---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2008

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

For the transition period from ________ to ________

COMMISSION FILE NUMBER 000-50459

EXPLORATION DRILLING INTERNATIONAL
INC.(Exact name of registrant as specified in its
charter)

|NEVADA                                                               | 98-0396733                          
|-------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)
|                                                                     |                                     
|Mendelstrasse 11, Technologiehof                                     |                                     
|D-48149, Muenster, Germany                                           |                                     
|(Address of principal executive offices)                             | (Zip Code)                          

49-251-980-2030(Registrant's telephone
number, including area code)

Not Applicable(Former name, former
address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

|Large accelerated filer [   ] |                                                     | Accelerated
      filer                     
      [   ]
|----------------------------- | --------------------------------------------------- | --------------------------------------------------------
|Non-accelerated filer   [   ] | (Do not check if
      a smaller reporting company) | Smaller reporting company [X]                           

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

Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date:
As of November 14, 2008, the Registrant had 123,487,724 shares of common
stockoutstanding.

---

PART I - FINANCIAL INFORMATION

ITEM
1.               FINANCIAL
STATEMENTS.

The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and Rule
8-03 of Regulation S-X, and, therefore, do not include all information and
footnotes necessary for a complete presentation of financial position, results
of operations, cash flows, and stockholders' equity in conformity with generally
accepted accounting principles. In the opinion of management, all adjustments
considered necessary for a fair presentation of the results of operations and
financial position have been included and all such adjustments are of a normal
recurring nature. Operating results for the nine months ended September 30, 2008
are not necessarily indicative of the results that can be expected for the year
ending December 31, 2008.

As used in this Quarterly Report, the terms we, us, our,
EDI USA, and the Company mean Exploration Drilling International Inc. and
its subsidiaries, unless otherwise indicated. All dollar amounts in this
Quarterly Report are expressed in U.S. dollars, unless otherwise indicated.

2

---

EXPLORATION DRILLING INTERNATIONAL
  INC.

(A Development Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

September 30, 2008
  (Unaudited)

---

|EXPLORATION DRILLING INTERNATIONAL INC.
|---------------------------------------
|(A Development Stage Company)          
|CONSOLIDATED BALANCE SHEETS            
|(Expressed in U.S. Dollars)            

|                                                                                    |   | September 30, |   |   | December 31, |  
|----------------------------------------------------------------------------------- | - | ------------- | - | - | ------------ | -
|                                                                                    |   | 2008          |   |   | 2007         |  
|                                                                                    |   | (unaudited)   |   |   |              |  
|                                                                                    |   |               |   |   |              |  
|                                                                                    |   |               |   |   |              |  
|ASSETS                                                                              |   |               |   |   |              |  
|                                                                                    |   |               |   |   |              |  
|Current Assets                                                                      |   |               |   |   |              |  
|Cash                                                                                | $ | 1,968         |   | $ | -            |  
|Other receivables                                                                   |   | 21,096        |   |   | 20,674       |  
|Loans receivable -related parties (Note
      8)                                    |   | 7,210         |   |   | 9,610        |  
|Prepaids                                                                            |   | 8,445         |   |   | 24,942       |  
|Deferred tax asset, less valuation allowance of $2,783,766 (2007
      -$2,515,492) |   | -             |   |   | -            |  
|                                                                                    |   |               |   |   |              |  
|Total Current Assets                                                                |   | 38,719        |   |   | 55,226       |  
|                                                                                    |   |               |   |   |              |  
|Investment (Note 4)                                                                 |   | 9,462         |   |   | -            |  
|Equipment (Note 5)                                                                  |   | 150,380       |   |   | 210,587      |  
|Patents (Note 5)                                                                    |   | 222,882       |   |   | 204,770      |  
|                                                                                    |   |               |   |   |              |  
|Total
      Assets                                                                  | $ | 421,443       |   | $ | 470,583      |  
|                                                                                    |   |               |   |   |              |  
|LIABILITIES AND STOCKHOLDERS DEFICIENCY                                            |   |               |   |   |              |  
|                                                                                    |   |               |   |   |              |  
|Current Liabilities                                                                 |   |               |   |   |              |  
|Bank indebtedness (Note
      6)                                                    | $ | -             |   | $ | 53,182       |  
|Accounts payable and accrued
      liabilities                                      |   | 588,868       |   |   | 463,879      |  
|Accounts payable and
      accrued liabilities related parties (Note 8)            |   | 125,836       |   |   | 117,501      |  
|Loans payable -current (Notes 7 and 8)                                              |   | 1,673,544     |   |   | 1,377,931    |  
|                                                                                    |   |               |   |   |              |  
|Total Current Liabilities                                                           |   | 2,388,248     |   |   | 2,012,493    |  
|                                                                                    |   |               |   |   |              |  
|Loans payable (Notes 8)                                                             |   | 74,683        |   |   | 129,920      |  
|                                                                                    |   |               |   |   |              |  
|Total
      Liabilities                                                             |   | 2,462,931     |   |   | 2,142,413    |  
|                                                                                    |   |               |   |   |              |  
|Commitments (Note 12)                                                               |   |               |   |   |              |  
|                                                                                    |   |               |   |   |              |  
|Stockholders Deficiency                                                            |   |               |   |   |              |  
|Common stock (Note 9)                                                               |   |               |   |   |              |  
|Authorized                                                                          |   |               |   |   |              |  
|1,000,000,000 common shares, par value $0.001                                       |   |               |   |   |              |  
|Issued and outstanding                                                              |   |               |   |   |              |  
|September 30, 2008 -120,487,724                                                     |   |               |   |   |              |  
|December 31, 2007 -112,567,396                                                      |   | 120,487       |   |   | 112,567      |  
|Additional paid-in
      capital                                                    |   | 11,087,468    |   |   | 8,438,228    |  
|Accumulated other comprehensive loss:                                               |   |               |   |   |              |  
|Foreign currency translation adjustment                                             |   | (124,658      | ) |   | (162,044     | )
|Deficit accumulated during the development stage                                    |   | (13,124,785   | ) |   | (10,060,581  | )
|                                                                                    |   |               |   |   |              |  
|Total
      Stockholders Deficiency                                                |   | (2,041,488    | ) |   | (1,671,830   | )
|                                                                                    |   |               |   |   |              |  
|Total
      Liabilities and Stockholders Deficiency                                | $ | 421,443       |   | $ | 470,583      |  

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

F-2

---

|EXPLORATION DRILLING INTERNATIONAL INC.                           
|------------------------------------------------------------------
|(A Development Stage Company)                                     
|CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
      LOSS
|(Expressed in U.S. Dollars)                                       
|(Unaudited)                                                       

|                                                |   | Cumulative         |       |   |               |       |   |               |       |   |               |       |   |               |  
|----------------------------------------------- | - | ------------------ | ----- | - | ------------- | ----- | - | ------------- | ----- | - | ------------- | ----- | - | ------------- | -
|                                                |   | Amounts            |       |   | Nine          |       |   | Nine          |       |   | Three         |       |   | Three         |  
|                                                |   | From Inception     |       |   | Months        |       |   | Months        |       |   | Months        |       |   | Months        |  
|                                                |   | (December 7, 2004) |       |   | Ended         |       |   | Ended         |       |   | Ended         |       |   | Ended         |  
|                                                |   | to September 30,   |       |   | September 30, |       |   | September 30, |       |   | September 30, |       |   | September 30, |  
|                                                |   | 2008               |       |   | 2008          |       |   | 2007          |       |   | 2008          |       |   | 2007          |  
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|REVENUE                                         | $ | 66,287             |       | $ | 66,287        |       | $ | - $           |       |   | 43,782        |       | $ | -             |  
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|EXPENSES                                        |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|Amortization                                    | $ | 207,816            |       | $ | 62,282        |       | $ | 47,309 $      |       |   | 20,194        |       | $ | 16,405        |  
|Management fees (recovery)                      |   | 1,157,286          |       |   | 102,811       |       |   | 278,350       |       |   | (8,730        | )     |   | 112,884       |  
|Professional fees                               |   | 3,433,714          |       |   | 1,465,325     |       |   | 922,759       |       |   | 425,868       |       |   | 27,119        |  
|Selling, general and administrative             |   | 2,975,918          |       |   | 271,726       |       |   | 746,913       |       |   | 72,590        |       |   | 225,293       |  
|Stock compensation
      expense                |   | 4,937,238          |       |   | 1,255,994     |       |   | 2,110,772     |       |   | 333,882       |       |   | -             |  
|Foreign currency loss (gain)                    |   | 7,292              |       |   | (3,187        | )     |   | 1,546         |       |   | (3,901        | )     |   | 939           |  
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|                                                |   | 12,719,264         |       |   | 3,154,951     |       |   | 4,107,649     |       |   | 839,903       |       |   | 382,640       |  
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|LOSS BEFORE OTHER ITEMS AND                     |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|INCOME TAXES                                    |   | (12,652,977        | )     |   | (3,088,664    | )     |   | (4,107,649    | )     |   | (796,121      | )     |   | (382,640      | )
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|OTHER ITEMS                                     |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|Interest income                                 |   | 22,706             |       |   | 885           |       |   | 6,535         |       |   | 112           |       |   | 1,496         |  
|Interest expense                                |   | (245,971           | )     |   | (74,768       | )     |   | (76,718       | )     |   | (25,931       | )     |   | (25,116       | )
|Loss on disposal of
      capital assets        |   | (5,377             | )     |   | -             |       |   | (2,963        | )     |   | -             |       |   | -             |  
|Write down of patents                           |   | (237,953           | )     |   | -             |       |   | -             |       |   | -             |       |   | -             |  
|Recovery (write down)
      of loans receivable |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|related parties (Note 8)                       |   | (5,213             | )     |   | 98,343        |       |   | -             |       |   | -             |       |   | -             |  
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|LOSS BEFORE INCOME TAXES                        |   | (13,124,785        | )     |   | (3,064,204    | )     |   | (4,180,795    | )     |   | (821,940      | )     |   | (406,260      | )
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|Provision for income taxes                      |   | -                  |       |   | -             |       |   | -             |       |   | -             |       |   | -             |  
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|NET LOSS                                        |   | (13,124,785        | )     |   | (3,064,204    | )     |   | (4,180,795    | )     |   | (821,940      | )     |   | (406,260      | )
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|OTHER COMPREHENSIVE INCOME (LOSS)               |   |                    |       |   |               |       |   |               |       |   |               |       |  
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|Foreign currency translation adjustment         |   | (124,658           | )     |   | 37,386        |       |   | (63,147       | )     |   | 156,144       |       |   | (72,430       | )
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|COMPREHENSIVE
      LOSS                        | $ | (13,249,443        | )     | $ | (3,026,818    | )     | $ | (4,243,942    | )     | $ | (665,796      | )     | $ | (478,690      | )
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|BASIC AND DILUTED NET LOSS PER SHARE            |   | $                  | (0.03 | ) | $             | (0.04 | ) | $             | (0.01 | ) | $             | (0.00 | )
|                                                |   |                    |       |   |               |       |   |               |       |   |               |       |   |               |  
|WEIGHTED AVERAGE NUMBER OF
      COMMON         |   |                    |       |   |               |       |   |               |       |   |               |       |  
|SHARES OUTSTANDING                              |   |                    |       |   | 116,774,622   |       |   | 105,913,652   |       |   | 120.265,674   |       |   | 109,317,396   |  

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

F-3

---

|EXPLORATION DRILLING INTERNATIONAL INC.
|---------------------------------------
|(A Development Stage Company)          
|CONSOLIDATED STATEMENTS OF CASH FLOWS  
|(Expressed in U.S. Dollars)            
|(Unaudited)                            

|                                                                              |   | Cumulative         |   |   |               |   |   |              |  
|----------------------------------------------------------------------------- | - | ------------------ | - | - | ------------- | - | - | ------------ | -
|                                                                              |   | Amounts            |   |   | Nine          |   |   | Nine         |  
|                                                                              |   | From Inception     |   |   | Months        |   |   | Months       |  
|                                                                              |   | (December 7, 2004) |   |   | Ended         |   |   | Ended        |  
|                                                                              |   | to September 30,   |   |   | September 30, |   |   | September30, |  
|                                                                              |   | 2008               |   |   | 2008          |   |   | 2007         |  
|                                                                              |   |                    |   |   |               |   |   |              |  
|                                                                              |   |                    |   |   |               |   |   |              |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                          |   |                    |   |   |               |   |   |              |  
|                                                                              |   |                    |   |   |               |   |   |              |  
|Net loss for the period                                                       | $ | (13,124,785        | ) | $ | (3,064,204    | ) | $ | (4,180,795   | )
|Adjustments to reconcile net loss to cash used in operating
      activities: |   |                    |   |   |               |   |   |              |  
|Amortization                                                                  |   | 207,816            |   |   | 62,282        |   |   | 47,310       |  
|Stock compensation expense                                                    |   | 4,937,238          |   |   | 1,255,994     |   |   | 2,110,772    |  
|Loss on disposal of
      capital asset                                       |   | 5,377              |   |   | -             |   |   | 2,963        |  
|Write down of patents                                                         |   | 237,953            |   |   | -             |   |   | -            |  
|Write down (recovery)
      of loans receivable related parties              |   | 5,213              |   |   | (98,343       | ) |   | -            |  
|Issuance of capital stock for services                                        |   | 1,965,000          |   |   | 1,245,000     |   |   | 720,000      |  
|Change in operating assets and liabilities:                                   |   |                    |   |   |               |   |   |              |  
|Decrease (increase) in other
      receivables                                |   | 46,301             |   |   | (850          | ) |   | 40,929       |  
|Increase in accrued
      interest receivable                                 |   | (20,910            | ) |   | (272          | ) |   | (6,466       | )
|Decrease (increase) in prepaid expenses                                       |   | (5,578             | ) |   | 15,803        |   |   | 3,528        |  
|Increase in accounts
      payable and accrued liabilities                    |   | 497,684            |   |   | 135,643       |   |   | 4,244        |  
|Increase in accounts payable and
      accrued liabilities related parties   |   | 118,001            |   |   | 10,830        |   |   | 30,229       |  
|Increase in accrued interest payable                                          |   | 186,788            |   |   | 66,987        |   |   | 41,026       |  
|                                                                              |   |                    |   |   |               |   |   |              |  
|Net cash used in operating activities                                         |   | (4,943,902         | ) |   | (371,130      | ) |   | (1,186,260   | )
|                                                                              |   |                    |   |   |               |   |   |              |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                          |   |                    |   |   |               |   |   |              |  
|                                                                              |   |                    |   |   |               |   |   |              |  
|Loans receivable                                                              |   | (61,903            | ) |   | 104,192       |   |   | 96,731       |  
|Acquisition of equipment, net of
      disposal proceeds                      |   | (319,672           | ) |   | (889          | ) |   | (11,338      | )
|Acquisition of patents                                                        |   | (409,537           | ) |   | (25,200       | ) |   | (56,339      | )
|Investment in joint venture                                                   |   | (8,890             | ) |   | (8,890        | ) |   | -            |  
|                                                                              |   |                    |   |   |               |   |   |              |  
|Net cash provided by (used) in investing activities                           |   | (800,002           | ) |   | 69,213        |   |   | 29,054       |  
|                                                                              |   |                    |   |   |               |   |   |              |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                          |   |                    |   |   |               |   |   |              |  
|                                                                              |   |                    |   |   |               |   |   |              |  
|Bank indebtedness                                                             |   | -                  |   |   | (53,182       | ) |   | -            |  
|Cash acquired from
      Invision Capital, Inc.                               |   | 81,587             |   |   | -             |   |   | -            |  
|Issuance of capital stock for cash, net
      of issuance costs               |   | 2,797,498          |   |   | 156,166       |   |   | 1,141,846    |  
|Contributed capital                                                           |   | 1,475,540          |   |   | -             |   |   | -            |  
|Loans payable                                                                 |   | 1,475,251          |   |   | 212,125       |   |   | 21,414       |  
|                                                                              |   |                    |   |   |               |   |   |              |  
|Net cash provided by financing activities                                     |   | 5,829,876          |   |   | 315,109       |   |   | 1,163,260    |  
|                                                                              |   |                    |   |   |               |   |   |              |  
|EFFECT OF FOREIGN CURRENCY TRANSLATION ON                                     |   |                    |   |   |               |   |   |              |  
|CASH DURING THE PERIOD                                                        |   | (84,004            | ) |   | (11,224       | ) |   | (18,798      | )
|                                                                              |   |                    |   |   |               |   |   |              |  
|NET DECREASE IN CASH                                                          |   | 1,968              |   |   | 1,968         |   |   | (12,744      | )
|                                                                              |   |                    |   |   |               |   |   |              |  
|CASH, BEGINNING OF PERIOD                                                     |   | -                  |   |   | -             |   |   | 23,877       |  
|                                                                              |   |                    |   |   |               |   |   |              |  
|CASH, END OF PERIOD                                                           | $ | 1,968              |   | $ | 1,968         |   | $ | 11,133       |  

Supplemental Disclosure with Respect to Cash Flows (Note
  13)

