this Form 10-K.

Plan of Operation

As a result of our failure to generate substantial revenues since our inception, we have not been satisfied with our initial business plan to this point. We are presently reviewing the current state of our business in detail with consultants in order to evaluate the progress of our mining business. At the present time, we intend to continue to develop our current mining business and complete the acquisition of REX under our revised management and corporate governance structure.

Mining:

Phase I of our exploration program, which consisted of a geological review of prior exploration work on the Peek Claims, was completed in the summer of 2002 at a cost of $5,000. Phase II of the recommended geological exploration program cost $10,000 and was completed in late 2003. Based on the results of Phase II of our exploration program, we proceeded with Phase III of our exploration program which was substantially completed during the summer exploration season of 2005. On April 11, 2006, we received the geological report on the results of Phase III of our exploration program.

In his report, our geologist recommended that, prior to proceeding with Phase IV, further geological engineering should be undertaken to define the exact source areas for the known and new vein float material. Our geologist recommended reserving a total of $10,000 for a two stage delineation program prior to commencing Phase IV of our exploration program. We proceeded with our geologist’s recommendation and completed the first phase of the delineation program during the summer exploration season of 2006. A detailed, close-spaced, soil geochemical survey over the conductors using a plugger style overburden sampling drill was recommended to locate the bed rock source of the mineralization following completion of Phase I of the delineation program.

Our decision to proceed to Phase IV of our initial exploration program will be made based on factors such as the final assay results and the recommendations of our geologist, the grades of any mineralization found, the size and extent of the mineralized zones, and the strength of metal prices in international markets.

The expenditures made by us in the exploration of our mineral claims may not result in the discovery of mineral deposits. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. If the results of exploration do not reveal viable commercial mineralization, we may decide to abandon our claims and acquire new claims for new exploration. The acquisition of additional claims will be dependent upon our possessing sufficient capital resources at the time in order to purchase such claims. If no funding is available, we may be forced to abandon our operations. This assessment will include an assessment of our cash reserves after the completion of Phase III, the price of minerals and the market for financing of mineral exploration projects at the time of our assessment.

Results of Operations

We did not earn any revenues from November 30, 2007 to November 30, 2008. We do not anticipate earning revenues until such time as we have entered into commercial production of our mineral properties, which is not expected for several years, if at all. We are presently in the exploration stage of our business and we can provide no assurance that we will discover commercially exploitable levels of mineral resources on our properties, or if such resources are discovered, that we will enter into commercial production of our mineral properties. Alternatively, we may begin to earn revenues with the acquisition of REX, but cannot assure that this acquisition will be consummated.

We incurred operating expenses in the amount of $175,944 for the period ended November 30, 2008 compared with $162,966 for the period ended November 30, 2007. These operating expenses included Consulting fees of $52,555 and General and administrative costs of $132,453, offset by $9,064 gain on foreign exchange activities. The higher operating expenses during fiscal 2008 compared to fiscal 2007 resulted from increased business activity related to exploring potential acquisitions. Costs during fiscal 2009 are anticipated to be consistent with those consulting and general and administrative expenses incurred in fiscal 2008; however, operational expenses may increase substantially if the acquisition of REX is successful.

We incurred a net loss in the amount of $517,805 for the fiscal year ended November 30, 2008, compared to $573,579 for the fiscal year ended November 30, 2007. The change in net loss was attributable primarily to the write off of the increased accretion of discounts on convertible debentures, increases in interest costs on increased borrowings and increases in operating costs described above, offset by a reduction in write downs in oil and gas deposit assets in fiscal 2008. In 2008, the Company recognized an impairment of $115,000 of oil and gas properties, compared with $250,000 for the prior year.

Liquidity and Capital Resources

As of November 30, 2008, we had a working capital deficiency of $926,411. We do not expect our business to achieve profitability in the near future as we expect to continue to incur substantial development and operating expenses. We will require additional funding to fund our working capital requirements. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock or debt to fund our estimated general administration, exploration and other working capital requirements. We believe that debt financing will not be an alternative for funding. The risky nature of this enterprise and lack of tangible assets places debt financing beyond the credit-worthiness required by most banks or typical investors of corporate debt until we locate mineral reserves on our mineral claims.

Our continued existence and plans for future growth depend on our ability to obtain the capital necessary to operate by the sale of equity shares. We will need to raise additional capital of $40,000,000 in the next three to four months to fund our capital requirements through November 30, 2009, and to complete the transactions contemplated by the REX Agreement.

