---

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 June 30, 2008

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACTOF 1934
For the transition period from ________to ________

COMMISSION FILE NUMBER000-50459

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
August 15, 2008, the Registrant had 120,487,724 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 six months ended June 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

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EXPLORATION DRILLING INTERNATIONAL INC.

(A Development Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

June 30, 2008 
  (Unaudited)

---

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

|                                                                                    |   | June 30,    |   |   | December 31, |  
|----------------------------------------------------------------------------------- | - | ----------- | - | - | ------------ | -
|                                                                                    |   | 2008        |   |   | 2007         |  
|                                                                                    |   | (unaudited) |   |   | (audited)    |  
|                                                                                    |   |             |   |   |              |  
|                                                                                    |   |             |   |   |              |  
|ASSETS                                                                              |   |             |   |   |              |  
|                                                                                    |   |             |   |   |              |  
|Current Assets                                                                      |   |             |   |   |              |  
|Other receivables                                                                   | $ | 57,509      |   | $ | 20,674       |  
|Loans receivable -related
      parties (Note 8)                                    |   | 8,911       |   |   | 9,610        |  
|Prepaids                                                                            |   | 11,005      |   |   | 24,942       |  
|Deferred tax asset, less valuation allowance
      of $2,617,830 (2007 -$2,515,492) |   | -           |   |   | -            |  
|Total Current Assets                                                                |   | 77,425      |   |   | 55,226       |  
|                                                                                    |   |             |   |   |              |  
|Investment (Note 4)                                                                 |   | 10,342      |   |   | -            |  
|Equipment (Note 5)                                                                  |   | 183,906     |   |   | 210,587      |  
|Patents
      (Note 5)                                                              |   | 244,342     |   |   | 204,770      |  
|                                                                                    |   |             |   |   |              |  
|Total Assets                                                                        | $ | 516,015     |   | $ | 470,583      |  
|                                                                                    |   |             |   |   |              |  
|LIABILITIES AND STOCKHOLDERS DEFICIENCY                                            |   |             |   |   |              |  
|                                                                                    |   |             |   |   |              |  
|Current Liabilities                                                                 |   |             |   |   |              |  
|Bank indebtedness (Note
      6)                                                    | $ | 58,975      |   | $ | 53,182       |  
|Accounts payable and accrued liabilities                                            |   | 678,482     |   |   | 463,879      |  
|Accounts payable and accrued
      liabilities related parties (Note 8)            |   | 153,918     |   |   | 117,501      |  
|Loans
      payable -current (Notes 7 and 8)                                        |   | 1,716,965   |   |   | 1,377,931    |  
|Total Current Liabilities                                                           |   | 2,608,340   |   |   | 2,012,493    |  
|                                                                                    |   |             |   |   |              |  
|Loans payable (Notes 8)                                                             |   | 80,581      |   |   | 129,920      |  
|                                                                                    |   |             |   |   |              |  
|Total Liabilities                                                                   |   | 2,688,921   |   |   | 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                                                        |   |             |   |   |              |  
|June
      30, 2008 -116,202,011                                                    |   |             |   |   |              |  
|December 31, 2007 -112,567,396                                                      |   | 116,202     |   |   | 112,567      |  
|Additional paid-in capital                                                          |   | 10,294,539  |   |   | 8,438,228    |  
|Accumulated other comprehensive
      loss:                                         |   |             |   |   |              |  
|Foreign currency translation
      adjustment                                       |   | (280,802    | ) |   | (162,044     | )
|Deficit accumulated during the development
      stage                              |   | (12,302,845 | ) |   | (10,060,581  | )
|Total Stockholders
      Deficiency                                                |   | (2,172,906  | ) |   | (1,671,830   | )
|                                                                                    |   |             |   |   |              |  
|Total Liabilities
      and Stockholders Deficiency                                | $ | 516,015     |   | $ | 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            |       |   | Six         |       |   | Six         |       |   | Three       |       |   | Three       |  
|                                                |   | From Inception     |       |   | Months      |       |   | Months      |       |   | Months      |       |   | Months      |  
|                                                |   | (December 7, 2004) |       |   | Ended       |       |   | Ended       |       |   | Ended       |       |   | Ended       |  
|                                                |   | to June 30,        |       |   | June 30,    |       |   | June 30,    |       |   | June 30,    |       |   | June 30,    |  
|                                                |   | 2008               |       |   | 2008        |       |   | 2007        |       |   | 2008        |       |   | 2007        |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|EXPENSES                                        |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|Amortization                                    | $ | 187,622            |       | $ | 42,088      |       | $ | 30,904 $    |       |   | 21,502      |       | $ | 15,529      |  
|Management fees                                 |   | 1,166,016          |       |   | 111,541     |       |   | 165,466     |       |   | 56,917      |       |   | 83,871      |  
|Professional fees                               |   | 3,007,846          |       |   | 1,039,457   |       |   | 895,640     |       |   | 84,872      |       |   | 846,424     |  
|Selling, general and administrative             |   | 2,903,328          |       |   | 199,136     |       |   | 521,620     |       |   | 109,892     |       |   | 221,786     |  
|Stock compensation expense                      |   | 4,603,356          |       |   | 922,112     |       |   | 2,110,772   |       |   | 922,112     |       |   | 2,110,772   |  
|Foreign
      currency loss                     |   | 11,193             |       |   | 714         |       |   | 607         |       |   | 1,176       |       |   | 119         |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|LOSS BEFORE OTHER ITEMS AND                     |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|INCOME TAXES                                    |   | 11,879,361         |       |   | 2,315,048   |       |   | 3,725,009   |       |   | 1,196,471   |       |   | 3,278,501   |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|OTHER ITEMS                                     |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|Interest income                                 |   | (22,594            | )     |   | (773        | )     |   | (5,039      | )     |   | (314        | )     |   | (2,270      | )
|Interest expense                                |   | 220,040            |       |   | 48,837      |       |   | 51,602      |       |   | 27,317      |       |   | 21,773      |  
|Miscellaneous income                            |   | (22,505            | )     |   | (22,505     | )     |   | -           |       |   | (21,637     | )     |   | -           |  
|Loss on disposal of capital assets              |   | 5,377              |       |   | -           |       |   | 2,963       |       |   | -           |       |   | -           |  
|Write down of patents                           |   | 237,953            |       |   | -           |       |   | -           |       |   | -           |       |   | -           |  
|Write down (recovery) of loans
      receivable |   |                    |       |   |             |       |   |             |       |   |             |       |  
|related parties (Note 8)                       |   | 5,213              |       |   | (98,343     | )     |   | -           |       |   | (98,343     | )     |   | -           |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|LOSS BEFORE INCOME TAXES                        |   | 12,302,845         |       |   | 2,242,264   |       |   | 3,774,535   |       |   | 1,103,494   |       |   | 3,298,004   |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|Provision for income taxes                      |   |                    |       |   |             |       |   | -           |       |   | -           |       |   | -           |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|NET LOSS                                        |   | 12,302,845         |       |   | 2,242,264   |       |   | 3,774,535   |       |   | 1,103,494   |       |   | 3,298,004   |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|OTHER COMPREHENSIVE (INCOME) LOSS               |   |                    |       |   |             |       |   |             |       |   |             |       |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|Foreign currency translation adjustment         |   | 280,802            |       |   | 118,758     |       |   | (9,283      | )     |   | (5,152      | )     |   | 15,587      |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|COMPREHENSIVE LOSS                              | $ | 12,583,647         |       | $ | 2,361,022   |       | $ | 3,765,252   |       | $ | 1,098,342   |       | $ | 3,313,591   |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|BASIC
      AND DILUTED NET LOSS PER SHARE      |   | $                  | (0.02 | ) | $           | (0.04 | ) | $           | (0.01 | ) | $           | (0.03 | )
|                                                |   |                    |       |   |             |       |   |             |       |   |             |       |   |             |  
|WEIGHTED AVERAGE NUMBER OF COMMON               |   |                    |       |   |             |       |   |             |       |   |             |       |  
|SHARES OUTSTANDING                              |   |                    |       |   | 113,192,607 |       |   | 104,183,572 |       |   | 116,202,011 |       |   | 105,644,624 |  

