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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-QSB

(Mark One)

[ X ]Quarterly Report Under Section 13 Or 15(d) Of The
Securities Exchange Act Of 1934

For the quarterly period ended September 30, 2007

[ ] Transition Report Under Section 13 Or 15(d) Of The Exchange
Act

For the transition period from ________to ________

COMMISSION FILE NUMBER000-50459

EXPLORATION DRILLING INTERNATIONAL INC.(Exact name of small business issuer as specified in its
charter)

|NEVADA                                           | 98-0396733                       
|------------------------------------------------ | ---------------------------------
|(State or other jurisdiction of incorporation or | (IRS Employer Identification No.)
|organization)                                    |                                  

Goethestrasse 61 D-45721 Haltern am See, Germany(Address of principal executive offices)

0049-2364-604428(Issuer's telephone number)

N/A(Former name, former address and former
fiscal year, if changed since last report)

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

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

State the number of shares outstanding of each of the issuers
classes of common equity, as of the latest practicable date: As of November
16, 2007, the Issuer had 112,567,396 Shares of Common Stock outstanding.

Transitional Small Business Disclosure Format (Check one): Yes [
] No [ X ]

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PART I - FINANCIAL INFORMATION

|ITEM 1. | FINANCIAL STATEMENTS.
|------- | ---------------------

2

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EXPLORATION DRILLING INTERNATIONAL INC.

(A Development Stage Company)

****

CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

****

September 30, 2007
  (Unaudited)

---

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

|                                                                         |   | September 30, |  
|------------------------------------------------------------------------ | - | ------------- | -
|                                                                         |   | 2007          |  
|                                                                         |   |               |  
|                                                                         |   |               |  
|ASSETS                                                                   |   |               |  
|                                                                         |   |               |  
|Current Assets                                                           |   |               |  
|Cash                                                                     | $ | 11,133        |  
|Other receivables                                                        |   | 4,471         |  
|Loans receivable -related parties (Note
      6)                         |   | 117,220       |  
|Prepaids                                                                 |   | 25,196        |  
|Deferred
      tax asset, less valuation allowance of $1,858,528         |   | -             |  
|Total Current Assets                                                     |   | 158,020       |  
|                                                                         |   |               |  
|Equipment (Note 4)                                                       |   | 206,706       |  
|Patents
      (Note 4)                                                   |   | 443,324       |  
|                                                                         |   |               |  
|Total Assets                                                             | $ | 808,050       |  
|                                                                         |   |               |  
|LIABILITIES AND STOCKHOLDERS DEFICIENCY                                 |   |               |  
|                                                                         |   |               |  
|Current Liabilities                                                      |   |               |  
|Accounts payable and accrued
      liabilities                           | $ | 414,511       |  
|Accounts payable and accrued liabilities
      related parties (Note 6) |   | 91,867        |  
|Loans payable -current (Notes 5 and
      6)                             |   | 1,789,574     |  
|Total Current Liabilities                                                |   | 2,295,952     |  
|                                                                         |   |               |  
|Loans
      payable (Notes 6)                                            |   | 148,622       |  
|                                                                         |   |               |  
|Total Liabilities                                                        |   | 2,444,574     |  
|                                                                         |   |               |  
|Commitments (Note 10)                                                    |   |               |  
|                                                                         |   |               |  
|Stockholders Deficiency                                                 |   |               |  
|Common stock (Note 7)                                                    |   |               |  
|Authorized                                                               |   |               |  
|1,000,000,000 common shares, par value $0.001                            |   |               |  
|Issued and outstanding                                                   |   |               |  
|109,317,396                                                              |   | 109,317       |  
|Additional paid-in capital                                               |   | 7,487,700     |  
|Accumulated other comprehensive
      loss:                              |   |               |  
|Foreign currency cumulative
      translation adjustment                 |   | (86,039       | )
|Deficit accumulated during the development
      stage                   |   | (9,147,502    | )
|Total Stockholders
      Deficiency                                     |   | (1,636,524    | )
|                                                                         |   |               |  
|Total Liabilities
      and Stockholders Deficiency                     | $ | 808,050       |  

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

F-2

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

|                                           |   | Cumulative         |   |   |               |   |   |               |   |   |               |   |   |               |  
|------------------------------------------ | - | ------------------ | - | - | ------------- | - | - | ------------- | - | - | ------------- | - | - | ------------- | -
|                                           |   | Amounts            |   |   | Nine          |   |   | Nine          |   |   | Three         |   |   | Three         |  
|                                           |   | From Inception     |   |   | Months        |   |   | Months        |   |   | Months        |   |   | Months        |  
|                                           |   | (December 7, 2004) |   |   | Ended         |   |   | Ended         |   |   | Ended         |   |   | Ended         |  
|                                           |   | to September 30,   |   |   | September 30, |   |   | September 30, |   |   | September 30, |   |   | September 30, |  
|                                           |   | 2007               |   |   | 2007          |   |   | 2006          |   |   | 2007          |   |   | 2006          |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|EXPENSES                                   |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|Amortization                               | $ | 125,247            |   | $ | 47,309        |   | $ | 38,556        |   | $ | 16,405        |   | $ | 11,364        |  
|Management fees                            |   | 921,176            |   |   | 278,350       |   |   | 243,215       |   |   | 112,884       |   |   | 93,759        |  
|Professional fees                          |   | 1,828,739          |   |   | 922,759       |   |   | 475,821       |   |   | 27,119        |   |   | 90,779        |  
|Selling, general and administrative        |   | 2,459,725          |   |   | 746,913       |   |   | 908,606       |   |   | 225,293       |   |   | 319,757       |  
|Stock compensation expense                 |   | 3,681,244          |   |   | 2,110,772     |   |   | 1,570,472     |   |   | -             |   |   | -             |  
|Foreign
      currency loss                |   | 4,135              |   |   | 1,546         |   |   | 2,995         |   |   | 939           |   |   | 2,510         |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|LOSS BEFORE OTHER ITEMS AND                |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|INCOME TAXES                               |   | 9,020,266          |   |   | 4,107,649     |   |   | 3,239,665     |   |   | 382,640       |   |   | 518,169       |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|OTHER ITEMS                                |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|Interest income                            |   | (18,988            | ) |   | (6,535        | ) |   | (9,291        | ) |   | (1,496        | ) |   | (3,252        | )
|Interest expense                           |   | 140,847            |   |   | 76,718        |   |   | 49,834        |   |   | 25,116        |   |   | 38,207        |  
|Loss on disposal of capital assets         |   | 5,377              |   |   | 2,963         |   |   | -             |   |   | -             |   |   | -             |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|LOSS BEFORE INCOME TAXES                   |   | 9,147,502          |   |   | 4,180,795     |   |   | 3,280,208     |   |   | 406,260       |   |   | 553,124       |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|Provision for income taxes                 |   | -                  |   |   | -             |   |   | -             |   |   | -             |   |   | -             |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|NET LOSS                                   |   | 9,147,502          |   |   | 4,180,795     |   |   | 3,280,208     |   |   | 406,260       |   |   | 553,124       |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|OTHER COMPREHENSIVE INCOME (LOSS)          |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|Foreign currency translation adjustment    |   | (86,039            | ) |   | (63,147       | ) |   | 9,129         |   |   | (72,430       | ) |   | 36,491        |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|COMPREHENSIVE LOSS                         | $ | 9,233,541          |   | $ | 4,243,942     |   | $ | 3,271,079     |   | $ | 478,690       |   | $ | 516,633       |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|BASIC AND DILUTED
      NET LOSS PER SHARE |   |                    |   | $ | (0.04         | ) | $ | (0.04         | ) | $ | (0.00         | ) | $ | (0.01         | )
|                                           |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|WEIGHTED AVERAGE NUMBER OF COMMON          |   |                    |   |   |               |   |   |               |   |   |               |   |   |               |  
|SHARES OUTSTANDING                         |   |                    |   |   | 105,913,652   |   |   | 80,751,812    |   |   | 109,317,396   |   |   | 102,007,528   |  