We believe there is substantial doubt that we can continue as a going concern which, if true, raises substantial doubt that a purchaser or holder of our common stock will receive a return on his or her investment. As at November 30, 2008, we had cash of $3,352, a working capital deficit of $926,411 and an accumulated deficit of $1,290,811, and will likely continue to incur further losses as we continue our exploration program and acquisition activities. Our future is dependent upon our ability to obtain financing and upon future profitable operations from the development of our mineral properties or successfully acquiring additional properties or business opportunities. If we cannot raise sufficient capital, we may be required to liquidate our assets, issue securities or debt on terms extremely dilutive to existing shareholders or file for bankruptcy. Our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

We have not declared or paid dividends on our shares since incorporation and do not anticipate doing so in the foreseeable future.

Off-Balance Sheet Arrangements

We had no off-balance sheet transactions.

Contractual Obligations

We have entered into contracts with various individuals or companies which require minimum future payments or investments in exploration activities to satisfy the terms of the contract.

Contractual obligations	Payments due by period
Contractual obligations	Total	Less than 1 year	2-3 years	3-5 years	More than 5 years
Short-Term Debt Obligations (1)	575,000	575,000	-	-	-
Promissory Notes	290,000	290,000	-	-	-
Term Sheet for REX Acquisition	40,000,000	40,000,000	-	-	-
Total	40,865,000	40,865,000	-	-	-

(1)	On December 18, 2008, subsequent to the end of our fiscal year, we entered into amendments to the convertible debentures which extended the maturity dates of the debentures from December 31, 2008 to December 31, 2010.

In September of 2008, we signed a Term Sheet with Royalty Exploration, LLC (REX). Under the Term Sheet, the Company agreed to commence a financing of $40,000,000 to fund the acquisition of REX, and a business unit REX has entered into an agreement to acquire. Under the Term Sheet, the Company has agreed to fund, for the benefit of REX, the sum of $500,000 for the purpose of reimbursing REX for transaction related expense. The Term Sheet was amended on November 12, 2008 to extend the acquisition date from December 31, 2008 to June 30, 2009 and also waived the obligation for us to reimburse transaction related costs beyond those costs already incurred at that date. Total reimbursements of $83,284 have been made during fiscal 2008 to REX, which REX is required to repay if the acquisition is not consummated.

Critical Accounting Policies

We have identified our critical accounting policies, the application of which may materially affect the financial statements, either because of the significance of the financials statement item to which they relate, or because they require management’s judgment in making estimates and assumptions in measuring, at a specific point in time, events which will be settled in the future. The critical accounting policies, judgments and estimates which management believes have the most significant effect on the financial statements are set forth below:

a)	Stock-based Compensation

The Company records stock-based compensation in accordance with SFAS No. 123R, “Share Based Payments”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

b)	Oil and Gas Properties

The Company utilizes the full-cost method of accounting for petroleum and natural gas properties. Under this method, the Company capitalizes all costs associated with acquisition, exploration and development of oil and natural gas reserves, including leasehold acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling of productive and non-productive wells into the full cost pool on a country by country basis. As of November 30, 2008, the Company had no properties with proven reserves. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves proved and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. The costs of unproved properties are not amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such determination is made the Company assesses annually whether impairment has occurred, and includes in the amortization base drilling exploratory dry holes associated with unproved properties.

The Company applies a ceiling test to the capitalized cost in the full cost pool. The ceiling test limits such cost to the estimated present value, using a ten percent discount rate, of the future net revenue from proved reserves, based on current economic and operating conditions. Specifically, the Company computes the ceiling test so that capitalized cost, less accumulated depletion and related deferred income tax, do not exceed an amount (the ceiling) equal to the sum of: (A) The present value of estimated future net revenue computed by applying current prices of oil and gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current cost) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; plus (B) the cost of property not being amortized; plus (C) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less (D) income tax effects related to differences between the book and tax basis of the property.

For unproven properties, the Company excludes from capitalized costs subject to depletion, all costs directly associated with the acquisition and evaluation of the unproved property until it is determined whether or not proved reserves can be assigned to the property. Until such a determination is made, the Company assesses the property at least annually to ascertain whether impairment has occurred. In assessing impairment the Company considers factors such as historical experience and other data such as primary lease terms of the property, average holding periods of unproved property, and geographic and geologic data. The Company adds the amount of impairment assessed to the cost to be amortized subject to the ceiling test. As of November 30,

2008, all of the Company’s oil and gas properties were unproved and were excluded from amortization.

c)	Financial Instruments

The fair values of financial instruments, which include cash, note receivable, accounts payable, accrued liabilities, amounts due to related parties, promissory notes payable, and convertible debentures were estimated to approximate their carrying values due to the immediate or short-term maturity of these financial instruments. The Company has operations in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

Recent Accounting Pronouncements

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment to FASB Statement No. 133”. SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” . This pronouncement requires that the acquisition method of purchase method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. The pronouncement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the pronouncement. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the Company’s fiscal 2010, and may not be adopted early. Management believes this Statement will have no impact on the financial statements of the Company once adopted for its fiscal year starting December 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115”. This pronouncement permits entities to use the fair value method to measure certain financial assets and liabilities by electing an irrevocable option to use the fair value method at specified election dates. After election of the option, subsequent changes in fair value would result in the recognition of unrealized gains or losses as period costs during the period the change occurred. SFAS No. 159 becomes effective as of the beginning of the first fiscal year that begins after November 15, 2007, with early adoption permitted. However, entities

may not retroactively apply the provisions of SFAS No. 159 to fiscal years preceding the date of adoption. The Company adopted this pronouncement effective December 1, 2007. The adoption of this statement did not have a material effect on the Company's financial statements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The objective of SFAS No. 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The Company adopted this pronouncement effective December 1, 2007. The adoption of this statement did not have a material effect on the Company's financial statements.