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            |   |   | Six        |   |   | Six        |  
|                                                                                       |   | From Inception     |   |   | Months     |   |   | Months     |  
|                                                                                       |   | (December 7, 2004) |   |   | Ended      |   |   | Ended      |  
|                                                                                       |   | to June 30,        |   |   | June 30,   |   |   | June 30,   |  
|                                                                                       |   | 2008               |   |   | 2008       |   |   | 2007       |  
|                                                                                       |   |                    |   |   |            |   |   |            |  
|                                                                                       |   |                    |   |   |            |   |   |            |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                   |   |                    |   |   |            |   |   |            |  
|                                                                                       |   |                    |   |   |            |   |   |            |  
|Net loss for the period                                                                | $ | (12,302,845        | ) | $ | (2,242,264 | ) | $ | (3,774,535 | )
|Adjustments to reconcile net loss to cash used in operating
      activities:          |   |                    |   |   |            |   |   |            |  
|Amortization                                                                           |   | 187,622            |   |   | 42,088     |   |   | 30,904     |  
|Stock compensation expense                                                             |   | 4,603,356          |   |   | 922,112    |   |   | 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                                                 |   | 1,580,000          |   |   | 860,000    |   |   | 720,000    |  
|Change in operating assets and liabilities:                                            |   |                    |   |   |            |   |   |            |  
|Decrease (increase) in other receivables                                               |   | 12,935             |   |   | (34,216    | ) |   | 21,237     |  
|Increase in accrued interest
      receivable                                          |   | (20,799            | ) |   | (161       | ) |   | (4,949     | )
|Decrease (increase) in prepaid expenses                                                |   | (6,132             | ) |   | 15,249     |   |   | 2,525      |  
|Increase (decrease) in
      accounts payable and accrued liabilities                  |   | 543,970            |   |   | 181,929    |   |   | (28,317    | )
|Increase (decrease) in accounts payable
      and accrued liabilities related parties |   | 134,209            |   |   | 27,038     |   |   | (427       | )
|Increase in accrued interest payable                                                   |   | 163,476            |   |   | 43,675     |   |   | 17,203     |  
|                                                                                       |   |                    |   |   |            |   |   |            |  
|Net cash used in operating activities                                                  |   | (4,855,665         | ) |   | (282,893   | ) |   | (902,624   | )
|                                                                                       |   |                    |   |   |            |   |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                   |   |                    |   |   |            |   |   |            |  
|                                                                                       |   |                    |   |   |            |   |   |            |  
|Loans receivable                                                                       |   | (62,432            | ) |   | 103,663    |   |   | 79,723     |  
|Acquisition of equipment, net of disposal
      proceeds                               |   | (318,783           | ) |   | -          |   |   | 5,583      |  
|Acquisition of patents                                                                 |   | (409,678           | ) |   | (25,341    | ) |   | (38,433    | )
|Investment
      in joint venture                                                      |   | (10,016            | ) |   | (10,016    | ) |   | -          |  
|                                                                                       |   |                    |   |   |            |   |   |            |  
|Net
      cash provided by (used) in investing activities                              |   | (800,909           | ) |   | 68,306     |   |   | 46,873     |  
|                                                                                       |   |                    |   |   |            |   |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                   |   |                    |   |   |            |   |   |            |  
|                                                                                       |   |                    |   |   |            |   |   |            |  
|Bank indebtedness                                                                      |   | 58,975             |   |   | 5,793      |   |   | 2,511      |  
|Cash acquired from Invision
      Capital, Inc.                                        |   | 81,587             |   |   | -          |   |   | -          |  
|Issuance of capital stock for cash, net
      of issuance costs                        |   | 2,719,165          |   |   | 77,833     |   |   | 1,141,846  |  
|Contributed capital                                                                    |   | 1,475,540          |   |   | -          |   |   | -          |  
|Loans
      payable                                                                    |   | 1,404,240          |   |   | 141,114    |   |   | (296,050   | )
|                                                                                       |   |                    |   |   |            |   |   |            |  
|Net
      cash provided by financing activities                                        |   | 5,739,507          |   |   | 224,740    |   |   | 848,307    |  
|                                                                                       |   |                    |   |   |            |   |   |            |  
|EFFECT OF FOREIGN CURRENCY TRANSLATION ON                                              |   |                    |   |   |            |   |   |            |  
|CASH DURING THE PERIOD                                                                 |   | (82,933            | ) |   | (10,153    | ) |   | (16,433    | )
|                                                                                       |   |                    |   |   |            |   |   |            |  
|NET DECREASE IN CASH                                                                   |   | -                  |   |   | -          |   |   | (23,877    | )
|                                                                                       |   |                    |   |   |            |   |   |            |  
|CASH, BEGINNING OF PERIOD                                                              |   | -                  |   |   | -          |   |   | 23,877     |  
|                                                                                       |   |                    |   |   |            |   |   |            |  
|CASH, END OF PERIOD                                                                    | $ | -                  |   | $ | -          |   | $ | -          |  

