U.S.
SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K




(Mark
One)


x
            ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
Fiscal Year Ended: December 2008





OR





o
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
transition period from_____ to ________





File No.
333-127813





Majestic
Oil & Gas, Inc.


(Name of
small business issuer in our charter)





Nevada
            4600
            20-1673271(State
      or other jurisdiction of
              incorporation
      or organization)
            (Primary
      Standard
              Industrial
      Classification
              Code
      Number)
            (I.R.S.
      Employer
              Identification
      Number)





P.O
      Box 488 Cut Bank, Montana
            59427(Address
      of principal executive offices)
            (Zip
      Code)





Registrant’s
telephone 406-873-5580







Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  ̈  No  x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange
Act.  Yes   ̈  No  x




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




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.




Large
accelerated filer    Accelerated filer   ̈Non-accelerated
filer  x




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




The
aggregate market value of the Registrant’s Common Stock held by non-affiliates
of the Registrant (based upon the closing price of the Registrant’s Common Stock
as of June 30, 2008) was approximately $1.2 million (based on 7,808,000 shares
of common stock outstanding on such date). Shares of the Registrant’s Common
Stock held by each executive officer and director and by each entity or person
that, to the Registrant’s knowledge, owned 5% or more of the Registrant’s
outstanding Common Stock as of June 30, 2008 have been excluded in that such
persons may be deemed to be affiliates of the Registrant. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.




DOCUMENTS
INCORPORATED BY REFERENCE





None









TABLE OF
CONTENTS





PART I
                                                        3Item 1. Description of
      Business.
                                                        3Item 2. Description of
      Property.
                                                        6Item 3. Legal Proceedings.
                                                        6Item 4. Submission of Matters to a Vote of
      Security Holders.
                                                        7PART II
                                                        7Item 5. Market for Common Equity and Related
      Stockholder Matters.
                                                        7Item 6. Management's Discussion and Analysis or
      Plan of Operation.
                                                        8Item 7. Financial
    Statements.
                                                        13Item 8. Changes In and Disagreements With
      Accountants on Accounting and Financial Disclosure.
                                                        15Item 8A. Controls and
      Procedures
                                                        15Item 8B. Other Information
                                                        16PART III
                                                        16Item 9. Directors, Executive Officers, Promoters
      and Control Persons; Compliance With Section 16(a) of the Exchange
      Act.
                                                        16Item 10. Executive
      Compensation.
                                                        18Item 11. Security Ownership of Certain Beneficial
      Owners and Management.
                                                        19Item 12. Certain Relationships and Related
      Transactions.
                                                        20Item 13. Exhibits and Reports on Form
      8-K.
                                                        20Item 14. Audit Fees
                                                        21










Part
I




Item 1.
Description of Business.





Business
Development





We were
incorporated in Nevada on April 16, 2002 as M2 Group Energy Corporation. On June
21, 2004, we changed our name to Majestic Oil & Gas, Inc. We are authorized
to issue 100,000,000 shares of common stock of which 7,808,000 shares are
outstanding.





We,
through our wholly-owned subsidiary, Grizzly Energy, Inc., own a 25% working
interest in a producing gas well on a state of Montana lease located in Section
36-T29N-R5W, Pondera County, Montana (Ludwig/State #36-1). It currently has gas
reserves of 26.72 million cubic feet of Proved Net Producing Reserves, which are
reserves established based upon actual production. Net Reserves are gross
reserves less taxes, royalties and all expenses.





Grizzly
Energy acquired the 25% working interest from Altamont Oil and Gas, Inc., a
Montana corporation and an affiliate of our President, Mr. Patrick Montalban, in
July 2004 for 16,000 shares of Grizzly Energy common stock. Mr. Patrick
Montalban owns and manages Altamont Oil and Gas, Inc. Mr. Patrick Montalban owns
and manages Grizzly Energy, Inc. Thereafter in July 2004, Majestic Oil &
Gas, Inc. acquired all 16,000 issued and outstanding shares of Grizzly Energy,
Inc. common stock for the issuance of 1,600,000 shares of our common stock.
Prior to the sale to Majestic Oil & Gas, Inc., Altamont Oil & Gas, Inc.
incurred $120,000 in the acquisition of a 50% Working Interest in this well.
Altamont retained the remaining 25% interest in this well.





Majestic
Oil & Gas, Inc participated in the drilling of the Boucher 27-1 with
Altamont and our 33% of the proportionate share of the drilling and completion
costs were $32,187. For this expenditure, we earned a 25% working interest. The
Boucher 27-1 well is located in Section 27-T29N-5W, Pondera County, Montana.
During 2008 the well was recompleted allowing for increased production with our
share of the recompletion costs totaling $4,780. This well currently has gas
reserves of 14.39 million cubic feet of Proved Net Producing
Reserves.





In
addition to the above two wells, Majestic Oil & Gas, Inc. participated in
the drilling of the B. Ag #25-1, Vandenbos #19-1, Vandenbos #19-2 and Jody
Fields #4-1 wells during the Third Quarter of 2008 and the Boucher #18-1 and
Stoltz #18-1 during the Fourth Quarter 2008. The Company’s share of drilling and
completion costs for these wells are as follows:





B.
      Ag #25-1:
                
                $
                46,926Vandenbos
      #19-1:
                
                $
                54,728Vandenbos
      #19-2:
                
                $
                15,334Jody
      Fields #4-1:
                
                $
                50,000Boucher
      #18-1
                
                $
                60,039Stoltz
      #18-1
                
                $
                59,687





As a
result, Majestic Oil & Gas, Inc. earned a 25% Working Interest in the B. Ag
#25-1, the Vandenbos #19-1, the Jody Fields #4-1, Boucher #18-1 and the Stoltz
#18-1.





The
Vandenbos #19-1 was the largest gas well drilled to-date, in the Lake Frances
area, with initial production of 750 MCF per day. This well currently has
natural gas reserves of 40.39 million cubic feet of Proved Net Producing
Reserves. The B. Ag. #25-1 well was successfully completed and is currently
producing as an economical natural gas well. This well currently has natural gas
reserves of 2.52 million cubic feet of Proved Net Producing Reserves. The
Vandenbos #19-2 was subsequently plugged and abandoned and the Jody Fields #4-1,
which was drilled as a wildcat oil well has also been plugged and abandoned. The
Boucher #18-1 and  Stoltz #18-1 are also producing as economical
natural gas wells.





All wells
in which Majestic Oil & Gas, Inc. holds a Working Interest are operated by
Altamont Oil & Gas, Inc.





We
believe that all the terms of the transactions and agreements with related
parties in connection with our business development as described above were
comparable to terms we could have obtained from unaffiliated
parties.





Business





We are
engaged in the exploration, development, acquisition and operation of oil and
natural gas properties. Because oil and natural gas exploration and development
requires significant capital and because our assets and resources are limited,
we participate in the oil and natural gas industry through the purchase of
interests in either producing wells or oil and natural gas exploration and
development and production projects.





3


Estimates
of proved reserves may vary and, as a result, revenues from production may vary
significantly from our expectations. We base our estimates of our proved oil and
natural gas reserves and future net revenues from those reserves upon analyses
that rely upon various assumptions, including those required by the Securities
and Exchange Commission, as to natural gas prices, taxes, development expenses,
capital expenses, operating expenses and availability of funds. There are
numerous uncertainties inherent in estimating quantities of reserves of gas and
in projecting future rates of production and the timing of development
expenditures, including many factors beyond the our control. The reserve
estimates in this annual report are based on various assumptions, including, for
example, constant oil and natural gas prices, operating expenditures and the
availability of funds, and, therefore, are inherently imprecise indications of
future net cash flows. Actual future production, cash flows, taxes, operating
expenses, development expenditures and quantities of recoverable oil and gas
reserves may vary substantially from those in the estimates. Any significant
variance in these assumptions could materially affect the estimated quantity and
value of reserves set forth in this prospectus. Additionally, our reserves may
be subject to downward or upward revision based upon actual production
performance, results of future development and exploration, prevailing oil and
gas prices and other factors, many of which are beyond our control.