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

F-4

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|1. | HISTORY AND ORGANIZATION OF THE COMPANY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Exploration Drilling International Inc. (the Company)
      was incorporated on January 24, 2003, under the Laws of the State of
      Nevada and was in the business of acquiring, exploring and developing
      mineral properties. Effective April 26, 2006, the Company acquired 100% of
      the issued and outstanding shares of EDI Exploration Drilling
      International GmbH (EDI), a company engaged in the distribution and
      maintenance of water exploration machinery and equipment and the provision
      of related services. The Company has abandoned its mineral property
      acquisition and exploration activities in order to focus its resources on
      the development and marketing of EDIs proprietary technology. The Company
      is considered to be a development stage company, as it has not generated
      significant revenues from operations.                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Effective April 26, 2006, the Company acquired 100% of
      the issued and outstanding shares of EDI from EDI Exploration
      International Drilling Holding GmbH (EDI Holding) in exchange for an
      aggregate of 50,000,000 shares of the Companys common stock. In addition,
      Frank Rigney, a shareholder of the Company, transferred 20,000,000 shares
      of the Companys common stock already issued and outstanding prior to the
      transaction to EDI Holding in exchange for $10,000. Completion of the
      acquisition resulted in the former sole shareholder of EDI holding the
      majority of the Companys issued and outstanding common stock. As a
      result, the transaction was accounted for as a recapitalization of
      EDI.                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The unaudited consolidated financial statements of the
      Company prior to April 26, 2006 are those of EDI. The Companys date of
      incorporation is considered to be December 7, 2004, the date of inception
      of EDI. All significant inter-company balances have been eliminated on
      consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Effective October 16, 2006, the Company changed its name
      from Invision Capital, Inc. to Exploration Drilling International
      Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | These unaudited consolidated financial statements have
      been prepared in conformity with generally accepted accounting principles
      in the United States of America for interim financial information. The
      accompanying unaudited consolidated financial statements do not include
      all information and footnote disclosures required for an annual set of
      financial statements prepared under United States of America generally
      accepted accounting principles. In the opinion of management, all
      adjustments (consisting solely of normal recurring accruals) considered
      necessary for a fair presentation of financial position, results of
      operations and cash flows as at September 30, 2008 and for all periods
      presented, have been included. Interim results for the period ended
      September 30, 2008 are not necessarily indicative of the results that may
      be expected for the fiscal year as a whole.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2. | GOING CONCERN                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | These unaudited consolidated financial statements have
      been prepared with the on-going assumption that the Company will be able
      to realize its assets and discharge its liabilities in the normal course
      of business. However, certain conditions noted below raise substantial
      doubt about the Companys ability to continue as a going concern. These
      financial statements do not include any adjustments to the amounts and
      classifications of assets and liabilities that might be necessary should
      the Company be unable to continue as a going
      concern.                                                                                                                                                                                                                                                                                                                                                                       

F-5

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|2. | GOING CONCERN (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The operations of the Company have primarily been funded
      by the sale of common stock and loans received. Continued operations of
      the Company are dependent on the Companys ability to complete equity
      financings or generate profitable operations in the future. Managements
      plan in this regard is to secure additional funds through future equity
      financings. Such financings may not be available or may not be available
      on reasonable terms to the Company.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|3. | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The unaudited consolidated financial statements of the
      Company have been prepared in conformity with generally accepted
      accounting principles in the United States of America and are stated in
      U.S. dollars. The significant accounting policies adopted by the Company
      are as follows:                                                                                                                                                                                        

(a) Use of estimates

The preparation of financial statements
  in conformity with generally accepted accounting principles in the United States
  of America requires management to make estimates and assumptions that affect the
  reported amount of assets and liabilities and the disclosure of contingent
  assets and liabilities at the date of the financial statements and the reported
  amount of revenues and expenses during the reporting period. Actual results
  could differ from these estimates.

(b) Foreign currency
  translation

The functional currency of the Company
  is the U.S. dollar. The Companys subsidiary, EDI, uses the Euro as its
  functional currency. Accordingly, monetary assets and liabilities denominated in
  a foreign currency are translated at the exchange rate in effect at the balance
  sheet date while non-monetary assets and liabilities are translated at
  historical rates. Revenue and expense items denominated in a foreign currency
  are translated at exchange rates prevailing when such items are recognized in
  the statement of operations. Exchange gains and losses arising on translation of
  foreign currency items are included in the statement of operations.

The Company follows the current rate
  method of translation with respect to its subsidiary, EDI. Accordingly, assets
  and liabilities are translated into U.S. dollars at the period-end exchange
  rates while revenue and expenses are translated at the average exchange rates
  during the period. Related exchange gains and losses are included in a separate
  component of stockholders equity as accumulated other comprehensive income
  (loss).

(c) Cash

The Company considers cash held at
  banks and all highly liquid investments with original maturities of three months
  or less to be cash and cash equivalents.

F-6

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (continued)
|-- | -------------------------------------------------

(d) Prepaid expenses

Prepaid expenses consist primarily of
  prepaid vehicle lease and travel expenses.

(e) Other receivables

Other receivables consist primarily of
  Value Added Tax in Germany.

(f) Investments

The Company accounts for investments in
  companies subject to significant influence (generally those companies in which
  interests ranging from 20% to 50% are held) on the equity basis. Investments in
  companies that the Company is unable to significantly influence are carried at
  cost.

Investments in which the Company holds
  a 51% or greater interest are consolidated, unless control does not exist due to
  the Companys inability to determine the investees strategic operating,
  financing and investing policies.

(g) Equipment

Equipment is recorded at cost and
  consists of a well system, technical equipment and machinery and office and
  other equipment. Depreciation is calculated using the straight-line method over
  the useful lives of the assets. Maintenance and repairs are expensed as incurred
  while betterments or renewals are capitalized.

The Company provides for depreciation
  over the estimated life of each asset on a straight-line basis over the
  following periods:

| | Well system                       | 20 years  
| | --------------------------------- | ----------
| | Technical equipment and machinery | 3-8 years 
| | Office and other equipment        | 3-10 years
| | Software                          | 20 years  

(h) Patents and trademarks

Patents and trademarks are recorded at
  cost. Capitalized amounts relate solely to legal and advisory costs incurred in
  registration of the patents and trademarks. Depreciation is calculated using the
  straight-line method over the useful lives of the patents granted ranging from
  8-20 years. No depreciation is provided for patents that have not yet been
  awarded and/or begun to generate revenues. No depreciation is provided for
  trademarks as they have indefinite lives.

F-7

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (continued)
|-- | -------------------------------------------------

(i) Goodwill and intangible
  assets

The Company has adopted Statement of
  Financial Accounting Standards (SFAS) 142, Goodwill and Intangible
    Assets, which requires that costs of internally developing, maintaining or
  restoring intangible assets that are not specifically identifiable, that have
  indeterminate lives, or that are inherent in a continuing business and related
  to an entity as a whole, be recognized as an expense when incurred. Intangible
  assets acquired for fair value having definite lives are amortized over their
  useful life.

(j) Accounting for the impairment of
  long-lived assets and long-lived assets to be disposed of

The Company reviews all long-lived
  assets for impairment whenever events or changes in circumstances indicate that
  the carrying amount of an asset may not be recoverable. Recoverability of assets
  to be held and used is measured by a comparison of the carrying amount of an
  asset to future net cash flows expected to be generated by the asset. If such
  assets are considered to be impaired, the impairment recognized is measured by
  the amount by which the carrying amount of the assets exceeds the fair value of
  the assets. Assets to be disposed of are reported at the lower of the carrying
  amount or fair value less costs to sell.

(k) Income taxes

A deferred tax asset or liability is
  recorded for all temporary differences between financial and tax reporting and
  net operating loss carryforwards. Deferred tax expenses (benefits) result from
  the net change during the period of deferred tax assets and liabilities.

Deferred tax assets are reduced by a
  valuation allowance when, in the opinion of management, it is more likely than
  not that some portion or all of the deferred tax assets will not be realized.
  Deferred tax assets and liabilities are adjusted for the effects of changes in
  tax laws and rates on the date of enactment.

(l) Fair value of financial
  instruments

The Company's financial instruments
  consist of other receivables, loans receivable related parties, bank
  indebtedness, accounts payable and accrued liabilities, accounts payable and
  accrued liabilities related parties loans payable current and loans payable.
  Unless otherwise noted, it is management's opinion that the Company is not
  exposed to significant interest, currency or credit risks arising from these
  financial instruments. The fair value of these financial instruments
  approximates their carrying values, unless otherwise noted.

(m) Stock-based compensation

The Company accounts for stock-based
  compensation issued to employees under the fair value method in accordance with
  the provisions of SFAS 123R, Share-Based Payment.

The Company accounts for stock-based
  compensation issued to non-employees in accordance with the provisions of SFAS
  123, Accounting for Stock-Based Compensation, and the consensus in
  Emerging Issues Task Force (EITF) No. 96-18, Accounting for Equity
  Instruments that are Issued to Other Than Employees for Acquiring or in
  Conjunction with Selling, Goods or Services.

F-8

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (continued)
|-- | -------------------------------------------------

(n) Net loss per share

Basic net loss per share is computed by
  dividing the net loss for the period by the weighted average number of shares of
  common stock outstanding during the period. Diluted earnings per share takes
  into consideration shares of common stock outstanding (computed under basic
  earnings per share) and potentially dilutive shares of common stock. As of
  September 30, 2008 and 2007, the Companys potentially dilutive securities,
  stock options and warrants, have been excluded from the weighted average number
  of shares outstanding as they were anti-dilutive.

(o) Comprehensive income
  (loss)

The Company has adopted SFAS 130, Reporting of Comprehensive Income, which establishes guidelines for the
  reporting and display of comprehensive income (loss) and its components in
  financial statements. Comprehensive income (loss) includes foreign currency
  translation adjustments.

(p) Development stage

The Company is a development stage
  company as defined in SFAS 7, Accounting and Reporting by Development Stage
    Enterprises,as it is devoting substantially all of its efforts to
  establish a new business and planned principal operations have not yet
  commenced.

(q) Concentration of credit
  risk

Cash is the only financial instrument
  that potentially subjects the Company to concentration of credit risk. The
  Company maintains cash in bank accounts that, at times, may exceed federally
  insured limits. The Company has not experienced any losses in such accounts and
  believes it is not exposed to any significant risks on its cash in bank
  accounts.

(r) Recent accounting
  pronouncements

In September 2006, the Financial
  Accounting Standards Board (FASB) issued SFAS 157, Fair Value
    Measurements. SFAS 157 establishes a framework for measuring the fair value
  of assets and liabilities. This framework is intended to provide increased
  consistency in how fair value determinations are made under various existing
  accounting standards which permit, or in some cases require, estimates of fair
  market value. SFAS 157 is effective for fiscal years beginning after November
  15, 2007, and interim periods within those fiscal years. Earlier application is
  encouraged, provided that the reporting entity has not yet issued financial
  statements for that fiscal year, including any financial statements for an
  interim period within that fiscal year.

FASB Staff Position (FSP) 157-2
  delayed the effective date of SFAS 157 until fiscal years beginning after
  November 15, 2008, and interim periods within those fiscal years, for all
  nonfinancial assets and nonfinancial liabilities, except for items that are
  recognized or disclosed at fair value in the financial statements on a recurring
  basis (at least annually). The Company adopted SFAS 157 on January 1, 2008, and
  utilized the one year deferral for nonfinancial assets and nonfinancial
  liabilities that was granted by FSP 157-2. The adoption of SFAS 157 did not have
  a material impact on the Companys consolidated financial statements.

F-9

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (continued)
|-- | -------------------------------------------------

(r) Recent accounting pronouncements
  (continued)

In February, 2007, the FASB issued SFAS
  159, The Fair Value Option for Financial Assets and Financial
    Liabilities. SFAS 159 permits entities to choose to measure many financial
  assets and financial liabilities at fair value. Unrealized gains and losses on
  items for which the fair value option has been elected are reported in earnings.
  SFAS 159 is effective for fiscal years beginning after November 15, 2007. The
  adoption of SFAS 159 did not have a material impact on the Companys
  consolidated financial statements.

In December 2007, the FASB issued SFAS
  No. 141(R), Business Combinations (revised2007) ("SFAS No. 141(R)").
  SFAS No. 141(R) is a revision to previously existing guidance on accounting for
  business combinations. The statement retains the fundamental concept of the
  purchase method of accounting, and introduces new requirements for the
  recognition and measurement of assets acquired, liabilities assumed and
  noncontrolling interests. SFAS No. 141(R) also requires acquisition-related
  transaction and restructuring costs to be expensed rather than treated as part
  of the cost of the acquisition. SFAS No. 141(R) applies prospectively to
  business combinations for which the acquisition date is on or after the
  beginning of the first annual reporting period beginning on or after December
  15, 2008. The Company is currently evaluating the impact this statement will
  have on its financial position and results of operations and does not expect
  this statement to have a material impact on its financial position and results
  of operations.

In December 2007, the FASB issued SFAS
  No. 160, Noncontrolling Interests in Consolidated Financial Statements ("SFAS No. 160"). The Statement requires that noncontrolling interests be
  reported as stockholders equity, a change that will affect the Company's
  financial statement presentation of minority interests in its consolidated
  subsidiaries. The Statement also establishes a single method of accounting for
  changes in a parent's ownership interest in a subsidiary as long as that
  ownership change does not result in deconsolidation. The statement is effective
  for fiscal years beginning after December 15, 2008. The Company is currently
  evaluating the impact of SFAS No. 160 and does not expect this statement to have
  a material impact on its financial position and results of operations.

In March 2008, the FASB issued SFAS
  161, Disclosures about Derivative Instruments and Hedging Activities.
  SFAS 161 changes the disclosure requirements for derivative instruments and
  hedging activities by requiring enhanced disclosures about how and why an entity
  uses derivative instruments, how derivative instruments and related hedged items
  are accounted for under SFAS 133, and how derivative instruments and related
  hedged items affect an entitys operating results, financial position, and cash
  flows. SFAS 161 is effective for fiscal years beginning after November 15, 2008.
  Earlier adoption is permitted. The Company is currently reviewing the provisions
  of SFAS 161 and has not yet adopted the statement. However, as the provisions of
  SFAS 161 are only related to disclosure of derivative and hedging activities,
  the Company does not believe the adoption of SFAS 161 will have a material
  impact on its consolidated operating results, financial position, or cash flows.

(s) Reclassifications

Certain amounts reported in the prior
  periods have been reclassified to conform to the current periods presentation.

F-10

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|4. | INVESTMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | In March 2008, EDI established a joint venture company in
      Turkey called EDI Sondaj Insaat Makine Sanayi Ticaret Anonim Sirketi (EDI
      Turkey) for consideration of Euro 6,551 (US $9,462). EDI owns a 25%
      interest in EDI Turkey. EDI Turkey will be utilized by the parties to seek
      out business opportunities in Turkey for EDIs proprietary technologies.
      EDI Turkey is accounted for as an investment under the equity method as
      EDI has significant influence. As at September 30, 2008, EDI Turkey had
      not yet begun operations.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|5. | EQUIPMENT AND PATENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Equipment

| |                                   |   |               |   |   |              |  
| | --------------------------------- | - | ------------- | - | - | ------------ | -
| |                                   |   | September 30, |   |   | December 31, |  
| |                                   |   | 2008          |   |   | 2007         |  
| |                                   |   |               |   |   |              |  
| | Well system                       | $ | 2,100         |   | $ | 2,105        |  
| | Technical equipment and machinery |   | 302,966       |   |   | 302,900      |  
| | Office and other equipment        |   | 28,986        |   |   | 29,058       |  
| | Software                          |   | 14,059        |   |   | 14,094       |  
| |                                   |   | 348,111       |   |   | 348,157      |  
| | Accumulated amortization          |   | (197,731      | ) |   | (137,570     | )
| |                                   |   |               |   |   |              |  
| | Net book value                    | $ | 150,380       |   | $ | 210,587      |  

Patents and trademarks

| |                          |   |               |   |   |              |  
| | ------------------------ | - | ------------- | - | - | ------------ | -
| |                          |   | September 30, |   |   | December 31, |  
| |                          |   | 2008          |   |   | 2007         |  
| |                          |   |               |   |   |              |  
| | Trademarks               | $ | 91,226        |   | $ | 92,898       |  
| | Patents                  |   | 135,688       |   |   | 113,783      |  
| |                          |   | 226,914       |   |   | 206,681      |  
| | Accumulated amortization |   | (4,032        | ) |   | (1,911       | )
| |                          |   |               |   |   |              |  
| | Net book value           | $ | 222,882       |   | $ | 204,770      |  

During the year ended December 31,
  2007, the Company wrote down patents totaling $237,953 as the recoverability of
  the carrying amount of the assets was uncertain. During the nine months ended
  September 30, 2008 and 2007, the Company did not amortize $198,056 and $443,324
  of its patents and trademarks as the patents have not yet been awarded and/or
  they have not begun to generate revenues and the trademarks have indefinite
  lives. Capitalized amounts relate solely to legal and advisory costs incurred in
  registration of the patents and trademarks.