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)                   
|June 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 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 June 30, 2008 and for all periods presented, have been
        included. Interim results for the period ended June 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)                   
|June 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | 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)                   
|June 30, 2008                                 
|(Unaudited)                                   
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                              
|   | (d)                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                              
|   | Prepaid expenses consist primarily of prepaid
        vehicle lease and travel expenses.                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                              
|   | (e)                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                              
|   | Other receivables consist primarily of Value
        Added Tax in Germany.                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                              
|   | (f)                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                              
|   | 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 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)                   
|June 30, 2008                                 
|(Unaudited)                                   
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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)                   
|June 30, 2008                                 
|(Unaudited)                                   
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (n)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | 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 June 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | 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)                   
|June 30, 2008                                 
|(Unaudited)                                   
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (r)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | 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)                   
|June 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 $10,342).
        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 June 30,
        2008, EDI Turkey had not yet begun operations.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|5. | EQUIPMENT AND PATENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| |                                   |   |          |   |   |              |  
| | --------------------------------- | - | -------- | - | - | ------------ | -
| |                                   |   | June 30, |   |   | December 31, |  
| |                                   |   | 2008     |   |   | 2007         |  
| |                                   |   |          |   |   |              |  
| | Well system                       | $ | 2,190    |   | $ | 2,105        |  
| | Technical equipment and machinery |   | 315,067  |   |   | 302,900      |  
| | Office and other equipment        |   | 30,225   |   |   | 29,058       |  
| | Software                          |   | 14,660   |   |   | 14,094       |  
| |                                   |   | 362,142  |   |   | 348,157      |  
| | Accumulated amortization          |   | (178,236 | ) |   | (137,570     | )
| |                                   |   |          |   |   |              |  
| | Net book value                    | $ | 183,906  |   | $ | 210,587      |  

Patents and trademarks

| |                          |   |          |   |   |              |  
| | ------------------------ | - | -------- | - | - | ------------ | -
| |                          |   | June 30, |   |   | December 31, |  
| |                          |   | 2008     |   |   | 2007         |  
| |                          |   |          |   |   |              |  
| | Trademarks               | $ | 99,573   |   | $ | 92,898       |  
| | Patents                  |   | 148,102  |   |   | 113,783      |  
| |                          |   | 247,675  |   |   | 206,681      |  
| | Accumulated amortization |   | (3,333   | ) |   | (1,911       | )
| |                          |   |          |   |   |              |  
| | Net book value           | $ | 244,342  |   | $ | 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 six months ended June
  30, 2008 and 2007, the Company did not amortize $216,151 and $401,305 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)                   
|June 30, 2008                                 
|(Unaudited)                                   
|                                              

|6. | BANK INDEBTEDNESS                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | At June 30, 2008 and December 31, 2007, the Company
        had a consolidated bank indebtedness of $58,975 and $53,182, respectively.
        EDI has an account overdraft limit of Euro 50,000 (US $78,939) 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 six months ended June 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 $163,456). The principal portion of the loans assigned
        total Euro 92,617 (US $146,222). The loans bear interest and are due as
        follows:

| |                          |          |                  
| | ------------------------ | -------- | -----------------
| | Principal                | Interest | Due Date         
| |                          |          |                  
| | Euro 23,517 (US $37,128) | 6%       | December 31, 2008
| | Euro 11,600 (US $18,314) | 5%       | November 30, 2008
| | Euro 57,500 (US $90,780) | 5%       | January 29, 2009 

During the six months ended June 30,
  2008, two loans were granted from a third party company for Euro 13,000 (US
  $20,524) and Euro 13,000 (US $20,524), 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 August 31, 2008.

