Lexington Energyservices 10Q 2008 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________________

Form 10-Q

[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended February 29, 2008

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ________ to _______

Commission file number 333-134175

Lexington Energy Services Inc.

(Name of small business issuer in its charter)

Nevada

98-0515522

(State or other jurisdiction of (I.R.S. Employer Identification No.)

incorporation or organization)

Bay A, 1115 48^th Ave SE, Calgary, Alberta, Canada

T2G 1A7

(Address of principal executive offices) (Zip Code)

(403-279-4550)

(Issuer's telephone number)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. (Check One):

Large accelerated filer [ ]

Accelerated filer [ ]

Non-accelerated filer [ ]

Smaller reporting company [X]

(Do not check if a smaller reporting company)

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

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding the issuer's common stock, $.0001 par value, was 26,138,669 as of April 14, 2008.

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements ........................................

Item 2.

Management's Discussion and Analysis of Financial Condition and

Results of Operations..........................................

Item 3.

Quantitative and Qualitative Disclosures About Market Risk....

Item 4T.

Controls and Procedures.......................................

PART II

Item 1.

Legal Proceedings..............................................

Item 1A.

Risk Factors...................................................

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds....

Item 3.

Defaults Upon Senior Securities................................

Item 4.

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

Item 5.

Other Information..............................................

Item 6.

Exhibits .....................................................

EXHIBIT INDEX...............................................................

Part 1. Item 1. Financial Statements

Lexington Energy Services Inc.

Page No.

Balance Sheets as at February 29, 2008 (Unaudited) and November 30, 2007

Statements of Operations

For the Three Months Ended February 29, 2008 and 2007 (Unaudited)

Statements of Stockholders' Equity (Capital Deficiency)

For the Period From Inception March 30, 2005 to February 29, 2008 (Unaudited)

Statements of Cash Flows

For the Three Months Ended February 29, 2008 and 2007 (Unaudited)

Notes to Financial Statements (Unaudited)

LEXINGTON ENERGY SERVICES INC.

(A Development Stage Company)

INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

FEBRUARY 29, 2008

LEXINGTON ENERGY SERVICES, INC. AND SUBSIDIARIES

(A Development Stage Company)

INTERIM CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)


		February 29,	November 30,
ASSETS		2008	2007
			(Audited)
Current
Cash and cash equivalents		$ 347,249	$ 8,149
GST receivable		1,305	42,629
Prepaid expenses		215,161	56,432
Account receivables		587,639	650,473
Deposits		-	238,176
		1,151,354	995,859

Due from related parties		-	-
Property & Equipment		6,730,664	7,001,631
Land		252,066	252,066
		6,982,730	7,253,697

		$ 8,134,084	$ 8,249,556

LIABILITIES
Current
Accounts payable and accrued liabilities		$ 1,145,593	$ 1,362,462
Due to related parties		819,036	671,365
Loan payable		712,473	759,298
Current portion of obligations under capital lease		869,654	869,654
		3,546,756	3,662,779

Obligations under capital lease		2,049,905	2,157,128

		5,596,661	5,819,907

STOCKHOLDERS’ EQUITY (DEFICIT)

Capital stock
Authorized:
20,000,000	preferred shares with a par value of $0.0001
100,000,000	common shares with a par value of $0.0001
Issued:
26,138,669	common shares (2007: 25,391,577 common shares)	2,613	2,539
Additional paid-in capital		10,441,341	10,280,084
Stock subscriptions received		-	-
Accumulated other comprehensive loss		(283,180)	(274,213)
Deficit accumulated during the development stage		(7,623,351)	(7,578,761)

		2,537,423	2,429,649

		$ 8,134,084	$ 8,249,556

The accompanying notes are an integral part of these financial statements

LEXINGTON ENERGY SERVICES, INC. AND SUBSIDIARIES

(A Development Stage Company)

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(Stated in US Dollars)




	For the three months ended
	February 29,
	2008	2007
Revenue
Sales, net	$ 1,466,205	$ 1,152,254
Cost of sales	(482,121)	(513,535)

Gross Profit	984,084	638,719

Expenses
Consulting fees	60,949	78,926
Depreciation	338,821	109,416
Director fees – Note 5	-	-
General and administrative	246,722	426,465
Investor relations	-	-
Management fees – Note 5	126,431	166,158
Professional fees	71,547	73,298
Promo and marketing	8,196	152,913
Rent	495	58,041
Stock based compensation	-	3,800
Travel	29,361	57,230
	882,522	1,126,247

Income/(Loss) before other items	101,562	(487,528)

Other items:
Interest income	1,484	1,085
Interest expense	(147,636)	(2,481)
Gain on disposal of equipment	-	-
Loss on disposal of equipment	-	-
	(146,152)	(1,396)

Net loss for the period	(44,590)	(488,924)

Foreign currency translation adjustment	(8,967)	(62,060)

Comprehensive loss for the period	$ (53,557)	$ (550,984)

Basic and diluted loss per share	$ (0.00)	$ (0.02)

Weighted average number of shares outstanding	25,787,000	21,681,000

The accompanying notes are an integral part of these financial statements

LEXINGTON ENERGY SERVICES, INC. AND SUBSIDIARIES

(A Development Stage Company)

INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

for the period March 30, 2005 (Date of Inception) to February 29, 2008

(Stated in US Dollars)


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

Balance, November 30, 2005	12,365,000	1,237	(10,000)	155,763	-	(77,114)	69,886
Common shares cancelled	(100,000)	(10)	-	(9,990)	-	-	(10,000)
Share subscriptions received	-	-	10,000	-	-	-	10,000
Issuance of common shares for cash
- at $0.20 per share at December 12, 2005	260,000	26	-	51,974	-	-	52,000
Issuance of common shares for cash
- at $0.20 per share at December 21, 2005	200,000	20	-	39,980	-	-	40,000
Issuance of common shares for cash
- at $0.50 per share at February 17, 2006	516,000	51	-	257,949	-	-	258,000
Issuance of common shares for cash
- at $0.50 per share at March 8, 2006	225,000	22	-	112,478	-	-	112,500
Issuance of common shares for cash
- at $0.50 per share at March 24, 2006	930,930	93	-	465,372	-	-	465,465
Issuance of common shares for cash
- at $0.50 per share at April 18, 2006	866,696	87	-	433,261	-	-	433,348
Issuance of common shares for cash
- at $0.50 per share at April 25, 2006	4,000	1	-	1,999	-	-	2,000
Issuance of common shares for cash
- at $ 0.85 per share at August 1, 2006	431,618	43	-	366,832	-	-	366,875
Issuance of common shares for cash
- at $ 0.85 per share at August 28, 2006	2,136,334	213	-	1,815,671	-	-	1,815,884