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

F-3

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

|                                                                              |   | Cumulative         |   |   |               |   |   |               |  
|----------------------------------------------------------------------------- | - | ------------------ | - | - | ------------- | - | - | ------------- | -
|                                                                              |   | Amounts            |   |   | Nine          |   |   | Nine          |  
|                                                                              |   | From Inception     |   |   | Months        |   |   | Months        |  
|                                                                              |   | (December 7, 2004) |   |   | Ended         |   |   | Ended         |  
|                                                                              |   | to September 30,   |   |   | September 30, |   |   | September 30, |  
|                                                                              |   | 2007               |   |   | 2007          |   |   | 2006          |  
|                                                                              |   |                    |   |   |               |   |   |               |  
|                                                                              |   |                    |   |   |               |   |   |               |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                          |   |                    |   |   |               |   |   |               |  
|                                                                              |   |                    |   |   |               |   |   |               |  
|Net loss for the period                                                       | $ | (9,147,502         | ) | $ | (4,180,795    | ) | $ | (3,280,208    | )
|Adjustments to reconcile net loss to cash used in operating
      activities: |   |                    |   |   |               |   |   |               |  
|Amortization                                                                  |   | 125,248            |   |   | 47,310        |   |   | 38,556        |  
|Stock compensation expense                                                    |   | 3,681,244          |   |   | 2,110,772     |   |   | 1,570,472     |  
|Loss on disposal of capital
      asset                                       |   | 5,377              |   |   | 2,963         |   |   | -             |  
|Issuance of capital stock for services                                        |   | 720,000            |   |   | 720,000       |   |   | -             |  
|Change in operating assets and liabilities:                                   |   |                    |   |   |               |   |   |               |  
|Decrease (increase) in other receivables                                      |   | 61,324             |   |   | 40,929        |   |   | (92,352       | )
|Increase in accrued interest
      receivable                                 |   | (19,009            | ) |   | (6,466        | ) |   | (9,258        | )
|Decrease (increase) in prepaid expenses                                       |   | (22,436            | ) |   | 3,528         |   |   | (104,527      | )
|Increase in accounts payable
      and accrued liabilities                    |   | 319,996            |   |   | 4,244         |   |   | 387,705       |  
|Increase in accounts payable and accrued
      liabilities related parties   |   | 83,964             |   |   | 30,229        |   |   | -             |  
|Increase in accrued interest payable                                          |   | 104,644            |   |   | 41,026        |   |   | 36,871        |  
|                                                                              |   |                    |   |   |               |   |   |               |  
|Net cash used in operating activities                                         |   | (4,087,150         | ) |   | (1,186,260    | ) |   | (1,452,741    | )
|                                                                              |   |                    |   |   |               |   |   |               |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                          |   |                    |   |   |               |   |   |               |  
|                                                                              |   |                    |   |   |               |   |   |               |  
|Proceeds to loans receivable,
      net of repayment                          |   | (167,883           | ) |   | 96,731        |   |   | 35,002        |  
|Acquisition of equipment, net of disposal
      proceeds                      |   | (291,897           | ) |   | (11,338       | ) |   | (113,602      | )
|Acquisition of patents                                                        |   | (391,586           | ) |   | (56,339       | ) |   | (265,080      | )
|                                                                              |   |                    |   |   |               |   |   |               |  
|Net cash provided by (used in) investing
      activities                     |   | (851,366           | ) |   | 29,054        |   |   | (343,680      | )
|                                                                              |   |                    |   |   |               |   |   |               |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                          |   |                    |   |   |               |   |   |               |  
|                                                                              |   |                    |   |   |               |   |   |               |  
|Cash acquired from Invision
      Capital, Inc.                               |   | 81,587             |   |   | -             |   |   | 81,587        |  
|Issuance of capital stock for cash, net
      of issuance costs               |   | 1,688,679          |   |   | 1,141,846     |   |   | 500,000       |  
|Contributed capital                                                           |   | 1,475,540          |   |   | -             |   |   | 301,190       |  
|Proceeds
      from loans payable, net of repayment                           |   | 1,720,665          |   |   | 21,414        |   |   | 1,274,887     |  
|                                                                              |   |                    |   |   |               |   |   |               |  
|Net
      cash provided by financing activities                               |   | 4,966,471          |   |   | 1,163,260     |   |   | 2,157,664     |  
|                                                                              |   |                    |   |   |               |   |   |               |  
|EFFECT OF FOREIGN CURRENCY TRANSLATION ON                                     |   |                    |   |   |               |   |   |               |  
|CASH DURING THE PERIOD                                                        |   | (16,822            | ) |   | (18,798       | ) |   | 14,226        |  
|                                                                              |   |                    |   |   |               |   |   |               |  
|NET INCREASE (DECREASE) IN CASH                                               |   | 11,133             |   |   | (12,744       | ) |   | 375,469       |  
|                                                                              |   |                    |   |   |               |   |   |               |  
|CASH, BEGINNING OF PERIOD                                                     |   | -                  |   |   | 23,877        |   |   | 128,894       |  
|                                                                              |   |                    |   |   |               |   |   |               |  
|CASH, END OF PERIOD                                                           | $ | 11,133             |   | $ | 11,133        |   | $ | 504,363       |  

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

F-4

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|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(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. 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. Effective October 16, 2006, the Company changed its name from
        Invision Capital, Inc. to Exploration Drilling International Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | These 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
        consolidated financial statements do not include all information and footnote
        disclosures required for an annual set of financial statements prepared
        under United States of America generally accepted accounting principles.
        In the opinion of management, all adjustments (consisting solely of normal
        recurring accruals) considered necessary for a fair presentation of financial
        position, results of operations and cash flows as at September 30, 2007
        and for all periods presented, have been included. Interim results for
        the period ended September 30, 2007 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

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|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(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 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 foreign subsidiary. 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)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                              
|   | (d)                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                              
|   | Prepaid expenses consist primarily of prepaid
        vehicle lease and travel expenses and a refundable vehicle lease deposit.                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                              
|   | (e)                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                              
|   | Other receivables consist primarily of Value
        Added Tax in Germany.                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                              
|   | (f)                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                              
|   | 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

| | (g)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | **Patents**                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                           
| | Patents and patent applications
        are recorded at cost. Capitalized amounts relate solely to legal and advisory
        costs incurred in registration of the patents. Depreciation is calculated
        using the straight-line method over the useful lives of the assets. No
        depreciation is provided for as the patents have not yet been awarded
        and/or begun to generate revenues.                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                           
| | h)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **Goodwill and intangible
        assets**
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                           
| | The Company has adopted Statement
        of Financial Accounting Standards (SFAS) 142, Goodwill
        and *Intangible Assets*, which requires that costs of
        internally developing, maintaining or restoring intangible assets that
        are not specifically identifiable, that have indeterminate lives, or that
        are inherent in a continuing business and related to an entity as a whole,
        be recognized as an expense when incurred. Intangible assets acquired
        for fair value having definite lives are amortized over their useful life.

F-7

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | (j)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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.                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | (k)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Company's financial instruments consist
        of cash, loans receivable related parties, other receivables, accounts
        payable and accrued liabilities, accounts payable and accrued liabilities
        related parties 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.                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | (l)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Effective January 1, 2006, the Company accounts
        for stock-based compensation issued to employees in accordance with the
        provisions of SFAS 123R, Share-Based Payment.which
        superseded Accounting Principles Board (APB) Opinion 25, Accounting
        for Stock Issued to Employees.                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Company accounts for stock-based compensation
        issued to non-employees in accordance with the provisions of SFAS 123,
        Accounting for Stock-Based Compensation,and the consensus
        in Emerging Issues Task Force (EITF) No. 96-18, Accounting
        for Equity Instruments that are Issued to Other Than Employees for Acquiring
        or in Conjunction with Selling, Goods or Services.                                                                                                                                                                                                                                                                                                  

F-8

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (m)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Basic net loss per share is computed by dividing
        the net loss for the period by the weighted average number of shares of
        common stock outstanding during the period. Diluted earnings per share
        takes into consideration shares of common stock outstanding (computed
        under basic earnings per share) and potentially dilutive shares of common
        stock. As of September 30, 2007 and 2006, 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.                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (n)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (o)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (p)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (q)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | In February 2007, the FASB issued SFAS 159,
        The Fair Value Option for Financial Assets and Financial Liabilities
         Including an Amendment of FASB Statement No. 115. This
        statement permits entities to choose to measure many financial instruments
        and certain other items at fair value. Most of the provisions of SFAS
        159 apply only to entities that elect the fair value option. However,
        the amendment to SFAS 115 Accounting for Certain Investments
        in Debt and Equity Securities applies to all entities with available-for-sale
        and trading securities. SFAS 159 is effective as of the beginning of an
        entitys first fiscal year that begins after November 15, 2007. Early
        adoption is permitted as of the beginning of a fiscal year that begins
        on or before November 15, 2007, provided the entity also elects to apply
        the provision of SFAS 157, Fair Value Measurements.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The Company does not expect that the adoption
        of this new accounting pronouncement will have a significant effect on
        its financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-9

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|3. | SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                              
|   | (r)                                                                                                                          
|   |                                                                                                                              
|   | Certain amounts reported in the prior periods
        have been reclassified to conform to the current periods presentation.
|   |                                                                                                                              
|4. | EQUIPMENT AND PATENTS                                                                                                        
|   |                                                                                                                              
|   | Equipment                                                                                                                    

| |                                   |   |               |  
| | --------------------------------- | - | ------------- | -
| |                                   |   | September 30, |  
| |                                   |   | 2007          |  
| |                                   |   |               |  
| | Well system                       | $ | 2,139         |  
| | Technical equipment and machinery |   | 304,778       |  
| | Office and other equipment        |   | 18,983        |  
| |                                   |   | 325,900       |  
| | Accumulated amortization          |   | (119,194      | )
| |                                   |   |               |  
| | Net book value                    | $ | 206,706       |  

Patents

| |                          |   |               | 
| | ------------------------ | - | ------------- | 
| |                          |   | September 30, | 
| |                          |   | 2007          | 
| |                          |   |               | 
| | Patents                  | $ | 443,324       | 
| | Accumulated amortization |   | -             | 
| |                          |   |               | 
| | Net book value           | $ | 443,324       | 

During the period ended September 30,
  2007, the Company did not amortize its patents as the patents have not yet been
  awarded and/or they have not begun to generate revenues.