Going concern

The Company has never generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, confirmation of the Company’s interests in the underlying properties, and the attainment of profitable operations. As at November 30, 2008, the Company has a working capital deficit of $926,411, and has accumulated losses of $1,290,811 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

As at November 30, 2008, the Company had cash of $3,352 on hand. The Company does not have sufficient funds to meet planned expenditures over the next twelve months, and will need to seek additional debt or equity financing to meet its planned expenditures. Management believes that it will need to raise approximately $40,000,000 in additional financing to complete the transactions contemplated by the REX Term Sheet and meet its other planned expenditures. The Company currently has no commitment for such financing. Accordingly, there is a risk that the Company will be unable to raise the required financing and complete the transactions contemplated by the REX Term Sheet and its other planned expenditures.

Private Placements

On October 27, 2008, the Company entered into a promissory note with a third party for $140,000, which is due on demand and bears interest at 5% per annum. Interest and principal are due on demand.

On February 15, 2007, the Company entered into a promissory note with a third party for $50,000, which is due on demand and bears interest at 8% per annum. Interest is payable annually due on or before February 14 of each year. Interest and principal are due on demand.

The foregoing transactions were conducted by the Company in private placements to non-U.S. persons outside the United States in off-shore transactions pursuant to an exemption from registration available under Rule 903 of Regulation S of the United States Securities Act of 1933, as amended.

Convertible Debenture

On April 10, 2007, the Company issued a 6% convertible debenture with a principal amount of $200,000 which was due and payable on December 31, 2008. On December 18, 2008, the maturity date was extended to December 31, 2010. Interest is payable semi-annually beginning on September 30, 2007, and thereafter on March 31st and September 30th of each year, payable at the option of the Company in cash

or shares. As at November 30, 2008, the Company had not made any interest payments and pursuant to the debenture has accrued default interest of 8% since September 30, 2007. The principal and accrued interest on the debenture may be converted at any time into shares of the Company’s common stock at a price of $0.25 per share, at the option of the holder. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $80,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debenture. The Company records accretion expense over the term of the convertible debenture up to its face value of $200,000. As at November 30, 2008, $76,070 has been accreted increasing the carrying value of the convertible debenture to $196,070.

On May 2, 2007, the Company issued a 6% convertible debenture with a principal amount of $125,000 which was due and payable on December 31, 2008. On December 18, 2008, the maturity date was extended to December 31, 2010. Interest is payable semi-annually beginning on September 30, 2007, and thereafter on March 31st and September 30th of each year, payable at the option of the Company in cash or shares. As at November 30, 2008, the Company had not made any interest payments and pursuant to the debenture has accrued default interest of 8% since September 30, 2007. The principal and accrued interest on the debenture may be converted at any time into shares of the Company’s common stock at a price of $0.25 per share, at the option of the holder. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $50,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debentures. The Company records accretion expense over the term of the convertible debenture up to its face value of $125,000. As at November 30, 2008, $47,455 has been accreted increasing the carrying value of the convertible debenture to $122,455.

On November 19, 2007, the Company issued a 6% convertible debenture with a principal amount of $110,000 which was due and payable on December 31, 2008. On December 18, 2008, the maturity date was extended to December 31, 2010. Interest is payable semi-annually beginning on May 31, 2008, and thereafter on May 31st and November 30th of each year, payable at the option of the Company in cash or shares. As at November 30, 2008, the Company had not made any interest payments and pursuant to the debenture has accrued default interest of 8% since May 31, 2008. The principal and accrued interest on the debenture may be converted at any time into shares of the Company’s common stock at a price of $0.25 per share, at the option of the holder. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $44,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debenture. The Company records accretion expense over the term of the convertible debenture up to its face value of $110,000. As at November 30, 2008, $40,656 has been accreted increasing the carrying value of the convertible debenture to $106,656.