During the year ended December 31, 2007,
  two loans were granted from a third party individual for Euro 33,000 (US $52,099)
  and Euro 50,000 (US $78,939). 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 $631,512). The loans earned interest at 6% per annum. During the year ended
  December 31, 2007, the total loans of Euro 400,000 (US $631,512) and interest
  of Euro 10,000 (US $15,788) was repaid. At June 30, 2008, Euro 31,273 (US $49,373)
  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 $36,312).
  The loan bears interest at 7% per annum and was due July 7, 2007. The loan has
  been extended and is due September 30, 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)                   
|June 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 $83,675).
        During the year ended December 31, 2007, Euro 6,600 (US $10,420) of the
        first loan granted was repaid. During the six months ended June 30, 2008,
        an additional Euro 1,600 (US $2,526) 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 Date         
| |                          |                  
| | Euro 11,800 (US $18,629) | December 31, 2008
| | Euro 15,000 (US $23,682) | December 31, 2008
| | Euro 18,000 (US $28,418) | December 31, 2008

During the year ended December 31, 2007,
  two loans were granted from a third party company for Euro 40,000 (US $63,151)
  and Euro 15,000 (US $23,682). 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 August
  31, 2008.

During the year ended December 31, 2006,
  two loans were granted from a third party company for Euro 30,000 (US $47,363)
  and Euro 25,000 (US $39,469). 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 August 31, 2008.

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)                   
|June 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 $1,563).
  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 $1,563) and interest of Euro 69 (US $91) 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 six months ended June 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 $24,976) 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 $15,787).
  On December 31, 2007, Euro 5,772 (US $9,112) 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 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 six months ended June 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 $36,849) against a loan payable to EDI Holding and Euro 27,772
  (US $43,846) 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)                   
|June 30, 2008                                 
|(Unaudited)                                   
|                                              

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

Loans Payable Current

During the six months ended June 30,
  2008, several loans were granted from EDI Holding totaling Euro 100,769 (US
  $159,093). The loans bear interest at 5% per annum and are due as follows:

| |                           |                  
| | ------------------------- | -----------------
| | Principal                 | Due Date         
| |                           |                  
| | Euro 5,000 (US $7,894)    | December 31, 2008
| | Euro 25,000 (US $39,470)  | December 31, 2008
| | Euro 6,019 (US $9,503)    | December 31, 2008
| | Euro 63,950 (US $100,963) | June 30, 2009    
| | Euro 800 (US $1,263)      | May 30, 2009     

During the year ended December 31, 2007,
  several loans were granted from EDI Holding totaling Euro 290,744 (US $459,022).
  The loans bear interest at 5% per annum. During the six months ended June 30,
  2008, several of the loans were extended. The loans are due as follows:

| |                          |                   
| | ------------------------ | ------------------
| | Principal                | Due Date          
| |                          |                   
| | Euro 21,000 (US $33,154) | December 31, 2008 
| | Euro 39,160 (US $61,825) | December 31, 2008 
| | Euro 1,800 (US $2,842)   | December 31, 2008 
| | Euro 40,000 (US $63,151) | March 31, 2009    
| | Euro 10,000 (US $15,788) | March 31, 2009    
| | Euro 15,000 (US $23,682) | August 22, 2008   
| | Euro 35,000 (US $55,257) | August 31, 2008   
| | Euro 33,000 (US $52,100) | September 13, 2008
| | Euro 24,000 (US $37,891) | September 21, 2008
| | Euro 12,000 (US $18,945) | September 28, 2008
| | Euro 9,400 (US $14,841)  | December 31, 2008 
| | Euro 15,000 (US $23,682) | December 31, 2008 
| | Euro 6,000 (US $9,473)   | December 31, 2008 
| | Euro 29,384 (US $46,391) | December 31, 2008 

During the year ended December 31, 2006,
  several loans were granted from EDI Holding totaling Euro 26,400 (US $41,680).
  During the year ended December 31, 2007, Euro 4,856 (US $7,666) 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
      Date
| |                          |          |               
| | Euro 15,144 (US $23,909) | 5%       | March 31, 2009
| | Euro 3,400 (US $5,368)   | 6%       | March 31, 2009
| | Euro 2,000 (US $3,158)   | 5%       | March 31, 2009
| | Euro 1,000 (US $1,579)   | 6%       | March 31, 2009

F-15

---

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

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

Loans Payable Current (continued)

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 $56,836). During the year ended December
  31, 2006, an additional loan for Euro 50,000 (US $78,939) was granted. On December
  31, 2006, two loans receivable, including principal and interest, totaling Euro
  29,446 (US $46,488) 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.
  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 $90,780). 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 $96,200) 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 $142,090) and Euro 11,600 (US
  $18,314). 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 $47,363) and Euro 36,247 (US $57,226)
  of the first loan granted, respectively, were repaid. During the three months
  ended March 31, 2008, an additional Euro 235 (US $372) 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 $67,256)
  was assigned to a third party company effective April 1, 2008.

During the six months ended June 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 $10,262). 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 $42,627).
  The loans bear interest at 6%. The loans have been extended are due as follows:

| |                          |                  
| | ------------------------ | -----------------
| | Principal                | Due Date         
| |                          |                  
| | Euro 10,000 (US $15,788) | March 31, 2009   
| | Euro 12,000 (US $18,945) | December 31, 2008
| | Euro 5,000 (US $7,894)   | December 31, 2008

F-16

---

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

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

Loans Payable Current (continued)

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 $18,945). 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 $7,894). During
  the year ended December 31, 2007, Euro 3,000 (US $4,736) 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 $118,409). During the
  six months ended June 30, 2008, the Company offset loans and interest receivable
  totaling Euro 39,160 (US $61,825) 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 $12,630). The
  loan bears interest at 6% per annum and is due on December 31, 2009.