Subtotal	17,835,578	1,783	-	3,691,289	-	(77,114)	3,615,958

…/cont’d

The accompanying notes are an integral part of these financial statements

LEXINGTON ENERGY SERVICES, INC. AND SUBSIDIARIES

Continued

INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

for the period March 30, 2005 (Date of Inception) to February 29, 2008

(Stated in US Dollars)


	Common Stock				Accumulated
			Stock	Additional	Other
	Number of		Subscriptions	Paid-in	Comprehensive	Deficit
	Shares	Amount	Received	Capital	Income	Accumulated	Total

Subtotal	17,835,578	$ 1,783	$ -	$ 3,691,289	$ -	$ (77,114)	$ 3,615,958
Issuance of common stock for cash
- at $0.85 per share at October 16, 2006	800,612	80	-	680,440	-	-	680,520
Issuance of common stock for cash
- at $0.85 per share at October 24, 2006	989,570	99	-	841,036	-	-	841,135
Fair value of detachable warrants issued with convertible debentures	-	-	-	25,000	-	-	25,000
Issuance of common stock pursuant to conversion of convertible debentures
- at $0.85 per share at November 23, 2006	1,176,470	118	-	999,882	-	-	1,000,000
Stock based compensation	-	-	-	56,400	-	-	56,400
Stock subscriptions received	-	-	279,317	-	-	-	279,317
Foreign currency translation adjustment	-	-	-	-	(32,455)		(32,455)
Net loss for the period	-	-	-	-	-	(1,971,446)	(1,971,446)

Balance, November 30, 2006	20,802,230	2,080	279,317	6,294,047	(32,455)	(2,048,560)	4,494,429
Issuance of common stock for cash
- at $1.00 per share at December 1, 2006	494,642	50	(279,317)	494,595	-	-	215,328
Share subscription cancelled	(10,000)	(1)	-	(9,999)	-	-	(10,000)
Issuance of common stock pursuant to stock options
- at $0.50 per share at December 7, 2006	43,860	4	-	21,926	-	-	21,930
Issuance of common stock pursuant to warrants
- at $0.85 per share at December 29, 2006	255,755	26	-	217,367	-	-	217,393
Issuance of common stock pursuant to warrants
- at $0.85 per share at January 16, 2007	244,245	24	-	207,585	-	-	207,609
Issuance of common stock pursuant to stock options
- at $0.85 per share at February 1, 2007	20,000	2	-	16,998	-	-	17,000
Issuance of common stock pursuant to stock options
- at $0.50 per share at February 14, 2007	107,489	11	-	53,734	-	-	53,745
Issuance of common stock for cash
- at $1.00 per share at February 15, 2007	330,957	33	-	330,924	-	-	330,957

Subtotal	22,289,178	2,229	-	7,627,177	(32,455)	-	5,548,391

…/cont’d

The accompanying notes are an integral part of these financial statements

LEXINGTON ENERGY SERVICES, INC AND SUBSIDIARIES

Continued

INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

for the period March 30, 2005 (Date of Inception) to February 29, 2008

(Stated in US Dollars)


	Common Stock				Accumulated
			Stock	Additional	Other
	Number of		Subscriptions	Paid-in	Comprehensive	Deficit
	Shares	Amount	Received	Capital	Loss	Accumulated	Total

Subtotal	22,289,178	2,229	-	7,627,177	(32,455)	(2,048,560)	5,548,391
Issuance of common stock for cash
- at $1.00 per share at March 20, 2007	255,000	25	-	254,975	-	-	255,000
Issuance of common stock pursuant to stock options
- at $0.50 per share at March 22, 2007	12,512	1	-	6,254	-	-	6,255
Issuance of common stock for services
- at $0.75 per share at March 22, 2007	14,585	2	-	10,937	-	-	10,939
Issuance of common stock for services
- at $0.73 per share at March 28, 2007	20,548	2	-	14,998	-	-	15,000
Issuance of common stock for services
- at $0.81 per share at April 02, 2007	325,000	32	-	263,218	-	-	263,250
Issuance of common stock for services
- at $0.71 per share at April 11, 2007	70,000	7	-	49,693	-	-	49,700
Issuance of common stock for services
- at$0.70 per share at April 17, 2007	100,000	10	-	69,990	-	-	70,000
Issuance of common stock for services
- at $0.47 per share at May 11, 2007	100,000	10	-	46,990	-	-	47,000
Issuance of common stock for services
- at $0.55 per share at May 29, 2007	55,000	6	-	30,244	-	-	30,250
Issuance of common stock for services
- at $0.40 per share at July 06, 2007	113,183	11	-	45,262	-	-	45,273
Issuance of common stock for services
- at $0.40 per share at July 11, 2007	600,000	60	-	239,940	-	-	240,000

Subtotal	23,955,006	2,395	-	8,659,678	(32,455)	(2,048,560)	6,581,058

…/cont’d

The accompanying notes are an integral part of these financial statements

LEXINGTON ENERGY SERVICES, INC AND SUBSIDIARIES

Continued

INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

for the period March 30, 2005 (Date of Inception) to February 29, 2008

(Stated in US Dollars)


	Common Stock				Accumulated
			Stock	Additional	Other
	Number of		Subscriptions	Paid-in	Comprehensive	Deficit
	Shares	Amount	Received	Capital	Loss	Accumulated	Total