In the event that facts and circumstances
  indicate that the carrying amount of an asset may not be recoverable and an
  estimate of future undiscounted cash flows is less than the carrying amount
  of the asset, an impairment loss will be recognized. Management's estimates
  of revenues, operating expenses, and operating capital are subject to certain
  risks and uncertainties which may affect the recoverability of the Company's
  investments in its assets. Although management has made its best estimate of
  these factors based on current conditions, it is possible that changes could
  occur which could adversely affect management's estimate of the net cash flow
  expected to be generated from its operations.

F-10

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|5. | LOANS PAYABLE -CURRENT
|-- | ----------------------

During the nine months ended September
  30, 2007, two loans were granted from a third party individual for Euro 33,000
  (US -$47,062) and Euro 50,000 (US -$71,307). The loans bear interest at 6% per
  annum and are due February 19, 2008 and March 14, 2008, respectively.

During the year ended December 31 2006,
  several loans were granted from a third party individual totaling Euro 400,000
  (US -$570,452). During the nine months ended September 30, 2007, several of
  the loans were extended. The loans bear interest of 6% per annum and are due
  as follows:

| |                             |                 
| | --------------------------- | ----------------
| | Principal                   | Due Date        
| |                             |                 
| | Euro 125,000 (US -$178,266) | March 31, 2008  
| | Euro 125,000 (US -$178,266) | March 31, 2008  
| | Euro 100,000 (US -$142,613) | June 18, 2008   
| | Euro 50,000 (US -$71,307)   | December 7, 2007

During the year ended December 31, 2006,
  a loan was granted from a third party individual for Euro 23,000 (US -$32,801).
  The loan bears interest at 7% per annum and was due July 7, 2007. On July 3,
  2007, the loan was extended to June 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.

During the year ended December 31, 2006,
  several loans were granted from a third party individual totaling Euro 53,000
  (US -$75,585). During the nine months ended September 30, 2007, Euro 5,100 (US
  -$7,273) 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 14,900 (US -$21,249) | December 31, 2007
| | Euro 15,000 (US -$21,392) | December 31, 2007
| | Euro 18,000 (US -$25,671) | December 31, 2007

During the nine months ended September
  30, 2007, two loans were granted from a third party company for Euro 40,000
  (US -$57,045) and Euro 15,000 (US -$21,392). The first loan bears interest at
  5% per annum and was due September 28, 2007. On September 25, 2007, the first
  loan was extended to December 31, 2007. The second loan bears interest at 6%
  per annum and is due December 31, 2007.

During the year ended December 31, 2006,
  two loans were granted from a third party company for Euro 30,000 (US -$42,784)
  and Euro 25,000 (US -$35,653). The first loan bears interest at 5% per annum
  and was due November 2, 2007. On September 20, 2007, the first loan was extended
  to December 31, 2007. The second loan bears interest at 6% and is due November
  23, 2007.

F-11

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|5. | LOANS PAYABLE CURRENT (continued)
|-- | ----------------------------------

During the nine months ended September
  30, 2007, two loans were granted from a third party company for $20,000 and
  $25,000. The loans bear interest at 8% per annum 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 nine
  months ended September 30, 2007, $16,700 was repaid. The loan bears interest
  at 8% per annum, compounded annually, and is due March 20, 2008.

During the year ended December 31, 2006,
  several loans were granted from a third party company totaling $550,000. The
  loans bear interest at 8% per annum, compounded annually, and were due as follows:

| |           |              
| | --------- | -------------
| | Principal | Due Date     
| |           |              
| | $250,000  | May 15, 2008 
| | $100,000  | July 17, 2008
| | $200,000  | July 28, 2008

During the period ended September 30,
  2007, the loans including principal and interest were repaid in full.

|6. | 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 -$1,412).
  The loan bears interest at 3% per annum and is due January 5, 2008.

During the year ended December 31, 2006,
  a loan was granted to an individual related to an officer and director of the
  Company and a managing director of EDI for Euro 15,400 (US -$21,962). 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 is currently
  in default.

During the year ended December 31, 2005,
  a loan was granted to a former shareholder of EDI for Euro 10,000 (US -$14,261).
  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 22, 2007 and on June 26, 2007,
  the loan was extended to December 31, 2007.

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 -$164,005). 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. As at September 30, 2007, Euro 72,000
  (US -$102,681) has been repaid. The balance of the loan is currently in default.

F-12

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|6. | RELATED PARTY TRANSACTIONS (continued)
|-- | --------------------------------------

Loans Payable Current

During the nine months ended September
  30, 2007, several loans were granted from EDI Holding totaling Euro 230,960
  (US -$329,379). The loans bear interest at 5% per annum and are due as follows:

| |                           |                   
| | ------------------------- | ------------------
| | Principal                 | Due Date          
| |                           |                   
| | Euro 21,000 (US -$29,949) | January 22, 2008  
| | Euro 39,160 (US -$55,847) | February 26, 2008 
| | Euro 1,800 (US -$2,567)   | February 26, 2008 
| | Euro 40,000 (US -$57,045) | August 10, 2008   
| | Euro 10,000 (US -$14,261) | August 14, 2008   
| | Euro 15,000 (US -$21,392) | August 22, 2008   
| | Euro 35,000 (US -$49,915) | August 31, 2008   
| | Euro 33,000 (US -$47,062) | September 13, 2008
| | Euro 24,000 (US -$34,227) | September 21, 2008
| | Euro 12,000 (US -$17,114) | September 28, 2008

During the year ended December 31, 2006,
  several loans were granted from EDI Holding totaling Euro 26,400 (US -$37,650).
  During the nine months ended September 30, 2007, Euro 4,856 (US -$6,926) of
  the first loan granted was repaid. During the nine months ended September 30,
  2007, several of the loans were extended. The loans bear interest and are due
  as follows:

| |                           |          |                  
| | ------------------------- | -------- | -----------------
| | Principal                 | Interest | Due Date         
| |                           |          |                  
| | Euro 15,144 (US -$21,597) | 5%       | December 31, 2007
| | Euro 3,400 (US -$4,849)   | 6%       | June 30, 2008    
| | Euro 2,000 (US -$2,852)   | 5%       | December 31, 2007
| | Euro 1,000 (US -$1,426)   | 6%       | December 31, 2007

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 -$51,341). During the year ended December
  31, 2006, an additional loan for Euro 50,000 (US -$71,306) was granted. On December
  31, 2006, two loans receivable, including principal and interest, totaling Euro
  29,446 (US -$41,994) were posted as a payment against the second loan payable.
  The loans bear interest at 5% per annum and are due December 31, 2007 and May
  4, 2008 respectively.

During the three months ended March 31,
  2007, a loan was granted from a company with a shareholder related to an officer
  and director of the Company and a managing director of EDI for Euro 57,500 (US
  -$82,002). The loan bears interest at 5% per annum and is due February 5, 2008.

F-13

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|6. | RELATED PARTY TRANSACTIONS (continued)
|-- | --------------------------------------

Loans Payable Current (continued)

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 and a managing director of EDI, for Euro 90,000
  (US -$128,352) and Euro 11,600 (US -$16,543). On October 4, 2006 and during
  the nine months ended September 30, 2007, Euro 30,000 (US -$42,784) and Euro
  36,247 (US -$51,693) of the first loan granted, respectively, was repaid. The
  first loan bears interest at 6% and was due March 31, 2007. During the nine
  months ended September 30, 2007, the first loan was extended to March 31, 2008.
  The second loan bears interest at 5% per annum and is due November 30, 2007.

During the nine months ended September
  30, 2007, a loan was granted from an individual related to an officer and director
  of the Company and a managing director of EDI, for Euro 10,000 (US -$14,261).
  The loan bears interest at 6% per annum and was due June 30, 2007. On June 28,
  2007, the loan was extended to December 31, 2007.

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 -$7,131). During
  the year ended December 31, 2006, a second loan was granted by the same individual
  for Euro 12,000 (US -$17,114). During the nine months ended September 30, 2007,
  Euro 3,000 (US -$4,278) of the first loan granted was repaid. The first loan
  bears interest at 6% per annum and the second loan bears interest at 5%. The
  loans were due December 31, 2006. During the year ended December 31, 2006, the
  first loan was extended to December 31, 2007 and the second loan was extended
  to March 22, 2007. During the nine months ended September 30, 2007, the second
  loan was extended to December 31, 2007.