Other

At June 30, 2008 and December 31, 2007,
  included in accounts payable and accrued liabilities related parties is
  Euro 88,460 (US $139,660) 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 June 30, 2008 and December 31, 2007,
  included in accounts payable and accrued liabilities related parties is
  Euro 8,304 (US $13,111) 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 June 30, 2008, included in accounts
  payable and accrued liabilities related parties is $1,147 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.

F-17

---

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

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

Other

Consulting fees paid to an officer of
  the Company for the six and three months ended June 30, 2008 totaled $6,000
  and $3,000, respectively. Consulting fees paid to an officer of the Company
  for the six and three months ended June 30, 2007 totaled $6,000 and $3,000,
  respectively. The consulting fees are included in management fees on the statement
  of operations. Management fees paid to the managing directors of EDI for the
  six and three months ended June 30, 2008 totaled Euro 69,000 (US $105,541) and
  Euro 34,500 (US $53,917). Management fees paid to the managing directors of
  EDI for the six and three months ended June 30, 2007 totaled Euro 120,000 (US
  $165,466) and Euro 60,000 (US $83,871), respectively.

|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.

F-18

---

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

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

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.

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 $0.27) per share
  for a period of one year from the date of closing.

F-19

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|June 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                                  |  | -          |  |   | -              | 
| | Exercised                                |  | -          |  |   | -              | 
| | Expired                                  |  | -          |  |   | -              | 
| | Options outstanding, June 30, 2008       |  | 10,300,000 |  | $ | 0.93           | 
| | Options exercisable,
      June 30, 2008 |  | 5,590,000  |  | $ | 1.00           | 

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.

F-20

---

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

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

Stock Options (continued)

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

| |   |          |  |  |                     |  |  |                     |  |   |          |  |  |           | 
| | - | -------- |  |  | ------------------- |  |  | ------------------- |  | - | -------- |  |  | --------- | 
| |   |          |  |  | Outstanding Options |  |  | Exercisable Options | 
| |   |          |  |  |                     |  |  | Weighted            |  |   |          |  |  |           | 
| |   |          |  |  |                     |  |  | Average             |  |   | Weighted |  |  |           | 
| |   |          |  |  |                     |  |  | Remaining           |  |   | Average  |  |  |           | 
| |   | Exercise |  |  |                     |  |  | Contractual         |  |   | Exercise |  |  |           | 
| |   | Price    |  |  | Number              |  |  | Life                |  |   | Price    |  |  | Number    | 
| |   |          |  |  |                     |  |  |                     |  |   |          |  |  |           | 
| | $ | 1.00     |  |  | 200,000             |  |  | 7.83                |  | $ | 1.00     |  |  | 100,000   | 
| | $ | 1.00     |  |  | 6,390,000           |  |  | 6.83                |  | $ | 1.00     |  |  | 3,840,000 | 
| | $ | 1.00     |  |  | 1,380,000           |  |  | 5.83                |  | $ | 1.00     |  |  | 620,000   | 
| | $ | 1.00     |  |  | 1,030,000           |  |  | 3.83                |  | $ | 1.00     |  |  | 1,030,000 | 
| | $ | 0.45     |  |  | 1,000,000           |  |  | 6.00                |  | $ | 0.45     |  |  | -         | 
| | $ | 0.45     |  |  | 250,000             |  |  | 7.00                |  | $ | 0.45     |  |  | -         | 
| | $ | 0.45     |  |  | 50,000              |  |  | 7.00                |  | $ | 0.45     |  |  | -         | 

The aggregate intrinsic value for options
  vested and unvested as of June 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-21

---

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

There remain a total of $3,098,660 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                                   |  | 3,634,615 |  |   | 0.33           | 
| | Exercised                                 |  | -         |  |   | -              | 
| | Expired                                   |  | 6,611,111 |  |   | 0.35           | 
| | Warrants outstanding, June 30, 2008       |  | 6,884,615 |  | $ | 0.34           | 
| | Warrants exercisable,
      June 30, 2008 |  | 6,884,615 |  | $ | 0.34           | 

A summary of warrants outstanding at
  June 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 $0.27) |  |  | March 14, 2009    | 

F-22

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|June 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
        $1,361).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | 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 $15,788). 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | 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 $1,989). 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 $158) 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 $158) 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 $947) plus taxes. The lease agreement was cancelled in August
        2007 and the written notice of three months was waived.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-23

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|June 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 $12,630). 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 $9,473) 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 $15,788) 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 $29,997) 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 $15,788) per month. Effective January 1, 2007, the
  managing director agreed to decrease the monthly management fee to Euro 1,500
  (2,368).

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 $15,788) 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 $25,260) 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 $15,788) per month. Effective January 1, 2008 the
  contract was terminated effective immediately.

F-24

---

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

|13. | SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH
      FLOWS
|--- | --------------------------------------------------------

| |                |   |                    |  |   |          |  |   |          | 
| | -------------- | - | ------------------ |  | - | -------- |  | - | -------- | 
| |                |   | Cumulative         |  |   |          |  |   |          | 
| |                |   | Amounts from       |  |   | Six      |  |   | Six      | 
| |                |   | Inception          |  |   | Months   |  |   | Months   | 
| |                |   | (December 7, 2004) |  |   | Ended    |  |   | Ended    | 
| |                |   | to June 30,        |  |   | June 30, |  |   | June 30, | 
| |                |   | 2008               |  |   | 2008     |  |   | 2007     | 
| |                |   |                    |  |   |          |  |   |          | 
| | Cash paid for: |   |                    |  |   |          |  |   |          | 
| | Interest       | $ | 54,004             |  | $ | 2,806    |  | $ | -        | 
| | Income taxes   | $ | -                  |  | $ | -        |  | $ | -        | 

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 six months ended June 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 three months ended June 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.