Subtotal	23,955,006	2,395	-	8,659,678	(32,455)	(2,048,560)	6,581,058
Issuance of common stock for services	28,571	3	-	9,997	-	-	10,000
- at $0.35 per share at September 12, 2007
Issuance of common stock for cash	1,103,000	110	-	551,390	-	-	551,500
- at $0.50 per unit at October 24, 2007
Issuance of common stock pursuant to stock options	55,000	6	-	13,744	-	-	13,750
- at $0.25 per share at October 29, 2007
Issuance of common stock for services	50,000	5	-	22,495	-	-	22,500
- at $0.45 per share at October 29, 2007
Issuance of common stock for services	50,000	5	-	19,995	-	-	20,000
- at $0.40 per share at November 13, 2007
Issuance of common stock for services	50,000	5	-	11,495	-	-	11,500
- at $0.23 per share at November 21, 2007
Issuance of common stock for services	100,000	10	-	25,990	-	-	26,000
- at $0.26 per share at November 23, 2007
Stock based compensation	-	-	-	861,800	-	-	861,800
Fair value of detachable warrants issued	-	-	-	103,500	-	-	103,500
Foreign currency translation adjustment	-	-	-	-	(241,758)	-	(241,758)
Net loss for the period	-	-	-	-	-	(5,530,201)	(5,530,201)

Balance, November 30, 2007	25,391,577	$ 2,539	$ -	$ 10,280,084	$ (274,213)	$ (7,578,761)	$ 2,429,649

…/Cont’d

The accompanying notes are an integral part of these financial statements

LEXINGTON ENERGY SERVICES, INC AND SUBSIDIARIES Continued

INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

for the period March 30, 2005 (Date of Inception) to February 29, 2008

(Stated in US Dollars)


	Common Stock				Accumulated
			Stock	Additional	Other
	Number of		Subscriptions	Paid-in	Comprehensive	Deficit
	Shares	Amount	Received	Capital	Loss	Accumulated	Total

Balance, November 30, 2007	25,391,577	$ 2,539	$ -	$ 10,280,084	$ (274,213)	$ (7,578,761)	$ 2,429,649
Issuance of common stock for services	151,609	15	-	34,855	-	-	34,870
- at $0.23 per share at January 9, 2008
Issuance of common stock for services	45,483	4	-	10,457	-	-	10,461
- at $0.23 per share at January 9, 2008
Issuance of common stock for services	200,000	20	-	45,980	-	-	46,000
- at $0.23 per share at January 9, 2008
Issuance of common stock for services	350,000	35	-	69,965	-	-	70,000
- at $0.20 per share at January 15, 2008
Foreign currency translation adjustment	-	-	-	-	(8,967)	-	(8,967)
Net loss for the period	-	-	-	-	-	(44,590)	(44,590)

Balance, February 29, 2008	26,138,669	$ 2,613	$ -	$ 10,441,341	$ (283,180)	$ (7,623,351)	$ 2,537,423

The accompanying notes are an integral part of these financial statements

LEXINGTON ENERGY SERVICES, INC. AND SUBSIDIARIES

(A Development Stage Company)

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)




	For the three months ended
	February 29,
	2008	2007

Operating Activities
Net loss for the period	$ (44,590)	$ (488,924)
Adjustments to reconcile loss to cash used by operating activities:
Depreciation	338,821	109,416
Warrants issued for investor relations	-	-
Shares issued for services	161,331	43,745
Stock based compensation	-	3,800
Loss on sale of equipment	-	-
Gain on sale of equipment	-	-
Changes in non-cash working capital items:
GST receivable	41,324	113,697
Prepaid expenses and refundable deposits	(158,729)	(16,191)
Accounts receivable	62,834	(437,572)
Deposits	238,176	-
Accounts payable and accrued liabilities	(216,869)	(50,445)
	466,888	(233,550)

Cash flows used in operating activities	422,298	(722,474)

Investing Activities
Equipment deposit	-	-
Purchase of property & equipment	(67,854)	(791,590)
Proceeds from sale of equipment	-	-
Purchase of land	-	4,498

Cash flows used in investing activities	(67,854)	(787,092)

…/cont’d

The accompanying notes are an integral part of these financial statements

LEXINGTON ENERGY SERVICES INC.

Continued

(A Development Stage Company)

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)




	For the three months ended
	February 29,
	2008	2007


Financing Activities
Net proceeds from loans from related parties	147,672	3,542
Proceeds from loans payable	(46,825)	-
Net capital lease obligations	(107,223)	-
Common stock issued for cash	-	1,020,217
Proceeds from stock subscriptions	-	245,000

Cash flows provided by financing activities	(6,377)	1,268,759


Effect of exchange rate changes on cash	(8,967)	(83,118)

Net increase (decrease) in cash	339,100	(323,925)

Cash, beginning of the period	8,149	639,499

Cash, end of the period	$ 347,249	$ 315,574


Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$ 147,636	$ 2,481
Cash paid during the period for taxes	-	-


Supplemental disclosure of non-cash items:
Warrants issued	$ -	$ 425,002
Shares issued on conversion of convertible debt	-	-
Shares issued for services	161,331	-
Stock based compensation	-	3,800
Common stock issued for subscriptions	-	546,285

The accompanying notes are an integral part of these financial statements

LEXINGTON ENERGY SERVICES INC.

(A Development Stage Company)

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

February 29, 2008 and 2007

(Stated in US Dollars)

Note 1

Interim Reporting

While the information presented in the accompanying interim three months financial statements is unaudited, it includes all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. These interim financial statements follow the same accounting policies and methods of their application as the Company’s November 30, 2007 annual financial statements. All adjustments are of a normal recurring nature. It is suggested that these interim financial statements be read in conjunction with the Company’s November 30, 2007 annual financial statements.

Operating results for the three months ended February 29, 2008 are not necessarily indicative of the results that can be expected for the year ended November 30, 2008.

During the three months ended February 29, 2008, the Company generated revenue totalling $1,466,205. The Company was in the development stage prior to the three months ended February 29, 2008.

Note 2

Continuance of Operations

These interim financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At February 29, 2008, the Company had not yet achieved profitable operations, has accumulated losses of $7,623,351 since its inception, has a working capital deficiency of $2,546,757 and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern . The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available.