Loans Payable

During the year ended December 31, 2006,
  a loan was granted from EDI Holding for Euro 75,000 (US -$106,960). The loan
  bears interest at 5% per annum and is due on December 21, 2009.

During the nine months ended September
  30, 2007, two loans were granted from an individual related to an officer and
  director of the Company and a managing director of EDI, for Euro 12,000 (US
  -$17,113) and Euro 5,000 (US -$7,131). The loans bear interest at 6% and are
  due December 31, 2008.

During the year ended December 31, 2004,
  a loan was granted from an individual related to an officer and director of
  the Company and a managing director of EDI, for Euro 8,000 (US -$11,409). The
  loan bears interest at 6% annum and is due on December 31, 2009.

F-14

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|6. | RELATED PARTY TRANSACTIONS (continued)
|-- | --------------------------------------

Other

At September 30, 2007, included in accounts
  payable and accrued liabilities related parties is Euro 54,880 (US -$78,266)
  owed to managing directors of EDI for management fees and reimbursement of expenses
  and $2,602 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.

At September 30, 2007, included in accounts
  payable and accrued liabilities related parties is Euro 4,261 (US -$6,077)
  owed to a managing director of EDI for the company use of his private vehicle.
  Amounts due to officers and directors are unsecured, non-interest bearing and
  due on demand.

At September 30, 2007, included in accounts
  payable and accrued liabilities related parties is Euro 3,451 (US -4,922)
  owed to a person related to an officer and director of the Company and a managing
  director of EDI for consulting fees.

Consulting fees paid to an officer of
  the Company for the nine and three months ended September 30, 2007 totaled $9,000
  and $3,000. Management fees paid to the managing directors of EDI who are also
  directors and/or officers of the Company for the nine and three months ended
  September 30, 2007 totaled Euro 200,000 (US -$269,350) and Euro 80,000 (US -$109,884),
  respectively.

F-15

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|7. | 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 December 7, 2004, the Company issued
  51,992,000 shares of common stock for total proceeds of Euro 35,750 (US -$46,833).

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.

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 entitles 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.

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 with a corporate
  investor. 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 0.288 (US -$0.383) per share for a period of one year from the date
  of closing. A finders fee of 10% of the proceeds in cash was paid on closing
  of the private placement.

On May 4, 2007, the Company issued 1,875,000
  units at a price of $0.32 per unit, for total proceeds of $600,000 in a private
  placement transaction. Each unit consists of one share of the Companys
  common stock and one share purchase warrant. Each share purchase warrant entitles
  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.
  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.

F-16

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|8. | 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, beginning of the period                                |  | 11,000,000 |  | $ | 1.00           | 
| | Granted                                                                     |  | -          |  |   |                | 
| | Exercised                                                                   |  | -          |  |   |                | 
| | Expired                                                                     |  | -          |  |   |                | 
| | Options outstanding, September 30, 2007                                     |  | 11,000,000 |  | $ | 1.00           | 
| | Options exercisable,
      September 30, 2007                               |  | 5,110,000  |  | $ | 1.00           | 
| | Weighted average fair value of options granted
      during the nine months |  |            |  |   |                | 
| | ended September 30,
      2007                                              |  |            |  | $ | 0.00           | 

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.

A summary of stock options outstanding
  at September 30, 2007 is as follows:

| |                |  |                     |  |  |                     | 
| | -------------- |  | ------------------- |  |  | ------------------- | 
| |                |  | Outstanding Options |  |  | Exercisable Options | 
| |                |  |                     |  |  | Weighted            | 
| |                |  |                     |  |  | Average             | 
| |                |  |                     |  |  | Remaining           | 
| | Exercise Price |  | Number              |  |  | Contractual Life    | 
| |                |  |                     |  |  |                     | 
| | $
      1.00   |  | 200,000             |  |  | 8.58                | 
| | $ 1.00         |  | 8,390,000           |  |  | 7.58                | 
| | $
      1.00   |  | 1,380,000           |  |  | 6.58                | 
| | $ 1.00         |  | 1,030,000           |  |  | 4.58                | 

F-17

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|8. | STOCK OPTIONS AND WARRANTS (continued)
|-- | --------------------------------------

Warrants

| |                                                                       |  |           |  |   |                | 
| | --------------------------------------------------------------------- |  | --------- |  | - | -------------- | 
| |                                                                       |  |           |  |   | Weighted       | 
| |                                                                       |  |           |  |   | Average        | 
| |                                                                       |  | Number    |  |   | Exercise Price | 
| |                                                                       |  |           |  |   |                | 
| | Warrants outstanding, beginning of the period                         |  | 7,325,396 |  | $ | 0.37           | 
| | Granted                                                               |  | -         |  |   | -              | 
| | Exercised                                                             |  | -         |  |   | -              | 
| | Expired                                                               |  | 714,285   |  |   | 0.30           | 
| | Warrants outstanding, September 30, 2007                              |  | 6,611,111 |  | $ | 0.33           | 
| | Warrants exercisable,
      September 30, 2007                        |  | 6,611,111 |  | $ | 0.33           | 
| | Weighted average fair value of warrants granted
      during the nine |  |           |  |   |                | 
| | months ended September
      30, 2007                                 |  |           |  | $ | 0.00           | 

A summary of warrants outstanding at
  September 30, 2007, is as follows:

| |               |           |             |                         |              
| | ------------- | --------- | ----------- | ----------------------- | -------------
| | Date          | Issued    | Outstanding | Exercise Price          | Expiry Date  
| |               |           |             |                         |              
| | April 2, 2007 | 1,736,111 | 1,736,111   | Euro 0.288 (US -$0.383) | April 2, 2008
| | May 4, 2007   | 1,875,000 | 1,875,000   | $ 0.32                  | May 4, 2008  
| | June 28, 2007 | 3,000,000 | 3,000,000   | $ 0.30                  | June 28, 2008

|9. | 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 and patents
  are in Germany.

F-18

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|10. | COMMITMENTS
|--- | -----------

On August 1, 2007, EDI entered into a
  managing service contract with a managing director of EDI effective August 1,
  2007 to pay monthly management fees of Euro 10,000 (US -$14,261). 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 -$1,797).

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 -$143) per hour. The contract terminates 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 -$143) per hour. The contract terminates 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 -$856) plus taxes.

On July 1, 2005, EDI entered into a freelance
  agreement with an individual effective July 1, 2005, to pay monthly consulting
  fees of Euro 8,000 (US -$11,409). The contract may be terminated at the end
  of each calendar quarter by giving written notice of six months. The agreement
  has been terminated by a settlement agreement dated July 2, 2007. EDI is required
  to pay a total of Euro 6,000 (US -$8,556) per month under the terms of two settlement
  agreements for a period of two years beginning August 1, 2007.

On January 1, 2005, EDI entered into
  a managing service contract with a managing director of EDI effective July 1,
  2005, to pay monthly management fees of Euro 10,000 (US -$14,261) and a management
  bonus of 5% of the annual net income of EDI under German law, due one month
  following the approval of the annual financial statements by a meeting of the
  shareholders. The contract may be terminated at the end of each calendar quarter
  by giving written notice of six months and ends without notice at the end of
  the month in which the managing director turns 65 years of age. On March 20,
  2006, the contract was amended to increase the monthly management fee to Euro
  19,000 (US -$27,096) for the months, April 2006 to September 2006. Effective
  October 1, 2006, the managing director agreed to decrease the monthly management
  fee back to Euro 10,000 (US -$14,261) per month.

On January 1, 2005, EDI entered into
  a managing service contract with a managing director of EDI effective July 1,
  2005, to pay monthly management fees of Euro 10,000 (US -$14,261) 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 -$22,818) for the months, April 2006 to September 2006. Effective
  October 1, 2006, the managing director agreed to decrease the monthly management
  fee back to Euro 10,000 (US -$14,261) per month.

F-19

---

|EXPLORATION DRILLING INTERNATIONAL INC.       
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|(Expressed in U.S. Dollars)                   
|September 30, 2007                            
|(Unaudited)                                   
|                                              

|11. | SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH
      FLOWS
|--- | --------------------------------------------------------

| |                |   |                    |  |   |               |  |   |               | 
| | -------------- | - | ------------------ |  | - | ------------- |  | - | ------------- | 
| |                |   | Cumulative         |  |   |               |  |   |               | 
| |                |   | Amounts from       |  |   | Nine          |  |   | Nine          | 
| |                |   | Inception          |  |   | Months        |  |   | Months        | 
| |                |   | (December 7, 2004) |  |   | Ended         |  |   | Ended         | 
| |                |   | to September 30,   |  |   | September 30, |  |   | September 30, | 
| |                |   | 2007               |  |   | 2007          |  |   | 2006          | 
| |                |   |                    |  |   |               |  |   |               | 
| | Cash paid for: |   |                    |  |   |               |  |   |               | 
| | Interest       | $ | 33,951             |  | $ | 33,951        |  | $ | -             | 
| | 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 September 30, 2007, the Company issued 50,000,000 common shares
  for the acquisition of EDI.