F-11

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|6. | BANK INDEBTEDNESS                                                                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|   | At September 30, 2008 and December 31, 2007, the Company
      had a consolidated bank indebtedness of $0 and $53,182, respectively. EDI
      has an account overdraft limit of Euro 50,000 (US $72,223) which bears
      interest at 12.0% per annum. The overdraft bears interest at 15.0% per
      annum on any amounts exceeding the overdraft limit.                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|7. | LOANS PAYABLE CURRENT                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|   | During the nine months ended September 30, 2008, a loan
      was granted from a third party individual for Euro 15,100 (US $21,811).
      The loan bears interest at 4% per annum and is due April 15,
      2009.                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|   | During the nine months ended September 30, 2008, a loan
      was granted from a third party individual for Euro 30,000 (US $43,334).
      The loan bears interest at 6.5% per annum and is due December 31,
      2008.                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|   | During the nine months ended September 30, 2008, several
      loans and interest payable were assigned from a company with a shareholder
      related to an officer and director of the Company to a third party company
      totaling Euro 103,533 (US $149,549). The principal portion of the loans
      assigned total Euro 92,617 (US $133,782). The loans bear interest and are
      due as follows:

Principal
      Interest
      Due DateEuro 23,517 (US $33,970)
      6%
      December 31, 2008Euro 11,600 (US $16,756)
      5%
      November 30, 2008Euro 57,500 (US $83,056)
      5%
      January 29, 2009


During the nine months ended September
  30, 2008, two loans were granted from a third party company for Euro 13,000 (US
  $18,778) and Euro 13,000 (US $18,788), respectively. The loans bear interest at
  3% per annum and were due April 25, 2008 and July 1, 2008. The loans have been
  extended and are due December 31, 2008.

During the year ended December 31,
  2007, two loans were granted from a third party individual for Euro 33,000 (US
  $47,667) and Euro 50,000 (US $72,223). The loans bear interest at 6% per annum
  and were due February 19, 2008 and March 14, 2008. The loans have been extended
  and are due December 31, 2008.

During the year ended December 31 2006,
  several loans were granted from a third party individual totaling Euro 400,000
  (US $577,784). The loans earned interest at 6% per annum. During the year ended
  December 31, 2007, the total loans of Euro 400,000 (US $577,784) and interest of
  Euro 10,000 (US $14,445) was repaid. At September 30, 2008, Euro 31,273 (US
  $45,172) of interest was still outstanding.

During the year ended December 31,
  2006, a loan was granted from a third party individual for Euro 23,000 (US
  $33,223). The loan bears interest at 7% per annum and was due July 7, 2007. The
  loan has been extended and is due December 31, 2008. The Company has the option
  of repaying the principal and interest by issuing 12,305 shares of the Companys
  common stock if the lender is notified in writing one month before the due
  date.

F-12

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|7. | LOANS PAYABLE CURRENT (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | During the year ended December 31, 2006, several loans
      were granted from a third party individual totaling Euro 53,000 (US
      $76,556). During the year ended December 31, 2007, Euro 6,600 (US $10,255)
      of the first loan granted was repaid. During the nine months ended
      September 30, 2008, an additional Euro 12,600 (US $17,478) of the first
      loan granted was repaid. The loans bear interest at 5% per annum and were
      due December 31, 2006. The loans have been extended and are due as
      follows:

Principal
      Due DateEuro 800 (US $1,156)
      December 31, 2008Euro 15,000 (US $21,667)
      December 31, 2008Euro 18,000 (US $26,000)
      December 31, 2008


During the year ended December 31,
  2007, two loans were granted from a third party company for Euro 40,000 (US
  $57,778) and Euro 15,000 (US $21,667). The first loan bears interest at 5% per
  annum and was due September 28, 2007. The second loan bears interest at 6% per
  annum and was due December 31, 2007. The loans have been extended and are due
  December 31, 2008.

During the year ended December 31,
  2006, two loans were granted from a third party company for Euro 30,000 (US
  $43,334) and Euro 25,000 (US $36,112). The loans bear interest at 5% per annum
  and were due November 2, 2007 and November 23, 2007, respectively. The loans
  have been extended and are due December 31, 2008.

During the nine months ended September
  30, 2008, two loans were granted from a third party company for $1,800 and
  $1,000. The loans bear interest at 10% per annum, compounded annually and are
  due on demand.

During the year ended December 31,
  2007, two loans were granted from a third party company for $20,000 and $25,000.
  The loans bear interest at 8% per annum, compounded annually and are due on
  demand.

During the year ended December 31,
  2006, a loan was granted from a third party company for $100,000. During the
  year ended December 31, 2007, $16,700 was repaid. The loan bears interest at 8%
  per annum, compounded annually, and was due March 20, 2008. On March 20, 2008,
  the loan was verbally extended with the same terms and is due on demand.

F-13

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|8. | RELATED PARTY TRANSACTIONS
        Loans Receivable
|-- | ---------------------------------------------------

During the year ended December 31,
  2006, a loan was granted to a former shareholder of EDI totaling Euro 990 (US
  $1,430). The loan bears interest at 3% per annum and was due January 5, 2008. On
  December 28, 2007, the loan was extended to July 31, 2008. On March 31, 2008,
  the loan of Euro 990 (US $1,430) and interest of Euro 69 (US $99) was
  repaid.

During the year ended December 31,
  2006, a loan was granted to an individual related to an officer and director of
  the Company for Euro 15,400 (US $22,667). At the time of the grant, the officer
  and director of the Company was also a managing director of EDI. On December 31,
  2007, Euro 641 (US $944) of accounts payable was offset against the principal of
  the loan receivable. The loan bears interest at 3% per annum and was due January
  5, 2008. On April 17, 2007, the Company made an immediate demand for repayment
  and the loan was in default. On December 31, 2007, the Company wrote down the
  loan and interest receivable totaling Euro 15,702 (US $23,111) to the statement
  of operations. During the nine months ended September 30, 2008, the Company
  recovered the loan and interest receivable totaling Euro 15,702 (US $23,111) and
  included interest income of Euro 118 (US $184) in the statement of operations.
  The Company then offset the loan and interest receivable totaling Euro 15,820
  (US $22,851) against a loan payable to EDI Holding.

During the year ended December 31,
  2005, a loan was granted to a former shareholder of EDI for Euro 10,000 (US
  $14,445). On December 31, 2007, Euro 5,772 (US $8,337) of accounts payable was
  offset against the principal of the loan receivable. During the nine months
  ended September 30, 2008, Euro 726 (US $1,049) of accounts payable was offset
  against the principal of the loan receivable. The loan bears interest at 6% per
  annum and was due on December 31, 2006. During the year ended December 31, 2006,
  the loan was extended to June 30, 2007. During the year ended December 31, 2007,
  the loan was extended to August 31, 2008. During the nine months ended September
  30, 2008, the loan was extended to April 30, 2009.

During the year ended December 31,
  2005, a loan was granted to an individual related to an officer and director of
  the Company and a managing director of EDI, for Euro 115,000 (US $169,267).
  During the year ended December 31, 2007, Euro 72,000 (US $105,976) was repaid.
  The loan bears interest at 6% per annum and was due on December 31, 2006. On
  December 28, 2006, the loan was extended to June 30, 2007. On April 17, 2007,
  the Company made an immediate demand for repayment and the balance of the loan
  was in default. On December 31, 2007, the Company wrote down the remaining
  balance of loan and interest receivable totaling Euro 54,654 (US $80,445) to the
  statement of operations. During the nine months ended September 30, 2008, the
  Company recovered loan and interest receivable totaling Euro 51,113 (US $75,232)
  in the statement of operations. The Company then offset the recovered loan and
  interest receivable totaling Euro 23,340 (US $33,714) against a loan payable to
  EDI Holding and Euro 27,772 (US $40,120) against management fees payable to the
  former managing director of EDI.

F-14

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|8. | RELATED PARTY TRANSACTIONS (continued)                                                                                                                                                                             
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                    
|   | Loans Payable Current                                                                                                                                                                                             
|   |                                                                                                                                                                                                                    
|   | During the nine months ended September 30, 2008, several
      loans were granted from EDI Holding totaling Euro 112,116 (US $161,948).
      The loans bear interest at 5% per annum and are due as
      follows:

Principal
      Due
        DateEuro 5,000 (US $7.222)
      December 31, 2008Euro 25,000 (US $36,112)
      December 31, 2008Euro 6,019 (US $8,695)
      December 31, 2008Euro 63,950 (US $92,373)
      June 30, 2009Euro 11,347 (US $16,390)
      September 30, 2009Euro 800 (US
        $1,156)
      May
        30, 2009


During the year ended December 31,
  2007, several loans were granted from EDI Holding totaling Euro 290,744 (US
  $419,968). The loans bear interest at 5% per annum. During the nine months ended
  September 30, 2008, several of the loans were extended. The loans are due as
  follows:

Principal
      Due
        DateEuro 21,000 (US $30,334)
      December 31, 2008Euro 39,160 (US $56,565)
      December 31, 2008Euro 1,800 (US $2,600)
      December 31, 2008Euro 6,000 (US $8,667)
      December 31, 2008Euro 40,000 (US $57,778)
      March 31, 2009Euro 10,000 (US $14,445)
      March 31, 2009Euro 15,000 (US $21,667)
      March 31, 2009Euro 35,000 (US $50,556)
      March 31, 2009Euro 33,000 (US $47,667)
      March 31, 2009Euro 24,000 (US $34,667)
      March 31, 2009Euro 12,000 (US $17,334)
      March 31, 2009Euro 9,400 (US $13,578)
      December 31, 2008Euro 15,000 (US $21,667)
      December 31, 2008Euro 29,384 (US
        $42,443)
      December 31, 2008


F-15

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|8. | RELATED PARTY TRANSACTIONS (continued)
|-- | --------------------------------------

Loans Payable Current
  (continued)

During the year ended December 31,
  2006, several loans were granted from EDI Holding totaling Euro 26,400 (US
  $38,134). During the year ended December 31, 2007, Euro 4,856 (US $7,014) of the
  first loan granted was repaid. During the year ended December 31, 2007, all of
  the loans were extended. The loans bear interest and are due as follows:

Principal
      Interest
      Due
        DateEuro 15,144 (US $21,875)
      5%
      March 31, 2009Euro 3,400 (US $4,911)
      6%
      March 31, 2009Euro 2,000 (US $2,889)
      5%
      March 31, 2009Euro 1,000 (US
        $1,445)
      6%
      March 31, 2009


During the year ended December 31,
  2005, a loan was granted from an officer and director of the Company and a
  managing director of EDI, for Euro 36,000 (US $52,001). During the year ended
  December 31, 2006, an additional loan for Euro 50,000 (US $72,223) was granted.
  On December 31, 2006, two loans receivable, including principal and interest,
  totaling Euro 29,446 (US $42,533) were posted as a payment against the second
  loan payable. The first loan bears interest at 6% per annum and was due December
  31, 2007. During the year ended December 31, 2007, the loan was extended to July
  31, 2008. On June 25, 2008, the loan was extended to March 31, 2009. The second
  loan bears interest at 6% and was due May 4, 2008. On May 2, 2008, the loan was
  extended to December 31, 2008.

During the year ended December 31,
  2007, a loan was granted from a company with a shareholder related to an officer
  and director of the Company for Euro 57,500 (US $83,056). At the time of the
  grant, the officer and director of the Company was also a managing director of
  EDI. The loan bears interest at 5% per annum and was due February 5, 2008. On
  January 22, 2008, the loan was extended to January 28, 2009. On June 16, 2008,
  the loan and interest payable totaling Euro 60,933 (US $88,015) was assigned to
  a third party company effective April 1, 2008.

During the year ended December 31,
  2006, two loans were granted from a company with a shareholder related to an
  officer and director of the Company for Euro 90,000 (US $130,001) and Euro
  11,600 (US $16,756). At the time of the grants, the officer and director of the
  Company was also a managing director of EDI. On October 4, 2006 and during the
  year ended December 31, 2007, Euro 30,000 (US $43,334) and Euro 36,247 (US
  $52,357) of the first loan granted, respectively, were repaid. During the three
  months ended March 31, 2008, an additional Euro 235 (US $340) of the first loan
  granted was repaid. The first loan bears interest at 6% and was due March 31,
  2007. The first loan has been extended and is due December 31, 2008. The second
  loan bears interest at 5% per annum and was due November 30, 2007. During the
  year ended December 31, 2007, the second loan was extended to November 30, 2008.
  On June 16, 2008, the loan and interest payable totaling Euro 42,600 (US
  $61,534) was assigned to a third party company effective April 1, 2008.

F-16

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|8. | RELATED PARTY TRANSACTIONS (continued)
|-- | --------------------------------------

Loans Payable Current
  (continued)

During the nine months ended September
  30, 2008, a loan was granted from an individual related to an officer and
  director of the Company and a managing director of EDI for Euro 6,500 (US
  $9,389). The loan bears interest at 6% per annum and is due December 31,
  2008.

During the year ended December 31,
  2007, several loans were granted from an individual related to an officer and
  director of the Company and a managing director of EDI, totaling Euro 27,000 (US
  $39,000). The loans bear interest at 6%. The loans have been extended are due as
  follows:

Principal
      Due
        DateEuro 10,000 (US $14,445)
      March 31, 2009Euro 12,000 (US $17,333)
      December 31, 2008Euro 5,000 (US $7,222)
      December 31, 2008


During the year ended December 31,
  2006, a loan was granted from an individual related to an officer and director
  of the Company and a managing director of EDI for Euro 12,000 (US $17,333). The
  loan bears interest at 6% per annum and was due December 31, 2006. The loan has
  been extended and is due March 31, 2009.

During the year ended December 31,
  2005, a loan was granted from an individual related to an officer and director
  of the Company and a managing director of EDI, for Euro 5,000 (US $7,222).
  During the year ended December 31, 2007, Euro 3,000 (US $4,333) of the loan was
  repaid. The loan bears interest at 6% per annum and was due December 31, 2006.
  The loan has been extended and is due December 31, 2008.

Loans Payable

During the year ended December 31,
  2006, a loan was granted from EDI Holding for Euro 75,000 (US $108,334). During
  the nine months ended September 30, 2008, the Company offset loans and interest
  receivable totaling Euro 39,160 (US $56,565) against the loan payable. The loan
  bears interest at 5% per annum and is due on December 21, 2009.

During the year ended December 31,
  2004, a loan was granted from an individual related to an officer and director
  of the Company and a managing director of EDI, for Euro 8,000 (US $11,556). The
  loan bears interest at 6% per annum and is due on December 31, 2009.

F-17

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|8. | RELATED PARTY TRANSACTIONS (continued)
|-- | --------------------------------------

Other

At September 30, 2008 and December 31,
  2007, included in accounts payable and accrued liabilities related parties is
  Euro 83,856 (US $121,127) and Euro 69,741 (US $102,651), respectively, owed to
  current and former managing directors of EDI for management fees and
  reimbursement of expenses. Amounts due to officers and directors are unsecured,
  non-interest bearing and due on demand.

At September 30, 2008 and December 31,
  2007, included in accounts payable and accrued liabilities related parties is
  Euro 0 (US $0) and Euro 10,089 (US $14,850), respectively, owed to a managing
  director of EDI for the company use of his private vehicle and reimbursement of
  expenses. Amounts due to officers and directors are unsecured, non-interest
  bearing and due on demand.

At September 30, 2008, included in
  accounts payable and accrued liabilities related parties is $4,709 owed to an
  officer of the Company for consulting fees and reimbursement of expenses.
  Amounts due to officers and directors are unsecured, non-interest-bearing and
  due on demand.

Consulting fees paid to an officer of
  the Company for the nine and three months ended September 30, 2008 totaled
  $9,000 and $3,000, respectively. Consulting fees paid to an officer of the
  Company for the nine and three months ended September 30, 2007 totaled $9,000
  and $3,000, respectively. The consulting fees are included in management fees on
  the statement of operations. Management fees paid (recovered) to (from) the
  managing directors of EDI for the nine and three months ended September 30, 2008
  totaled Euro 61,200 (US $93,811) and Euro (7,800) (US ($(11,730)). Management
  fees paid to the managing directors of EDI for the nine and three months ended
  September 30, 2007 totaled Euro 200,000 (US $269,350) and Euro 80,000 (US
  $109,884), respectively.

F-18

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|9. | COMMON STOCK
|-- | ------------

The Companys articles of incorporation
  allow it to issue up to 1,000,000,000 shares of common stock, par value $0.001.
  Effective March 9, 2006, the Company effected a stock split of its common stock
  by issuing five new shares for every one old share. Except as otherwise stated
  to the contrary in these financial statements, all references to shares and
  prices per shares have been adjusted to give retroactive effect to the stock
  split.

On April 26, 2006, the Company acquired
  all the issued and outstanding stock of EDI, which was accounted for as a
  recapitalization of the Company (Note 1) in exchange for 50,000,000 shares of
  common stock. The issued number of shares of common stock is that of the Company
  with adjustments made for differences in par value between the Company and EDI.
  The pro-rata portion of the 50,000,000 shares has been calculated and applied to
  the equity contributions to EDI prior to the reverse merger to retroactively
  restate the exchange ratio.

On September 28, 2006, the Company
  issued 714,285 units at a price of $0.70 per unit in a private placement
  transaction. Each unit consists of one share of the Companys common stock and
  one share purchase warrant for total proceeds of $500,000. Each warrant entitled
  the holder to purchase an additional share of the Companys common stock at a
  price of $0.70 per share for a period of one year from the date of closing
  (expired).