On March 11, 2008, the Company issued a 6% convertible debenture with a principal amount of $150,000 which was due and payable on December 31, 2008. On December 18, 2008, the maturity date was extended to December 31, 2010. Interest is payable semi-annually beginning on May 31, 2008, and thereafter on May 31st and November 30th of each year, payable at the option of the Company in cash or shares. As at November 30, 2008, the Company had not made any interest payments and pursuant to the debenture has accrued default interest of 8% since May 31, 2008. The principal and accrued interest on the debenture may be converted at any time into shares of the Company’s common stock at a price of $0.25 per share, at the option of the holder. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $60,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debenture. The Company records accretion expense over the term of the convertible debenture up to its face value of $150,000. As at November 30, 2008, $53,695 has been accreted increasing the carrying value of the convertible debenture to $143,695.

In each case, the Company accounted for the embedded beneficial conversion feature in accordance with EITF 98-5 “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

	Index

Report of Independent Registered Public Accounting Firm	27

Balance Sheets	28

Statements of Operations	29

Statements of Cash Flows	30

Statement of Stockholders’ Deficit	31

Notes to the Financial Statements	32

To the Directors and Stockholders

We have audited the accompanying balance sheets of Texada Ventures Inc. (An Exploration Stage Company) as of November 30, 2008 and 2007, and the related statements of operations, cash flows and stockholders' deficit for the year then ended and accumulated for the period from October 17, 2001 (Date of Inception) to November 30, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control over financial reporting. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Texada Ventures Inc. (An Exploration Company) as of November 30, 2008 and 2007, and the results of its operations, cash flows and stockholders’ deficit for the years then ended and accumulated for the period from October 17, 2001 (Date of Inception) to November 30, 2008 in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has a working capital deficiency and has incurred operating losses since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ “MANNING ELLIOTT LLP”

CHARTERED ACCOUNTANTS

Vancouver, Canada

February 18, 2009

Balance Sheets

(The accompanying notes are an integral part of these financial statements)

	November 30, 2008 $			November 30, 2007 $
ASSETS

Current Assets

Cash		3,352			20,665
Notes receivable (Note 5)		83,284			–
Prepaid expenses and deposits		5,120			152

Total Current Assets		91,756			20,817

Oil and gas interest (Note 4)		–			110,000

Total Assets		91,756			130,817

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current Liabilities

Accounts payable (Note 7(c))		72,296			52,505
Accrued liabilities (Note 6)		79,915			30,952
Due to related parties (Notes 7(a)(b) and (d))		7,080			56,707
Promissory notes payable (Note 8)		290,000			150,000
Convertible debentures, less unamortized discount of $6,124 (Note 9)		568,876			–

Total Current Liabilities		1,018,167			290,164

Convertible debentures, less unamortized discount of $125,741 (Note 9 and 13(b))		–			309,259

Total Liabilities		1,018,167			599,423

Nature of Operations and Continuance of Business (Note 1)
Commitments (Note 11)
Subsequent Events (Note 13)

Stockholders’ Deficit

Preferred shares, 100,000,000 shares authorized, $0.001 par value; None issued and outstanding		–			–

Common shares, 500,000,000 shares authorized, $0.001 par value; 60,733,335 shares issued and outstanding		60,733			60,733

Additional paid-in capital		303,667			243,667

Deficit accumulated during the exploration stage		(1,290,811	)		(773,006	)

Total Stockholders’ Deficit		(926,411	)		(468,606	)

Total Liabilities and Stockholders’ Deficit		91,756			130,817

Statements of Operations

(The accompanying notes are an integral part of these financial statements)

	Accumulated from October 17, 2001 (Date of Inception) to November 30, 2008 $			For the Year Ended November 30, 2008 $			For the Year Ended November 30, 2007 $

Revenue		–			–			–

Operating Expenses

Amortization		798			–			–
Consulting (Notes 7(a) and (b))		106,554			52,555			48,000
Exploration costs		20,091			–			–
General and administrative		413,385			132,453			115,671
Gain on foreign exchange		(9,064	)		(9,064	)		–
Mineral property costs		3,747			–			(705	)

Total Operating Expenses		535,511			175,944			162,966

Loss from Operations		(535,511	)		(175,944	)		(162,966	)

Other Income (Expense)

Accretion of discount on convertible debentures		(217,876	)		(169,617	)		(48,259	)
Interest income		4,022			–			4,022
Interest on convertible debentures		(55,014	)		(42,766	)		(12,248	)
Interest on promissory notes		(24,060	)		(12,685	)		(11,375	)
Interest on related party loans		(8,500	)		(1,793	)		(5,956	)
Loss on disposal of equipment		(2,075	)		–			–
Loss on write down of note receivable		(86,797	)		–			(86,797	)
Impairment of oil and gas interest (Note 4)		(365,000	)		(115,000	)		(250,000	)

Total Other Income (Expense)		(755,300	)		(341,861	)		(410,613	)

Net Loss		(1,290,811	)		(517,805	)		(573,579	)

Net Loss Per Share – Basic and Diluted					(0.01	)		(0.01	)

Weighted Average Shares Outstanding					60,733,335			60,733,335

Statements of Cash Flows

(The accompanying notes are an integral part of these financial statements)