As we
have yet to have oil production, we have no basis for estimates of our proved
oil reserves and future net revenues from those reserves.





Geologic
Data





All wells
in which the Company has working interests are located in the Lake Frances
Prospect. The Lake Frances Prospect is approximately 10,000 acres in oil and gas
leases. The Prospect is located less than three and one half miles west of the
Williams Gas Field which has so far produced 4.7 billion cubic feet of gas. The
Lake Frances Field is owned in majority and 100% operated by Altamont Oil &
Gas, Inc, which is a company owned and managed by Patrick M.
Montalban.





Geologic
data indicate structural and stratagraphic traps are found along the Lake
Frances trend. The Bow Island Sandstones are approximately 100 to 115 million
years old and were deposited during the Cretaceous Period. The Lake Frances Bow
Island is genetically a Typical Bow Island Reservoir. The depositional
environment is considered to be that of a transgressive, regressive Marine,
Shoreline or Near Shelf Sandstone Bar trending in a north to northwest
direction. The nature of the trap is a stratagraphic pinchout. During the Bow
Island deposition there were numerous transgressive, regressive events, which
created discontinuous lenses of sandstone interbedded with shales.





The
production zones in the Lake Frances Area are the lst Bow Island “A” Sandstone,
2nd
Bow Island Sandstone, 3rd Bow
Island Sandstone and 4th Bow
Island “A” and “C” Sandstone. The lithology for the lst Bow Island is Sandstone,
grey, fine grained, quartzose, well sorted, rounded grains, micaceous in parts.
Average thickness on the lst Bow Island is Sandstone, grey, fine to medium
grained, grains (glauconitic). Average thickness in the 4th Bow
Island is 8 feet with porosity’s averaging from 18% to 22%. The geological
sample description of the lst Bow Island in the angular to rounded, many black
chert grains, trace fine pyrite and green glauconitic, calcareous.





Each
Sandstone has its own porosity and permeability characteristics. When comparing
the 4th Bow
Island in the Williams Gas Field, it is a continuous reservoir over a large
area. The 4th Bow
Island in the Lake Frances Field has also proved to be a continuous reservoir
with the drilling and completion of the Boucher 27-1 well. Every well that has
been drilled in the Lake Frances Area has produced from the same 4th Bow
Island “C” Sandstone. The drive mechanism for the Bow Island is pressure
depletion. The character of Bow Island Gas is 900 to 910 BTU dry sweet methane
gas.




The
primary objective of the Jody Fields #4-1, a wildcat oil well was the
Madison/Sun River Dolomite. Other potential zones of interest are the Bow Island
and Sunburst Sandstones. A wildcat well is considered to be a well that is
drilled, based on a large element of hope, in a frontier area where very little
is known about the subsurface. The drilling of this well determined that the
site is located on the upside block of a structural fault, which creates an
excellent opportunity for an oil deposit. A study of the logs from offsetting
wells show good oil or hydrocarbon shows in the Madison/Sun River
Dolomite.





Title to
Properties





We
believe that we hold good and indefeasible title to our properties, in
accordance with standards generally accepted in the natural gas industry. A
title examination has been performed with respect to substantially all of our
producing properties. Each of our leased properties represents a material
portion of our holdings; and a title dispute could have adverse consequences for
our production and retention of revenues from production of natural
gas.





4


Our
properties are subject to royalties and other customary outstanding interests.
Our properties are also subject to operating agreements and current taxes. We do
not believe that any of these burdens will materially interfere with the use of
our properties.





Natural Gas
Reserves





The
following table summarizes information regarding our estimated proved natural
gas reserves as of the dates indicated. All of our reserves are located in the
United States. We base our estimates relating to our proved natural gas reserves
and future net revenues of natural gas reserves upon reports prepared by Citadel
Engineering Ltd, Petroleum Consultants. In accordance with SEC guidelines, we
make the standardized and Proved Producing Reserves – 10% discount
estimates of future net cash flows from proved reserves using natural gas sales
prices in effect as of the dates of the estimates which are held constant
throughout the life of the properties. We based our estimates of proved reserves
upon the following end of the year prices: Year ended December 31,
2008





Natural gas (per Thousand Cubic
    Feet)
              
              $
              3.38





Reserve
estimates are imprecise and may change as additional information becomes
available. Furthermore, estimates of natural gas reserves, of necessity, are
projections based on engineering data. There are uncertainties inherent in the
interpretation of this data as well as the projection of future rates of
production and the timing of development expenditures. Reservoir engineering is
a subjective process of estimating underground accumulations of natural gas that
cannot be measured in an exact way and the accuracy of any reserve estimate is a
function of the quality of available data and of engineering and geological
interpretation and judgment. Reserve reports of other engineers might differ
from the reports of our consultant, Citadel Engineering Ltd, Petroleum
Consultants. Results of drilling, testing and production subsequent to the date
of the estimate may justify revision of this estimate. The amounts and timing of
future operating and development costs may also differ from those used. You
should not construe the estimated Proved Producing Reserves – 10% Discount
values as representative of the fair market value of our proved natural gas
properties. Proved Producing Reserves – 10% Discount values are based upon
projected cash inflows at a 10% discount, which do not provide for change in
natural gas prices or for escalation of expenses and capital costs. The
meaningfulness of these estimates depends upon the accuracy of the assumptions
upon which they were based. We evaluate natural gas reserves at constant
temperature and pressure. A change in either of these factors can affect the
measurement of natural gas reserves. We deduct operating costs, development
costs and production-related and ad valorem taxes in arriving at the estimated
future cash flows. We make no provision for income taxes, and base the estimates
on operating methods and conditions prevailing as of the dates indicated. We
cannot assure you that these estimates are accurate predictions of future net
cash flows from natural gas reserves or their present value.





Natural Gas
Sales





We sell
the natural gas we produce to gas transmission companies. As is customary in the
industry, virtually all of our contract pricing provisions are tied to a market
index, with certain adjustments based on, among other factors, whether a well
delivers to a gathering or transmission line, quality of natural gas and
prevailing supply and demand conditions, so that the price of the natural gas
fluctuates to remain competitive with other available natural gas supplies. As a
result, our revenues from the sale of natural gas will suffer if market prices
decline and benefit if they increase. At this date, we do not currently engage
in hedging transactions and do not have any contracts with future gas production
under fixed price contracts.





At March
23, 2009, the weighted net average price of natural gas we produced sold at
prices averaging approximately $5.01 per Thousand Cubic Feet.





A variety
of factors affect the market for natural gas, including the availability of
other domestic production, natural gas imports, the availability and price of
alternative fuels, the proximity and capacity of natural gas pipelines, general
fluctuations in the supply and demand for natural gas and the effects of state
and federal regulations on natural gas production and sales. In particular, gas
production and related operations are or have been subject to price controls,
taxes and other laws and regulations relating to the gas industry. Failure to
comply with such laws and regulations can result in substantial penalties. The
regulatory burden on the gas industry increases our cost of doing business and
affects its profitability. Although we believe we are in compliance with all
applicable laws and regulations, because such laws and regulations are
frequently amended or reinterpreted, we are unable to predict the future cost or
impact of complying with such laws and regulations.