On April 2, 2007, the Company issued
  1,736,111 units at a price of Euro 0.288 (US $0.383) per unit, for total
  proceeds of Euro 500,000 ($667,468) in a private placement transaction. Each
  unit consists of one share of the Companys common stock and one share purchase
  warrant. Each share purchase warrant entitled the holder to purchase one
  additional share of the Companys common stock at a price of Euro 0.288 (US
  $0.383) per share for a period of one year from the date of closing (expired). A
  finders fee of 10% of the proceeds in cash was paid on closing of the private
  placement.

On May 4, 2007, the Company issued
  1,875,000 units at a price of $0.32 per unit, for total proceeds of $600,000 in
  a private placement transaction. Each unit consists of one share of the
  Companys common stock and one share purchase warrant. Each share purchase
  warrant entitled the holder to purchase one additional share of the Companys
  common stock at a price of US $0.32 per share for a period of one year from the
  date of closing (expired). A finders fee of 10% of the proceeds in cash was
  paid on closing of the private placement.

On June 28, 2007, the Company issued
  3,000,000 units at a price of $0.24 per unit, for consulting services with an
  aggregate value totaling $720,000. Each unit consists of one share of the
  Companys common stock and one share purchase warrant. Each share purchase
  warrant entitles the holder to purchase one additional share of the Companys
  common stock at a price of US $0.30 per share for a period of one year from the
  date of closing (expired). The consulting services are included in professional
  fees on the statement of operations.

F-19

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|9. | COMMON STOCK (continued)
|-- | ------------------------

On November 12, 2007, the Company
  issued 3,250,000 units at a price of Euro 0.20 (US $0.29) per unit, for total
  proceeds of Euro 650,000 (US $953,778) in a private placement transaction. Each
  unit consists of one share of the Companys common stock and one share purchase
  warrant. Each share purchase warrant entitles the holder to purchase one
  additional share of the Companys common stock at a price of US $0.35 per share
  for a period of two years from the date of closing.

On February 27, 2008, the Company
  issued 3,000,000 units at a price of $0.27 per unit, for consulting services
  with an aggregate value totaling $810,000. Each unit consists of one share of
  the Companys common stock and one share purchase warrant. Each share purchase
  warrant entitles the holder to purchase one additional share of the Companys
  common stock at a price of US $0.34 per share for a period of one year from the
  date of closing. The consulting services are included in professional fees on
  the statement of operations.

On February 27, 2008, the Company
  issued 250,000 units at a price of $0.20 per unit, for consulting services with
  an aggregate value totaling $50,000. Each unit consists of one share of the
  Companys common stock and one share purchase warrant. Each share purchase
  warrant entitles the holder to purchase one additional share of the Companys
  common stock at a price of US $0.25 per share for a period of one year from the
  date of closing. The consulting services are included in professional fees on
  the statement of operations.

On March 14, 2008, the Company issued
  384,615 units at a price of Euro 0.13 (US $0.20) per unit, for total proceeds of
  Euro 50,000 (US $77,833) in a private placement transaction. Each unit consists
  of one share of the Companys common stock and one share purchase warrant. Each
  share purchase warrant entitles the holder to purchase one additional share of
  the Companys common stock at a price of Euro 0.17 (US $0.25) per share for a
  period of one year from the date of closing.

On July 4, 2008, the Company issued
  500,000 units at a price of $0.11 per unit, for consulting services with an
  aggregate value totaling $55,000. Each unit consists of one share of the
  Companys common stock and one share purchase warrant. Each share purchase
  warrant entitles the holder to purchase one additional share of the Companys
  common stock at a price of $0.14 per share for a period of one year from the
  date of closing. The consulting services are included in professional fees on
  the statement of operations.

On July 4, 2008, the Company issued
  3,000,000 units at a price of $0.11 per unit, for consulting services with an
  aggregate value totaling $330,000. Each unit consists of one share of the
  Companys common stock and one share purchase warrant. Each share purchase
  warrant entitles the holder to purchase one additional share of the Companys
  common stock at a price of $0.14 per share for a period of one year from the
  date of closing. The consulting services are included in professional fees on
  the statement of operations.

On July 8, 2008, the Company issued
  714,285 units at a price of Euro 0.07 (US $0.11) per unit, for total proceeds of
  Euro 50,000 (US $78,333) in a private placement transaction. Each unit consists
  of one share of the Companys common stock and one share purchase warrant. Each
  share purchase warrant entitles the holder to purchase one additional share of
  the Companys common stock at a price of Euro 0.09 (US $0.13) per share for a
  period of two years from the date of closing. A finders fee of 10% of the
  proceeds equal to 71,428 shares of the Companys common stock was issued on
  closing of the private placement.

F-20

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|10. | STOCK OPTIONS AND WARRANTS
|--- | --------------------------

Stock Options

On May 5, 2006, the Company adopted a
  stock incentive plan (the 2006 Stock Option Plan) to provide incentives to
  employees, directors and consultants. The Stock Plan provides for the issuance
  of up to 11,000,000 options with a maximum term of five years. The maximum
  aggregate number of shares that may be optioned and sold under the 2006 Stock
  Option Plan will be increased effective the first day of each of the Companys
  fiscal quarters, beginning with the fiscal quarter commencing May 1, 2006, by an
  amount equal to the lesser of 10% of the total increase in the number of
  outstanding shares during the previous fiscal quarter and a lesser number of
  shares as may be determined by the Board of Directors of the Company. Vesting
  periods are determined at the discretion of the Board of Directors.

| |                                               |  |            |  |   |                | 
| | --------------------------------------------- |  | ---------- |  | - | -------------- | 
| |                                               |  |            |  |   | Weighted       | 
| |                                               |  | Number     |  |   | Average        | 
| |                                               |  |            |  |   | Exercise Price | 
| |                                               |  |            |  |   |                | 
| | Options outstanding, December 31, 2007        |  | 10,300,000 |  | $ | 0.93           | 
| | Granted                                       |  | 100,000    |  |   | 0.19           | 
| | Exercised                                     |  | -          |  |   | -              | 
| | Expired                                       |  | -          |  |   | -              | 
| | Options outstanding, September 30, 2008       |  | 10,400,000 |  | $ | 0.92           | 
| | Options
      exercisable, September 30, 2008 |  | 6,265,000  |  | $ | 0.94           | 

On May 5, 2006, the Company granted
  stock options to officers, directors and consultants under the 2006 Stock Option
  Plan, to acquire a total of 11,000,000 shares of common stock exercisable at a
  price of $1.00 per share for a term expiring on the date that is five years
  after the date such options become vested and exercisable.

On September 11, 2007, the Company
  granted stock options to an employee and a consultant under the 2006 Stock
  Option Plan, to acquire a total of 1,250,000 shares of common stock exercisable
  at a price of $0.45 per share for a term expiring on the date that is five years
  after the date such options become vested and exercisable.

On September 12, 2007, the Company
  granted stock options to an employee under the 2006 Stock Option Plan, to
  acquire a total of 50,000 shares of common stock exercisable at a price of $0.45
  per share for a term expiring on the date that is five years after the date such
  options become vested and exercisable.

On July 4, 2008, the Company granted
  stock options to an employee under the 2006 Stock Option Plan, to acquire a
  total of 100,000 shares of common stock exercisable at a price of $0.19 per
  share for a term expiring on the date that is five years after the date such
  options become vested and exercisable.

F-21

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|10. | STOCK OPTIONS AND WARRANTS (continued)
|--- | --------------------------------------

Stock Options (continued)

A summary of stock options outstanding
  at September 30, 2008 is as follows:

| |          |  |                     |  |  |                     |  |  |          |  |  |           |  |  |             |  |  |          | 
| | -------- |  | ------------------- |  |  | ------------------- |  |  | -------- |  |  | --------- |  |  | ----------- |  |  | -------- | 
| |          |  | Outstanding Options |  |  | Exercisable Options | 
| |          |  |                     |  |  | Weighted            |  |  |          |  |  |           |  |  | Weighted    |  |  |          | 
| |          |  |                     |  |  | Average             |  |  | Weighted |  |  |           |  |  | Average     |  |  | Weighted | 
| |          |  |                     |  |  | Remaining           |  |  | Average  |  |  |           |  |  | Remaining   |  |  | Average  | 
| | Exercise |  |                     |  |  | Contractual         |  |  | Exercise |  |  |           |  |  | Contractual |  |  | Exercise | 
| | Price    |  | Number              |  |  | Life                |  |  | Price    |  |  | Number    |  |  | Life        |  |  | Price    | 
| |          |  |                     |  |  |                     |  |  |          |  |  |           |  |  |             |  |  |          | 
| | $ 1.00   |  | 200,000             |  |  | 7.58                |  |  | $ 1.00   |  |  | 100,000   |  |  | 7.58        |  |  | $ 1.00   | 
| | $ 1.00   |  | 6,390,000           |  |  | 6.58                |  |  | $ 1.00   |  |  | 3,840,000 |  |  | 6.58        |  |  | $ 1.00   | 
| | $ 1.00   |  | 1,380,000           |  |  | 5.58                |  |  | $ 1.00   |  |  | 620,000   |  |  | 5.58        |  |  | $ 1.00   | 
| | $ 1.00   |  | 1,030,000           |  |  | 3.58                |  |  | $ 1.00   |  |  | 1,030,000 |  |  | 3.58        |  |  | $ 1.00   | 
| | $ 0.45   |  | 1,000,000           |  |  | 5.75                |  |  | $ 0.45   |  |  | 500,000   |  |  | 5.75        |  |  | $ 0.45   | 
| | $ 0.45   |  | 250,000             |  |  | 6.75                |  |  | $ 0.45   |  |  | 150,000   |  |  | 6.75        |  |  | $ 0.45   | 
| | $ 0.45   |  | 50,000              |  |  | 6.95                |  |  | $ 0.45   |  |  | 25,000    |  |  | 6.95        |  |  | $ 0.45   | 
| | $ 0.19   |  | 100,000             |  |  | 5.00                |  |  | $ 0.19   |  |  | -         |  |  | -           |  |  | $ 0.00   | 

The aggregate intrinsic value for
  options vested and unvested as of September 30, 2008 and December 31, 2007 is
  $Nil.

On May 5, 2006, the Company used the
  Black-Scholes option pricing model to compute estimated fair value, based on the
  following assumptions:

| | Risk-free interest rate                   | 5.03%  
| | ----------------------------------------- | -------
| | Dividend yield rate                       | 0.00%  
| | Price volatility                          | 89.35% 
| | Weighted average expected life of options | 5 years

On September 11, 2007, the Company used
  the Black-Scholes option pricing model to compute estimated fair value, based on
  the following assumptions:

| | Risk-free interest rate                   | 4.07%  
| | ----------------------------------------- | -------
| | Dividend yield rate                       | 0.00%  
| | Price volatility                          | 155.55%
| | Weighted average expected life of options | 5 years

F-22

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|10. | STOCK OPTIONS AND WARRANTS (continued)
|--- | --------------------------------------

Stock Options (continued)

On September 12, 2007, the Company used
  the Black-Scholes option pricing model to compute estimated fair value, based on
  the following assumptions:

| | Risk-free interest rate                   | 4.11%  
| | ----------------------------------------- | -------
| | Dividend yield rate                       | 0.00%  
| | Price volatility                          | 155.59%
| | Weighted average expected life of options | 5 years

On July 4, 2008, the Company used the
  Black-Scholes option pricing model to compute estimated fair value, based on the
  following assumptions:

| | Risk-free interest rate                   | 3.28%  
| | ----------------------------------------- | -------
| | Dividend yield rate                       | 0.00%  
| | Price volatility                          | 223.42%
| | Weighted average expected life of options | 5 years

There remains a total of $2,778,590
  compensation costs for unvested options which will be expensed in future
  periods.

Warrants

| |                                                |  |            |  |   |                | 
| | ---------------------------------------------- |  | ---------- |  | - | -------------- | 
| |                                                |  |            |  |   | Weighted       | 
| |                                                |  |            |  |   | Average        | 
| |                                                |  | Number     |  |   | Exercise Price | 
| |                                                |  |            |  |   |                | 
| | Warrants outstanding, December 31, 2007        |  | 9,861,111  |  | $ | 0.34           | 
| | Granted                                        |  | 7,848,900  |  |   | 0.22           | 
| | Exercised                                      |  | -          |  |   | -              | 
| | Expired                                        |  | 6,611,111  |  |   | 0.35           | 
| | Warrants outstanding, September 30, 2008       |  | 11,098,900 |  | $ | 0.26           | 
| | Warrants
      exercisable, September 30, 2008 |  | 11,098,900 |  | $ | 0.26           | 

A summary of warrants outstanding at
  September 30, 2008, is as follows:

| |                   |  |           |  |  |             |  |                      |  |  |                   | 
| | ----------------- |  | --------- |  |  | ----------- |  | -------------------- |  |  | ----------------- | 
| | Date              |  | Issued    |  |  | Outstanding |  | Exercise Price       |  |  | Expiry Date       | 
| |                   |  |           |  |  |             |  |                      |  |  |                   | 
| | November 12, 2007 |  | 3,250,000 |  |  | 3,250,000   |  | $ 0.35               |  |  | November 12, 2009 | 
| | February 27, 2008 |  | 3,000,000 |  |  | 3,000,000   |  | $ 0.34               |  |  | February 27, 2009 | 
| | February 27, 2008 |  | 250,000   |  |  | 250,000     |  | $ 0.25               |  |  | February 27, 2009 | 
| | March 14, 2008    |  | 384,615   |  |  | 384,615     |  | Euro 0.17 (US $0.25) |  |  | March 14, 2009    | 
| | July 4, 2008      |  | 500,000   |  |  | 500,000     |  | $ 0.14               |  |  | July 4, 2009      | 
| | July 4, 2008      |  | 3,000,000 |  |  | 3,000,000   |  | $ 0.14               |  |  | July 4, 2009      | 
| | July 8, 2008      |  | 714,285   |  |  | 714,285     |  | Euro 0.09 (US $0.11) |  |  | July 8, 2010      | 

F-23

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|11. | SEGMENT INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Companys operations following the acquisition of EDI
      are conducted in one reportable segment, being the distribution and
      maintenance of water exploration machinery and equipment and the provision
      of related services in Germany. All the Companys equipment, patents and
      trademarks are in Germany.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|12. | COMMITMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On March 28, 2008, EDI entered into a Technology License
      Agreement (the EDI Turkey License Agreement) with EDI Turkey whereby EDI
      granted a license to EDI Turkey for the exclusive use of its proprietary
      technologies, known as the EDI Fluid Finder, EDI Medium Changer, EDI Water
      Save and EDI Suspension, in Turkey for a period of two years. In
      consideration of this license grant, EDI Turkey agreed to pay EDI $50,000
      within two years of entering into the EDI Turkey License Agreement, with
      minimum instalment payments of $2,000 per month. The EDI Turkey License
      Agreement calls for additional payments equal to 10% of net profits, if
      any, from any drilling projects undertaken by EDI Turkey. If EDI Turkey
      fails to secure any drilling projects utilizing EDI Germanys technologies
      within one year after the date the agreement was executed, its license
      rights will become non- exclusive.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On October 1, 2007, EDI entered into a lease agreement
      for office space that requires monthly lease payments of Euro 862 (US
      $1,245).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On August 1, 2007, EDI entered into a managing service
      contract with a managing director of EDI effective August 1, 2007 to pay
      monthly management fees of Euro 10,000 (US $14,445). The contract may be
      terminated by giving written notice of twelve months and ends without
      notice at the end of the month in which the managing director turns 65
      years of age. In August 2008, the managing director agreed to decrease the
      monthly management fee to Euro 5,300 (US $7,656) effective January 1,
      2008.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On August 1, 2006, EDI entered into a lease agreement for
      office space on a month-to-month basis that requires monthly lease
      payments of Euro 1,260 (US $1,820). The lease agreement was cancelled
      effective November 1, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On July 1, 2005, EDI entered into a consulting agreement
      with an individual effective July 1, 2005 to pay monthly consulting fees
      at Euro 100 (US $144) per hour. The contract terminated on December 31,
      2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On July 1, 2005, EDI entered into a consulting agreement
      with an individual effective July 1, 2005 to pay monthly consulting fees
      at Euro 100 (US $144) per hour. The contract terminated on December 31,
      2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On July 1, 2005, EDI entered into a lease agreement for
      tenancy of office space that may be terminated with written notice of
      three months. The lease agreement requires monthly lease payments of Euro
      600 (US $867) plus taxes. The lease agreement was cancelled in August 2007
      and the written notice of three months was waived.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-24