Note 3

Significant Accounting Policies

Development Stage Company

The Company is a development stage company as defined in the Statements of Financial Accounting Standards (“SFAS”) No. 7. The Company is still in the developmental stage, devoting substantially all of its present efforts to establish its business and its planned principal operations have not commenced, as only one subsidiary has started to realize some revenues but has not achieved full operations. All losses accumulated since inception have been considered as part of the Company’s development stage activities.

Consolidation

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Lexcore Services Inc., Lexcoil Inc and Nitro-Gen Technologies Inc. All inter-company transactions and account balances have been eliminated.

Financial Instruments

The carrying values of cash and cash equivalents, accounts payable and accrued liabilities and due to/from related parties approximate fair value because of the short-term nature of these instruments. Management is of the opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.

Equipment

Equipment is recorded at cost. Depreciation is provided on a straight-line basis over three years.

Impairment of Long-Lived Assets

In accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the carrying value of intangible assets and other long-lived assets are reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.

Note 3

Significant Accounting Policies – (cont’d)

Basic and Diluted Net Income (Loss) Per Share

The Company computes net loss per share in accordance with SFAS No. 128, "Earnings Per Share". SFAS 128 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted EPS gives effect to all dilutive potential common shares outstanding during the year including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing diluted EPS, the average stock price for the year is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti dilutive.

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.

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.

Income Taxes

The Company follows SFAS No. 109, “Accounting for Income Taxes” which requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carry forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled.

Note 3

Significant Accounting Policies – (cont’d)

Foreign Currency Translation

The Company’s functional currency is the Canadian dollar as substantially all of the Company’s operations are in Canada. The Company’s reporting currency is the United States dollar. Foreign currency transactions undertaken in Canadian dollars are translated into United States dollars, in accordance with SFAS No. 52 “Foreign Currency Translation,” using exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-measured at each balance sheet date at the exchange rate prevailing at the balance sheet date. Foreign currency exchange gains and losses are charged to operations. The Company has not, to the date of these financials statements, entered into derivative instruments to offset the impact of foreign currency fluctuations. Translation adjustments arising from the use of differing exchange rates fro m period to period are included in the accumulated other comprehensive gain (loss) account in Stockholders’ Equity.

Stock Based Compensation

In December 2004, the FASB issued SFAS No. 123R, “Share Based Payment”, that addresses the accounting transactions in which a company exchanges its equity instruments for goods or services. SFAS No. 123R requires that such transactions be accounted for using a fair value based method. Adoption of SFAS No. 123R is effective for periods beginning after December 15, 2005. The Company has adopted this pronouncement for the fiscal year commencing December 1, 2006.

Leases

Leases entered into by the Company as lessee that transfer substantially all the benefits and risks of ownership to the lessee are recorded as capital leases and are included in equipment. All other leases are classified as operating leases under which leasing costs are recorded as expenses in the period in which they were incurred.

Note 3

Significant Accounting Policies – (cont’d)

Revenue Recognition

The Company recognizes revenue when it is realized and earned. Revenue and costs on drilling contracts are recognized as work progresses. Progress is measured and revenues are recognized based upon agreed day-rate charges and/or other additional charges. For certain contracts, the Company may receive additional lump-sum payments for the mobilization of rigs and other drilling equipment. Consistent with the drilling contract day-rate revenues and charges, revenues and related direct costs incurred for the mobilization are recognized when earned. Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred. The Company recognizes revenue under service contracts as services are performed and collection is reasonably assured.

Recently Issued Accounting Pronouncements

In February 2007, the FASS issued SFAS No. 159, "The Fair Value Option for Financial Assets and Liabilities" ("SFAS No. 159"). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value, and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The new guidance is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the potential impact of the adoption of SFAS No. 159 on its financial position and results of operations.

In December 2006, the FASS approved FASS Staff Position (FSP) No. EITF 00-19-2, "Accounting for Registration Payment Arrangements" ("FSP EITF 00-19-2"), which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No.5, "Accounting for Contingencies". FSP EITF 00- I9-2 also requires additional disclosure regarding the nature of any registration payment arrangements, alternative settlement methods, the maximum potential amount of consideration and the current carrying amount of the liability, if any. The guidance in FSP EITF 00-19-2 amends FASB Statements No. 133, "Accounting for Derivative Instrumen ts and Hedging Activities", and No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", and FASS Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", to include scope exceptions for registration payment arrangements. The adoption of this pronouncement did not have an impact on the company's financial position, results or operations or cash flows.

Note 3

Significant Accounting Policies – (cont’d)

Recently Issued Accounting Pronouncements – cont’d

In September 2006, the FASB issued Statement of Financial Accounting Standard No. 157, "Fair Value Measurements." This statement defines fair value, establishes a fair value hierarchy to be used in generally accepted accounting principles and expands disclosures about fair value measurements. Although this statement does not require any new fair value measurements, the application could change current practice. The statement is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of this statement to its financial position and results of operations.

In September 2006, the staff of the Securities and Exchange Commission issued SAB No. 108 which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAS 108 becomes effective in fiscal 2007. The adoption of this pronouncement is not expected to have an impact on the Company's financial position, results of operation or cash flows.

In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASS Statement No. 109" (the "Interpretation"). The Interpretation establishes for all entities a minimum threshold for financial statement recognition of the benefit of tax positions, and requires certain expanded disclosures. The Interpretation is effective for fiscal years beginning after December 31, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Company is in the process of evaluating the impact of the application of the Interpretation to its financial statements.

In March 2006, the FASS issued SFAS 156 - "Accounting for Servicing of Financial Assets - an amendment of FASS Statement No. 140" ("SFAS 156"). SFAS 156 is effective for the first fiscal year beginning after September 15, 2006. SFAS 156 changes the way entities account for servicing assets and obligations associated with financial assets acquired or disposed of. The Company has not yet completed its evaluation of the impact of adopting SFAS 156 on its results of operations or financial position, but does not expect that the adoption of SFAS 156 will have a material impact.