The
Company has no oil production thus we have yet to establish a market. However,
the Company intends to continue the pursuit of oil prospects and has plans to
participate in the drilling of two additional sites offsetting the Jody Fields
#4-1 well.





5


Competition





The oil
and gas industry is highly competitive in all its phases. Properties in which we
have an interest will encounter strong competition from many other oil and gas
producers, including many that possess substantial financial resources, in
acquiring economically desirable producing properties and exploratory drilling
prospects, and in obtaining equipment and labor to operate and maintain their
properties.




We are a
very small company in our industry. Many of our current and potential
competitors have significantly greater name recognition and more established
operations and relationships with persons and entities involved in the oil and
natural gas drilling and production business. We compete based upon our
management’s experience in the industry.




Government
Regulation




The
federal government and various state and local governments have adopted laws and
regulations regarding the protection of human health and the environment. These
laws and regulations may require the acquisition of a permit by operators before
drilling commences, prohibit drilling activities on certain lands lying within
wilderness areas, wetlands, or where pollution might cause serious harm, and
impose substantial liabilities for pollution resulting from drilling operations,
particularly with respect to operations in onshore and offshore waters or on
submerged lands. These laws and regulations may increase the costs of drilling
and operating wells. Because these laws and regulations change frequently, the
costs of compliance with existing and future environmental regulations cannot be
predicted with certainty. We do not currently plan to engage or anticipate that
in the future we will engage in exploration and production activities on federal
land.





The
transportation and certain sales of oil and natural gas in interstate commerce
are heavily regulated by agencies of the federal government. Production of any
oil and gas by properties in which we have an interest will be affected to some
degree by state regulations. States have statutory provisions regulating the
production and sale of oil and gas, including provisions regarding
deliverability. Such statutes, and the regulations promulgated in connection
therewith, are generally intended to prevent waste of oil and gas and to protect
correlative rights to produce oil and gas between owners of a common reservoir.
State regulatory authorities may also regulate the amount of oil and gas
produced by assigning allowable rates of production to each well or proration
unit.





Any
exploration or production on Federal land will have to comply with the Federal
Land Management Planning Act which has the effect generally of protecting the
environment. Any exploration or production on private property whether owned or
leased will have to comply with the Endangered Species Act and the Clean Water
Act. The cost of complying with environmental concerns under any of these acts
varies on a case by case basis. In many instances the cost can be prohibitive to
development. Environmental costs associated with a particular project must be
factored into the overall cost evaluation of whether to proceed with the
project.





Research and Development
Expenditures





Since
inception, we have not incurred any expenditures in research or
development.





Employees





We have
six part-time employees, one of whom is Mr. Patrick Montalban, our President and
CEO. The person supervising our day-to-day operations is Mr. Patrick Montalban.
In this capacity, he currently devotes approximately 50% of his time to our
business and anticipates that during the next 12 months he will devote
approximately 60% of his time to Majestic Oil & Gas. As our business
develops, if we raise additional funds and drill or participate in additional
wells, Mr. Montalban may devote 75% of his time to our business. Mr. Montalban
may have conflicts in allocating his time between our business and his other
activities. Currently, Mr. Montalban receives no compensation from the Company
for his services.





We have
no collective bargaining agreements. We consider our relationship with our
employees to be excellent.




Item
2. Description of Property.





Our
offices are located at 33 1st Avenue
SW, Cut Bank, Montana 59427. Our telephone number is 406-873-5580. Our offices
are in good condition and are sufficient to conduct our operations. This space
is provided by our president at no cost.





We do not
intend to renovate, improve, or develop properties. We are not subject to
competitive conditions for property and currently have no property in insure. We
have no policy with respect to investments in real estate or interests in real
estate and no policy with respect to investments in real estate mortgages.
Further, we have no policy with respect to investments in securities of or
interests in persons primarily engaged in real estate activities.




Item
3. Legal Proceedings.





None




6


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





None





PART
II




Item
5. Market for Common Equity and Related Stockholder Matters.





Market
Information





There is no established public trading
market for the Company’s shares of common stock. Quotations may be obtained by
researching the stock symbol “MJOG.” Various Internet quotation services detail
information about daily transaction volume and price. One such service is the
OTC Bulletin Board (www.otcbb.com) where a list of market makers is also
detailed. The high and low range of actual transactions using the daily ending
price, by quarters, for the years 2008 and 2007.





High
                      
                      LowJanuary
      1 – March 31, 2007
                      
                      $
                      0.51
                      
                      $
                      0.19April
      1 – June 30, 2007
                      
                      $
                      0.54
                      
                      $
                      0.23July
      1 – September 30, 2007
                      
                      $
                      0.63
                      
                      $
                      0.30October 1 –
      December 31, 2007
                      
                      $
                      0.57
                      
                      $
                      0.29January
      1 – March 31, 2008
                      
                      $
                      0.55
                      
                      $
                      0.26April
      1 – June 30, 2008
                      
                      $
                      0.80
                      
                      $
                      0.40July
      1 – September 30, 2008
                      
                      $
                      0.31
                      
                      $
                      0.54October 1 –
      December 31, 2008
                      
                      $
                      0.35
                      
                      $
                      0.20





The above
quotations may not reflect inter-dealer prices and should not be considered
over-the-counter market quotations as that term is customarily
used.





Options, Warrants,
Convertible Securities





We have
no outstanding warrants or options as of March 23, 2009.





The
Company granted an option to buy 125,000 shares at $0.38 per share to a member
of the Company’s Board of Directors on August 9, 2007. These options expired on
August 9, 2008, without being exercised. The fair value of these options,
$21,295, was recorded as stock compensation expense and additional paid in
capital at the time the options were granted.





Penny Stock
Considerations





Our
shares are "penny stocks" as that term is generally defined in the Securities
Exchange Act of 1934 to mean equity securities with a price of less than $5.00.
Our shares thus are subject to rules that impose sales practice and disclosure
requirements on broker-dealers who engage in certain transactions involving a
penny stock.





Under the
penny stock regulations, a broker-dealer selling a penny stock to anyone other
than an established customer or accredited investor must make a special
suitability determination regarding the purchaser and must receive the
purchaser's written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt. Generally, an individual with a net worth in
excess of $1,000,000 or annual income exceeding $100,000 individually or
$300,000 together with his or her spouse is considered an accredited investor.
In addition, under the penny stock regulations the broker-dealer is required
to:





· 
Deliver, prior to any transaction
involving a penny stock, a disclosure schedule prepared by the Securities and
Exchange Commissions relating to the penny stock market, unless the
broker-dealer or the transaction is otherwise exempt;


· 
Disclose commissions payable to
the broker-dealer and our registered representatives and current bid and offer
quotations for the securities;


· 
Send monthly statements
disclosing recent price information pertaining to the penny stock held in a
customer's account, the account's value and information regarding the limited
market in penny stocks; and




7


· 
Make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction, prior to
conducting any penny stock transaction in the customer's
account.





Because
of these regulations, broker-dealers may encounter difficulties in their attempt
to sell shares of our common stock, which may affect the ability of selling
shareholders or other holders to sell their shares in the secondary market and
have the effect of reducing the level of trading activity in the secondary
market. These additional sales practice and disclosure requirements could impede
the sale of our securities, if our securities become publicly traded. In
addition, the liquidity for our securities may be decreased, with a
corresponding decrease in the price of our securities.