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|12. | COMMITMENTS (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | On July 1, 2005, EDI entered into a freelance agreement
      with an individual effective July 1, 2005, to pay monthly consulting fees
      of Euro 8,000 (US $11,556). The contract may be terminated at the end of
      each calendar quarter by giving written notice of six months. The
      agreement has been terminated by a settlement agreement dated July 2,
      2007. EDI is required to pay a total of Euro 6,000 (US $8,667) per month
      under the terms of two settlement agreements for a period of two years
      beginning August 1, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | On January 1, 2005, EDI entered into a managing service
      contract with a managing director of EDI effective July 1, 2005, to pay
      monthly management fees of Euro 10,000 (US $14,445) and a management bonus
      of 5% of the annual net income of EDI under German law, due one month
      following the approval of the annual financial statements by a meeting of
      the shareholders. The contract may be terminated at the end of each
      calendar quarter by giving written notice of six months and ends without
      notice at the end of the month in which the managing director turns 65
      years of age. On March 20, 2006, the contract was amended to increase the
      monthly management fee to Euro 19,000 (US $27,445) for the months, April
      2006 to September 2006. Effective October 1, 2006, the managing director
      agreed to decrease the monthly management fee back to Euro 10,000 (US
      $14,445) per month. Effective January 1, 2007, the managing director
      agreed to decrease the monthly management fee to Euro 1,500 (US
      $2,167).
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | On January 1, 2005, EDI entered into a managing service
      contract with a managing director of EDI effective July 1, 2005, to pay
      monthly management fees of Euro 10,000 (US $14,445) and a management bonus
      of 5% of the annual net income of EDI under German law, due one month
      following the approval of the annual financial statements by a meeting of
      the shareholders. The contract may be terminated at the end of each
      calendar quarter by giving written notice of six months and ends without
      notice at the end of the month in which the managing director turns 65
      years of age. On March 20, 2006, the contract was amended to increase the
      monthly management fee to Euro 16,000 (US $23,111) for the months, April
      2006 to September 2006. Effective October 1, 2006, the managing director
      agreed to decrease the monthly management fee back to Euro 10,000 (US
      $14,445) per month. Effective January 1, 2008 the contract was terminated
      effective immediately.                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|13. | SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH
      FLOWS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                |   |                    |  |   |               |  |   |               | 
| | -------------- | - | ------------------ |  | - | ------------- |  | - | ------------- | 
| |                |   | Cumulative         |  |   |               |  |   |               | 
| |                |   | Amounts from       |  |   | Nine          |  |   | Nine          | 
| |                |   | Inception          |  |   | Months        |  |   | Months        | 
| |                |   | (December 7, 2004) |  |   | Ended         |  |   | Ended         | 
| |                |   | to September 30,   |  |   | September 30, |  |   | September 30, | 
| |                |   | 2008               |  |   | 2008          |  |   | 2007          | 
| |                |   |                    |  |   |               |  |   |               | 
| | Cash paid for: |   |                    |  |   |               |  |   |               | 
| | Interest       | $ | 55,754             |  | $ | 4,556         |  | $ | -             | 
| | Income taxes   | $ | -                  |  | $ | -             |  | $ | -             | 

F-25

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|13. | SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
      (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Non-cash Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Investing and financing activities that do not have an
      impact on current cash flows are excluded from the statement of cash
      flows.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | During the period from inception (December 7, 2004) to
      June 30, 2008, the Company issued 50,000,000 common shares for the
      acquisition of EDI.                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | During the nine months ended September 30, 2008,
      3,000,000 units were issued for consulting services with an aggregate
      value totaling $810,000. Each unit consists of one share of the Companys
      common stock and one share purchase warrant. Each share purchase warrant
      entitles the holder to purchase one additional share of the Companys
      common stock at a price of US $0.34 per share for a period of one year
      from the date of closing.                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | During the nine months ended September 30, 2008, 250,000
      units were issued for consulting services with an aggregate value totaling
      $50,000. Each unit consists of one share of the Companys common stock and
      one share purchase warrant. Each share purchase warrant entitles the
      holder to purchase one additional share of the Companys common stock at a
      price of US $0.25 per share for a period of one year from the date of
      closing. The consulting services are included in professional fees on the
      statement of operations.   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | During the nine months ended September 30, 2008, 500,000
      units were issued for consulting services with an aggregate value totaling
      $55,000. Each unit consists of one share of the Companys common stock and
      one share purchase warrant. Each share purchase warrant entitles the
      holder to purchase one additional share of the Companys common stock at a
      price of $0.14 per share for a period of one year from the date of
      closing.                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | During the nine months ended September 30, 2008,
      3,000,000 units at were issued for consulting services with an aggregate
      value totaling $330,000. Each unit consists of one share of the Companys
      common stock and one share purchase warrant. Each share purchase warrant
      entitles the holder to purchase one additional share of the Companys
      common stock at a price of $0.14 per share for a period of one year from
      the date of closing. The consulting services are included in professional
      fees on the statement of operations.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | During the nine months ended September 30, 2008, 71,428
      shares of the Companys common stock were issued for a finders fee equal
      to 10% of the total number of units issued in a private placement
      transaction.                                                                                                                                                                                                                                                                                                                                                  

F-26

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2008                            
|(Unaudited)                                   
|                                              

|14. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | On October 17, 2008, the Company granted stock options to
      officers, directors and consultants under the 2008 Stock Option Plan
      (adopted October 2, 2008), to acquire a total of 2,175,000 shares of
      common stock exercisable at a price of $0.11 per share for a term expiring
      on the date that is five years after the date such options become vested
      and exercisable.                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | On October 27, 2008, the Company granted stock options to
      an employee and consultants under the 2008 Stock Option Plan (adopted
      October 2, 2008), to acquire a total of 450,000 shares of common stock
      exercisable at a price of $0.11 per share for a term expiring on the date
      that is five years after the date such options become vested and
      exercisable.                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | On October 27, 2008, the Company issued 3,000,000 units
      at a price of Euro 0.05 (US $0.06) per unit, for total proceeds of Euro
      150,000 (US $189,203) in a private placement transaction. Each unit
      consists of one share of the Companys common stock and one share purchase
      warrant. Each share purchase warrant entitles the holder to purchase one
      additional share of the Companys common stock at a price of Euro 0.0625
      (US $0.09) per share for a period of two years from the date of
      closing.

F-27

---

ITEM
2.               MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form
10-Q constitute "forward-looking statements. These statements, identified by
words such as plan, "anticipate, "believe, "estimate, "should, "expect"
and similar expressions include our expectations and objectives regarding our
future financial position, operating results and business strategy. These
statements reflect the current views of management with respect to future events
and are subject to risks, uncertainties and other factors that may cause our
actual results, performance or achievements, or industry results, to be
materially different from those described in the forward-looking statements.
Such risks and uncertainties include those set forth under the caption "Part II,
Item 1A. Risk Factors, and elsewhere in this Quarterly Report. We advise you to
carefully review the reports and documents we file from time to time with the
United States Securities and Exchange Commission (the SEC), particularly our
periodic reports filed with the SEC pursuant to the Securities Exchange Act of
1934 (the Exchange Act).

INTRODUCTION

Through our wholly owned subsidiary, EDI Exploration Drilling
International GmbH (EDI Germany), we are in the business of providing well
drilling, well construction and well maintenance services using certain
proprietary technologies developed by EDI Germany. Currently we are seeking to
earn revenues from the provision of those services and from the leasing of
equipment based on our technologies and provided in connection with those
services. In the future, we may explore licensing opportunities for our
technologies.

The following summarizes our plan of operation for our 2008
fiscal year and our results of operation for the three and nine months ended
September 30, 2008. The discussion provided in this Quarterly Report should be
read in conjunction with our Annual Report on Form 10-K for the year ended
December 31, 2007.

RECENT CORPORATE DEVELOPMENTS

The following significant corporate developments have occurred
since the end of our second fiscal quarter ended June 30, 2008:

|1. | On July 4, 2008, we completed a private placement of
      3,500,000 units at a purchase price of $0.11 per unit. Each unit issued
      consisted of one share of our common stock and one share purchase warrant
      entitling the holder to purchase one additional share of our common stock
      at a price of $0.14 per share for a period of one year from the date of
      issuance. The units were issued pursuant to the provisions of Regulation S
      promulgated under the Securities Act of 1933 (the Securities Act) on the
      basis of representations made by the investors that they were not US
      persons and that they were not acquiring the units for the account or
      benefit of a US person. No directed selling efforts were made in the
      United States in connection with this offering.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2. | On July 8, 2008, we completed a private placement of
      714,285 units at a price of EUR 0.07 per unit for total proceeds of EUR
      50,000. Each unit issued consisted of one share of our common stock and
      one share purchase warrant, entitling the holder to purchase one
      additional share of our common stock at a price of EUR 0.09 per share for
      a period ending two years from the date of issuance. This private
      placement was completed pursuant to the provisions of Regulation S. We did
      not engage in any directed selling efforts in the United States in
      connection with this offering. The investor represented that he was not a
      US person as defined in Regulation S and that he was not acquiring the
      units for the account or benefit of a US person.             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | We also issued 71,428 shares of our common stock (the
      Commission Shares) to a finder in connection with this private
      placement. The Commission Shares were issued to the finder pursuant to the
      provisions of Regulation S on the basis that the finder is not a US
      person.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3. | On October 2, 2008, our Board of Directors resolved that
      no further options are to be granted under our 2006 Stock Option Plan (the
      2006 Plan). The 2006 Plan will be terminated once all of the outstanding
      options previously granted under that plan have been exercised, have
      expired or have otherwise been terminated. We will continue to honor the
      terms of any outstanding options granted under the 2006
  Plan.                                                                                                                                                                                                                                                                                                                                                                                

3

---

|4. | On October 2, 2008, our Board of Directors adopted a new
      2008 Stock Option Plan (the 2008 Plan). The 2008 Plan allows us to grant
      options to its officers, directors and employees. In addition, we may
      grant options to individuals who act as consultants to us, so long as
      those consultants do not provide services connected to the offer or sale
      of our securities in capital raising transactions and do not directly or
      indirectly promote or maintain a market for our securities. A total of
      12,000,000 shares of our common stock are available for issuance upon the
      exercise of options granted under the 2008 Plan. After January 1, 2009,
      our Board of Directors may increase the number of shares that may be
      issued under the 2008 Plan, provided that the maximum aggregate number of
      shares that may be optioned and sold under the 2008 Plan cannot, at any
      time, exceed 10% of the total number of shares of our common stock
      outstanding. The exercise price for options granted under the 2008 Plan
      cannot be less than 75% of the fair market value of our common stock as
      determined under the 2008 Plan.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|5. | On October 17, 2008, we granted options to purchase an
      aggregate of 2,175,000 shares of our common stock under the 2008 Plan. The
      options granted are exercisable at a price of $0.11 per share and expire
      five years after the options vest. 1,975,000 of the options granted may be
      exercised immediately, with the remaining options granted vesting on
      August 1, 2009. Included with this grant were options to purchase 500,000
      shares of our common stock to John Boschert, our Secretary. The options
      granted to Mr. Boschert are exercisable immediately at a price of $0.11
      per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|6. | On October 27, 2008, we granted options to acquire an
      additional 450,000 shares of our common stock to various consultants and
      employees under the 2008 Plan. The options are exercisable at a price of
      $0.11 per share. 225,000 of the options granted may be exercised
      immediately and expire October 31, 2013. The remaining 225,000 options
      granted vest on November 1, 2008 and expire October 31, 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|7. | On October 27, 2008, we completed a private placement of
      3,000,000 units at a price of EUR 0.05 per unit for total proceeds of EUR
      150,000. Each unit is comprised of one share of our common stock and one
      share purchase warrant. Each share purchase warrant entitles the holder to
      purchase one additional share of our common stock at a price of EUR 0.0625
      per share for a period ending two years from the date of issuance of the
      Units. This private placement was completed pursuant to the provisions of
      Regulation S. We did not engage in a distribution of this offering in the
      United States. The investor represented that it was not a US person as
      defined in Regulation S and that it was not acquiring the units for the
      account or benefit of a US person.                                                                                                                                                                                                                                                                                                                                                                                  

PLAN OF OPERATION

During our 2008 fiscal year, we will continue to seek to gain
market penetration for our products and processes within the drilling industry.
In order to do so, we will seek to use our business contacts and will obtain the
assistance of business consultants with local and international connections.
Over the next year, we will focus on developing relationships and contacts in
Germany, Southeastern Europe, the Middle East, Asia and Southern Africa.

|(a) | Germany: The water supply market, and the
      corresponding market for well drilling projects, is fragmented by nature
      and will require us to establish contacts with a number of regional water
      suppliers, and, in certain cases, with private utility companies. Through
      the business contacts of our management, we have begun to establish open
      dialogues with private and public water supply companies in an effort to
      promote our products. We are currently participating in two public
      invitations to submit tender offers for water supply contracts. We will
      also continue our attempts to develop a market for technologies for use in
      geothermal energy projects. If necessary, we may seek to enter into
      cooperation agreements with academic institutions to adapt and develop our
      technologies to geothermal energy processes.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | In March 2008, we conducted a geothermal drilling project
      for a planned construction project in Southern Germany. No significant
      adaptations were required to our existing technologies for this project.
      Following the completion of this project, EDI Germany received numerous
      inquiries regarding the use of our drilling technologies to exploit near
      surface geothermal resources. Although no contracts have been signed, we
      now intend to offer one-stop services for the planning and execution of
      near-surface geothermal projects. This would include identification of
      thermal energy requirements, installation planning, measuring geothermal
      gradients of the subsoil, and the possible exploitation of groundwater and
      thermal water resources.                                                                                 

4

---

|    | As a result of our efforts, we have managed to secure
      four drilling projects in Germany that we expect to perform in the first
      half of 2009. These expected projects include establishing water supplies,
      underground pollution hazard assessments, and near surface geothermal
      drilling.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(b) | Southeast Europe: We are seeking to enter into
      negotiations with government authorities in Southeastern Europe. With the
      help of these government authorities, we hope to explore licensing
      opportunities with local industry representatives and consultants within
      the market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(c) | The Middle East: The Middle East contains some of
      the most arid environments in the world. For example, 97% of Egypt is
      covered by desert. As a result, there is a distinct market for groundwater
      pumping and irrigation projects. Within these markets, we will attempt to
      offer our services as a general contractor and sub-contractor for well
      drilling projects. We have formed relationships with drilling companies in
      the Middle East and will seek to parlay these contacts into drilling
      contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(d) | Turkey: In Turkeys largest city, the water supply
      infrastructure is currently inadequate to sustain the growth of its
      population. In March 2008, our wholly owned subsidiary, EDI Exploration
      Drilling International GmbH (EDI Germany) formed EDI Turkey, a joint
      venture company, with influential members of Turkeys drilling and water
      supply industries. EDI Germany owns a 25% interest in EDI Turkey. EDI
      Turkey will seek out business opportunities in Turkey for EDIs
      proprietary technologies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(e) | Africa: The West African Country of Namibia has
      one of the most arid climates in the world. 83% of the rainfall
      experienced in Namibia evaporates soon after it falls. In Namibia, there
      are currently 150,000 water wells in operation; however, 75% of these do
      not pump drinking quality water. Supplying drinking water for household
      consumption has become an important goal for the Government of Namibia. As
      a result of the drilling project we completed in February 2007, the
      Namibian Ministry of Agriculture, Water and Forestry commissioned us and a
      local drilling company to work together on three additional drilling
      projects. These projects involved exploratory boreholes, drilled for the
      purpose of geological analysis. Drilling on these projects was commenced
      at the end of February 2007 and completed in May 2007. As a result of the
      successful completion of these projects, we secured an additional six
      drilling projects in Namibia. After the completion of four drilling
      projects, our management reassigned our drilling team to the Coca Cola
      Pakistan project. We expect to return to Namibia to conduct additional
      drilling projects in 2009.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | In July 2008, we were commissioned by the
      non-denominational human rights and aid organization Hoffnungszeichen
      e.V. Sign of Hope to implement the planning for a drinking water
      exploration project in Southern Sudan. For this project, we will test the
      water quality of existing wells and the possible hazards presented by
      neighboring oil fields as part of an extensive capacity and risk
      assessment operation. In the past, the region being tested has had
      problems with the contamination of individual wells by salts, strontium
      and nitrates. We will carry out preliminary tests on the regions geology,
      hydrology and underground deposits. The extent and exact location of
      ground water aquifers and oil deposits will need to be clarified before a
      large scale drinking water exploration project can be started.                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(f) | Southern Asia: India is one of the most populous
      countries in the world and is an emerging industrial giant. With the
      increase in development, Indias demands for water supplies continue to
      grow. In 2006, we conducted two sample drilling operations in India. These
      drilling operations were conducted as demonstrations of our technologies
      and methods and were completed by us at no charge. We have not yet secured
      any drilling contracts in India; however, we are continuing to explore
      business opportunities in that country.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | We secured a drilling contract from Coca-Cola Pakistan to
      drill a total of four water exploration holes. The purpose of the drilling
      projects was to obtain and analyze water samples from two locations around
      Karachi that will be used to assist Coca-Cola Pakistan in deciding where
      to locate a large-scale bottling facility. Drilling was originally
      scheduled to begin in the Fall of 2007, but was delayed by Coca Cola
      Pakistan due to their ongoing negotiations with third parties regarding
      land ownership issues. Four test boreholes have be drilled in two
      different locations and analyzed locally. The first drilling project was
      completed in September 2008 and included surveying existing ground water
      sources and evaluating their quality, quantity and sustainability for
      beverage production. Additional projects are planned for Pakistan in
      2009.                                                                                                                                                                                                                                                                                                                                  

In addition, we will explore opportunities for our products and
services in other international markets, focusing primarily on countries where
there is an established need for water well drilling technologies and services.