	Accumulated from October 17, 2001 (Date of Inception) to November 30, 2008 $			For the Year Ended November 30, 2008 $			For the Year Ended November 30, 2007 $

Operating Activities:

Net loss		(1,290,811	)		(517,805	)		(573,579	)

Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of convertible debt discount		217,876			169,617			48,259
Amortization		798			–			–
Loss on disposal of equipment		2,075			–			–
Loss on write down of note receivable		86,797			–			86,797
Impairment of oil and gas interest		365,000			115,000			250,000

Changes in operating assets and liabilities:
Prepaid expenses		(5,120	)		(4,968	)		(20	)
Accounts payable and accrued liabilities		152,211			68,754			25,831
Due to related parties		7,080			373			5,957
Net Cash Used in Operating Activities		(464,094	)		(169,029	)		(156,755	)

Investing Activities:

Acquisition of oil and gas interests		(365,000	)		(5,000	)		(360,000	)
Advance of note receivable		(170,081	)		(83,284	)		(8,457	)
Purchase of equipment		(2,873	)		–			–
Net Cash Used In Investing Activities		(537,954	)		(88,284	)		(368,457	)

Financing Activities:

Advances from related party loan		50,000			–			–
Repayment of related party loan		(50,000	)		(50,000	)		–
Proceeds from convertible debentures		585,000			150,000			435,000
Proceeds from promissory notes payable		290,000			140,000			50,000
Proceeds from issuance of common shares		130,400			–			–
Net Cash Provided by Financing Activities		1,005,400			240,000			485,000

Increase (Decrease) in Cash		3,352			(17,313	)		(40,212	)

Cash - Beginning of Period		–			20,665			60,877

Cash - End of Period		3,352			3,352			20,665

Supplemental Disclosures
Interest paid		8,500			8,500			–
Income taxes paid		–			–			–

Statement of Stockholders’ Deficit

From October 17, 2001 (Date of Inception) to November 30, 2008

(The accompanying notes are an integral part of these financial statements)

								Deficit
	Common Shares							Accumulated
					Additional			During the
	Common		Par		Paid-in			Exploration
	Shares		Value		Capital			Stage			Total
		#	$		$			$			$

Balance, October 17, 2001 (Date of inception)		–		–		–			–			–

Shares issued for cash at $0.0002		30,000,000		30,000		(24,000	)		–			6,000
Net loss for the period		–		–		–			(4,254	)		(4,254	)

Balance, November 30, 2001		30,000,000		30,000		(24,000	)		(4,254	)		1,746

Shares issued for cash at $0.004		30,000,000		30,000		90,000			–			120,000
Net loss for the year		–		–		–			(21,106	)		(21,106	)

Balance, November 30, 2002		60,000,000		60,000		66,000			(25,360	)		100,640

Net loss for the year		–		–		–			(42,929	)		(42,929	)

Balance, November 30, 2003		60,000,000		60,000		66,000			(68,289	)		57,711

Net loss for the year		–		–		–			(19,057	)		(19,057	)

Balance, November 30, 2004		60,000,000		60,000		66,000			(87,346	)		38,654

Shares issued for cash at $0.006		733,335		733		3,667			–			4,400
Net loss for the year		–		–		–			(26,580	)		(26,580	)

Balance, November 30, 2005		60,733,335		60,733		69,667			(113,926	)		16,474

Net loss for the year		–		–		–			(85,501	)		(85,501	)

Balance, November 30, 2006		60,733,335		60,733		69,667			(199,427	)		(69,027	)

Beneficial conversion feature of convertible debenture		–		–		174,000			–			174,000
Net loss for the year		–		–		–			(573,579	)		(573,579	)
Balance, November 30, 2007		60,733,335		60,733		243,667			(773,006	)		(468,606	)
Beneficial conversion feature of convertible debenture (Note 9)		–		–		60,000			–			60,000
Net loss for the year		–		–		–			(517,805	)		(517,805	)

Balance, November 30, 2008		60,733,335		60,733		303,667			(1,290,811	)		(926,411	)

1. Nature of Operations and Continuance of Business

Texada Ventures Inc. (the “Company”) was incorporated in the State of Nevada on October 17, 2001. The Company is an Exploration Stage Company, as defined by Statement of Financial Accounting Standard (“SFAS”) No. 7, “Accounting and Reporting for Development Stage Enterprises”. The Company’s principal business is the acquisition and exploration of oil and gas and mineral resources. The Company has not presently determined whether its properties contain mineral or petroleum reserves that are economically recoverable.