Holders





As of the
date of this registration statement, we had 33 holders of record of our common
stock.





Dividends





We have
not declared any cash dividends on our common stock since our inception and do
not anticipate paying such dividends in the foreseeable future. We plan to
retain any future earnings for use in our business. Any decisions as to future
payments of dividends will depend on our earnings and financial position and
such other facts, as the board of directors deems relevant.




Item
6. Management's Discussion and Analysis or Plan of Operation.





FORWARD LOOKING
STATEMENTS





The
following discussion and analysis is provided to increase the understanding of,
and should be read in conjunction with, the Financial Statements of the Company
and Notes thereto included elsewhere in this Report. Historical results and
percentage relationships among any amounts in these financial statements are not
necessarily indicative of trends in operating results for any future period. The
statements, which are not historical facts contained in this Report, including
this Plan of Operations, and Notes to the Financial Statements, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are based on currently available
operating, financial and competitive information, and are subject to various
risks and uncertainties. Future events and the Company's actual results may
differ materially from the results reflected in these forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, dependence on existing and future key strategic and strategic
end-user customers, limited ability to establish new strategic relationships,
ability to sustain and manage growth, variability of operating results, the
Company's expansion and development of new service lines, marketing and other
business development initiatives, the commencement of new engagements,
competition in the industry, general economic conditions, dependence on key
personnel, the ability to attract, hire and retain personnel who possess the
technical skills and experience necessary to meet the service requirements of
its clients, the potential liability with respect to actions taken by its
existing and past employees, risks associated with international sales, and
other risks described herein and in the Company's other SEC
filings.





The safe
harbors of forward-looking statements provided by Section 21E of the Exchange
Act are unavailable to issuers of penny stock. As we issued securities at a
price below $5.00 per share, our shares are considered penny stock and such safe
harbors set forth under the Reform Act are unavailable to us.





The
following discussion of our financial condition and results of operations should
be read in conjunction with the Financial Statements and Notes to the Condensed
Consolidated Financial Statements appearing elsewhere in this
report.





OVERVIEW





Majestic
Oil & Gas, Inc is engaged in the exploration, development, acquisition and
operation of oil and natural gas properties. Because oil and natural gas
exploration and development requires significant capital and because our assets
and resources are limited, we participate in the gas industry through the
purchase of interests in either producing wells or oil and natural gas
exploration, development and production projects.





Majestic
Oil & Gas, Inc. is a development stage company, and as such it is difficult
for us to forecast our revenues or earnings accurately. We believe that future
period-to-period comparisons of our operating results may not be meaningful and
should not be relied upon as an indication of future performance as we have and
will have no backlog of orders. Our operating results in one or more future
quarters may fall below investor expectations which, assuming our common stock
trades on a recognized market, would almost certainly cause the future trading
price of our common stock to decline. You should read the following discussion
together with the condensed consolidated financial statements and their
accompanying notes, included elsewhere in the report.





8


Majestic
Oil & Gas, Inc has participated in drilling programs in the Lake Frances
Field during 2007 and 2008.  Four successful gas wells have been
drilled to-date; the B Ag #25-1, Vandenbos #19-1, Boucher #18-1 and Stoltz
#18-1.  Majestic Oil & Gas, Inc holds a 25% Working Interest in
these four wells and the Company expects to see an increase in production
volumes, as a result of these wells. In addition, Majestic Oil & Gas, Inc
participated in the drilling of the Vandenbos #19-2 and the Jody Fields #4-1.
The Vandenbos #19-2 well was subsequently plugged and abandoned, as was the Jody
Fields #4-1 well, which was a wildcat oil well.





Based
upon our Management's experience in the oil and natural gas industry and on
recent events, including increasing global demand for energy and energy
disruptions caused by natural disasters, we believe the trend in oil and gas
prices will remain relatively stable or decrease slightly, but over the
long-term are more likely to increase. We expect to generate positive net income
from operations in the future, although our revenue and expenses will increase
as we expand our drilling and ownership activities. However, the current
economic crisis could have a negative impact on the Company’s revenues due to
the recent decrease in oil and natural gas prices.   During the
course of 2008, Majestic Oil & Gas, Inc saw a significant increase in the
price received per MCF at a high of $7.71 and a dramatic decrease to a low of
$3.36, as detailed under “Results of Operation.”  The current trend
shows a continued decline in pricing.  The price we received for our
production directly affects the amount of revenues we generate, which in turn
affects the Company’s liquidity and overall financial position.








RESULTS OF
OPERATIONS





Year
ended December 31, 2008 vs. Year ended December 31, 2007:


Year Ended
                                        December 31, 2008
                                      
                                      
                                      Year Ended
                                        December 31, 2007Revenue
                                      
                                      $
                                      130,623
                                      
                                      
                                      $
                                      41,189Expenses
                                      
                                      $
                                      199,303
                                      
                                      
                                      $
                                      296,214Net
      Income (Loss)
                                      
                                      $
                                      (68,680
                                      )
                                      
                                      $
                                      (255,025
                                      )





Revenues
for the period ending December 31, 2008 were $130,623 compared to $41,189 for
the period ending December 31, 2007. There was a large increase in the revenues
between these two periods as a result of the increase in natural gas production
with the drilling of two additional wells during 2008 and a full year’s
production from two natural gas wells brought on line during the 4th Quarter
2007. In addition, the Company saw an increase in the price received per MCF
overall. (MCF stands for the price per thousand cubic feet of natural
gas)





Ludwig State 36-1
                                
                                Share of
                                  Production
                                  Volumes
                                
                                Price
                                  Per
                                  MCF
                                
                                Share of
                                  Production
                                  Volumes
                                
                                Price
                                  Per
                                  MCF2008
                                
                                2007January
                                
                                
                                284.63
                                
                                
                                3.91
                                
                                
                                426.94
                                
                                
                                3.57February
                                
                                
                                265.65
                                
                                
                                4.45
                                
                                
                                365.06
                                
                                
                                3.53March
                                
                                
                                261.73
                                
                                
                                4.98
                                
                                
                                397.24
                                
                                
                                3.83April
                                
                                
                                255.96
                                
                                
                                5.36
                                
                                
                                378.47
                                
                                
                                3.50May
                                
                                
                                255.54
                                
                                
                                6.33
                                
                                
                                370.43
                                
                                
                                3.67June
                                
                                
                                246.06
                                
                                
                                6.75
                                
                                
                                339.08
                                
                                
                                3.80July
                                
                                
                                243.17
                                
                                
                                7.71
                                
                                
                                348.36
                                
                                
                                3.60August
                                
                                
                                240.69
                                
                                
                                5.90
                                
                                
                                336.39
                                
                                
                                2.95September
                                
                                
                                225.84
                                
                                
                                4.52
                                
                                
                                309.58
                                
                                
                                2.55October
                                
                                
                                243.99
                                
                                
                                3.47
                                
                                
                                310.61
                                
                                
                                3.07November
                                
                                
                                229.35
                                
                                
                                3.39
                                
                                
                                265.03
                                
                                
                                3.78December
                                
                                
                                242.76
                                
                                
                                3.36
                                
                                
                                278.85
                                
                                
                                4.06







9


Boucher
      27-1
                                
                                Share of
                                  Production
                                  Volumes
                                
                                Price
                                  Per
                                  MCF
                                
                                Share of
                                  Production
                                  Volumes
                                
                                Price
                                  Per
                                  MCF2008
                                