5

---

We anticipate that we will require approximately EUR 1,000,000
($1,444,460) to complete our plan of operation over the next twelve months. The
majority of this amount will be spent on financing our business operations,
marketing presentations, product demonstrations, and legal and other consulting
fees associated with establishing our presence in international markets. In
addition, we anticipate that we will require an additional $50,000 for general
administrative purposes and to pay for the legal and accounting fees we expect
to incur in meeting ongoing reporting obligations under United States securities
laws.

RESULTS OF OPERATIONS

Nine Months and Three Months Summary

Nine
        Months Ended
      
      
      Percentage
      
      
      Three
        Months Ended
      
      
      PercentageSeptember
        30
      
      
      Increase /
      
      
      September
        30
      
      
      Increase /2008
      
      
      2007
      
      
      (Decrease)
      
      
      2008
      
      
      2007
      
      
      (Decrease)Revenue
      $
      66,287
      
      $
      -
      
      
      n/a
      
      $
      43,782
      
      $
      -
      
      
      n/aExpenses
      
      (3,154,951
      )
      
      (4,107,649
      )
      
      (23.2)%
      
      
      (839,903
      )
      
      (382,640
      )
      
      119.5%Other Items
      
      24,460
      
      
      (73,146
      )
      
      (133.4)%
      
      
      (25,819
      )
      
      (23,620
      )
      
      9.3%Net Loss
      $
      (3,064,204
      )
      $
      (4,180,795
      )
      
      (26.7)%
      
      $
      (821,940
      )
      $
      (406,260
      )
      
      102.3%


Revenue

For the first time since our inception, we have recognized
revenue from our operations. The amounts recognized by us as revenue represent
amounts charged by us in respect of a drilling project completed for Coca Cola
Pakistan and for certain small drilling projects completed in Germany. Included
in revenues for the nine months ended September 30, 2008 are $22,505 previously
recorded and classified during the six months ended June 30, 2008 as
miscellaneous income.

We currently have a number of projects planned for 2009 and
hope to earn additional revenue from those projects. However, we are still a
development stage company and are still in the process of establishing ourselves
in the marketplace. There is no assurance that we will be successful in our
future efforts to earn revenue and, even if we are successful in earning
revenues, those revenues are likely to be subject to significant fluctuations
and will be difficult to reliably predict.

Expenses

Our major components of our expenses for the nine months ended
September 30, 2008 and 2007 consisted of the following:

Nine
        Months Ended
      
      
      Percentage
      
      
      Three
        Months Ended
      
      
      PercentageSeptember
        30
      
      
      Increase /
      
      
      September
        30
      
      
      Increase /2008
      
      
      2007
      
      
      (Decrease)
      
      
      2008
      
      
      2007
      
      
      (Decrease)Amortization
      $
      62,282
      
      $
      47,309
      
      
      31.6%
      
      $
      20,194
      
      $
      16,405
      
      
      23.1%Management Fees
      
      102,811
      
      
      278,350
      
      
      (63.1)%
      
      
      (8,730
      )
      
      112,884
      
      
      (107.7)%Professional Fees
      
      1,465,325
      
      
      922,759
      
      
      58.8%
      
      
      425,868
      
      
      27,119
      
      
      1,470.4%Selling, General and
      
      271,726
      
      
      746,913
      
      
      (63.6)%
      
      
      72,590
      
      
      225,293
      
      
      (67.8)%AdministrativeStock Compensation Expense
      
      1,255,994
      
      
      2,110,772
      
      
      (40.5)%
      
      
      333,882
      
      
      -
      
      
      n/aForeign Currency Loss
      
      (3,187
      )
      
      1,546
      
      
      (306.1)%
      
      
      (3,901
      )
      
      939
      
      
      (515.4)%Total Operating Expenses
      $
      3,154,951
      
      $
      4,107,649
      
      
      (23.2)%
      
      $
      839,903
      
      $
      382,640
      
      
      119.5%


Management Fees

Management fees paid during the period are comprised of amounts
paid or earned by our officers and directors and the executive officers of EDI
Germany during the nine months ended September 30, 2008 and 2007. Management
fees paid during the nine months ended September 30, 2008 decreased from amounts
paid during

6

---

the comparable period in 2007. This is primarily due to the
fact that Rainer Rotthaeuser, our Chief Executive Officer and a member of our
Board of Directors, resigned as a managing director of EDI Germany, and no
longer collects a management fee, and to the fact that Guenter Thiemann, our
Chief Financial Officer and also a member of our Board of Directors, agreed to
reduce his management fee to EUR 1,500 per month commencing on January 1, 2008.

During the three months ended September 30, 2008, we recognized
  a net recovery of $8,730 as a result of one of the managing directors of EDI
  Germany agreeing to reduce his management fees from EUR 10,000 per month to
  EUR 5,300 per month retroactive to January 1, 2008. The reduction resulted in
  a recovery of EUR 37,800 ($56,544).

Professional Fees

Professional fees for the three months and nine months ended
September 30, 2008 and 2007 consisted of the following:

Nine
        Months Ended
      
      
      Percentage
      
      
      Three
        Months Ended
      
      
      PercentageSeptember
        30
      
      
      Increase /
      
      
      September
        30
      
      
      Increase /2008
      
      
      2007
      
      
      (Decrease)
      
      
      2008
      
      
      2007
      
      
      (Decrease)Accounting and Tax Fees
      $
      44,501
      
      $
      62,920
      
      
      (29.3)%
      
      $
      14,167
      
      $
      6,384
      
      
      121.9%Consulting Fees
      
      1,306,166
      
      
      786,421
      
      
      66.1%
      
      
      389,730
      
      
      6,536
      
      
      5,862.8%Legal Fees
      
      114,658
      
      
      73,418
      
      
      56.2%
      
      
      21,971
      
      
      14,199
      
      
      54.7%Total
      $
      1,465,325
      
      $
      922,759
      
      
      58.8%
      
      $
      425,868
      
      $
      27,119
      
      
      1,470.4%


Accounting and tax fees are comprised of amounts paid to
independent auditors, accountants and tax consultants for the preparation and
audit of our financial statements and for general tax advice. Accounting and tax
fees decreased in the quarter because reversals were made to accounting accruals
for the three months ended September 30, 2007 and less funds were spent on
general tax advice.

Consulting fees include amounts paid to outside consultants for
services provided in connection with investor relations activities, preparing
marketing and promotional materials, developing international business contacts
and business opportunities and improving our technologies. Consulting fees have
increased relative to the comparative periods in 2007 as we have increased our
business development efforts in the current fiscal year.

Legal fees include amounts paid in connection with meeting our
reporting obligations under the Exchange Act and for general legal services
related to the operation of our business. The legal fees we incurred during the
nine months ended September 30, 2008 were significantly more than the legal fees
we incurred during the same period in 2007. Additional legal fees incurred
during 2008 were primarily related to general legal services provided in
connection with our business development activities.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three and
nine months ended September 30, 2008 and 2007 consisted of the following major
components:

Nine
        Months Ended
      
      
      Percentage
      
      
      Three
        Months Ended
      
      
      PercentageSeptember
        30
      
      
      Increase /
      
      
      September
        30
      
      
      Increase /2008
      
      
      2007
      
      
      (Decrease)
      
      
      2008
      
      
      2007
      
      
      (Decrease)Marketing and Promotion
      $
      6,373
      
      $
      46,291
      
      
      (86.2)%
      
      $
      (8,270
      )
      $
      7,166
      
      
      (215.4)%Travel
      
      88,603
      
      
      68,240
      
      
      29.8%
      
      
      21,079
      
      
      28,607
      
      
      (26.3)%Wages and Benefits
      
      103,016
      
      
      295,689
      
      
      (65.2)%
      
      
      48,173
      
      
      78,089
      
      
      (62.2)%Miscellaneous
      
      73,734
      
      
      336,693
      
      
      (78.1)%
      
      
      11,608
      
      
      111,431
      
      
      (89.6)%Total
      $
      271,726
      
      $
      746,913
      
      
      (63.6)%
      
      $
      72,590
      
      $
      225,293
      
      
      (67.8)%


7

---

Miscellaneous expenses decreased significantly from the nine
month period ended September 30, 2007 as we closed our office in Austria. Wages
and benefits decreased primarily as a result of the termination of two employees
associated with the closing of our office in Austria.

Other Items

Nine
        Months Ended
      
      
      Percentage
      
      
      Three
        Months Ended
      
      
      PercentageSeptember
        30
      
      
      Increase /
      
      
      September
        30
      
      
      Increase /2008
      
      
      2007
      
      
      (Decrease)
      
      
      2008
      
      
      2007
      
      
      (Decrease)Interest Income
      $
      885
      
      $
      6,535
      
      
      (86.5)%
      
      $
      112
      
      $
      1,496
      
      
      (92.5)%Interest Expense
      
      (74,768
      )
      
      (76,718
      )
      
      (2.5)%
      
      
      (25,931
      )
      
      (25,116
      )
      
      3.2%Loss on Disposal of Capital Asset
      
      -
      
      
      (2,963
      )
      
      n/a
      
      
      -
      
      
      -
      
      
      n/aRecovery of Loans Receivable
      
      98,343
      
      
      -
      
      
      n/a
      
      
      -
      
      
      -
      
      
      n/aTotal
      $
      24,460
      
      $
      (73,146
      )
      
      (133.4)%
      
      $
      (25,819
      )
      $
      (23,620
      )
      
      9.3%


Interest income during the nine months ended September 30, 2008
and 2007 is primarily made up of interest accrued from loans made by EDI Germany
to certain of its former shareholders, to certain of its officers and directors,
and to persons related to officers and directors of EDI Germany prior to our
acquisition of that company.

LIQUIDITY AND CAPITAL RESOURCES

|Working Capital         |                             |                            |                      
|----------------------- | --------------------------- | -------------------------- | ---------------------
|                        |                             |                            | Percentage           
|                        | At
      September 30, 2008 | At
      December 31, 2007 | Increase / (Decrease)
|Current Assets          | $ 38,719                    | $ 55,226                   | (29.9)%              
|Current Liabilities     | (2,388,248)                 | (2,012,493)                | 18.7%                
|Working Capital Deficit | $ (2,349,529)               | $ (1,957,267)              | 20.0%                

|Cash Flows                                           |   |                    |   |   |                    |  
|---------------------------------------------------- | - | ------------------ | - | - | ------------------ | -
|                                                     |   | Nine Months Ended  |   |   | Nine Months Ended  |  
|                                                     |   | September 30, 2008 |   |   | September 30, 2007 |  
|Cash Flows from (used in) Operating
      Activities | $ | (371,130           | ) | $ | (1,186,260         | )
|Cash Flows from (used in) Investing Activities       |   | 69,213             |   |   | 29,054             |  
|Cash Flows from Financing Activities                 |   | 315,109            |   |   | 1,163,260          |  
|Effects of Foreign Currency Translations             |   | (11,224            | ) |   | (18,798            | )
|Net Decrease in Cash During Period                   | $ | 1,968              |   | $ | (12,744            | )

The increase in our working capital deficit is primarily a
result of the fact that we had no only limited revenues and limited sources of
financing during the nine months ended September 30, 2008.

Financing during the period was provided by private placements
of our equity securities and from related party and third party loans.

Private Placement Financings

During the fiscal quarter ended September 30, 2008, we
completed one private placement of 3,500,000 units for proceeds of $385,000 and
a private placement of 714,285 units for proceeds of EUR 50,000 ($74,794).
Subsequent to our September 30, 2008 fiscal quarter, we completed another
private placement of 3,000,000 units for proceeds of EUR 150,000 ($224,382). See
Recent Corporate Developments above.

Loan Financings

During the three months ended September 30, 2008, we received a
loan for EUR 11,346 ($16,388) from EDI Exploration Drilling International
Holding GmbH, our majority stockholder, as follows:

8

---

Principal
    Interest Rate
    Grant Date
    Due DateEUR 11,346
    5%
    September 30, 2008
    September 30, 2009


During the three months ended September 30, 2008, we also
received loans totaling EUR 45,100 ($65,145) from third parties as follows:

Principal
    Interest Rate
    Grant Date
    Due DateEUR 15,100
    5%
    August 8, 2008
    April 14, 2009EUR 30,000
    6.5%
    September 9, 2008
    December 31, 2008


As security for the EUR 15,100 loan, Guenter Thiemann, our
Chief Financial Officer and a managing director of EDI Germany pledged his
rights to any payments from EDI Germany, including management fees or wages. For
the EUR 30,000 loan, EDI Germany granted a security interest in certain
equipment.

Financing Requirements

Currently, we do not have sufficient financial resources to
complete our plan of operation for the next twelve months or to pay our current
debt obligations when they come due. Although we have begun to earn small
amounts of revenue from our operations, there is no assurance that our revenues
will increase or that we will be able to generate any revenues in the future. As
such, our ability to complete our plan of operation and to meet our short-term
debt obligations is expected to be dependent upon our ability to obtain
substantial financing in the near term.

Although we have, from time to time, obtained short-term loans
in order to meet our short-term capital needs, we do not expect to be able to
satisfy our long-term capital needs through debt financing. In addition, there
are no assurances that we will be able to obtain additional short-term debt
financing when needed. We have not been able to repay most of the short term
loans granted to us when they have come due. As a result, we have had to rely on
our lenders agreeing to extend the due dates of the loans granted. There is no
assurance that our creditors will continue to grant us extensions. Continuing to
rely on short-term debt financing may decrease our ability to obtain additional
financing in the future. Any long-term financing that we obtain is expected to
come from sales of our equity securities. There is no assurance that we will be
able to obtain equity financing in amounts sufficient to meet our short-term or
long-term capital needs. In addition, because of our limited financial
resources, we have, on occasion used the issuance of our equity securities to
pay for services provided to us, and we may do so again in the future. If we are
successful in completing any equity financings, of which there is no assurance,
or if we issue equity securities in payment for the goods or services provided
to us, our existing shareholders will experience a dilution of their interest in
our company.

If we are not successful in raising sufficient financing, we
will not be able to complete our current plan of operation and we may not be
able to continue as a going concern. We do not have any specific alternatives to
our current plan of operation and have not planned for any such contingency. If
we are not able to raise sufficient financing, our business may fail and our
shareholders may lose all or part of their investment.

OFF-BALANCE SHEET ARRANGEMENTS

We have no significant off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to stockholders.

9

---

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with
United States generally accepted accounting principles requires our management
to make estimates and assumptions that affect the reported amount 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.
Our management routinely makes judgments and estimates about the effects of
matters that are inherently uncertain.

Our significant accounting policies are disclosed in the notes
to our audited consolidated financial statements for the year ended December 31,
2007 included in our Annual Report on Form 10-K filed with the SEC on April 15,
2008.

ITEM
3.               QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM
4T.             CONTROLS
AND PROCEDURES.

Disclosure Controls and Procedures

We carried out an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) as of September 30, 2008 (the Evaluation Date). This evaluation
was carried out under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective as of the Evaluation Date
as a result of the material weaknesses in internal control over financial
reporting discussed below.

Disclosure controls and procedures are those controls and
procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Exchange Act are recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed in our reports filed under the Exchange Act is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure.

Notwithstanding the assessment that our internal control over
financial reporting was not effective and that there were material weaknesses as
identified in this report, we believe that our financial statements contained in
our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2008 fairly present our financial condition, results of operations and cash
flows in all material respects.

Material Weaknesses

Management assessed the effectiveness of the Companys internal
control over financial reporting as of Evaluation Date and identified the
following material weaknesses:

Insufficient Resources:We have an inadequate number of
personnel with requisite expertise in the key functional areas of finance and
accounting.

Inadequate Segregation of Duties: We have an inadequate
number of personnel to properly implement control procedures.

Insufficient Written Policies & Procedures:We have
insufficient written policies and procedures for accounting and financial
reporting.

Inadequate Financial Statement Closing Process:We have
an inadequate financial statement closing process.

10

---

Lack of Audit Committee & Outside Directors on the
Companys Board of Directors:We do not have a functioning audit committee
and outside directors on the Companys Board of Directors, resulting in
ineffective oversight in the establishment and monitoring of required internal
controls and procedures.

Changes in Internal Control Over Financial Reporting

As of the Evaluation Date, there were no changes in our
internal control over financial reporting that occurred during the fiscal
quarter ended September 30, 2008 that have materially affected, or that are
reasonably likely to materially affect, our internal control over financial
reporting.

PART II - OTHER INFORMATION

ITEM
1.               LEGAL
PROCEEDINGS.

None.

ITEM
1A.             RISK
FACTORS.

The following are some of the important factors that could
affect our financial performance or could cause actual results to differ
materially from estimates contained in our forward-looking statements. We may
encounter risks in addition to those described below. Additional risks and
uncertainties not currently known to us, or that we currently deem to be
immaterial, may also impair or adversely affect our business, financial
condition or results of operation.

Need For Financing

We do not currently have the financial resources to complete
  our plan of operation for the next twelve months. We anticipate that we will
  require financing in the amount of EUR 1,000,000 ($1,444,460) in order to fund
  our plan of operation over the next twelve months. We presently do not have
  any financing arrangements in place and there is no assurance that we will be
  able to obtain sufficient financing on terms acceptable to us or at all. If
  further financing is not available or obtainable, our ability to meet our financial
  obligations and pursue our plan of operation will be substantially limited and
  investors may lose a substantial portion or all of their investment.