F-25

---

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

|14. | SUBSEQUENT EVENTS
|--- | -----------------

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 US $0.14 per share for a period of one year from the date of closing.

On July 4, 2008, the Company granted
  stock options to a consultant 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.

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 US $0.14 per share for a period of one year from the date of closing.

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 $0.14) 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 units at a price of Euro 0.07 (US $0.11) per
  unit was issued on closing of the private placement. 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 $0.14) per share for a period of two years
  from the date of closing.

F-26

---

|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 six months ended June
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 first fiscal quarter ended March 31, 2008:

|1. | On July 4, 2008, we issued an aggregate 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 to one
      investor 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 (2) 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                                                                                                 

3

---

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.

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, the Middle East and Southeastern Europe, 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 German. 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.                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(b) | 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
      Saudi Arabia and Bahrain and will seek to parlay these contacts into well
      drilling contracts within those countries. We are also seeking to gain
      access to well drilling projects in the United Arab Emirates, Egypt,
      Tunisia, Algeria and Morocco.                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(c) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(d) | 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                                                                                                                                                                                                                                                                         

4

---

|    | 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 may send our drilling team back to Namibia in
      2008;however, there are no assurances that we
      will do so.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | 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.                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(e) | 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 have secured a drilling contract from Coca-Cola
      Pakistan to drill a total of four water exploration holes. The purpose of
      the drilling projects are 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 will be drilled in
      two different locations and analyzed locally. The first drilling project
      began in June 2008, and is expected to consist of surveying existing
      ground water sources and evaluating their quality, quantity and
      sustainability for beverage production. The projects will be centrally
      controlled and coordinated by Coca-Cola International, based in Istanbul,
      Turkey. However, due to the current political instability in Pakistan,
      these projects could be again delayed, or be abandoned altogether if the
      political environment worsens.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(f) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

In addition, we will also 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.

We anticipate that we will require approximately EUR 1,000,000
(approximately $1,574,757) 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

5

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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

Three Months and Six Months Summary

|            |   | Three Months Ended June 30 |   |   | Percentage |   |  | Six Months Ended June 30 |   |   | Percentage |  
|----------- | - | -------------------------- | - | - | ---------- | - |  | ------------------------ | - | - | ---------- | -
|            |   |                            |   |   |            |   |  | Increase /               |   |   |            |  
|            |   | 2008                       |   |   | 2007       |   |  | (Decrease)               |   |   | 2008       |  
|Revenue     | $ | -                          |   | $ | -          |   |  | n/a                      |   | $ | -          |  
|Expenses    |   | (1,196,471                 | ) |   | (3,278,501 | ) |  | (63.5%                   | ) |   | (2,315,048 | )
|Other Items |   | 92,977                     |   |   | (19,503    | ) |  | 576.7%                   |   |   | 72,784     |  
|Net Loss    | $ | (1,103,494                 | ) | $ | (3,298,004 | ) |  | (66.5%                   | ) | $ | (2,242,264 | )

Revenue

We did not earn any revenues during the six months ended June
30, 2008. We are scheduled to begin working on drilling projects in Pakistan,
and hope to earn revenue from the work performed on those projects. However, our
objectives in performing these contracts are demonstrating the efficacy of our
technologies and processes and obtaining market penetration. As a result, there
is a substantial possibility that these projects will be operated at a loss.

As we are still in the process of establishing ourselves in the
marketplace, 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 six months ended
June 30, 2008 and 2007 consisted of the following:

|                     |   | Three Months Ended June 30 |  |   | Percentage |  |  | Six Months Ended June 30 |   |   | Percentage | 
|-------------------- | - | -------------------------- |  | - | ---------- |  |  | ------------------------ | - | - | ---------- | 
|                     |   |                            |  |   |            |  |  | Increase /               |   |   |            | 
|                     |   | 2008                       |  |   | 2007       |  |  | (Decrease)               |   |   | 2008       | 
|Amortization         | $ | 21,502                     |  | $ | 15,529     |  |  | 38.5%                    |   | $ | 42,088     | 
|Management Fees      |   | 56,917                     |  |   | 83,871     |  |  | (32.1%                   | ) |   | 111,541    | 
|Professional Fees    |   | 84,872                     |  |   | 846,424    |  |  | (90.0%                   | ) |   | 1,039,457  | 
|Selling, General and |   | 109,892                    |  |   | 221,786    |  |  | (50.5%                   | ) |   | 199,136    | 
|Administrative       |   |                            |  |   |            |  |  |                          |   |   |            | 
|Stock Compensation   |   | 922,112                    |  |   | 2,110,772  |  |  | (56.3%                   | ) |   | 922,112    | 
|Expense              |   |                            |  |   |            |  |  |                          |   |   |            | 
|Foreign Currency     |   | 1,176                      |  |   | 119        |  |  | 888.2%                   |   |   | 714        | 
|Loss                 |   |                            |  |   |            |  |  |                          |   |   |            | 
|Total Operating      | $ | 1,196,471                  |  | $ | 3,278,501  |  |  | (63.5%                   | ) | $ | 2,315,048  | 
|Expenses             |   |                            |  |   |            |  |  |                          |   |   |            | 

6

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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 six months ended June 30, 2008 and 2007. Management fees paid
during the six months ended June 30, 2008 decreased from amounts paid during 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.