                                2007January
                                
                                
                                89.10
                                
                                
                                3.91
                                
                                
                                297.83
                                
                                
                                3.57February
                                
                                
                                85.39
                                
                                
                                4.45
                                
                                
                                242.14
                                
                                
                                3.53March
                                
                                
                                73.22
                                
                                
                                4.98
                                
                                
                                262.14
                                
                                
                                3.83April
                                
                                
                                67.44
                                
                                
                                5.36
                                
                                
                                238.84
                                
                                
                                3.50May
                                
                                
                                67.03
                                
                                
                                6.33
                                
                                
                                222.13
                                
                                
                                3.67June
                                
                                
                                68.06
                                
                                
                                6.75
                                
                                
                                166.24
                                
                                
                                3.80July
                                
                                
                                64.76
                                
                                
                                7.71
                                
                                
                                190.58
                                
                                
                                3.60August
                                
                                
                                70.33
                                
                                
                                5.90
                                
                                
                                160.67
                                
                                
                                2.95September
                                
                                
                                81.26
                                
                                
                                4.52
                                
                                
                                139.01
                                
                                
                                2.55October
                                
                                
                                114.26
                                
                                
                                3.47
                                
                                
                                133.86
                                
                                
                                3.07November
                                
                                
                                112.61
                                
                                
                                3.39
                                
                                
                                95.91
                                
                                
                                3.78December
                                
                                
                                113.44
                                
                                
                                3.36
                                
                                
                                104.98
                                
                                
                                4.06




B. Ag #25-1
                                  
                                  Share of
                                    Production
                                    Volumes
                                  
                                  Price
                                    Per
                                    MCF
                                  
                                  Share of
                                    Production
                                    Volumes
                                  
                                  Price
                                    Per
                                    MCF2008
                                  
                                  2007January
                                  
                                  
                                  40.80
                                  
                                  
                                  3.91February
                                  
                                  
                                  41.80
                                  
                                  
                                  4.45March
                                  
                                  
                                  42.20
                                  
                                  
                                  4.98April
                                  
                                  
                                  42.40
                                  
                                  
                                  5.36May
                                  
                                  
                                  41.00
                                  
                                  
                                  6.33June
                                  
                                  
                                  39.80
                                  
                                  
                                  6.75July
                                  
                                  
                                  41.00
                                  
                                  
                                  7.71August
                                  
                                  
                                  39.40
                                  
                                  
                                  5.90September
                                  
                                  
                                  37.80
                                  
                                  
                                  4.52October
                                  
                                  
                                  40.00
                                  
                                  
                                  3.47November
                                  
                                  
                                  37.40
                                  
                                  
                                  3.39
                                  
                                  
                                  21.45
                                  
                                  
                                  3.78December
                                  
                                  
                                  37.00
                                  
                                  
                                  3.36
                                  
                                  
                                  51.15
                                  
                                  
                                  4.06




Vandenbos #19-1
                                  
                                  Share of
                                    Production
                                    Volumes
                                  
                                  Price
                                    Per
                                    MCF
                                  
                                  Share of
                                    Production
                                    Volumes
                                  
                                  Price
                                    Per
                                    MCF2008
                                  
                                  2007January
                                  
                                  
                                  1792.93
                                  
                                  
                                  3.91Febtuary
                                  
                                  
                                  1658.87
                                  
                                  
                                  4.45March
                                  
                                  
                                  1578.84
                                  
                                  
                                  4.98April
                                  
                                  
                                  1390.95
                                  
                                  
                                  5.36May
                                  
                                  
                                  1328.66
                                  
                                  
                                  6.33June
                                  
                                  
                                  1219.14
                                  
                                  
                                  6.75July
                                  
                                  
                                  1144.48
                                  
                                  
                                  7.71August
                                  
                                  
                                  1047.34
                                  
                                  
                                  5.90September
                                  
                                  
                                  958.44
                                  
                                  
                                  4.52October
                                  
                                  
                                  952.67
                                  
                                  
                                  3.47November
                                  
                                  
                                  823.97
                                  
                                  
                                  3.39
                                  
                                  
                                  963.19
                                  
                                  
                                  3.78December
                                  
                                  
                                  736.11
                                  
                                  
                                  3.36
                                  
                                  
                                  1,897.09
                                  
                                  
                                  4.06




10


Boucher
      #18-1
                                  
                                  Share of
                                    Production
                                    Volumes
                                  
                                  Price
                                    Per
                                    MCF
                                  
                                  Share of
                                    Production
                                    Volumes
                                  
                                  Price
                                    Per
                                    MCF2008
                                  
                                  2007JanuaryFebtuaryMarchAprilMayJuneJulyAugust
                                  
                                  
                                  471.49
                                  
                                  
                                  5.90September
                                  
                                  
                                  546.77
                                  
                                  
                                  4.52October
                                  
                                  
                                  529.03
                                  
                                  
                                  3.47November
                                  
                                  
                                  461.38
                                  
                                  
                                  3.39December
                                  
                                  
                                  444.88
                                  
                                  
                                  3.36





Stoltz
      #18-1
                                  
                                  Share of
                                    Production
                                    Volumes
                                  
                                  Price
                                    Per
                                    MCF
                                  
                                  Share of
                                    Production
                                    Volumes
                                  
                                  Price
                                    Per
                                    MCF2008
                                  
                                  2007JanuaryFebtuaryMarchAprilMayJuneJulyAugust
                                  
                                  
                                  43.27
                                  
                                  
                                  5.90September
                                  
                                  
                                  54.03
                                  
                                  
                                  4.52October
                                  
                                  
                                  73.13
                                  
                                  
                                  3.47November
                                  
                                  
                                  52.61
                                  
                                  
                                  3.39December
                                  
                                  
                                  38.80
                                  
                                  
                                  3.36











Majestic
Oil & Gas Operations, Inc’s Net Share of the production volumes from the
Ludwig State #36-1, Boucher #27-1, B. Ag #25-1, Vandenbos #19-1, Boucher #18-1
and Stoltz #18-1 wells for period ending December 31, 2008 were 21,831 MCF
compared to 9,313 MCF for period ending December 31, 2007. The production
increased significantly, as a result of Majestic Oil & Gas, Inc’s
participation in the drilling of two new wells being the Boucher #18-1 and
Stoltz #18-1.  In addition, the Company realized a full year’s
production from B. Ag #25-1 and Vandenbos #19-1, which were drilled during the
4th
Quarter of 2007.   The Company expects to see an increase in
production volumes in 2009 due to these four new wells. The Company has plans to
continue its development of oil and natural gas prospects in the Lake Frances
area.





Our total
expenses decreased by $96,911 from the $296,214 reported for the year ending
December 31, 2007 compared to the $199,303 reported for the year ending December
31, 2008. Of those expenses, Production (Lifting) Costs increased by $19,270
from $12,885 for the year ended December 31, 2007 to $32,155 for the year ended
December 31, 2008. This increase was attributable to the increase in production
between the two periods. There was a significant decrease in the Selling,
General & Administrative Expenses of $156,539 from the $262,247 reported for
the period ending December 31, 2007 compared to the $105,708 reported for the
same period in 2008. The primary reason for the decrease was a decrease of
$150,691 in professional fees incurred. Revenues for the period significantly
increased, as a result of the increased production volumes and price per
MCF.





The
Company showed a Net Loss of ($68,680) for the period ending December 31, 2008.
This compares to the Net Loss of ($255,025) for the period ending December 31,
2007. The variance between these periods is directly related to the increase in
revenues and volumes during 2008, as well as the decrease in expenses for the
period. We expect to see steady revenues during 2009, as a result of the volumes
expected from the four new wells. The Companies revenues are subject to the
volatility of natural gas prices, which continue to fluctuate.