During the nine months ended September
  30, 2007, 3,000,000 units were issued 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.

|12. | SUBSEQUENT EVENT
|--- | ----------------

On November 12, 2007, the Company issued
  3,250,000 units at a price of Euro 0.20 (US -$.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.

F-20

---

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN
      OF OPERATION.
|------- | ----------------------------------------------------------------

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this Quarterly Report
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 this caption Managements
Discussion and Analysis or Plan of Operation and elsewhere in this Quarterly
Report. We do not intend to update the forward-looking information to reflect
actual results or changes in the factors affecting such forward-looking
information. 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 Annual Reports on Form 10-KSB, our Quarterly Reports on
Form 10-QSB and our Current Reports on Form 8-K.

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

INTRODUCTION

The following discussion and analysis summarizes our plan of
operation for the next twelve months, our results of operations for the nine
month period ended September 30, 2007 and changes in our financial condition
from our fiscal year ended December 31, 2006. This discussion should be read in
conjunction with the Managements Discussion and Analysis or Plan of Operation
included in our Annual Report on Form 10-KSB for the year ended December 31,
2006.

RECENT CORPORATE DEVELOPMENTS

We experienced the following significant developments since
June 30, 2007, the date of our last Quarterly Report:

|1. | In July, 2007, our wholly owned operating subsidiary, EDI
      Exploration Drilling International GmbH (EDI GmbH), applied to the
      European Patent Office for two international patents covering improvements
      to our EDI Fluid Finder system. The first patent applied for relates to a
      pressure compensation system that has a specialized valve to check the
      water flow and keep the water quantity around the pilot bit stable. This
      innovation to the EDI Fluid Finder system helps to prevent blockage around
      the pilot bit. The second patent applied for covers a specialized pumping
      system which allows multiple water samples and tests to be taken within
      the well shaft. The system also facilitates the exchange of water and
      drilling mud within the drill string without the use of additional
      equipment, saving time and money.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2. | Effective on August 1, 2007, Christian Runge was
      appointed as a managing director of EDI GmbH. Mr. Runge is a qualified
      economist and marketing expert, and will be responsible for managing EDI
      GmbHs international sales and key accounts. Mr. Runge was appointed to
      EDI GmbHs management board in place of Peter Stakne. Mr. Stakne resigned
      as a managing director on July 31, 2007 and now acts as a free lance
      consultant to EDI GmbH.                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3. | In August, 2007, we announced that EDI GmbH has been
        awarded a drilling contract by Coca-Cola Beverages Pakistan Ltd. (“Coca-Cola
        Pakistan”). The drilling will be conducted at two locations, with
        two holes to be drilled at each location. The project’s goal is
        to analyze the water sources at each location in order to assist Coca-Cola
        Pakistan in evaluating each site’s suitability for a large scale
        bottling plant. EDI GmbH will be paid a total of EUR 72,743 for the drilling
        project. Drilling was originally scheduled to begin in the Fall of 2007,
        but has been delayed by                                                                                                                                                                                                                                                

3

---

|   | Coca Cola Pakistan due to their ongoing negotiations
        with third parties regarding land ownership issues. In addition, due to
        the current political instability in Pakistan, these projects could be
        delayed even further, or be abandoned altogether if the political environment
        worsens.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4. | On October 15, 2007, our Board of Directors approved a
      private placement offering of up to 3,250,000 Units (the Units) at a
      price of EUR 0.20 per Unit to non-U.S. Persons as contemplated under
      Regulation S of the United States Securities Act of 1933 (the Securities
      Act). Each Unit consists of one share of our common stock and one share
      purchase warrant. Each share purchase warrant will entitle the holder to
      purchase an additional share of our common stock at a price of $0.35 US
      for a period of two years from the date of issuance of the Units. On
      November 12, 2007, we completed the private placement and issued 3,250,000
      Units for total proceeds of EUR 650,000 to two corporate investors. Each
      investor represented that it was not a U.S. person as defined in
      Regulation S, and has provided representations indicating that it was
      acquiring our securities for investment purposes only and not with a view
      towards distribution.

PLAN OF OPERATION

During the next twelve months, 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 and India and on further
pursuing the business opportunities that we have developed in Namibia.

|(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 attempt to obtain access to geothermal pilot projects in an effort to
      market the benefits of our Fluid Finder and Medium Changer technology to
      the geothermal energy process and will also work on adapting our
      technologies for use in the field of geothermal energy. Due to the
      financial costs involved, we may seek to enter into cooperation agreements
      with academic institutions to adapt and develop our technologies to
      geothermal energy processes.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(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
        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                                                                                                                                                                                                                                                              

4

---

|    | 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 the new year, however there are no assurances that we will
        do so.                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(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
        project is 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 has been delayed by Coca Cola Pakistan
        due to their ongoing negotiations with third parties regarding land ownership
        issues. In addition, due to the current political instability in Pakistan,
        these projects could be delayed even further, or be abandoned altogether
        if the political environment worsens.

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 3,000,000
(approximately $4,281,540) to complete our plan of operation over the next
twelve months. The majority of this amount will be spent on financing our
business operations, marketing presentations, product demonstrations, and legal
and other consulting fees associated with establishing our presence in
international markets. In addition, we anticipate that we will require an
additional $50,000 for general administrative purposes and to pay for the legal
and accounting fees we expect to incur in meeting ongoing reporting obligations
under United States securities laws.

RESULTS OF OPERATIONS

Under generally accepted accounting principles, the acquisition
of EDI GmbH has been accounted for as a recapitalization and EDI GmbH has been
treated as the acquiring entity for accounting and financial reporting purposes.
As such, our consolidated financial statements will be presented as a
continuation of the operations of EDI GmbH and not EDI USA (formerly, Invision
Capital, Inc.). The operations of EDI USA are included in the consolidated
statement of operations from the effective date of the acquisition, April 26,
2006.

Third Quarter and Nine Months Summary

|            |   | Nine Months Ended September 30 |   |   | Three Months Ended September 30
|----------- | - | ------------------------------ | - | - | -------------------------------
|            |   |                                |   |   |                                
|            |   |                                |   |   |                                
|            |   | 2007                           |   |   | 2006                           
|Revenue     | $ | -                              |   | $ | -                              
|Expenses    |   | (4,107,649                     | ) |   | (3,239,665                     
|Other Items |   | (73,146                        | ) |   | (40,543                        
|Net Loss    | $ | (4,180,795                     | ) | $ | (3,280,208                     

5

---

Revenues

We did not earn any revenues during the nine months ended September
  30, 2007. We completed drilling projects in Namibia, however we did not earn
  revenue from those projects as they were conducted to demonstrate our drilling
  technologies and processes. Although we hope to earn revenue from the drilling
  projects we have planned for Coca Cola Pakistan, there is a substantial possibility
  that this project will be operated at a loss. In addition, due to the political
  instability in Pakistan, these projects could experience significant delays,
  or could be abandoned altogether.

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 operating expenses for the quarterly periods ended
September 30, 2007 and 2006 consisted of the following:

|                          |   | Nine Months Ended September 30 |  |   | Three Months Ended September 30
|------------------------- | - | ------------------------------ |  | - | -------------------------------
|                          |   |                                |  |   |                                
|                          |   |                                |  |   |                                
|                          |   | 2007                           |  |   | 2006                           
|Amortization              | $ | 47,309                         |  | $ | 38,556                         
|Management Fees           |   | 278,350                        |  |   | 243,215                        
|Professional Fees         |   | 922,759                        |  |   | 475,821                        
|Selling, General and      |   | 746,913                        |  |   | 908,606                        
|Administrative            |   |                                |  |   |                                
|Stock Corporation Expense |   | 2,110,772                      |  |   | 1,570,472                      
|Foreign Currency Loss     |   | 1,546                          |  |   | 2,995                          
|Total Operating Expenses  | $ | 4,107,649                      |  | $ | 3,239,665                      

Management Fees

Management fees paid during the period are comprised of amounts
paid or earned by our officers and directors and the general manager of drilling
operations for EDI GmbH during the nine and three months ended September 30,
2007.

Professional Fees

Professional fees for the nine and three months ended September
30, 2007 and 2006 consisted of the following:

|                        |   | Nine Months Ended September 30 |  |   | Three Months Ended September 30
|----------------------- | - | ------------------------------ |  | - | -------------------------------
|                        |   |                                |  |   |                                
|                        |   |                                |  |   |                                
|                        |   | 2007                           |  |   | 2006                           
|Accounting and Tax Fees | $ | 62,920                         |  | $ | 77,816                         
|Consulting Fees         |   | 786,421                        |  |   | 172,758                        
|Legal Fees              |   | 73,418                         |  |   | 225,247                        
|Total                   | $ | 922,759                        |  | $ | 475,821                        

6

---

The additional professional fees for the three months ended
September 30, 2006 related primarily to legal and accounting fees incurred as a
result of various ongoing matters related to our acquisition of EDI GmbH.