These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has never generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As at November 30, 2008, the Company has a working capital deficit of $926,411 and has accumulated losses of $1,290,811 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

As at November 30, 2008, the Company had cash of $3,352 on hand, and for the next twelve months, management anticipates that the minimum cash requirements to fund its proposed exploration program and continued operations will be $500,000. Accordingly, the Company does not have sufficient funds to meet planned expenditures over the next twelve months, and will need to seek additional debt or equity financing to meet its planned expenditures. There is no assurance that the Company will be able to raise sufficient cash to fund its future exploration programs and operational expenditures.

On September 16, 2008, the Company signed a term sheet (the “Term Sheet”) that sets forth the principal terms upon which the Company will enter into a definitive agreement (the “Definitive Agreement”) to acquire Royalty Exploration (”REX”) and commence a concurrent financing of $40,000,000. REX has entered into an agreement to acquire substantially all of the assets of a business unit of a large research and development and manufacturing company engaged in the business of providing exploration and environmental surveys to resource companies for a purchase price of $40,000,000, of which $30,000,000 is due at closing and the balance is payable by issuing a promissory note. The Term Sheet is non-binding, except for customary binding provisions.

2. Summary of Significant Accounting Policies

a)	Basis of Presentation

These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. The Company’s fiscal year-end is November 30.

b)	Reclassifications

Certain reclassifications have been made to prior period financial statements to conform to the current period presentation

c)	Use of Estimates

The preparation of financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company regularly evaluates estimates and assumptions related to its investment in oil and gas properties, valuation of note receivable, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

2. Summary of Significant Accounting Policies (continued)

d)	Earnings (Loss) Per Share

The Company computes earnings (loss) per share in accordance with SFAS No. 128, "Earnings per Share". SFAS No. 128 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period 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 shares if their effect is anti dilutive. As at November 30, 2008, the Company has 2,340,000 (2007 – 1,740,000) dilutive securities outstanding.

e)	Mineral Property Costs

The Company is engaged in the acquisition, exploration and development of mineral properties. Mineral property acquisition costs are capitalized in accordance with EITF 04-2, “Whether Mineral Rights Are Tangible or Intangible Assets” when management has determined that probable future benefits consisting of a contribution to future cash inflows have been identified and adequate financial resources are available or are expected to be available as required to meet the terms of property acquisition and budgeted exploration and development expenditures. Mineral property acquisition costs are expensed as incurred if the criteria for capitalization are not met. In the event that a mineral property is acquired through the issuance of the Company’s shares, the mineral property will be recorded at the fair value of the respective property or the fair value of common shares, whichever is more readily determinable.

When mineral properties are acquired under option agreements with future acquisition payments to be made at the sole discretion of the Company, those future payments, whether in cash or shares, are recorded only when the Company has made or is obliged to make the payment or issue the shares. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves and feasibility, the costs incurred to develop such property are capitalized.

f)	Stock-based Compensation

g)	Oil and Gas Properties

2. Summary of Significant Accounting Policies (continued)

g)	Oil and Gas Properties (continued)

h)	Long-lived Assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

i)	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. As at November 30, 2008 and 2007, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.

j)	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.

k)	Financial Instruments

The fair values of financial instruments, which include cash, notes receivable, accounts payable, accrued liabilities, amounts due to related parties, promissory notes payable, and convertible debentures were estimated to approximate their carrying values due to the immediate or short-term maturity of these financial instruments. The Company has operations in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

2. Summary of Significant Accounting Policies (continued)

l)	Income Taxes

The Company accounts for income taxes using the asset and liability method in accordance with SFAS No. 109, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

m)	Foreign Currency Translation

The Company’s functional and reporting currency is the United States dollar. Occasional transactions may occur in a foreign currency and the Company follows SFAS No. 52 “Foreign Currency Translation”. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.

n)	Asset Retirement Obligations

The Company has adopted SFAS No. 143, “Accounting for Asset Retirement Obligations”, which requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset.

The cost of the tangible asset, including the initially recognized ARO, is depleted, such that the cost of the ARO is recognized over the useful life of the asset. The ARO is recorded at fair value, and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash flow, discounted at the Company’s credit-adjusted risk-free interest rate. To date, no significant asset retirement obligation exists due to the early stage of exploration. Accordingly, no liability has been recorded.

o)	Recent Accounting Pronouncements

2. Summary of Significant Accounting Policies (continued)

q)	Recent Accounting Pronouncements (continued)

3. Mineral Properties

Pursuant to an agreement dated November 2, 2001, the Company acquired a 100% interest in eight mineral claims located in the Whitehorse Mining District, Yukon Territory, Canada known as the Peek Claims for $2,500 which was recognized as an expense in the year of purchase. The claims fees are current through August 2009. The property is being held in trust for the Company by a third party.

4. Oil and Gas Interest

On November 12, 2007, the Company entered into an Assignment Agreement with Anglo Energy Refining Corp. (“Anglo”), a Panamanian corporation, to acquire all of Anglo's rights and interests in a Production Agreement (the "PA") to be entered into between Anglo and Barrett Resources LLC ("Barrett"). The PA related to rights to develop and produce crude oil, gas and proven reserves at Block 67 located in Peru and was subject to negotiation with Barrett and receipt of various governmental and regulatory approvals.