The
Company also plans to continue its pursuit of oil prospects in the Lake Frances
Area, which if successful, could contribute to an increase in future revenues
due to the price per barrel of oil. However, the price of crude oil has
significantly decreased, as has the price of natural gas, since last
reported.  In spite of the drop in the price of oil and Natural gas,
Management is still confident that we will build the Company through continued
drilling of oil and natural gas prospects.




11





Drilling
Activity





The
following table sets forth the results of our drilling activities during the
years 2008 and 2007:





Drilling
      ActivityGross
      Wells
                                                  
                                                  Net
      WellsYear
                                                  
                                                  
                                                  Total
                                                  
                                                  
                                                  Producing
                                                  
                                                  
                                                  Dry
                                                  
                                                  
                                                  Total
                                                  
                                                  
                                                  Producing
                                                  
                                                  
                                                  Dry2008
                                                  
                                                  
                                                  3
                                                  
                                                  
                                                  2
                                                  
                                                  
                                                  1
                                                  
                                                  
                                                  0.75
                                                  
                                                  
                                                  0.50
                                                  
                                                  
                                                  0.252007
                                                  
                                                  
                                                  3
                                                  
                                                  
                                                  2
                                                  
                                                  
                                                  1
                                                  
                                                  
                                                  0.75
                                                  
                                                  
                                                  0.50
                                                  
                                                  
                                                  0.25




Net
Production, Average Sales Price and Average Production Costs
(Lifting)





The table
below sets forth the net quantities of oil and gas production (net of all
royalties, overriding royalties and production due to others) attributable to
the Company for the years 2008 and 2007, and the average sales price, and
average production costs (including depreciation, depletion and amortization,
lease operating costs and all associated taxes) on a per unit of production
basis:





2008
                      
                      2007Net
      ProductionOil
      (Bbls)
                      
                      
                      -Gas
      (Mcf)
                      
                      
                      21,831
                      
                      
                      9,313.2Average
      Sales Prices
                      
                      
                      
                      
                      
                      -Oil
      (per Bbl)
                      
                      $
                      
                      
                      $Gas
      (per Mcf)
                      
                      $
                      5.98
                      
                      $
                      4.42Average
      Production Cost Per MCF
                      
                      $
                      1.47
                      
                      $
                      1.38




LIQUIDITY AND RESOURCE
CAPITAL





We are
still a development stage company. From our inception to December 31, 2008, we
incurred an accumulated deficit of ($623,814). This deficit is primarily the
result of approximately $300,000 in expenses associated with stock issuances
during fiscal year ended December 31, 2002, and $266,868 in legal, accounting
and filing fees incurred since inception associated with being a publicly traded
company. As of December 31, 2008, we had $79,790 of current cash available. Our
cash resources of $79,790 are not sufficient to satisfy our cash requirements
over the next 12 months.




We need
an additional minimum of $1,000,000 to finance our planned expansion in the next
12 months, which funds will be used for drilling of development oil and natural
gas wells in the Lake Frances and Williams Fields. We hope to be able to raise
additional funds from an offering of our stock in the future. However, this
offering may not occur, or if it occurs, may not raise the required funding. We
may also consider securing debt financing. We may not raise other equity or debt
financing sufficient to fund this amount. If we don't raise or generate these
funds, the implementation of our short-term business plan will be delayed or
eliminated.





Our
ability to continue as a going concern is dependent on our ability to raise
funds to implement our planned development; however we may not be able to raise
sufficient funds to do so. Our independent auditors have indicated that there is
substantial doubt about our ability to continue as a going concern over the next
twelve months. Our poor financial condition could inhibit our ability to achieve
our business plan.





COMMITMENTS AND
CONTINGENCIES





On July
1, 2004, the Company entered into an operating agreement with Altamont Oil &
Gas, Inc., through which Altamont Oil & Gas, Inc. will operate the wells in
which we have acquired a working interest. Our share of monthly operating costs
will be deducted from our monthly share of production revenue.





The
Company acquired leases covering approximately 3,962.56 net acres of undeveloped
land during 2007, for the purposes of future oil and gas development. This
acreage is located in Pondera County, Montana in the vicinity of the Williams
and Lake Frances Gas Fields. These leases remain in good standing with the term
of the leases being for periods of 3 or 5 years. Management considers the value
of the properties to be as much or more than for what they were
acquired.





During
the Second Quarter 2007, the Company entered into a Farm-out Agreement with
Altamont Oil & Gas, Inc and Numbers, Inc to conduct a 10-well natural gas
development program. This development program is still pending and will involve
the drilling of 5 wells in the Lake Frances Gas Field and 5 wells in the
Williams Gas Field, located in Pondera County, Montana. The Lake Frances Field
is located south of Valier, Montana just offsetting the Lake Frances reservoir.
The Williams Field is located 7 miles east of the town of Valier,
Montana.




12




Item
7. Financial Statements.









MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY


(A
Development Stage Company)





CONSOLIDATED
FINANCIAL STATEMENTS


YEARS
ENDED DECEMBER 31, 2008 AND 2007,


AND


INCEPTION
(APRIL 16, 2002) TO DECEMBER 31, 2008













13




MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY


(A
Development Stage Company)





Table of
Contents








PageINDEPENDENT
      AUDITORS’ REPORT
                          F-1CONSOLIDATED
      FINANCIAL STATEMENTSBalance
      Sheets
                          F-2Income
                          F-3Changes
      in Stockholders’ Equity
                          F-4Cash
      Flows
                          F-5Notes
      to Consolidated Financial Statements
                          F-6
      through F-16SUPPLEMENTAL
      INFORMATIONDisclosures
      about Oil and Gas Producing Activities and Properties -
      Unaudited
                          F-17
      through F-20













14








Report
of Independent Registered Public Accounting Firm








To the
Board of Directors and Stockholders


Majestic
Oil and Gas, Inc.


(A
development stage company)


Cut Bank,
Montana





We have
audited the consolidated balance sheet of Majestic Oil and Gas, Inc. (a
development stage company - the “Company”) as of December 31, 2008 and the
related consolidated statements of operations, stockholders’ equity, and cash
flows for the year ended December 31, 2008 and for the cumulative period from
Inception (April 16, 2002) to December 31, 2008. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audit.  The
financial statements of Majestic Oil & Gas, Inc. as of December 31, 2007,
were audited by other auditors whose report dated March 14, 2008, expressed an
unqualified opinion on those statements





We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Majestic Oil and Gas
Inc. as of December 31, 2008, and the consolidated results of their operations
and cash flows for the year ended December 31, 2008 and for the cumulative
period from Inception (April 16, 2002) to December 31, 2008 in conformity with
accounting principles generally accepted in the United States of
America.





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





Richey May &
      Co.