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. Consulting fees
include amounts paid to outside consultants for services provided in connection
with 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 incurred in
connection with the operation of our business.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine
months ended September 30, 2007 and 2006 consisted of the following major
components:

|                        |   | Nine Months Ended September 30 |  |   | Three Months Ended September 30
|----------------------- | - | ------------------------------ |  | - | -------------------------------
|                        |   |                                |  |   |                                
|                        |   |                                |  |   |                                
|                        |   | 2007                           |  |   | 2006                           
|Marketing and Promotion | $ | 46,291                         |  | $ | 215,542                        
|Travel                  |   | 68,240                         |  |   | 132,614                        
|Wages and Benefits      |   | 295,689                        |  |   | 316,717                        
|Miscellaneous           |   | 336,693                        |  |   | 243,733                        
|Total                   | $ | 746,913                        |  | $ | 908,606                        

Included in marketing and promotional expenses for the nine
months ended September 30, 2007 are amounts spent by us in conducting drilling
projects in India and Namibia at no charge in an effort to demonstrate the
efficacy of our technologies and processes.

LIQUIDITY AND CAPITAL RESOURCES

|Working Capital         |   |                       |   |   |                      |   |  |                       | 
|----------------------- | - | --------------------- | - | - | -------------------- | - |  | --------------------- | 
|                        |   |                       |   |   |                      |   |  | Percentage            | 
|                        |   | At September 30, 2007 |   |   | At December 31, 2006 |   |  | Increase / (Decrease) | 
|Current Assets          | $ | 158,020               |   | $ | 292,050              |   |  | (45.9)%               | 
|Current Liabilities     |   | (2,295,952            | ) |   | (925,299             | ) |  | 148.1%                | 
|Working Capital Deficit | $ | (2,137,932            | ) | $ | (633,249             | ) |  | 237.6%                | 

|Cash Flows                                     |   |                                |   |   |            |  
|---------------------------------------------- | - | ------------------------------ | - | - | ---------- | -
|                                               |   | Nine Months Ended September 30 |  
|                                               |   | 2007                           |   |   | 2006       |  
|Cash Flows used in Operating Activities        | $ | (1,186,260                     | ) | $ | (1,452,741 | )
|Cash Flows from (used in) Investing Activities |   | 29,054                         |   |   | (343,680   | )
|Cash Flows from Financing Activities           |   | 1,163,260                      |   |   | 2,157,664  |  
|Effects of Foreign Currency Translations       |   | (18,798                        | ) |   | 14,226     |  
|Net Decrease in Cash During Period             | $ | (12,744                        | ) | $ | 375,469    |  

7

---

During our nine months ended September 30, 2007, we received
EUR 315,460 (approximately $449,917) in loans from the following related
parties:

| | (a) | Loans totaling EUR 230,960 (approximately $329,379) from
      EDI Exploration Drilling International Holding GmbH, our majority
      stockholder:
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| |                      |               |                    |                   
| | -------------------- | ------------- | ------------------ | ------------------
| | Principal            | Interest Rate | Grant Date         | Due
      Date    
| | EUR 21,000 ($29,949) | 5%            | January 19, 2007   | January 22, 2008  
| | EUR 40,960 ($58,414) | 5%            | February 23, 2007  | February 26, 2008 
| | EUR 40,000 ($57,045) | 5%            | August 9, 2007     | August 10, 2008   
| | EUR 10,000 ($14,261) | 5%            | August 12, 2007    | August 14, 2008   
| | EUR 15,000 ($21,392) | 5%            | August 20, 2007    | August 22, 2008   
| | EUR 35,000 ($49,915) | 5%            | August 30, 2007    | August 31, 2008   
| | EUR 33,000 ($47,062) | 5%            | September 11, 2007 | September 13, 2008
| | EUR 24,000 ($34,227) | 5%            | September 19, 2007 | September 21, 2008
| | EUR 12,000 ($17,114) | 5%            | September 26, 2007 | September 28, 2008

| | (b) | A loan for EUR 10,000 (approximately $14,261) from Dieter
      Thiemann, the brother of one of our executive officers and directors,
      bearing interest at a rate of 6% per annum, payable on or before June 30,
      2007. On June 28, 2007, the loan was extended to December 31,
  2007.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                  
| | (c) | A loan of EUR 57,500 (approximately $82,002) from DTB
      Patente GmbH, a company of which the wife of one of our executive officers
      and directors is a significant shareholder, bearing interest at a rate of
      5% per annum, payable on or before February 5, 2008.                
| |     |                                                                                                                                                                                                                                                                                                  
| | (d) | A loan of EUR 12,000 (approximately $17,114) from Dieter
        Thiemann, and an additional loan of EUR 5,000 (approximately $7,131) due
        on December 31, 2008, also from Dieter Thiemann. Both loans bear interest
        at a rate of 6% per annum.                                   

We received an additional EUR 169,555 (approximately $241,716)
in loans from unrelated third parties as follows:

| | (a) | Loans totaling EUR 83,000 (approximately $118,369),
      bearing interest at a rate of 6% per annum and payable as
  follows:                                     
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | (i)                                                                                                                                                                
| |     | (ii)                                                                                                                                                               
| |     |                                                                                                                                                                    
| |     | The amounts due and owing under these loans are secured
      by accounts receivable and have been personally guaranteed by Mr.
      Rotthaeuser and Mr. Thiemann.
| |     |                                                                                                                                                                    
| | (b) | Loans totaling EUR 55,000 (approximately
  $78,437):                                                                                                               
| |     | (i)                                                                                                                                                                
| |     | (ii)                                                                                                                                                               
| |     |                                                                                                                                                                    
| | (c) | Loans totaling $45,000, bearing interest at a rate of 8%
      per annum. The loans are unsecured and due on
demand.                                               

During the nine months ended September 30, 2007, we completed
two private placements. One private placement was completed for 1,736,111 units
at a price of EUR 0.288 per unit, for total proceeds, less

8

---

commissions, of EUR 450,000 (approximately $600,721). The
second private placement was completed for 1,875,000 units at a price of $0.32
per unit, for total proceeds, less commissions, of $540,000.

On November 12, 2007, subsequent to the nine months ended
September 30, 2007, we completed a private placement of 3,250,000 Units to two
corporate investors for total proceeds of EUR 650,000.

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 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 debt financing in the future. Any long-term financing that we
obtain is expected to come from sales of our equity securities. If we are
successful in completing any equity financings, of which there is no assurance,
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. 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 our stockholders.

Critical Accounting Policies

The preparation of financial statements in conformity with
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 described at Note 3 to
our financial statements for the nine months ended September 30, 2007.

RISKS AND UNCERTAINTIES

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 3,000,000 (approximately $4,278,300) 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,

9

---

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 GmbH was formed on December 7, 2004 and, as such, has a
very short operating history upon which future performance may be assessed. EDI
GmbH 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.

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

EDI GmbH 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.

10

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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 have been granted patents for our technologies in one of the
jurisdictions in which we have filed applications; however, there are no
assurances that final patents will be granted in any other jurisdiction for any
of our technologies. If we are not able to obtain patents for our technologies,
we will only be able to protect our products and technological processes by
maintaining the secrecy of those products and processes.

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

Dependence On Key Personnel

Our success will largely depend on the performance of our
directors and officers and the managers of EDI GmbH. 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 Haltern Am See,
  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 3. | CONTROLS AND PROCEDURES.
|------- | ------------------------

Under the supervision and with the participation of our
management, including the Chief Executive Officer and Chief Financial Officer,
we have evaluated the effectiveness of our disclosure controls and procedures as
required by Exchange Act Rule 13a-15(b) as of the end of the period covered by
this report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that these disclosure controls and procedures
are effective.

There were no changes in our internal control over financial
reporting during the nine months ended September 30, 2007 that have materially
affected, or 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 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND
      USE OF PROCEEDS.
|------- | ------------------------------------------------------------------

On November 12, 2007, we completed a private placement of
3,250,000 Units (Units) at a price of EUR 0.20 per Unit for total proceeds of
$650,000 to two corporate investors. Each Unit is comprised of one share of our
common stock and one share purchase warrant. Each share purchase warrant will
entitle the holder to purchase an additional share of our common stock at a
price of $0.35 US for a period of two years from the date of issuance of the
Units. This private placement was completed pursuant to the provisions of
Regulation S promulgated under the Securities Act. The Company did not engage in
a distribution of this offering in the United States. Each investor represented
that it was not a U.S. person as defined in Regulation S, and has provided
representations indicating that it was acquiring our securities for investment
purposes only and not with a view towards distribution.

|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES.
|------- | --------------------------------

None.