In February 2006, the FASB issued SFAS No. 155 "Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140" ("FAS 155"). FAS 155 addresses the following: a) permits fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; b) clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133; c) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation;

Note 3

Significant Accounting Policies – (cont’d)

Recently Issued Accounting Pronouncements – cont’d

d) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and e) amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. FAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. The Company has not yet completed its evaluation of the impact of adopting SFAS 155 on its results of operations or financial position, but does not expect that the adoption of SFAS 155 will have a material impact.

Note 4

Equipment


	February 29, 2008
		Accumulated
	Cost	Depreciation	Net

Computer and equipment	$ 32,424	$ 16,914	$ 15,510
Office equipment	8,878	3,707	5,171
Furniture	18,251	8,174	10,077
Software	23,384	10,336	13,048
Tools and equipment	24,729	8,129	16,599
Equipment/Machinery	3,909,324	422,358	3,486,966
Vehicle equipment	74,910	19,767	55,143
Equipment under construction	144,808	-	144,808

	4,236,707	489,386	3,747,321
Equipment under capital lease
Equipment/machinery	3,635,212	651,869	2,983,343

	$ 7,871,919	$ 1,141,255	$ 6,730,664

Note 4

Equipment – (cont’d)


	November 30, 2007
		Accumulated
	Cost	Depreciation	Net

Computer and equipment	$ 32,424	$ 14,625	$ 17,799
Office equipment	8,878	2,967	5,911
Furniture	18,251	6,730	11,520
Software	23,384	8,388	14,996
Tools and equipment	24,857	6,082	18,775
Equipment/Machinery	3,909,324	324,625	3,584,699
Vehicle equipment	75,004	14,377	60,627
Equipment under construction	76,760	-	76,760

	4,168,882	377,795	3,791,087
Equipment under capital lease
Equipment/machinery	3,635,212	424,668	3,210,544

	$ 7,804,094	$ 802,462	$ 7,001,631


	November 30, 2006
		Accumulated
	Cost	Depreciation	Net

Computer and equipment	$ 27,450	$ 6,009	$ 21,441
Office equipment	6,279	1,419	4,860
Furniture	26,966	3,584	23,382
Software	10,352	863	9,489
Tools and equipment	6,025	1,004	5,021
Leasehold improvements	28,220	2,508	25,712
Machinery under construction	3,159,874	-	3,159,874

	$ 3,265,166	$ 15,387	$ 3,249,779

Equipment/machinery under capital leases are depreciated on a straight-line basis on a four year basis.

Note 5

Related Party Transactions

During the quarter ended February 29, 2008:

The Company incurred $NIL (2007: $58,785) for management fees to the former President and CEO of the Company. At February 29, 2008, $10,485 (November 30, 2007: $10,432) was due from the former President and CEO.

The Company incurred $2,041 (2007: $66,497) for management fees to the other former President, Secretary and Treasurer of the Company. At February 29, 2008, $569,108 was due to the other former President, Secretary and Treasurer of the Company (November 30, 2007: $581,797) of the Company.

The Company incurred $NIL for management fees to the President of the Company. The Company issued 350,000 common shares as compensation to the President valued at $70,000.

The Company incurred $NIL (2007: $3,099) for management fees to the CFO of the Company. The Company issued 245,483 common shares as compensation to the CFO valued at $56,431.

The Company incurred $NIL for management fees to the Secretary of the Company. The Company issued 325,000 common shares as compensation to a director of the Company valued at $263,250. At February 29, 2008, $103,418 was due to the Secretary of the Company (November 30, 1007: $100,000).

The Company incurred $291,243 for management fees to the Vice President of Operations of the Company’s subsidiary. The Company incurred $180,325 for management fees to the Senior Vice President of the Company’s subsidiary. At November 30, 2007, accounts payable includes $46,452 due to the officer of the subsidiary.

Note 6

Capital Stock – Note 13

Stock options

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


	Three months ended		Three months ended
	February 29, 2008		February 28, 2007
		Weighted		Weighted
	Number of	Average	Number of	Average
	Common	Exercise	Common	Exercise
	Shares	Price	Shares	Price

Outstanding, beginning	5,045,000	$0.47	3,470,000	$0.48
Granted	-	-	20,000	$0.85
Exercised	-	-	(171,349)	$0.54
Cancelled	(590,000)	$0.24	(6,140)	$0.50

Outstanding, ending	4,455,000	$0.50	3,312,511

During the period ended February 29, 2008, there were no stock options issued. The fair value of the stock options granted was determined using the Black-Scholes option value model with the following assumptions:


	2008	2007

Expected dividend yield	0.0%	0.0%
Risk-free interest rate	0.0%	3.82%
Expected volatility	0.0%	118.83%
Expected option life (in years)	0 years	1.68 years

Expected volatility was based on the company’s historical share price.

The compensation charge associated with stock options in the amount of $861,800 (2006: $56,400) is included in the statement of operations for the year ended November 30, 2007.

Note 6

Share Capital– Note 13 – (cont’d)

Stock options– (cont’d)

Additional information regarding stock options outstanding as at November 30, 2007, is as follows:


Number of
Common Shares	Exercise Prices	Expiry Date

320,000	$0.50	March 13, 2008
740,000	$0.50	April 5, 2008
520,000	$0.50	May 17, 2008
400,000	$0.85	August 1, 2008
10,000	$0.85	October 3, 2008
65,000	$0.85	October 13, 2008
20,000	$0.85	October 16, 2008
25,000	$0.85	November 15, 2008
150,000	$0.85	April 11, 2009
675,000	$0.50	May 15, 2009
150,000	$0.65	May 24, 2009
250,000	$0.50	July 31, 2009
980,000	$0.25	September 28, 2009
50,000	$0.50	October 19, 2008
100,000	$0.25	October 31, 2008

4,455,000

During the year ended November 30, 2007, 500,000 stock options expired unexercised.

On December 30, 2007, 150,000 stock options expired unexercised.