For consideration of the assignment by Anglo to the Company of Anglo's rights under the PA, the parties agreed as follows:

the Company agreed to pay to Anglo an aggregate amount equal to $115,000 (paid), equivalent to 50% of the expenses incurred by Anglo up to and including the Effective Date in connection with the negotiation of the PA, upon the receipt by the Company of documentation from Anglo supporting such expenses;

4. Oil and Gas Interest (continued)

ii.	on the closing date, the Company agreed to pay to Anglo 100% of the reasonable, documented expenses incurred by Anglo from the Effective Date to the closing date in connection with the negotiation and execution of the PA; and

iii.	on the closing date, the Company agreed to issue to Anglo (or its designee) that number of common shares such that Anglo (or its designee) shall own 50% of the issued and outstanding shares of the common stock of the Company on the closing date.

As at November 30, 2008, the Company recognized an impairment of $115,000 as the property had been abandoned by both parties. No further expenditures will be incurred.

5. Notes receivable

The Company obtained a note receivable of $83,284 from Royalty Exploration pursuant to the Term Sheet described in Note 11(a). The note receivable is due upon the close of the REX acquisition or, if the REX acquisition is not consummated, in 12 equal monthly installments after the termination of the Term Sheet. The receivable is unsecured and does not accrue interest.

6. Accrued liabilities

Accrued liability consists of interest accrued of $79,075 (2007 - $23,623) on the convertible debentures and promissory notes payable and accrued liabilities for services of $840 (2007 - $Nil). A total of $55,016 (2007 - $13,323) of interest on the convertible debentures is convertible into common stock as described in Note 9.

7. Related Party Transactions

On September 12, 2008, Company entered into an engagement letter with the Chief Executive Officer of the Company as described in Note 11(b). Pursuant to the agreement, the Company incurred $4,555 (2007 - $Nil) in consulting fees to a company owned and controlled by the Chief Executive Officer of the Company during the year ended November 30, 2008. As at November 30, 2008, $3,080 (2007 - $Nil) of consulting fees are owed to the company. A $5,000 retainer was paid to the company owned and controlled by the Chief Executive Officer. Upon the acquisition of REX, a success fee consisting of 4,534 common shares is due for services rendered through November 30, 2008.

b)	During the year ended November 30, 2008, the Company incurred $48,000 (2007 - $48,000) in consulting fees to the former President of the Company. As at November 30, 2008, $4,000 (2007 - $Nil) in consulting fees are owed to the former President of the Company.

c)	As at November 30, 2008, accounts payable includes $3,125 (2007 - $3,125) owing to a former director for expenses incurred on the Company’s behalf.

During the year ended November 30, 2006, the Company received an advance of $50,000 from a director. The amount is supported by a promissory note, bears interest at 12% per annum and matured October 18, 2007. On November 8, 2007, the Company entered into an agreement to extend the loan to October 18, 2008. On March 18, 2008, the Company repaid the director $58,500, representing the total principal and accrued interest as of the repayment date. Interest of $nil was accrued as at November 30, 2008 (2007 - $6,707).

8. Promissory Notes Payable

a)	On October 27, 2008, the Company entered into a promissory note with a third party for $140,000, which is due on demand and bears interest at 5% per annum, payable on demand.

c)	On November 20, 2006, the Company entered into a promissory note with a third party for $100,000, which is due on demand and bears interest at 8% per annum, payable on demand.

9. Convertible Debentures

a)	On April 10, 2007, the Company issued a 6% convertible debenture with a principal amount of $200,000 which was due and payable on December 31, 2008. On December 18, 2008, the maturity date was extended to December 31, 2010. Refer to Note 13(b). Interest is payable semi-annually beginning on September 30, 2007, and thereafter on March 31st and September 30th of each year, payable at the option of the Company in cash or shares. As at November 30, 2008, the Company had not made any interest payments and pursuant to the debenture has accrued default interest of 8% since September 30, 2007. The principal and accrued interest on the debenture may be converted at any time into shares of the Company��s common stock at a price of $0.25 per share, at the option of the holder.

	In accordance with EITF 98-5 “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $80,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debenture. The Company records accretion expense over the term of the convertible debenture up to its face value of $200,000. As at November 30, 2008, $76,070 has been accreted increasing the carrying value of the convertible debenture to $196,070.

b)	On May 2, 2007, the Company issued a 6% convertible debenture with a principal amount of $125,000 which was due and payable on December 31, 2008. On December 18, 2008, the maturity date was extended to December 31, 2010. Refer to Note 13(b). Interest is payable semi-annually beginning on September 30, 2007, and thereafter on March 31st and September 30th of each year, payable at the option of the Company in cash or shares. As at November 30, 2008, the Company had not made any interest payments and pursuant to the debenture has accrued default interest of 8% since September 30, 2007. The principal and accrued interest on the debenture may be converted at any time into shares of the Company’s common stock at a price of $0.25 per share, at the option of the holder.