Englewood,
Colorado


March 30,
2009




F-1




MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 CONSOLIDATED
BALANCE SHEETS
 DECEMBER
31, 2008 AND 2007




2008
                                                                                      
                                                                                      
                                                                                      2007ASSETSCash
      and cash equivalents
                                                                                      
                                                                                      $
                                                                                      79,790
                                                                                      
                                                                                      
                                                                                      $
                                                                                      77,329Trade
      receivables
                                                                                      
                                                                                      
                                                                                      24,070
                                                                                      
                                                                                      
                                                                                      
                                                                                      17,641Total
      current assets
                                                                                      
                                                                                      
                                                                                      103,860
                                                                                      
                                                                                      
                                                                                      
                                                                                      94,970PROPERTY
      AND EQUIPMENTOil
      and gas properties, using the full cost pool method ofaccounting:Properties being
      amortized
                                                                                      
                                                                                      
                                                                                      455,894
                                                                                      
                                                                                      
                                                                                      
                                                                                      325,051Properties
      not subject to amortization
                                                                                      
                                                                                      
                                                                                      138,383
                                                                                      
                                                                                      
                                                                                      
                                                                                      124,526Less
      accumulated depletion, amortization and impairment
                                                                                      
                                                                                      
                                                                                      (129,400
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (68,800
                                                                                      )Net
      property and equipment
                                                                                      
                                                                                      
                                                                                      464,877
                                                                                      
                                                                                      
                                                                                      
                                                                                      380,777OTHER
      ASSETSWebsite
      development costs (less accumulated amortization)
                                                                                      
                                                                                      
                                                                                      1,240
                                                                                      
                                                                                      
                                                                                      
                                                                                      2,080Total
      other assets
                                                                                      
                                                                                      
                                                                                      1,240
                                                                                      
                                                                                      
                                                                                      
                                                                                      2,080Total
      assets
                                                                                      
                                                                                      $
                                                                                      569,977
                                                                                      
                                                                                      
                                                                                      $
                                                                                      477,827LIABILITIESAccounts
      payable
                                                                                      
                                                                                      $
                                                                                      5,708
                                                                                      
                                                                                      
                                                                                      $
                                                                                      538Production
      taxes and royalties payable
                                                                                      
                                                                                      
                                                                                      4,409
                                                                                      
                                                                                      
                                                                                      
                                                                                      4,435Total
      current liabilities
                                                                                      
                                                                                      
                                                                                      10,117
                                                                                      
                                                                                      
                                                                                      
                                                                                      4,973Asset
      retirement obligation
                                                                                      
                                                                                      
                                                                                      8,879
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,193Total
      liabilities
                                                                                      
                                                                                      
                                                                                      18,996
                                                                                      
                                                                                      
                                                                                      
                                                                                      8,166STOCKHOLDERS'
      EQUITYCommon
      stock, no par value-Authorized,
      100,000,000 sharesIssued
      and outstanding, 7,808,000 in 2008 and7,508,000
      shares in 2007
                                                                                      
                                                                                      
                                                                                      1,155,500
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,005,500Additional
      paid in capital
                                                                                      
                                                                                      
                                                                                      21,295
                                                                                      
                                                                                      
                                                                                      
                                                                                      21,295Stock
      subscription receivable
                                                                                      
                                                                                      
                                                                                      (2,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (2,000
                                                                                      )(Deficit)
      accumulated during the development stage
                                                                                      
                                                                                      
                                                                                      (623,814
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (555,134
                                                                                      )550,981
                                                                                      
                                                                                      
                                                                                      
                                                                                      469,661Total
      liabilities and stockholders' equity
                                                                                      
                                                                                      $
                                                                                      569,977
                                                                                      
                                                                                      
                                                                                      $
                                                                                      477,827




See notes
to consolidated financial statements.


F-2


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 CONSOLIDATED
STATEMENTS OF INCOME
 YEARS
ENDED DECEMBER 31, 2008 AND 2007,
 AND
THE PERIOD FROM INCEPTION (APRIL 16, 2002) TO DECEMBER 31, 2008


InceptionYear
      Ended
                                                      
                                                      
                                                      Year
      Ended
                                                      
                                                      
                                                      (April
      16, 2002)December
      31,
                                                      
                                                      
                                                      December
      31,
                                                      
                                                      
                                                      to
      December 31,2008
                                                      
                                                      
                                                      2007
                                                      
                                                      
                                                      2008REVENUE
                                                      
                                                      $
                                                      130,623
                                                      
                                                      
                                                      $
                                                      41,189
                                                      
                                                      
                                                      $
                                                      427,219PRODUCTION
      (LIFTING) COSTS
                                                      
                                                      
                                                      32,155
                                                      
                                                      
                                                      
                                                      12,885
                                                      
                                                      
                                                      
                                                      124,106EXPLORATION
      EXPENSES
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      2,362
                                                      
                                                      
                                                      
                                                      3,862DEPLETION,
      DEPRECIATION, AMORTIZATION&
      IMPAIRMENT
                                                      
                                                      
                                                      61,440
                                                      
                                                      
                                                      
                                                      18,720
                                                      
                                                      
                                                      
                                                      130,660INCOME
      FROM OIL & GAS PRODUCINGACTIVITIES
                                                      
                                                      
                                                      37,028
                                                      
                                                      
                                                      
                                                      7,222
                                                      
                                                      
                                                      
                                                      168,591SELLING,
      GENERAL & ADMINISTRATIVEEXPENSES
                                                      
                                                      
                                                      105,708
                                                      
                                                      
                                                      
                                                      262,247
                                                      
                                                      
                                                      
                                                      792,405NET
      LOSS
                                                      
                                                      $
                                                      (68,680
                                                      )
                                                      
                                                      $
                                                      (255,025
                                                      )
                                                      
                                                      $
                                                      (623,814
                                                      )EARNINGS
      PER SHARENet
      income (loss), basic and diluted
                                                      
                                                      $
                                                      (0.01
                                                      )
                                                      
                                                      $
                                                      (0.04
                                                      )Weighted
      average number of sharesoutstanding
                                                      
                                                      
                                                      7,739,868
                                                      
                                                      
                                                      
                                                      6,715,595Dilutive
      potential shares-stock
      warrants
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -Adjusted
      weighted average shares
                                                      
                                                      
                                                      7,739,868
                                                      
                                                      
                                                      
                                                      6,715,595


See notes
to consolidated financial statements.
  F-3
 MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 YEARS
ENDED DECEMBER 31, 2008 AND 2007,
 AND
THE PERIOD FROM INCEPTION (APRIL 16, 2002) TO DECEMBER 31, 2008
 (Deficit)AccumulatedCommon
      Stock
                                                      
                                                      
                                                      Additional
                                                      
                                                      
                                                      Stock
                                                      
                                                      
                                                      DuringPaid
      In
                                                      
                                                      
                                                      Subscription
                                                      
                                                      
                                                      DevelopmentShares
                                                      
                                                      
                                                      Amount
                                                      
                                                      
                                                      Capital
                                                      
                                                      
                                                      Receivable
                                                      
                                                      
                                                      Stage
                                                      
                                                      
                                                      TotalBEGINNING
      BALANCE,INCEPTION(APRIL
      16, 2002) TODECEMBER
      31, 2005
                                                      
                                                      
                                                      6,240,000
                                                      
                                                      
                                                      $
                                                      624,000
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      (280,041
                                                      )
                                                      
                                                      $
                                                      343,959Net
      loss
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (20,068
                                                      )
                                                      
                                                      
                                                      (20,068
                                                      )BALANCE,
      DECEMBER 31, 2006
                                                      
                                                      
                                                      6,240,000
                                                      
                                                      
                                                      
                                                      624,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (300,109
                                                      )
                                                      
                                                      
                                                      323,891Common
      stock issued for services
                                                      
                                                      
                                                      330,000
                                                      
                                                      
                                                      
                                                      147,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      147,000Warrants
      exercised
                                                      
                                                      
                                                      938,000
                                                      
                                                      
                                                      
                                                      234,500
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (2,000
                                                      )
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      232,500Common
      stock options issued
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      21,295
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      21,295Net
      loss
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (255,025
                                                      )
                                                      