Professional Fees

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

|                        |   | Three Months Ended June 30 |  |   | Percentage |  |  | Six Months Ended June 30 |   |   | Percentage | 
|----------------------- | - | -------------------------- |  | - | ---------- |  |  | ------------------------ | - | - | ---------- | 
|                        |   |                            |  |   |            |  |  | Increase /               |   |   |            | 
|                        |   | 2008                       |  |   | 2007       |  |  | (Decrease)               |   |   | 2008       | 
|Accounting and Tax Fees | $ | 2,381                      |  | $ | 36,473     |  |  | (93.5%                   | ) | $ | 30,334     | 
|Consulting Fees         |   | 41,977                     |  |   | 759,534    |  |  | (94.5%                   | ) |   | 916,436    | 
|Legal Fees              |   | 40,514                     |  |   | 50,417     |  |  | (19.6%                   | ) |   | 92,687     | 
|Total                   | $ | 84,872                     |  | $ | 846,424    |  |  | (90.0%                   | ) | $ | 1,039,457  | 

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
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.

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
six months ended June 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 six months
ended June 30, 2008 and 2007 consisted of the following major components:

|                        |   | Three Months Ended June 30 |  |   | Percentage |  |  | Six Months Ended June 30 |   |   | Percentage | 
|----------------------- | - | -------------------------- |  | - | ---------- |  |  | ------------------------ | - | - | ---------- | 
|                        |   |                            |  |   |            |  |  | Increase /               |   |   |            | 
|                        |   | 2008                       |  |   | 2007       |  |  | (Decrease)               |   |   | 2008       | 
|Marketing and Promotion | $ | 12,875                     |  | $ | 6,804      |  |  | 89.2%                    |   | $ | 14,643 $   | 
|Travel                  |   | 30,023                     |  |   | 13,675     |  |  | 119.5%                   |   |   | 67,524     | 
|Wages and Benefits      |   | 30,491                     |  |   | 89,605     |  |  | (66.0%                   | ) |   | 54,843     | 
|Miscellaneous           |   | 36,503                     |  |   | 111,622    |  |  | (67.3%                   | ) |   | 62,126     | 
|Total                   | $ | 109,892                    |  | $ | 221,786    |  |  | (50.5%                   | ) | $ | 199,136    | 

7

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Miscellaneous expenses decreased significantly from the six
month period ended June 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

|                                  |   | Three Months Ended June 30 |   |   | Percentage |   |  | Six Months Ended June 30 |   |   | Percentage |  
|--------------------------------- | - | -------------------------- | - | - | ---------- | - |  | ------------------------ | - | - | ---------- | -
|                                  |   |                            |   |   |            |   |  | Increase /               |   |   |            |  
|                                  |   | 2008                       |   |   | 2007       |   |  | (Decrease)               |   |   | 2008       |  
|Interest Income                   | $ | 314                        |   | $ | 2,270      |   |  | (86.2%                   | ) | $ | 773 $      |  
|Interest Expense                  |   | (27,317                    | ) |   | (21,773    | ) |  | 25.5%                    |   |   | (48,837    | )
|Miscellaneous Income              |   | 21,637                     |   |   | -          |   |  | n/a                      |   |   | 22,505     |  
|Loss on Disposal of Capital Asset |   | -                          |   |   | -          |   |  | n/a                      |   |   | -          |  
|Recovery of Loans Receivable      |   | 98,343                     |   |   | -          |   |  | n/a                      |   |   | 98,343     |  
|Total                             | $ | 92,977                     |   | $ | (19,603    | ) |  | (574.3%                  | ) | $ | 72,784 $   |  

Interest income during the six months ended June 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         |   |            |   |   |              |   |  |            | 
|----------------------- | - | ---------- | - | - | ------------ | - |  | ---------- | 
|                        |   | At         |   |   | At           |   |  | Percentage | 
|                        |   | June 30,   |   |   | December 31, |   |  | Increase / | 
|                        |   | 2008       |   |   | 2007         |   |  | (Decrease) | 
|Current Assets          | $ | 77,425     |   | $ | 55,226       |   |  | 40.2%      | 
|Current Liabilities     |   | (2,608,340 | ) |   | (2,012,493   | ) |  | 29.6%      | 
|Working Capital Deficit | $ | (2,530,915 | ) | $ | (1,957,267   | ) |  | 29.3%      | 

|Cash Flows                                           |   |                     |   |   |                     |  
|---------------------------------------------------- | - | ------------------- | - | - | ------------------- | -
|                                                     |   | Six Months          |   |   | Six Months          |  
|                                                     |   | Ended               |   |   | Ended               |  
|                                                     |   | June
      30, 2008 |   |   | June
      30, 2007 |  
|Cash Flows from (used in) Operating
      Activities | $ | (282,893            | ) | $ | (902,624            | )
|Cash Flows from (used in) Investing Activities       |   | 68,306              |   |   | 46,873              |  
|Cash Flows from Financing Activities                 |   | 224,740             |   |   | 848,307             |  
|Effects of Foreign Currency Translations             |   | (10,153             | ) |   | (16,433             | )
|Net Decrease in Cash During Period                   | $ | -                   |   | $ | (23,877             | )

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

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

8

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Private Placement Financings

Subsequent to our June 30, 2008 fiscal quarter, we completed a
private placement of 3,500,000 units at a purchase price of $0.11 per unit and a
private placement of 714,285 units at a price of EUR 0.07 per unit. See Recent
Corporate Developments above.

Loan Financings

During the three months ended June 30, 2008, we received EUR
64,750 (approximately $102,226) in loans from EDI Exploration Drilling
International Holding GmbH, our majority stockholder:

Principal
    Interest Rate
    Grant Date
    Due
      DateEUR 800
    5%
    May 30, 2008
    May 30, 2009EUR 63,950
    5%
    July 1, 2008
    June 30, 2009


During the three months ended June 30, 2008, we also received a
loan of EUR 13,000 ($20,524) from a third party company, with interest payable
at a rate of 5% per annum. The loan was originally due on July 1, 2008, but has
been extended to August 31, 2008.