Share purchase warrants

At February 29, 2008, 1,553,000 share purchase warrants were outstanding as follows:


Number of Warrants	Exercise Price	Expiry Date

300,000	$0.60	July 11, 2009
150,000	$0.85	May 11, 2011
1,103,000	$0.60	October 24, 2009

1,553,000

Note 6

Share Capital– Note 13 – (cont’d)

Share purchase warrants – (cont’d)

The fair value of the share purchase warrants issued during the period ended November 30, 2007, was in the amount of $103,500, which was determined using the Black-Scholes option value model with the following assumptions:


	2007

Expected dividend yield	0.0%
Risk-free interest rate	3.16%
Expected volatility	101.63%
Expected option life (in years)	2.08 years

Expected volatility was based on the Company’s historical share price.

On October 24, 2007 the Company entered into private placement agreements totalling $551,500. Each unit purchased entitled the holder to one common share and one share purchase warrant exercisable at $0.60 per share. A total of 1,103,000 share purchase warrants were provided.

Note 7

Convertible Debentures

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

Attached to each Secured Convertible Debenture was a Warrant Agreement. Each Warrant Agreement entitles the holder the right to purchase 250,000 common shares of the Company at $0.85 per share. At February 28, 2007, all 500,000 warrants were exercised.

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

Note 8

Non-Cash Transactions

Investing and financing activities that do not have a direct impact on current cash flows are excluded from the statements of cash flows.

The Company issued 256,340 common shares pursuant to the exercise of stock options at $0.40-0.75 per share for payment of legal fees totalling $116,213.

The Company issued 1,622,590 common shares for payment of wages, consulting, director and management fees totalling $956,531.

The Company entered into four capital lease agreements for machinery and equipment totalling $3,635,212.

These transactions have been excluded from the statements of cash flows.

Note 9

Commitments – Note 4

The Company entered into an employment agreement dated June 1, 2006 with the other former President, Secretary, Treasurer and Senior Vice President of Operations of the Company for $5,400 per month and the option to buy 250,000 common shares of the Company at $0.50 per share. Either party can terminate the agreement at any time with 14 days notice. The employment agreement was terminated January 15, 2008 when he resigned.

The Company entered into an investor relations agreement on May 11, 2007 and was terminated after phase 1. The agreement is structured over three phases with the following terms:

Phase I

Upon execution of this agreement issue 100,000 common shares (issued) of the Company and 150,000 share purchase warrants exercisable at $0.85 per warrant expiring on May 11, 2012;

Phase II

Upon commencement of phase II issue 200,000 common shares of the Company and 300,000 share purchase warrants exercisable at $1.00 per warrant expiring five years from issuance;

Phase III

Upon commencement of phase III, issue 200,000 common shares of the Company and 300,000 share purchase warrants exercisable at $1.00 per warrant expiring five years from issuance.

Note 9

Commitments – Note 4 – Cont’d

The Company entered into an office lease agreement effective July 1, 2006 to July 31, 2010 for basic rent of $13,600 per month. This lease was terminated as of July 31, 2007.

The Company entered into a $773,195 (CAD $750,000) loan agreement effective October 16, 2007 for a period of one year. The agreement requires the Company to keep the loan for a minimum of 4 months. The loan is repayable with blended monthly interest and principal payments of CAD $30,000 with a balloon payment of all remaining outstanding amounts at the end of the one year period, estimated at $549,000.

Note 10

Contingencies

A vendor of a subsidiary of the Company has alleged that the subsidiary owes $240,719 for breach of contract. The subsidiary disputes this claim and contends that services by the vendor were not completed in accordance to the terms of the service agreement. The liability has been recorded in the financial statements related to this contingency and any favourable or unfavourable settlement of this matter will be recorded in the period in which the contingency is resolved. Management of the subsidiary has filed its statement of defence.

A former director and CFO of the Company filed a Writ of Summons and Statement of Claim with the Supreme Court of British Columbia alleges that the Company breached a settlement agreement entered into on March 31, 2006 by failing to deliver 250,000 common shares of the Company free of a restrictive legend in April 2007. The Company states that it is not obligated to deliver shares without a restrictive legend and that the plaintiff could only sell the shares in accordance with rule 144 of the Securities Act. In August 2007 the Company delivered 250,000 common shares which are subject to rule 144 of the Securities Act. Management of the Company has filed its statement of defence.

The Company has been named in a counterclaim brought by the former President, Secretary and Treasurer of the Company through association. Management of the Company believes the claim will not materially affect the Company. The matter is between the former President, Secretary and Treasurer of the Company and the other party. There has been no liability recorded in the financial statements relating to this contingency and any unfavourable settlement of this matter will be recorded in the period in which the contingency is resolved.

Note 10

Contingencies - Cont’d

A consultant of the Company has alleged that the Company owes a total of $34,112 for a consulting agreement entered into on March 8, 2007 by the former President and director of the Company. The Company is currently investigating the issue. Part of the liability has been recorded in the financial statements related to this contingency and any favourable or unfavourable settlement of this matter will be recorded in the period in which the contingency is resolved.

A vendor of the Company has alleged that the Company owes a total of $34,779 and $32,665 for services rendered. The Company is currently investigating the issue. The liabilities has been recorded in the financial statements related to this contingency and any favourable or unfavourable settlement of this matter will be recorded in the period in which the contingency is resolved.

Note 11

Obligations Under Capital Leases

The Company has obligations under capital leases for machinery and equipment to August 31, 2011.

Future minimum lease payments as at February 29, 2008, are as follows:


	2008

2008	$ 768,428
2009	869,654
2010	869,654
2011	1,117,711

	3,625,447

Less: Imputed interest	(705,888)

	2,919,559

Less: Current portion	(869,654)

Obligations under capital leases	$ 2,049,905

During the quarter ended February 29, 2008, the Company paid $71,035 in interest payments.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

The statements contained in this quarterly report on Form 10-Q that are not historical are “forward-looking statements,” as that term is defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve a number of risks and uncertainties.

These forward-looking statements include, among others, the following:

our business and growth strategies;

our oil and gas service program estimates;

our ability to successfully find work for our operations;

our ability to develop our prospects, projects, programs, equipment;

anticipated trends in our business;

our future results of operations;

our liquidity and ability to finance our operations and development activities;

market conditions in the oil and gas service industry;

our ability to make and integrate acquisitions; and

the impact of environmental and other governmental regulation.