Development Stage Business

We are a development stage business in that we have yet to earn
significant revenues. Potential investors should be aware of the difficulties
normally encountered by a developing enterprise and the high rate of failure of
such enterprises. The potential for future success must be considered in light
of the problems, expenses, difficulties, complications and delays encountered in
connection with the development of a business in the area in which we intend to
operate and in connection with a developing business in general. These include,
but are not limited to, unanticipated problems relating to research and
development programs, marketing, approvals by government agencies, competition
and additional costs and expenses that may exceed current estimates. There is no
history upon which to base any assumption as to the likelihood that our business
will prove successful, and there can be no assurance that we will be able to
generate significant revenues in the future or ever achieve profitable
operations.

Our Operations May Be Subject To Extensive Government
Regulations

Well drilling is an inherently dangerous activity. As such, we
expect that any well projects that we participate in will be subject to a number
of government safety and environmental regulations. Obtaining any necessary
permits and/or governmental approvals may be a lengthy and costly process. As we
currently do not have any drilling contracts in place and are seeking to market
our products and services in a number of countries, the full extent of these
regulations is not yet fully known. There are no assurances that we will be able
to obtain the necessary government approvals or that the costs associated with
obtaining those approvals will be affordable to us.

11

---

Competition Is Intense And We May Be Unable To Achieve
Market Acceptance

EDI Germany competes directly with traditional well drilling
contractors. The market for well drilling contractors and equipment providers is
mature and well established. As such, the business environment in which we
operate is highly competitive. Currently, there exist a number of established
methods, products and technologies used in the well drilling process and we
expect to experience competition from a number of established companies involved
this industry. Many of our potential competitors will have greater technical,
financial, marketing, sales and other resources than we will.

Our ability to compete within this industry is dependent upon
our ability to differentiate our processes, products and technologies from those
already existing in the marketplace and our ability to create public awareness
of the advantages those processes, products and technologies present. Although
our management has experience in the well drilling industry, as an entity, we
are new entrants to that industry and our technologies have not yet gained
marketplace acceptance. We are unable to provide assurances that our target
customers and markets will accept our technologies or will purchase our products
and services in sufficient quantities to achieve profitability. If a significant
market fails to develop or develops more slowly than we anticipate, we may be
unable to meet our operational expenses. Acceptance of our products will depend
upon a number of factors, including the cost competitiveness of our products,
customer reluctance to try new products or services, regulatory requirements or
the emergence of more competitive or effective products.

Rapid Technological Changes In Our Industry Could Make Our
Products Obsolete

If new technologies, products and industry standards develop at
a rapid pace, they could make our products obsolete. Our future success will
depend upon our ability to develop and introduce product enhancements to address
the needs of customers. Material delays in introducing product enhancements may
cause customers to forego purchases of our product and purchase those of
competitors.

Asserting And Defending Intellectual Property Rights May
Impact Results Of Operations

The success of our business may depend on our ability to
protect our proprietary processes and technology from competitors. A number of
international patent applications have been filed with respect to our
technologies. We were granted patents or similar rights with respect to our EDI
Medium Changer, EDI Water Save and EDI Suspension technologies in some of the
jurisdictions in which we filed applications, while applications in other
jurisdictions were still pending. In early 2008, in order to focus our business
resources, our management decided to abandon our patents and/or patent
applications for the EDI Medium Changer and EDI Water Save technologies. As a
result, interested competitors could copy those technologies. Our management has
not yet made a determination with respect to the patents and/or patent
applications filed for our EDI Suspension technology; however, our management
could decide to abandon those patents and/or applications as well.

Patent applications have been filed with respect to our EDI
Fluid Finder Technology. However, if we are not able to obtain patents for this
technology, we will only be able to protect our products and technological
processes by maintaining the secrecy of those products and processes.

Even if we are able to obtain patents for our technologies, we
may be required to defend our intellectual property rights through litigation.
The financial cost of such litigation could have a material impact on our
financial condition even if we are successful in developing and marketing
products and in defending any of our intellectual property rights, of which
there is no assurance. Furthermore, an adverse outcome in any litigation or
interference proceeding could subject us to significant liabilities to third
parties and require us to cease using the technology that is at issue or to
license the technology from third parties. In addition, a finding that any of
our intellectual property rights are invalid could allow competitors to more
easily and cost-effectively compete. Thus, an unfavorable outcome in any patent
litigation or interference proceeding could have a material adverse effect on
our business, financial condition and results of operations.

Dependence On Key Personnel

Our success will largely depend on the performance of our
directors and officers and the managers of EDI Germany. Our success will also
depend on our ability to attract and retain highly skilled technical, research,
management, regulatory compliance, sales and marketing personnel. Competition
for such personnel is intense.

12

---

The loss of the services of such personnel or the inability to
attract and retain other key personnel could impair the development of our
business, operating results and financial condition.

Dependence On Key Suppliers

The majority of our drilling equipment is machined by a single
supplier located in Dorsten, Germany, close to our offices in Muenster, Germany.
This supplier assists us in machining our drilling equipment and installations
and works closely with our own experts to make improvements to our technologies.
The loss of this supplier could be damaging to our business. Although we believe
that we would be able to use the services of other machining companies,
switching machining companies could cause delays as we would be required to
educate the new supplier on our needs and requirements. In addition, a new
supplier may be less conveniently located than our current supplier, which could
increase travel time and shipping costs.

Political Instability

We are seeking to develop a market for our drilling products
and processes in a number of developing countries. The political environment in
many of these countries is unstable. This instability could cause delays to our
drilling projects and could make the development of our business more difficult.
In particular, our drilling projects scheduled for Pakistan could be
significantly delayed because of the current political instability in that
country. Furthermore, if the political situation in Pakistan worsens, those
projects could be abandoned altogether.

ITEM
2.               UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

See Recent Corporate Developments at Part I, Item 2 of this
Report.

ITEM
3.               DEFAULTS
UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5.               
  OTHER INFORMATION.

None.

ITEM
6.             
 EXHIBITS.

|Exhibit |  |                                                                                                                                                                                                 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description of Exhibit                                                                                                                                                                          
|        |  |                                                                                                                                                                                                 
|3.1     |  | Articles of
      Incorporation.(1)                                                                                                                                                             
|        |  |                                                                                                                                                                                                 
|3.2     |  | Certificate of
      Change to Authorized Capital.(2)                                                                                                                                           
|        |  |                                                                                                                                                                                                 
|3.3     |  | Certificate of Amendment to Articles of Incorporation 
      name change to Exploration Drilling International Inc.(6)                                                                         
|        |  |                                                                                                                                                                                                 
|3.4     |  | Amended and Restated Bylaws.(5)                                                                                                                                                                 
|        |  |                                                                                                                                                                                                 
|4.1     |  | Specimen Common Stock Certificate.(1)                                                                                                                                                           
|        |  |                                                                                                                                                                                                 
|10.1    |  | 2006 Stock Option Plan.(3)                                                                                                                                                                      
|        |  |                                                                                                                                                                                                 
|10.2    |  | Joint Operating Agreement Between A. Abuynayyan Trading
      Corporation and EDI Germany.(4)                                                                                                   
|        |  |                                                                                                                                                                                                 
|10.3    |  | Loan Agreement for EUR 8,000 with interest at 7% per
      annum between Dieter Thiemann (as lender) and EDI Germany (as borrower),
      providing for interest at a rate of 6% per annum dated

13

---

|Exhibit |  |                                                                                                                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                       
|        |  | December 13,
        2004 (translated from German to English).(7)                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                              
|10.4    |  | Managing Director
        Contract between EDI Germany and Guenter Thiemann dated effective as of
        January 1, 2005 (translated from German to English).(7)                                                                                                            
|        |  |                                                                                                                                                                                                                                                                              
|10.5    |  | Managing Director
        Contract between EDI Germany and Rainer Rotthaeuser dated effective as
        of January 1, 2005 (translated from German to English).(7)                                                                                                          
|        |  |                                                                                                                                                                                                                                                                              
|10.6    |  | Loan Agreement
        for EUR 5,000 with interest at 6% per annum between Dieter Thiemann (as
        lender) and EDI Germany (as borrower) dated May 30, 2005 (translated from
        German to English).(7)                                                              
|        |  |                                                                                                                                                                                                                                                                              
|10.7    |  | Addendum to
        Loan Agreement for EUR 5,000 dated May 30, 2005 between Dieter Thiemann
        (as lender) and EDI Germany (as borrower), extending due date to December
        31, 2007, dated December 26, 2006 (translated from German to English).(7)              
|        |  |                                                                                                                                                                                                                                                                              
|10.8    |  | Addendum to
        Loan Agreement for EUR 5,000 dated May 30, 2005 between Dieter Thiemann
        (as lender) and EDI Germany (as borrower) extending the due date to December
        31, 2008, dated December 26, 2007 (translated from German to English).(11)          
|        |  |                                                                                                                                                                                                                                                                              
|10.9    |  | Loan Agreement
        for EUR 36,000 without interest between Guenter Thiemann (as lender) and
        EDI Germany (as borrower) dated June 8, 2005 (translated from German to
        English).(7)                                                                         
|        |  |                                                                                                                                                                                                                                                                              
|10.10   |  | Addendum to
        Loan Agreement for EUR 36,000 dated June 8, 2005 between Guenter Thiemann
        (as lender) and EDI Germany (as borrower), providing for interest at a
        rate of 6% per annum, dated July 1, 2006 (translated from German to English).(7)        
|        |  |                                                                                                                                                                                                                                                                              
|10.11   |  | Addendum to
        Loan Agreement for EUR 36,000 dated June 8, 2005 between Guenter Thiemann
        (as lender) and EDI Germany (as borrower), extending due date to December
        31, 2007, dated April 22, 2007 (translated from German to English).(7)               
|        |  |                                                                                                                                                                                                                                                                              
|10.12   |  | Addendum to
        Loan Agreement for EUR 36,000 dated June 8, 2005 between Guenter Thiemann
        (as lender) and EDI Germany (as borrower) extending the due date to July
        31, 2008, dated December 25, 2007 (translated from German to English).(11)            
|        |  |                                                                                                                                                                                                                                                                              
|10.13   |  | Addendum
        to Loan Agreement for EUR 36,000 dated June 8, 2005 between Guenter Thiemann
        (as lender) and EDI Germany (as borrower) extending the due date to March
        31, 2009, dated June 25, 2008 (translated from German to English).                   
|        |  |                                                                                                                                                                                                                                                                              
|10.14   |  | Loan Agreement
        for EUR 25,000 with interest at 6% per annum between EDI Germany (as lender)
        and Guenter Thiemann (as borrower) dated December 23, 2005 (translated
        from German to English).(7)                                                       
|        |  |                                                                                                                                                                                                                                                                              
|10.15   |  | Loan Agreement
        for EUR 115,000 with interest at 6% per annum between EDI Germany (as
        lender) and Magdalena Rotthaeuser (as borrower) dated December 23, 2005
        (translated from German to English).(7)                                                 
|        |  |                                                                                                                                                                                                                                                                              
|10.16   |  | Addendum to
        Loan Agreement for EUR 115,000 dated December 23, 2005 between EDI Germany
        (as lender) and Magdalena Rotthaeuser (as borrower), extending due date
        to June 30, 2007, dated December 28, 2006 (translated from German to English).(7)     
|        |  |                                                                                                                                                                                                                                                                              
|10.17   |  | Loan Agreement
        for EUR 15,400 with interest at 3% per annum between EDI Germany (as lender)
        and Magdalena Rotthaeuser (as borrower) dated January 3, 2006 (translated
        from German to English).(7)                                                    
|        |  |                                                                                                                                                                                                                                                                              
|10.18   |  | Loan Agreement
        for EUR 90,000 with interest at 6% per annum between DTB Patente GmbH
        (as lender) and EDI Germany (as borrower) dated March 2, 2006 (translated
        from German to English).(7)                                                           
|        |  |                                                                                                                                                                                                                                                                              
|10.19   |  | Addendum to
        Loan Agreement for EUR 90,000 dated March 2, 2006 between DTB Patente
        GmbH (as lender) and EDI Germany (as borrower), extending the due date
        to September 30, 2007, dated January 4, 2007 (translated from German to
        English).(7)
|        |  |                                                                                                                                                                                                                                                                              
|10.20   |  | Addendum to
        Loan Agreement for EUR 90,000 dated March 2, 2006 between DTB Patente
        GmbH (as lender) and EDI Germany (as borrower) extending the due date
        to March 31, 2008, dated September 25, 2007 (translated from German to
        English).(9)  
|        |  |                                                                                                                                                                                                                                                                              
|10.21   |  | Addendum to
        Loan Agreement for EUR 90,000 dated March 2, 2006 between DTB Patente
        GmbH (as lender) and EDI Germany (as borrower) extending the due date
        to December 31,                                                                              

14

---

|Exhibit |  |                                                                                                                                                                                                                                                                   
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                            
|        |  | 2008, dated February 2, 2008 (translated from German to
      English).(13)                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                   
|10.22   |  | Loan Agreement for EUR 50,000 without interest between
      Guenter Thiemann (as lender) and EDI Germany (as borrower) dated May 4,
      2006 (translated from German to English).(7)                                                                           
|        |  |                                                                                                                                                                                                                                                                   
|10.23   |  | Addendum to Loan Agreement for EUR 50,000 dat+ed May 4,
      2006 between Guenter Thiemann (as lender) and EDI Germany (as borrower)
      dated July 1, 2006 (translated from German to English).(7)                                                            
|        |  |                                                                                                                                                                                                                                                                   
|10.24   |  | Addendum to Loan Agreement for EUR 50,000 dated May 4,
      2006 between Guenter Thiemann (as lender) and EDI Germany (as borrower)
      extending the due date to December 31, 2008, dated May 2, 2008 (translated
      from German to English).(12)          
|        |  |                                                                                                                                                                                                                                                                   
|10.25   |  | Addendum to Loan Agreement for EUR 115,000 dated December
      23, 2005 between EDI Germany (as lender) and Magdalena Rotthaeuser (as
      borrower), extending due date to December 31, 2006, dated June 25, 2006
      (translated from German to English).(7)
|        |  |                                                                                                                                                                                                                                                                   
|10.26   |  | Loan Agreement for EUR 20,000 with interest at 5% per
      annum between EDI Holding (as lender) and EDI Germany (as borrower) dated
      July 15, 2006 (translated from German to English).(7)                                                                 
|        |  |                                                                                                                                                                                                                                                                   
|10.27   |  | Addendum to Loan Agreement for EUR 20,000 dated July 15,
      2006 between EDI Holding (as lender) and EDI Germany (as borrower)
      extending the due date to December 31, 2007, dated July 15, 2007
      (translated from German to English).(8)            
|        |  |                                                                                                                                                                                                                                                                   
|10.28   |  | Addendum to Loan Agreement for EUR 20,000 dated July 15,
      2006 between EDI Holding (as lender) and EDI Germany (as borrower)
      extending the due date to July 31, 2008, dated December 28, 2007
      (translated from German to English).(11)           
|        |  |                                                                                                                                                                                                                                                                   
|10.29   |  | Addendum to Loan Agreement for EUR 20,000 dated July 15,
      2006 between EDI Holding (as lender) and EDI Germany (as borrower)
      extending the due date to March 31, 2009, dated June 28, 2008 (translated
      from German to English).(13)              
|        |  |                                                                                                                                                                                                                                                                   
|10.30   |  | Loan Agreement for EUR 12,000 with interest at 5% per
      annum between Dieter Thiemann (as lender) and EDI Germany (as borrower)
      dated September 20, 2006 (translated from German to
      English).(7)                                                  
|        |  |                                                                                                                                                                                                                                                                   
|10.31   |  | Addendum to Loan Agreement for EUR 12,000 dated September
      20, 2006 between Dieter Thiemann (as lender) and EDI Germany (as
      borrower), extending due date to March 22, 2007, dated December 18, 2006
      (translated from German to English).(7)     
|        |  |                                                                                                                                                                                                                                                                   
|10.32   |  | Addendum to Loan Agreement for EUR 12,000 dated September
      20, 2006 between Dieter Thiemann (as lender) and EDI Germany (as
      borrower), extending due date to December 31, 2007, dated June 26, 2007
      (translated from German to English).(8)      
|        |  |                                                                                                                                                                                                                                                                   
|10.33   |  | Addendum to Loan Agreement for EUR 12,000 dated September
      20, 2006 between Dieter Thiemann (as lender) and EDI Germany (as borrower)
      extending the due date to July 31, 2008, dated December 26, 2007
      (translated from German to English).(11)  
|        |  |                                                                                                                                                                                                                                                                   
|10.34   |  | Addendum to Loan Agreement for EUR 12,000 dated September
      20, 2006 between Dieter Thiemann (as lender) and EDI Germany (as borrower)
      extending the due date to March 31, 2009, dated June 22,
      2008.(13)                                         
|        |  |                                                                                                                                                                                                                                                                   
|10.35   |  | Loan Agreement for EUR 11,600 with interest at 5% per
      annum between DTB Patente GmbH (as lender) and EDI Germany (as borrower)
      dated October 28, 2006 (translated from German to English).(7)                                                         
|        |  |                                                                                                                                                                                                                                                                   
|10.36   |  | Addendum to Loan Agreement for 11,600 dated October 28,
      2006 between DTB Patente GmbH (as lender) and EDI Germany (as borrower)
      extending the due date to November 30, 2008, dated November 1, 2007
      (translated from German to English).(11)    
|        |  |                                                                                                                                                                                                                                                                   
|10.37   |  | Loan Agreement for EUR 3,400 with interest at 6% per
      annum between EDI Holding (as lender) and EDI Germany (as borrower) dated
      October 28, 2006 (translated from German to English).(7)                                                               
|        |  |                                                                                                                                                                                                                                                                   
|10.38   |  | Addendum to Loan Agreement for EUR 3,400 dated October
      28, 2006 between EDI Holding (as lender) and EDI Germany (as borrower)
      extending the due date to June 30, 2008, dated September 1, 2007
      (translated from German to English).(9)          
|        |  |                                                                                                                                                                                                                                                                   
|10.39   |  | Addendum to Loan Agreement for EUR 3,400 dated October
      28, 2006 between EDI Holding (as                                                                                                                                                                     