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. We have not earned any revenues to date,
and there are no assurances that we will be able to generate 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. 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

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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 June 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 June 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.

10

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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.

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 June 30, 2008 that have materially affected, or that are
reasonably likely to materially affect, our internal control over financial
reporting.

11

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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 (approximately $1,574,757) 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.

Limited Operating History, Risks Of A New Business
Venture

EDI Germany was formed on December 7, 2004 and, as such, has a
very short operating history upon which future performance may be assessed. EDI
Germany has not earned any revenues to date.

Potential investors should be aware of the difficulties
normally encountered by a new 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 the formation and commencement of operations of a
new 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 generate any operating revenues 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.

12

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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
intend to 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

13

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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. 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 in the Middle East, Africa and
Southern Asia. 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 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.

14

---

|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 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   | 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)                                                      
|10.14   | 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)                                          

15

---

|Exhibit |                                                                                                                                                                                                                                                                          
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description of Exhibit                                                                                                                                                                                                                                                   
|10.15   | 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) 
|10.16   | 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)                                                
|10.17   | 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)                                                       
|10.18   | 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)    
|10.19   | 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 March
        31, 2008, dated September 25, 2007 (translated from German to English).(9)      
|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 December 31, 2008, dated February 2, 2008 (translated from German to
        English).
|10.21   | 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)                                                                      
|10.22   | Addendum to Loan Agreement for
        EUR 50,000 dated May 4, 2006 between Guenter Thiemann (as lender) and
        EDI Germany (as borrower) dated July 1, 2006 (translated from German to
        English).(7)                                                        
|10.23   | 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)           
|10.24   | 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) 
|10.25   | 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)                                                            
|10.26   | 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)             
|10.27   | 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 July 31, 2008,
        dated December 28, 2007 (translated from German to English).(11)            
|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 March
        31, 2009, dated June 28, 2008 (translated from German to English).                   
|10.29   | 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)                                                   

16

---

|Exhibit |                                                                                                                                                                                                                                                                       
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description of Exhibit                                                                                                                                                                                                                                                
|10.30   | 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)   
|10.31   | 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 December 31, 2007,
        dated June 26, 2007 (translated from German to English).(8)    
|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 the due date to July
        31, 2008, dated December 26, 2007 (translated from German to English).(11)
|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 March 31, 2009, dated June 22, 2008.                                           
|10.34   | 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)                                                 
|10.35   | 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)  
|10.36   | 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)                                                       
|10.37   | 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)        
|10.38   | 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 March
        31, 2009, dated May 28, 2008 (translated from German to English).               
|10.39   | 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)                                                     
|10.40   | 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)                                                      
|10.41   | 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)      
|10.42   | 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 March
        31, 2009, dated June 28, 2008 (translated from German to English).             
|10.43   | 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)                                            
|10.44   | 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)      

17

---

|Exhibit |                                                                                                                                                                                                                                                                       
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description of Exhibit                                                                                                                                                                                                                                                
|10.45   | 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).             
|10.46   | 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)                                                      
|10.47   | 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)   
|10.48   | 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)                                                 
|10.49   | 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)   
|10.50   | 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)                                                 
|10.51   | 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)  
|10.52   | 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 July 31, 2008,
        dated December 28, 2007 (translated from German to English).(11)  
|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 March 31, 2009, dated June 18, 2008 (translated from German to
        English).
|10.54   | 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)                                                     
|10.55   | Addendum to Loan
        Agreement for EUR 39,160 dated February 23, 2007 between EDI Holding (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) 
|10.56   | 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)                                                      
|10.57   | 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)  
|10.58   | 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)                                                     
|10.59   | 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)                                                     

18

---

|Exhibit |                                                                                                                                                                                                                                                           
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description of Exhibit                                                                                                                                                                                                                                    
|10.60   | 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)                                           
|10.61   | 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). 
|10.62   | 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)                                           
|10.63   | 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).
|10.64   | 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)                                           
|10.65   | 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)                                           
|10.66   | 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)                                        
|10.67   | 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)                                        
|10.68   | 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 English).(9)                                        
|10.69   | 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)                                          
|10.70   | 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)                                        
|10.71   | 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)                                         
|10.72   | 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)                                        
|10.73   | 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)                                      
|10.74   | 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)                                         

19

---

|Exhibit |                                                                                                                                                                                                                  
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description of Exhibit                                                                                                                                                                                           
|10.75   | 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) 
|10.76   | Consulting Agreement dated February
        13, 2008 between the Company and Jesko Beck.(10)                                                                                                                     
|10.77   | Technology License
        Agreement between EDI Germany and EDI Turkey, dated effective as of March
        28, 2008.(11)                                                                                       
|10.78   | 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)
|10.79   | 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).        
|21.1    | List of Subsidiaries.(11)                                                                                                                                                                                        
|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.                       
|(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.                      

20

---

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: | August 19, 2008 | By: | /s/
      Rainer Rotthaeuser           
|      |                 |     | RAINER ROTTHAEUSER                     
|      |                 |     | Chief Executive Officer and President  
|      |                 |     | (Principal Executive Officer )         
|      |                 |     |                                        
|      |                 |     |                                        
|      |                 |     |                                        
|      |                 |     |                                        
|Date: | August 19, 2008 | By: | /s/
      Guenter Thiemann             
|      |                 |     | GUENTER THIEMANN                       
|      |                 |     | Chief Financial Officer and Treasurer  
|      |                 |     | (Principal Accounting Officer)         
|      |                 |     |                                        
|      |                 |     |                                        
|      |                 |     |                                        
|      |                 |     |                                        
|Date: | August 19, 2008 | By: | /s/
      John Boschert                
|      |                 |     | JOHN BOSCHERT                          
|      |                 |     | Secretary                              

---