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

None.

|ITEM 5. | OTHER INFORMATION.
|------- | ------------------

Amendments to Material Definitive Agreements

On September 1, 2007, EDI Exploration Drilling International
Holding GmbH, our majority stockholder, agreed to extend the due date of our
loan agreement for EUR 3,400 from November 3, 2007 to June 30, 2008. No other
amendments were made to this loan agreement.

On September 25, 2007, DTB Patente GmbH, a company of which the
wife of one of our executive officers and directors is a significant
shareholder, agreed to extend the due date of our loan agreement for EUR 90,000
from March 31, 2007 to March 31, 2008. No other amendments were made to this
loan agreement.

|ITEM 6. | EXHIBITS.
|------- | ---------

|Exhibit |  |                                                                                                                        
|------- |  | -----------------------------------------------------------------------------------------------------------------------
|Number  |  | Description of Exhibit                                                                                                 
|3.1     |  | Articles of Incorporation.(1)                                                                                          
|3.2     |  | Certificate of Change to Authorized
      Capital.(3)                                                                  
|3.3     |  | Certificate of Amendment to Articles of Incorporation 
      name change to Exploration Drilling International Inc.(9)
|3.4     |  | Amended and Restated Bylaws.(8)                                                                                        

12



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|Exhibit |  |                                                                                                                                                                                                                                                                                                   
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                            
|4.1     |  | Specimen Common Stock Certificate.(1)                                                                                                                                                                                                                                                             
|10.1    |  | Option Purchase and Royalty Agreement.(1)                                                                                                                                                                                                                                                         
|10.2    |  | Amendment to Option Purchase and Royalty
      Agreement.(2)                                                                                                                                                                                                                                      
|10.3    |  | Share Purchase Agreement among the Company, EDI
      Exploration Drilling International Holding GmbH, EDI Exploration Drilling
      International GmbH and Frank Rigney, dated for reference the 5th day of
      April, 2006.(4)                                                               
|10.4    |  | Agreement and Deed of Transfer between EDI Exploration
      Drilling International Holding GmbH and the Company dated for reference as
      of the 26th day of April, 2006.(5)                                                                                                                  
|10.5    |  | 2006 Stock Option Plan.(6)                                                                                                                                                                                                                                                                        
|10.6    |  | Joint Operating Agreement Between A. Abuynayyan Trading
      Corporation and EDI Exploration Drilling International GmbH.(7)                                                                                                                                                                     
|10.7    |  | Managing Director Contract between EDI Exploration
      Drilling International GmbH and Rainer Rotthaeuser dated effective as of
      the 1stday of January, 2005 (translated from German to
      English).(10)                                                                                
|10.8    |  | Managing Director Contract between EDI Exploration
      Drilling International GmbH and Guenter Thiemann dated effective as of the
      1stday of January, 2005 (translated from German to
      English).(10)                                                                                  
|10.9    |  | Loan Agreement for EUR 25,000 with interest at 6% per
      annum between EDI Exploration Drilling International GmbH (as the lender)
      and Guenter Thiemann (as the borrower) dated December 23, 2005 (translated
      from German to English).(10)                                         
|10.10   |  | Loan Agreement for EUR 115,000 with interest at 6% per
      annum between EDI Exploration Drilling International GmbH (as the lender)
      and Magdalena Rotthaeuser (as the borrower) dated December 23, 2005
      (translated from German to English).(10)                                   
|10.11   |  | Addendum to Loan Agreement dated December 23, 2005
      between EDI Exploration Drilling International GmbH (as the lender) and
      Magdalena Rotthaeuser (as the borrower), extending due date to December
      31, 2006, dated June 25, 2006 (translated from German to
      English).(10) 
|10.12   |  | Addendum to Loan Agreement dated December 23, 2005
      between EDI Exploration Drilling International GmbH (as the lender) and
      Magdalena Rotthaeuser (as the borrower), extending due date to June 30,
      2007, dated December 28, 2006 (translated from German to
      English).(10) 
|10.13   |  | Loan Agreement for EUR 15,400 with interest at 3% per
      annum between EDI Exploration Drilling International GmbH (as the lender)
      and Magdalena Rotthaeuser (as the borrower) dated January 3, 2006
      (translated from German to English).(10)                                      
|10.14   |  | Loan Agreement for EUR 20,000 with interest at 5% per
      annum between EDI Exploration Drilling International Holding GmbH (as the
      lender) and EDI Exploration Drilling International GmbH (as the borrower)
      dated July 15, 2006 (translated from German to English).(10)          
|10.15   |  | Loan Agreement for EUR 3,400 with interest at 6% per
      annum between EDI Exploration Drilling International Holding GmbH (as the
      lender) and EDI Exploration Drilling International GmbH (as the borrower)
      dated October 28, 2006 (translated from German to English).(10)        
|10.16   |  | Loan Agreement for EUR 75,000 with interest at 5% per
      annum between EDI Exploration Drilling International Holding GmbH (as the
      lender) and EDI Exploration Drilling International GmbH (as the borrower)
      dated December 19, 2006 (translated from German to
      English).(10)
|10.17   |  | Loan Agreement for EUR 2,000 with interest at 5% per
      annum between EDI Exploration                                                                                                                                                                                                          

13

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|Exhibit |  |                                                                                                                                                                                                                                                                                                                
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                         
|        |  | Drilling International Holding GmbH (as the lender) and
      EDI Exploration Drilling International GmbH (as the borrower) dated
      December 29, 2006 (translated from German to English).(10)                                                                                                             
|10.18   |  | Loan Agreement for EUR 1,000 with interest at a rate of
      6% per annum between EDI Exploration Drilling International Holding GmbH
      (as the lender) and EDI Exploration Drilling International GmbH (as the
      borrower) dated December 29, 2006 (translated from German to
      English).(10)    
|10.19   |  | Loan Agreement for EUR 36,000 without interest between
      Guenter Thiemann (as the lender) and EDI Exploration Drilling
      International GmbH (as the borrower) dated June 8, 2005 (translated from
      German to English).(10)                                                                        
|10.20   |  | Addendum to Loan Agreement dated June 8, 2005 between
      Guenter Thiemann (as the lender) and EDI Exploration Drilling
      International GmbH (as the borrower), providing for interest at a rate of
      6% per annum, dated July 1, 2006 (translated from German to
      English).(10)                
|10.21   |  | Addendum to Loan Agreement dated June 8, 2005 between
      Guenter Thiemann (as the lender) and EDI Exploration Drilling
      International GmbH (as the borrower), extending due date to December 31,
      2007, dated April 22, 2007 (translated from German to
      English).(10)                       
|10.22   |  | Loan Agreement for EUR 50,000 without interest between
      Guenter Thiemann (as the lender) and EDI Exploration Drilling
      International GmbH (as the borrower) dated May 4, 2006 (translated from
      German to English).(10)                                                                         
|10.23   |  | Addendum to Loan Agreement dated May 4, 2006 between
      Guenter Thiemann (as the lender) and EDI Exploration Drilling
      International GmbH (as the borrower) dated July 1, 2006 (translated from
      German to English).(10)                                                                          
|10.24   |  | Loan Agreement for EUR 8,000 with interest at 7% per
      annum between Dieter Thiemann (as the lender) and EDI Exploration Drilling
      International GmbH (as the borrower), providing for interest at a rate of
      6% per annum dated December 13, 2004 (translated from German to
      English).(10)
|10.25   |  | Loan Agreement for EUR 5,000 with interest at 6% per
      annum between Dieter Thiemann (as the lender) and EDI Exploration Drilling
      International GmbH (as the borrower) dated May 30, 2005 (translated from
      German to English).(10)                                                             
|10.26   |  | Addendum to Loan Agreement dated May 30, 2005 between
      Dieter Thiemann (as the lender) and EDI Exploration Drilling International
      GmbH (as the borrower), extending due date to December 31, 2007, dated
      December 26, 2006 (translated from German to English).(10)                           
|10.27   |  | Loan Agreement for EUR 12,000 with interest at 5% per
      annum between Dieter Thiemann (as the lender) and EDI Exploration Drilling
      International GmbH (as the borrower) dated September 20, 2006 (translated
      from German to English).(10)                                                      
|10.28   |  | Addendum to Loan Agreement dated September 20, 2006
      between Dieter Thiemann (as the lender) and EDI Exploration Drilling
      International GmbH (as the borrower), extending due date to March 22,
      2007, dated December 18, 2006 (translated from German to
      English).(10)                  
|10.29   |  | Loan Agreement for EUR 90,000 with interest at 6% per
      annum between DTB Patente GmbH (as the lender) and EDI Exploration
      Drilling International GmbH (as the borrower) dated March 2, 2006
      (translated from German to English).(10)                                                          
|10.30   |  | Addendum to Loan Agreement Dated March 2, 2006 between
      DTB Patente GmbH (as the lender) and EDI Exploration Drilling
      International GmbH (as the borrower), extending the due date to September
      30, 2007, dated January 4, 2007 (translated from German to
      English).(10)                