15

---

|Exhibit |  |                                                                                                                                                                                                                                                               
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                        
|        |  | lender) and EDI Germany (as borrower) extending the due
      date to March 31, 2009, dated May 28, 2008 (translated from German to
      English).(13)                                                                                                       
|        |  |                                                                                                                                                                                                                                                               
|10.40   |  | Loan Agreement for EUR 75,000 with interest at 5% per
      annum between EDI Holding (as lender) and EDI Germany (as borrower) dated
      December 19, 2006 (translated from German to English).(7)                                                         
|        |  |                                                                                                                                                                                                                                                               
|10.41   |  | Loan Agreement for EUR 2,000 with interest at 5% per
      annum between EDI Holding (as lender) and EDI Germany (as borrower) dated
      December 29, 2006 (translated from German to English).(7)                                                          
|        |  |                                                                                                                                                                                                                                                               
|10.42   |  | Addendum to Loan Agreement for EUR 2,000 dated December
      29, 2006 between EDI Holding (as lender) and EDI Germany (as borrower)
      extending the due date to July 31, 2008, dated December 28, 2007
      (translated from German to English).(11)    
|        |  |                                                                                                                                                                                                                                                               
|10.43   |  | Addendum to Loan Agreement for EUR 2,000 dated December
      29, 2006 between EDI Holding (as lender) and EDI Germany (as borrower)
      extending the due date to March 31, 2009, dated June 28, 2008 (translated
      from German to English).(13)       
|        |  |                                                                                                                                                                                                                                                               
|10.44   |  | Loan Agreement for EUR 1,000 with interest at a rate of
      6% per annum between EDI Holding (as lender) and EDI Germany (as borrower)
      dated December 29, 2006 (translated from German to English).(7)                                                
|        |  |                                                                                                                                                                                                                                                               
|10.45   |  | Addendum to Loan Agreement for EUR 1,000 dated December
      29, 2006 between EDI Holding (as lender) and EDI Germany (as borrower)
      extending the due date to July 31, 2008, dated December 28, 2007
      (translated from German to English).(11)    
|        |  |                                                                                                                                                                                                                                                               
|10.46   |  | Addendum to Loan Agreement for EUR 1,000 dated December
      29, 2008 between EDI Holding (as lender) and EDI Germany (as borrower)
      extending the due date to March 31, 2009, dated June 26, 2008 (translated
      from German to English).           
|        |  |                                                                                                                                                                                                                                                               
|10.47   |  | Loan Agreement for EUR 21,000 with interest at 5% per
      annum between EDI Holding (as lender) and EDI Germany (as borrower) dated
      January 19, 2007 (translated from German to English).(7)                                                          
|        |  |                                                                                                                                                                                                                                                               
|10.48   |  | Addendum to Loan Agreement for EUR 21,000 dated January
      19, 2007 between EDI Holding (as lender) and EDI Germany (as borrower)
      extending the due date to December 31, 2008, dated January 20, 2008
      (translated from German to English).(11) 
|        |  |                                                                                                                                                                                                                                                               
|10.49   |  | Loan Agreement for EUR 57,500 with interest at 5% per
      annum between DTB Patente GmbH (as lender) and EDI Germany (as borrower)
      dated January 28, 2007 (translated from German to English).(7)                                                     
|        |  |                                                                                                                                                                                                                                                               
|10.50   |  | Addendum to Loan Agreement for 57,500 dated January 28,
      2007 between DTB Patente GmbH (as lender) and EDI Germany (as borrower)
      extending the due date to January 28, 2009, dated January 22, 2008
      (translated from German to English).(11) 
|        |  |                                                                                                                                                                                                                                                               
|10.51   |  | Loan Agreement for EUR 10,000, with interest at 6% per
      annum between Dieter Thiemann (as lender) and EDI Germany (as borrower)
      dated February 2, 2007 (translated from German to English).(7)                                                     
|        |  |                                                                                                                                                                                                                                                               
|10.52   |  | Addendum to Loan Agreement for EUR 10,000 dated February
      2, 2007 between Dieter Thiemann (as lender) and EDI Germany (as borrower),
      extending the due date to December 31, 2007, dated June 28, 2007
      (translated from German to English).(8)
|        |  |                                                                                                                                                                                                                                                               
|10.53   |  | Addendum to Loan Agreement for EUR 10,000 dated February
      2, 2007 between Dieter Thiemann (as lender) and EDI Germany (as borrower)
      extending the due date to July 31, 2008, dated December 28, 2007
      (translated from German to English).(11)
|        |  |                                                                                                                                                                                                                                                               
|10.54   |  | Addendum to Loan Agreement for EUR 10,000 dated February
      2, 2007 between Dieter Thiemann (as lender) and EDI Germany (as borrower),
      extending the due date to March 31, 2009, dated June 18, 2008 (translated
      from German to English).(13)  
|        |  |                                                                                                                                                                                                                                                               
|10.55   |  | Loan Agreement for EUR 39,160 with interest at 5% per
      annum between EDI Holding (as lender) and EDI Germany (as borrower) dated
      February 23, 2007 (translated from German to English).(7)                                                         
|        |  |                                                                                                                                                                                                                                                               
|10.56   |  | Addendum to Loan Agreement for EUR 39,160 dated February
      23, 2007 between EDI Holding                                                                                                                                                                   

16

---

|Exhibit |  |                                                                                                                                                                                                                                                                        
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                 
|        |  | (as lender)
        and EDI Germany (as borrower) extending the due date to December 31, 2008,
        dated February 20, 2008 (translated from German to English).(11)                                                                                                
|        |  |                                                                                                                                                                                                                                                                        
|10.57   |  | Loan Agreement
        for EUR 1,800 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated February 23, 2007 (translated from
        German to English).(7)                                                       
|        |  |                                                                                                                                                                                                                                                                        
|10.58   |  | Addendum to
        Loan Agreement for EUR 1,800 dated February 23, 2007 between EDI Holding
        (as lender) and EDI Germany (as borrower) extending the due date to December
        31, 2008, dated February 23, 2008 (translated from German to English).(11)   
|        |  |                                                                                                                                                                                                                                                                        
|10.59   |  | Loan Agreement
        for EUR 12,000 with interest at 6% per annum between Dieter Thiemann (as
        lender) and EDI Germany (as borrower) dated July 16, 2007 (translated
        from German to English).(8)                                                      
|        |  |                                                                                                                                                                                                                                                                        
|10.60   |  | Loan Agreement
        for EUR 5,000 with interest at 6% per annum between Dieter Thiemann (as
        lender) and EDI Germany (as borrower) dated August 5, 2007 (translated
        from German to English).(8)                                                      
|        |  |                                                                                                                                                                                                                                                                        
|10.61   |  | Loan Agreement
        for EUR 40,000 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated August 9, 2007 (translated from German
        to English).(11)                                                        
|        |  |                                                                                                                                                                                                                                                                        
|10.62   |  | Addendum to
        Loan Agreement for EUR 40,000 dated August 9, 2007 between EDI Holding
        (as lender) and EDI Germany (as borrower), extending the due date to March
        31, 2009, dated August 4, 2008 (translated from German to English).(13)          
|        |  |                                                                                                                                                                                                                                                                        
|10.63   |  | Loan Agreement
        for EUR 10,000 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated August 12, 2007 (translated from German
        to English).(9)                                                        
|        |  |                                                                                                                                                                                                                                                                        
|10.64   |  | Addendum to
        Loan Agreement for EUR 10,000 dated August 12, 2007 between EDI Holding
        (as lender) and EDI Germany (as borrower), extending the due date to March
        31, 2009, dated August 4, 2008 (translated from German to English).(13)         
|        |  |                                                                                                                                                                                                                                                                        
|10.65   |  | Loan Agreement
        for EUR 15,000 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated August 20, 2007 (translated from German
        to English).(9)                                                        
|        |  |                                                                                                                                                                                                                                                                        
|10.66   |  | Addendum
        to Loan Agreement for EUR 15,000 with dated August 20, 2007 between EDI
        Holding (as lender) and EDI Germany (as borrower) extending the due date
        to March 31, 2009, dated August 20, 2008 (translated from German to English).        
|        |  |                                                                                                                                                                                                                                                                        
|10.67   |  | Loan Agreement
        for EUR 35,000 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated August 30, 2007 (translated from German
        to English).(9)                                                        
|        |  |                                                                                                                                                                                                                                                                        
|10.68   |  | Addendum
        to Loan Agreement for EUR 35,000 dated August 30, 2007 between EDI Holding
        (as lender) and EDI Germany (as borrower) extending the due date to March
        31, 2009 dated August 20, 2008 (translated from German to English).              
|        |  |                                                                                                                                                                                                                                                                        
|10.69   |  | Loan Agreement
        for EUR 33,000 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated September 11, 2007 (translated from
        German to English).(9)                                                     
|        |  |                                                                                                                                                                                                                                                                        
|10.70   |  | Addendum
        to Loan Agreement for EUR 33,000 dated September 11, 2007 between EDI
        Holding (as lender) and EDI Germany (as borrower) extending the due date
        to March 31, 2009 dated September 8, 2008 (translated from German to English).         
|        |  |                                                                                                                                                                                                                                                                        
|10.71   |  | Loan Agreement
        for EUR 24,000 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated September 19, 2007 (translated from
        German to English).(9)                                                     
|        |  |                                                                                                                                                                                                                                                                        
|10.72   |  | Addendum
        to Loan Agreement for EUR 24,000 dated September 19, 2007 between EDI
        Holding (as lender) and EDI Germany (as borrower) extending the due date
        to March 31, 2009 dated September 15, 2008 (translated from German to
        English).
|        |  |                                                                                                                                                                                                                                                                        
|10.73   |  | Loan Agreement
        for EUR 12,000 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated September 26, 2007 (translated from
        German to                                                                  

17

---

|Exhibit |  |                                                                                                                                                                                                                                                                        
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                 
|        |  | English).(9)                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                        
|10.74   |  | Addendum
        to Loan Agreement for EUR 12,000 dated September 26, 2007 between EDI
        Holding (as lender) and EDI Germany (as borrower) extending the due date
        to March 31, 2009 dated September 20, 2008 (translated from German to
        English).
|        |  |                                                                                                                                                                                                                                                                        
|10.75   |  | Loan Agreement
        for EUR 9,400 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated October 12, 2007 (translated from
        German to English).(11)                                                       
|        |  |                                                                                                                                                                                                                                                                        
|10.76   |  | Loan Agreement
        for EUR 15,000 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated November 16, 2007 (translated from
        German to English).(11)                                                     
|        |  |                                                                                                                                                                                                                                                                        
|10.77   |  | Loan Agreement
        for EUR 6,000 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated November 23, 2007 (translated from
        German to English).(11)                                                      
|        |  |                                                                                                                                                                                                                                                                        
|10.78   |  | Loan Agreement
        for EUR 29,383 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated December 30, 2007 (translated from
        German to English).(11)                                                     
|        |  |                                                                                                                                                                                                                                                                        
|10.79   |  | Loan Agreement
        for EUR 6,500 with interest at 6% per annum between Dieter Thiemann (as
        lender) and EDI Germany (as borrower) dated January 18, 2008 (translated
        from German to English).(11)                                                   
|        |  |                                                                                                                                                                                                                                                                        
|10.80   |  | Loan Agreement
        for EUR 25,000 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated February 8, 2008 (translated from
        German to English).(12)                                                      
|        |  |                                                                                                                                                                                                                                                                        
|10.81   |  | Loan Agreement
        for EUR 5,000 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated February 8, 2008 (translated from
        German to English).(12)                                                       
|        |  |                                                                                                                                                                                                                                                                        
|10.82   |  | Consulting Agreement
        dated February 13, 2008 between the Company and Jesko Beck.(10)                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                        
|10.83   |  | Technology License
        Agreement between EDI Germany and EDI Turkey, dated effective as of March
        28, 2008.(11)                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                        
|10.84   |  | Loan Agreement
        for EUR 6,019.41 with interest at 5% per annum between EDI Holding (as
        lender) and EDI Germany (as borrower) dated March 30, 2008 (translated
        from German to English).(12)                                                      
|        |  |                                                                                                                                                                                                                                                                        
|10.85   |  | Loan Agreement
        for EUR 63,950 with interest at 5% per annum between EDI Holding (as lender)
        and EDI Germany (as borrower) dated July 1, 2008 (translated from German
        to English).(13)                                                          
|        |  |                                                                                                                                                                                                                                                                        
|10.86   |  | 2008 Stock Option
        Plan.(14)                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                        
|10.87   |  | Loan
        Agreement for EUR 11,346.83 with interest at 5% per annum between EDI
        Holding (as lender) and EDI Germany (as borrower) dated September 30,
        2008 (translated from German to English).                                                     
|        |  |                                                                                                                                                                                                                                                                        
|31.1    |  | Certification
        of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002.                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                        
|31.2    |  | Certification
        of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002.                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                        
|32.1    |  | Certification
        of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
        adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                 
|        |  |                                                                                                                                                                                                                                                                        
|32.2    |  | Certification
        of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
        adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                 

|**Notes:** |                                                                                                                         
|---------- | ------------------------------------------------------------------------------------------------------------------------
|(1)        | Filed as an exhibit to our Registration Statement on Form
      10-SB originally filed with the SEC on November 5, 2003.
|(2)        | Filed as an exhibit to our Current Report on Form 8-K
      filed with the SEC on March 27, 2006.                       
|(3)        | Filed as an exhibit to our Current Report on Form 8-K
      filed with the SEC on May 11, 2006.                         
|(4)        | Filed as an exhibit to our Current Report on Form 8-K
      filed with the SEC on June 28, 2006.                        
|(5)        | Filed as an exhibit to our Current Report on Form 8-K
      filed with the SEC on August 28, 2006.                      
|(6)        | Filed as an exhibit to our Quarterly Report on Form
      10-QSB filed with the SEC on November 14, 2006.               
|(7)        | Filed as an exhibit to our Annual Report on Form 10-KSB
      filed with the SEC on May 16, 2007.                       

18

---

|(8)  | Filed as an exhibit to our Quarterly Report on Form
      10-QSB filed with the SEC on August 20, 2007.  
|---- | ---------------------------------------------------------------------------------------------------------
|(9)  | Filed as an exhibit to our Quarterly Report on Form
      10-QSB filed with the SEC on November 19, 2007.
|(10) | Filed as an exhibit to our Current Report on Form 8-K
      filed with the SEC on February 20, 2008.     
|(11) | Filed as an exhibit to our Annual Report on Form 10-K
      filed with the SEC on April 15, 2008.        
|(12) | Filed as an exhibit to our Quarterly Report on Form 10-Q
      filed with the SEC on May 20, 2008.       
|(13) | Filed as an exhibit to our Quarterly Report on Form 10-Q
      filed with the SEC on August 19, 2008.    
|(14) | Filed as an exhibit to our Current Report on Form 8-K
      filed with the SEC on October 9, 2008.       

19

---

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

|      |                   |  |     | EXPLORATION DRILLING INTERNATIONAL INC.
|----- | ----------------- |  | --- | ---------------------------------------
|      |                   |  |     |                                        
|      |                   |  |     |                                        
|      |                   |  |     |                                        
|Date: | November 18, 2008 |  | By: | /s/
      Rainer Rotthaeuser           
|      |                   |  |     | RAINER ROTTHAEUSER                     
|      |                   |  |     | Chief Executive Officer and President  
|      |                   |  |     | (Principal Executive Officer )         
|      |                   |  |     |                                        
|      |                   |  |     |                                        
|      |                   |  |     |                                        
|      |                   |  |     |                                        
|Date: | November 18, 2008 |  | By: | /s/
      Guenter Thiemann             
|      |                   |  |     | GUENTER THIEMANN                       
|      |                   |  |     | Chief Financial Officer and Treasurer  
|      |                   |  |     | (Principal Accounting Officer)         
|      |                   |  |     |                                        
|      |                   |  |     |                                        
|      |                   |  |     |                                        
|      |                   |  |     |                                        
|Date: | November 18, 2008 |  | By: | /s/
      John Boschert                
|      |                   |  |     | JOHN BOSCHERT                          
|      |                   |  |     | Secretary                              

---