Forward-looking statements are typically identified by use of terms such as “may”, “will”, “could”, “should”, “expect”, “plan”, “project”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “pursue”, “target” or “continue”, the negative of such terms or other comparable terminology, although some forward-looking statements may be expressed differently.

The forward-looking statements contained in this report are largely based on our expectations, which reflects estimated and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties tat are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this annual report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward - -looking statements

Background

Lexington Energy Services Inc. was incorporated as a Nevada corporation on March 30, 2005. We are an oil field service company providing, through three wholly-owned subsidiaries, manufacturing and leasing of oilfield service equipment to oil and gas and other oil field service companies. We have only begun our operations and have had operational losses to date, as well

as an accumulated deficit. As of February 29, 2008, we had net losses since inception in the amount of ($ 7,623,351).

Our principal offices are temporary located at Bay A, 1115 48^th Avenue SE, Calgary, AB T2G 1A7.

Recent Developments

On January 15, 2008, our Board appointed Robert Rosner as our Chief Executive Officer following the resignation of Brent Nimeck as President and Chief Executive Officer. Since Mr. Nimeck’s resignation, current management’s primary activities have been involved in a significant reorganization of the Company’s operations, records and databases, regaining control of certain Company assets, and identifying and evaluating the current status of customer and supplier relationships. Current management is also resolving and investigating past transactions. Current management expects that resolution of these issues will continue for some period of time. If we fail to resolve these issues satisfactorily within a reasonable period of time, our business operations may be adversely affected.

Results of Operations

We are a development stage corporation and we are dependent on our ability to generate revenue from our operations or to raise capital to sustain operations. At November 30, 2007, we had generated revenues and had accumulated losses of $7,623,351 since our inception.

Results of Operations for the three months periods ended February 29, 2008 and February 28, 2007

During the three months ended February 29, 2008, we generated revenues of $1,466,205, received interest income of $1,484 and incurred a net loss of ($53,557), as compared with the comparable period in 2007, in which we incurred a net loss of ($ 550,984), generated revenues of $1,152,254 and received interest income of $1,085. Our net loss per share was ($0.00) for the three months ended February 29, 2008 and ($0.02) for the three months ended February 28, 2007.

Our total expenses were $882,522 for the three months ended February 29, 2008, including $71,547 in professional fees, $126,431 in management fees, $60,949 in consulting fees, 8,196 in promotion and marketing, $29,361 in travel, $Nil in stock based compensation and $246,722 in general and administrative expense. Our general and administrative expenses included office rent, office supplies, communication expenses (cellular, internet, fax, telephone), benefits, entertainment, vehicle expenses, shop supplies, courier and postage costs, and salaries for our administrative assistants.

Our professional fees of $71,547 for the three months ended February 29, 2008 consisted primarily of legal, accounting and auditing fees as compared to $73,298 for the prior three months ended February 28, 2007.

Our management fees of $126,431 for the three months ended February 29, 2008 and $166,158 from the three months ended February 28, 2007 consisted mainly of amounts paid to the fees paid to our operations officers and prior officers of the company.

Our consulting fees for the three months ended February 29, 2008 were 60,949. Our consulting fees for the three months ended February 28, 2007 were $78,926. During the period from our inception to February 29, 2008, we hired consultants in the areas of administration, bookkeeping, accounting, and for our operations. We also retained an attorney for the preparation of our registration statements, and an auditor to audit our financial statements.

Plan of Operation

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

Our corporate strategy for the next 12 months (beginning 2008) includes the following:

complete our drilling programs through our coring division;

find new drilling programs through our coring division;

build 2 more coring units for Lexcore;

identify acquisitions which will benefit from having in-house construction capabilities and develop personnel and equipment in-house to meet market demands; and

create additional service lines to complement current operations;

find programs for our nitrogen unit;

repay our loan commitments

restructure and reorganize the Company; and

resolve and investigate past transactions.

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

Nitrogen Generation Unit

We are currently negotiating the lease of our nitrogen generation unit. If we are successful in leasing the unit, we will apply the revenues to our general operating expenses.

Coring Units

If we are successful in raising additional financing, through Lexcore, we plan to build two more coring units at a cost of approximately $1,250,000 each in the fall of 2008. We intend to direct revenues from our coring division towards our general and administrative expenses, labour and maintenance expenses for the drilling program, and for parts and labour to build more coring units.

New Facility

We had plans for Lexington to be headquartered in Brooks, Alberta. Brooks is located in the centre of Southern Alberta and accesses the largest areas of Alberta which extends into Saskatchewan and to the US border. We had intended to build a 10,000 square foot manufacturing and repair facility with a connected 2,000 square foot office space for our use and for possible lease to other companies, depending on how much space we need ourselves. This plan is temporary on hold.

On February 23, 2006 we entered into an agreement to purchase a property in Brooks, Alberta for a purchase price of $252,066. The property is comprised of raw land and is approximately 8.2 acres. The purchase was completed in September 2007.

We are currently looking to lease a facility in Calgary, Alberta as our headquarters and office for all our wholly owned subsidiaries.

Limited operating history; need for additional capital

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

Although we expect to continue to generate revenues, we will need to raise additional capital to carry out our business plan. There is no assurance that any additional financing will be available or if available, on terms that will be acceptable to us. Obtaining additional financing will be subject to a number of factors including market conditions, investor acceptance of our business plan, investor sentiment, and as noted above, the potential approval of our senior equity securities. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. If we are unable to raise additional financing, we will have to significantly reduce our spending, delay or cancel planned activities or substantially change our current corporate structure. In such an event, we intend to implement expense reduction plans in a timely manner. However, these actions would have mate rial adverse effects on our business, revenues, operating results, and prospects, resulting in a possible failure of our business.

We have incurred operating losses from our inception and that we are dependent upon our ability to raise capital from stockholders or other sources to sustain operations. These factors raise substantial doubt about our ability to continue as a going concern.

Liquidity and Capital Resources

As of February 29, 2008, we had a working capital deficit of $2,395,402. Our accumulated deficit was $7,623,351 as at February 29, 2008. Our net loss of $7,623,351 from March 30, 2005 (inception) to February 29, 2008 was funded by a combination of our equity and debt financing. During the three months ended February 29, 2008, we raised $NIL in equity finance.