	In accordance with EITF 98-5 “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $50,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debentures. The Company records accretion expense over the term of the convertible debenture up to its face value of $125,000. As at November 30, 2008, $47,455 has been accreted increasing the carrying value of the convertible debenture to $122,455.

c)	On November 19, 2007, the Company issued a 6% convertible debenture with a principal amount of $110,000 which was due and payable on December 31, 2008. On December 18, 2008, the maturity date was extended to December 31, 2010. Refer to Note 13(b). Interest is payable semi-annually beginning on May 31, 2008, and thereafter on May 31st and November 30th of each year, payable at the option of the Company in cash or shares. As at November 30, 2008, the Company had not made any interest payments and pursuant to the debenture has accrued default interest of 8% since May 31, 2008. The principal and accrued interest on the debenture may be converted at any time into shares of the Company’s common stock at a price of $0.25 per share, at the option of the holder.

	In accordance with EITF 98-5 “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $44,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debenture. The Company records accretion expense over the term of the convertible debenture up to its face value of $110,000. As at November 30, 2008, $40,656 has been accreted increasing the carrying value of the convertible debenture to $106,656.

9. Convertible Debentures (continued)

In accordance with EITF 98-5 “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $60,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debenture. The Company records accretion expense over the term of the convertible debenture up to its face value of $150,000. As at November 30, 2008, $53,695 has been accreted increasing the carrying value of the convertible debenture to $143,695.

10. Segment Disclosures

The Company operates in one operating segment, which is the acquisition and exploration of oil and gas resources and mineral resources. The Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”) as defined by SFAS 131, “Disclosure about Segments of an Enterprise and Related Information.” The CODM allocates resources and assesses the performance of the Company based on the results of operations.

11. Commitments

On September 16, 2008, the Company signed a term sheet (The Term Sheet) that sets forth the principal terms upon which the Company will enter into a definitive agreement (the “Definitive Agreement”) to acquire Royalty Exploration (“REX Acquisition”) and commence a concurrent financing of $40,000,000. Royalty Exploration (REX) has entered into an agreement to acquire substantially all of the assets of a business unit of a large research and development and manufacturing company engaged in the business of providing exploration and environmental surveys to resource companies for a purchase price of $40,000,000, of which $30,000,000 is due at closing and the balance is payable by issuing a promissory note. The Term Sheet is non-binding, except for customary binding provisions.

The Company intends to use commercially reasonable efforts to commence a financing to raise $40,000,000 by issuing securities (the “Placement”) to fund the REX Acquisition and general working capital requirements of the combined company. The Company, at its option, may raise such financing through mezzanine debt financing, which may be satisfied by a subsequent placement of issuing the Company’s securities.

The Company proposes to enter into a Definitive Agreement under which the Company will acquire all of the issued and outstanding equity of REX by issuing shares of the Company’s common stock (“Consideration Shares”) to the equity holders of REX (“REX Unitholders”) equal to 50% of the issued an outstanding voting stock of the Company after giving effect to the Placement and the REX acquisition.

The Company agreed to fund, for the benefit of REX, the sum of up to $500,000 for the purposes of (i) reimbursing REX for transaction related expenses, (ii) the Company’s transaction related expenses, and (iii) subject to satisfaction of certain conditions, making a cash advance to REX. REX is required to repay the Company for REX’s transaction related expenses and cash advances on the later of (a) March 31, 2009, (b) closing date of the transaction, or (c) termination of the Term Sheet or, if the transaction does not close, in 12 monthly installments.

The Term Sheet may be terminated by either party if the conditions set forth in the Term Sheet have not been satisfied on or before December 31, 2008. The Term Sheet may be terminated by REX if the Company has not provided to REX satisfactory evidence of financial commitments to raise at least $40,000,000 in the Placement by or before October 31, 2008.

On November 12, 2008, the Company amended the term sheet to extend the closing date of the transaction from December 31, 2008 to June 30, 2009 and to waive the ability to terminate the term sheet for failure to provide evidence of financial commitments on or before October 31, 2008. Effective October 31, 2008, the Company’s obligations to advance funds to REX were suspended unless previously approved by the Company.

On September 12, 2008, the Company entered into an engagement letter with the Company’s Chief Executive Officer to provide management services in consideration for fees based upon time expended, with a designated portion payable in cash. The amount not paid in cash invoice will be satisfied as a success fee upon consummation of the REX acquisition by issuance of shares of the Company’s common stock at a deemed price of $1.00 per share, thereafter payable and issued quarterly against an invoice for management services rendered for the preceding quarter. Refer to Note 7.