14

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|Exhibit |  |                                                                                                                                                                                                                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                                        
|10.31   |  | Loan Agreement
        for EUR 11,600 with interest at 5% per annum between DTB Patente GmbH
        (as the lender) and EDI Exploration Drilling International GmbH (as the
        borrower) dated October 28, 2006 (translated from German to English).(10)                                                                
|10.32   |  | Loan Agreement for EUR 21,000
        with interest at 5% per annum between EDI Exploration Drilling International
        Holding GmbH (as the lender) and EDI Exploration Drilling International
        GmbH (as the borrower) dated January 19, 2007 (translated from German
        to English).(10)                     
|10.33   |  | Loan Agreement
        for EUR 39,160 with interest at 5% per annum between EDI Exploration Drilling
        International Holding GmbH (as the lender) and EDI Exploration Drilling
        International GmbH (as the borrower) dated February 23, 2007 (translated
        from German to English).(10)                    
|10.34   |  | Loan Agreement for EUR 1,800
        with interest at 5% per annum between EDI Exploration Drilling International
        Holding GmbH (as the lender) and EDI Exploration Drilling International
        GmbH (as the borrower) dated February 23, 2007 (translated from German
        to English).(10)                     
|10.35   |  | Loan Agreement
        for EUR 57,500 with interest at 5% per annum between DTB Patente GmbH
        (as the lender) and EDI Exploration Drilling International GmbH (as the
        borrower) dated January 28, 2007 (translated from German to English).(10)                                                                
|10.36   |  | Loan Agreement for EUR 10,000,
        with interest at 6% per annum between Dieter Thiemann (as the lender)
        and EDI Exploration Drilling International GmbH (as the borrower) dated
        February 2, 2007 (translated from German to English).(10)                                                                
|10.37   |  | Loan Agreement
        for EUR 23,000 with interest at 7% per annum between Albert and Margareta
        Meyer (as the lenders) and EDI Exploration Drilling International GmbH
        (as the borrower) dated July 6, 2006 (translated from German to English).(10)                                                         
|10.38   |  | Addendum to Loan Agreement dated
        September 20, 2006 between Dieter Thiemann (as lender) and EDI Exploration
        Drilling International GmbH (as borrower), extending due date to December
        31, 2007, dated June 26, 2007 (translated from German to English).(11)                                          
|10.39   |  | Addendum to Loan
        Agreement dated February 2, 2007 between Dieter Thiemann (as lender) and
        EDI Exploration Drilling International GmbH (as borrower), extending the
        due date to December 31, 2007, dated June 28, 2007 (translated from German
        to English).(11)                                
|10.40   |  | Addendum to Loan Agreement dated
        July 15, 2006 between EDI Exploration Drilling International Holding GmbH
        (as lender) and EDI Exploration Drilling International GmbH (as borrower)
        extending the due date to December 31, 2007, dated July 15, 2007 (translated
        from German to English).(11)
|10.41   |  | Loan Agreement
        for EUR 12,000 with interest at 6% per annum between Dieter Thiemann (as
        lender) and EDI Exploration Drilling International GmbH (as borrower)
        dated July 16, 2007 (translated from German to English).(11)                                                                            
|10.42   |  | Loan Agreement for EUR 5,000
        with interest at 6% per annum between Dieter Thiemann (as lender) and
        EDI Exploration Drilling International GmbH (as borrower) dated August
        5, 2007 (translated from German to English).(11)                                                                            
|10.43   |  | Loan Agreement
        for EUR 40,000 with interest at 5% per annum between EDI Exploration Drilling
        International Holding GmbH (as lender) and EDI Exploration Drilling International
        GmbH (as borrower) dated August 9, 2007 (translated from German to English).                                           
|10.44   |  | Loan
        Agreement for EUR 10,000 with interest at 5% per annum between EDI Exploration
        Drilling International Holding GmbH (as lender) and EDI Exploration Drilling
        International GmbH (as borrower) dated August 12, 2007 (translated from
        German to English).                                  
|10.45   |  | Loan
        Agreement for EUR 15,000 with interest at 5% per annum between EDI Exploration
        Drilling International Holding GmbH (as lender) and EDI Exploration Drilling
        International                                                                                                                        

15

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|Exhibit |  |                                                                                                                                                                                                                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                               
|        |  | GmbH (as borrower) dated August
      20, 2007 (translated from German to English).                                                                                                                                                                                                                                  
|10.46   |  | Loan Agreement for EUR
      35,000 with interest at 5% per annum between EDI Exploration Drilling International
      Holding GmbH (as lender) and EDI Exploration Drilling International GmbH
      (as borrower) dated August 30, 2007 (translated from German to English).                                       
|10.47   |  | Addendum
      to Loan Agreement dated October 28, 2006 between EDI Exploration Drilling
      International Holding GmbH (as lender) and EDI Exploration Drilling International
      GmbH (as borrower) extending the due date to June 30, 2008, dated September
      1, 2007 (translated from German to English).
|10.48   |  | Loan Agreement for EUR
      33,000 with interest at 5% per annum between EDI Exploration Drilling International
      Holding GmbH (as lender) and EDI Exploration Drilling International GmbH
      (as borrower) dated September 11, 2007 (translated from German to English).                                    
|10.49   |  | Loan
      Agreement for EUR 24,000 with interest at 5% per annum between EDI Exploration
      Drilling International Holding GmbH (as lender) and EDI Exploration Drilling
      International GmbH (as borrower) dated September 19, 2007 (translated from
      German to English).                              
|10.50   |  | Addendum to Loan Agreement
      dated March 2, 2006 between DTB Patente GmbH (as lender) and EDI Exploration
      Drilling International GmbH (as borrower) extending the due date to March
      31, 2008, dated September 25, 2007 (translated from German to English).                                          
|10.51   |  | Loan
      Agreement for EUR 12,000 with interest at 5% per annum between EDI Exploration
      Drilling International Holding GmbH (as lender) and EDI Exploration Drilling
      International GmbH (as borrower) dated September 26, 2007 (translated from
      German to English).                              
|31.1    |  | Certification of Principal
      Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                        
|31.2    |  | Certification
      of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.                                                                                                                                                                                                  
|32.1    |  | Certification of Principal
      Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                   
|32.2    |  | Certification
      of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                   

Notes:

|(1)  | Filed as an exhibit to our Registration Statement on Form
      10-SB originally filed with the SEC on November 5, 2003.
|---- | ------------------------------------------------------------------------------------------------------------------------
|(2)  | Filed as an exhibit to our Quarterly Report on Form
      10-QSB filed with the SEC on March 17, 2006.                  
|(3)  | Filed as an exhibit to our Current Report on Form 8-K
      filed with the SEC on March 27, 2006.                       
|(4)  | Filed as an exhibit to our Current Report on Form 8-K
      filed with the SEC on April 27, 2006.                       
|(5)  | Filed as an exhibit to our Current Report on Form 8-K
      filed with the SEC on May 2, 2006.                          
|(6)  | Filed as an exhibit to our Current Report on Form 8-K
      filed with the SEC on May 11, 2006.                         
|(7)  | Filed as an exhibit to our Current Report on Form 8-K
      filed with the SEC on June 28, 2006.                        
|(8)  | Filed as an exhibit to our Current Report on Form 8-K
      filed with the SEC on August 28, 2006.                      
|(9)  | Filed as an exhibit to our Quarterly Report on Form
      10-QSB filed with the SEC on November 14, 2006.               
|(10) | Filed as an exhibit to our Annual Report on Form 10-KSB
      filed with the SEC on May 16, 2007.                       
|(11) | Filed as an exhibit to our Quarterly Report on Form
      10-QSB filed with the SEC on August 20, 2007.                 

16

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SIGNATURES

In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



|      |                   |  |     | **EXPLORATION DRILLING
      INTERNATIONAL INC.**
|----- | ----------------- |  | --- | -------------------------------------------------
|      |                   |  |     |                                                  
|Date: | November 18, 2007 |  | By: | /s/
      Rainer Rotthaeuser                     
|      |                   |  |     | RAINER ROTTHAEUSER                               
|      |                   |  |     | President and Chief Executive Officer            
|      |                   |  |     | (Principal Executive Officer )                   
|      |                   |  |     |                                                  
|      |                   |  |     |                                                  
|      |                   |  |     |                                                  
|      |                   |  |     |                                                  
|Date: | November 18, 2007 |  | By: | /s/
      Guenter Thiemann                       
|      |                   |  |     | GUENTER THIEMANN                                 
|      |                   |  |     | Treasurer and Chief Financial Officer            
|      |                   |  |     | (Principal Financial Officer )                   

---