As of February 29, 2008, we had approximately $347,249 in our bank accounts. Our cash balance increased as a result of our collections from our receivables.

If we are successful in raising significant capital, over the next twelve months beginning March 1, 2008 we intend to build two additional coring units, buy out our capital leases, repay our loan commitments. Total cash requirements to complete those steps will be approximately $7,000,000 set out as follows:


Expense	Amount ($)
Repayment of loan commitments	750,000
Working capital	1,200,000
Buy out capital leases	1,500,000
Build two Coring/Drilling Rigs	2,500,000
Professional Fees	250,000
General and Administrative Expenses	800,000
Total	7,000,000

The administrative expenses will consist of marketing and promotion, tradeshow costs, salaries, leases, travel, meals and entertainment, office maintenance, communication expenses (cellular, internet, fax, telephone), benefits, office supplies, courier and postage costs and office equipment.

Any money currently in our bank accounts will likely to applied to our accounts payable. Any future revenues we receive we plan to use towards covering our administrative and operating expenses. We require an additional $7,000,000 to carry out our planned business operations and expansion over the next 12 months. We intend to try to obtain this financing through a combination of bank financing and equity investment through the sale of our common shares. Currently none of our assets are encumbered by any loans and we are in the process of contacting banks to determine what type of bank financing is available and on what terms. We are active in contacting broker/dealers in the US and elsewhere regarding possible financing arrangements.

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

Known Material Trends and Uncertainties

As of February 29, 2008, we had no off balance sheet transactions that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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

negotiate with suppliers to delay deposit due dates;

lease some equipment as individual pieces, as opposed to entire units, if we are unable to build and purchase the entire units; and

negotiate with our management and consultants to pay parts of salaries and fees with stock and stock options instead of cash.

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

Critical Accounting Policies

Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in the notes to our unaudited financial statements as of February 29, 2008. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management.

Foreign Currency Translation

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

Stock-based Compensation

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

Stock-based compensation for employees is recognized on an accelerated basis over the vesting period of the individual options. Stock options granted to non-employees are accounted for under

Statement of Financial Accounting Standards (“FAS”) No. 123 “Accounting for Stock-Based Compensation” and are recognized at the fair value of the options as determined by an option pricing model as the related services are provided and the options earned.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Credit Risk – We invoice our customers as soon as practicable or when the well or job is completed. Our cash flow is highly dependent on our ability to collect from our customers. If our customers do not pay us on time, then we may be exposed to credit risk with our vendors and suppliers. Consequently, this may affect our cash flow.

Foreign Currency Risk - Our functional currency is the Canadian dollar and reporting currency is the United States dollar. Foreign currency transactions are primarily undertaken in Canadian dollars and are translated into United States dollars using exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-measured at each balance sheet date at the exchange rate prevailing at the balance sheet date. Foreign currency exchange gains and losses are charged to operations. Because our revenue is reported in U.S. dollars, the exchange rate of the local currency, when converted into U.S. dollars, may have an adverse impact. We have not hedged foreign currency exposures related to transactions denominated in currencies other than U.S. dollars. We do not engage in financial transactions for trading or speculative purposes.

Interest Rate Risk - Interest rate risk refers to fluctuations in the value of a security resulting from changes in the general level of interest rates. Investments that are classified as cash and cash equivalents have original maturities of three months or less. Interest income is sensitive to changes in the general level of U.S. interest rates. We do not have significant short-term investments, and due to the short-term nature of our investments, we believe that there is not a material risk exposure.

Commodity Price Risk – The prices of crude oil and natural gas affect the demand for our services. If these prices decline, we could experience a reduction in demand for our services and a consequent decline in revenues.

ITEM 4. CONTROLS AND PROCEDURES.

The Company's Chief Executive Officer and its Chief Financial Officer are primarily responsible for the accuracy of the financial information that is presented in this quarterly Report. These officers have as of the close of the period covered by this Quarterly Report, evaluated the Company's disclosure controls and procedures (as defined in Rules 13a-4c and 15d-14c promulgated under the Securities Exchange Act of 1934 and determined that such controls and procedures were effective in ensuring that material information relating to the Company was made known to them during the period covered by this Quarterly Report. Since their evaluation, no changes were made to the Company's internal controls or in other factors that could significantly affect these controls.

PART II

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

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

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

An officer of a subsidiary of the Company has claimed that he has been constructively dismissed at the end of December 2006 and seeks one year’s salary as compensation, which amounts to $238,176 (CDN$230,000). The Company contends that the Vice-President voluntarily resigned. There has been no liability recorded in the financial statements related to this contingency and any unfavorable settlement of this matter will be recorded in the period in which the contingency is resolved. The Company’s subsidiary received a Garnishee Order and paid $216,584 into court pending resolution of the claim. During the quarter, a settlement agreement was reached and resolved out of court.

unfavourable settlement of this matter will be recorded in the period in which the contingency is resolved. Management of the subsidiary has filed its statement of defence.

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

ITEM 1A

RISK FACTORS

There have been no material changes to the risk factors described in our 10-KSB for the year ended November 30, 2007 filed with the Securities and Exchange Commission on March 14, 2008.

ITEM 2.

UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

ITEM 5.

OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of The

Sarbanes Oxley Act of 2002.

31.2 Certification of Chief Financial Officer Pursuant to Section 302 of The

Sarbanes Oxley Act of 2002.

32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as

adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.

32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as

adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.

SIGNATURES

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

Lexington Energy Services Inc.

(Registrant)

By: /s/ Robert Rosner

------------------------------------

Robert Rosner, President and

Chief Executive Officer

Dated: April 21, 2008

EXHIBIT INDEX

--------------------------------------------------------------------------------

Exhibit Number Description

--------------------------------------------------------------------------------

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

--------------------------------------------------------------------------------

31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

--------------------------------------------------------------------------------

32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.

--------------------------------------------------------------------------------

32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.

--------------------------------------------------------------------------------

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	7th grade Avg

Lexington Energyservices Inactive 10-Q2008 Q1 Quarterly report

Content analysis