                                                      
                                                      (255,025
                                                      )BALANCE,
      DECEMBER 31, 2007
                                                      
                                                      
                                                      7,508,000
                                                      
                                                      
                                                      
                                                      1,005,500
                                                      
                                                      
                                                      
                                                      21,295
                                                      
                                                      
                                                      
                                                      (2,000
                                                      )
                                                      
                                                      
                                                      (555,134
                                                      )
                                                      
                                                      
                                                      469,661Common
      stock issued
                                                      
                                                      
                                                      300,000
                                                      
                                                      
                                                      
                                                      150,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      150,000Net
      loss
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (68,680
                                                      )
                                                      
                                                      
                                                      (68,680
                                                      )BALANCE,
      DECEMBER 31, 2008
                                                      
                                                      
                                                      7,808,000
                                                      
                                                      
                                                      $
                                                      1,155,500
                                                      
                                                      
                                                      $
                                                      21,295
                                                      
                                                      
                                                      $
                                                      (2,000
                                                      )
                                                      
                                                      $
                                                      (623,814
                                                      )
                                                      
                                                      $
                                                      550,981
  See notes
to consolidated financial statements.
  F-4
 MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 YEARS
ENDED DECEMBER 31, 2008 AND 2007,
 AND
THE PERIOD FROM INCEPTION (APRIL 16, 2002) TO DECEMBER 31,
2008
  
 Inception(April
      16, 2002)Year
      Ended
                                                          
                                                          
                                                          Year
      Ended
                                                          
                                                          
                                                          toDecember
      31,
                                                          
                                                          
                                                          December
      31,
                                                          
                                                          
                                                          December
      31,2008
                                                          
                                                          
                                                          2007
                                                          
                                                          
                                                          2008OPERATING
      ACTIVITIESNet
      income (loss)
                                                          
                                                          $
                                                          (68,680
                                                          )
                                                          
                                                          $
                                                          (255,025
                                                          )
                                                          
                                                          $
                                                          (623,814
                                                          )Charges
      and credits to net income(loss)
      not affecting cashDepletion and amortization
                                                          
                                                          
                                                          61,440
                                                          
                                                          
                                                          
                                                          18,720
                                                          
                                                          
                                                          
                                                          130,660Organizational expenses paidwith stock
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          300,000Legal fees paid with stock
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          147,000
                                                          
                                                          
                                                          
                                                          172,000Stock compensation expense
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          21,295
                                                          
                                                          
                                                          
                                                          21,295Changes in assets and liabilitiesTrade receivables
                                                          
                                                          
                                                          (6,429
                                                          )
                                                          
                                                          
                                                          (9,197
                                                          )
                                                          
                                                          
                                                          (24,070
                                                          )Accounts payable
                                                          
                                                          
                                                          5,170
                                                          
                                                          
                                                          
                                                          (2,781
                                                          )
                                                          
                                                          
                                                          5,708Production taxes and royaltiespayable
                                                          
                                                          
                                                          (26
                                                          )
                                                          
                                                          
                                                          (7,790
                                                          )
                                                          
                                                          
                                                          4,409NET
      CASH (USED) PROVIDED BYOPERATING
      ACTIVITIES
                                                          
                                                          
                                                          (8,525
                                                          )
                                                          
                                                          
                                                          (87,778
                                                          )
                                                          
                                                          
                                                          (13,812
                                                          )INVESTING
      ACTIVITIESWebsite
      development
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          (2,500
                                                          )
                                                          
                                                          
                                                          (2,500
                                                          )Additions
      to property and equipment
                                                          
                                                          
                                                          (139,014
                                                          )
                                                          
                                                          
                                                          (254,197
                                                          )
                                                          
                                                          
                                                          (425,398
                                                          )NET
      CASH (USED) BYINVESTING
      ACTIVITIES
                                                          
                                                          
                                                          (139,014
                                                          )
                                                          
                                                          
                                                          (256,697
                                                          )
                                                          
                                                          
                                                          (427,898
                                                          )FINANCING
      ACTIVITIESProceeds
      from issuance ofcommon
      stock
                                                          
                                                          
                                                          150,000
                                                          
                                                          
                                                          
                                                          232,500
                                                          
                                                          
                                                          
                                                          521,500NET
      CASH PROVIDED BYFINANCING
      ACTIVITIES
                                                          
                                                          
                                                          150,000
                                                          
                                                          
                                                          
                                                          232,500
                                                          
                                                          
                                                          
                                                          521,500NET
      CHANGE IN CASH ANDCASH
      EQUIVALENTS
                                                          
                                                          
                                                          2,461
                                                          
                                                          
                                                          
                                                          (111,975
                                                          )
                                                          
                                                          
                                                          79,790CASH
      AND CASH EQUIVALENTSAT
      BEGINNING OF PERIOD
                                                          
                                                          
                                                          77,329
                                                          
                                                          
                                                          
                                                          189,304
                                                          
                                                          
                                                          
                                                          -CASH
      AND CASH EQUIVALENTSAT
      END OF PERIOD
                                                          
                                                          $
                                                          79,790
                                                          
                                                          
                                                          $
                                                          77,329
                                                          
                                                          
                                                          $
                                                          79,790
  See notes
to consolidated financial statements.


F-5


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007







NOTE 1 - BUSINESS ACTIVITY AND
SIGNIFICANT ACCOUNTING POLICIES





Principal
Business Activity and Principles of Consolidation





The
accompanying consolidated financial statements include the accounts of Majestic
Oil & Gas, Inc. and its wholly owned subsidiary, Grizzly Energy,
Inc.  All material inter-company transactions and balances between the
entities have been eliminated.





Majestic
Oil & Gas, Inc. (Company) is a development stage enterprise and its
operations consist of oil and natural gas development and production in the
Rocky Mountain region. The financial statements and notes to the financial
statements are the representation of the Company’s management, who is
responsible for their integrity and objectivity. The accounting polices of the
Company are in accordance with generally accepted accounting principles and
conform to the standards applicable to development stage
enterprises.





Going
Concern





The
Company is in the development stage and has incurred losses since its inception
that have resulted in an accumulated deficit.  Management of the
Company believes it will require additional financing that it has not yet
secured in order to emerge from the development stage.  These factors
raise substantial doubt about the Company’s ability to continue as a going
concern.  Management intends to vigorously pursue financing either
from creditors or from a future stock offering.  However, such
financing may not occur, or if it does occur, may not raise sufficient funds to
emerge from the development stage. The Company’s financial statements do not
include any adjustments related to the realization of the carrying value of
assets or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence.





Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenue and
expenses.  Actual results could differ from these
estimates.





The oil
and gas industry is subject, by its nature, to environmental hazards and clean
up costs. At this time, management knows of no substantial losses from
environmental accidents or events for which the Company may be currently
liable.





Income
Taxes





Income
taxes are provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due plus deferred taxes related
primarily to differences between financial and income tax
reporting.  The deferred tax assets and liabilities, if any, represent
the future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred income tax assets, if any, are adjusted by a valuation allowance, if
necessary, to recognize future tax benefits only to the extent, based on
available evidence, it is more likely than not such benefits will be
realized.





F-6


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007


Effective
January 1, 2007, the Company adopted the provisions of Financial Accounting
Standards Board (FASB) Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109.” FIN
48 provides detailed guidance for the financial statement recognition,
measurement and disclosure of uncertain tax positions recognized in the
financial statements in accordance with SFAS No. 109. Tax positions must meet a
“more-likely-than-not” recognition threshold at the effective date to be
recognized upon the adoption of FIN 48 and in subsequent periods. Upon the
adoption of FIN 48, the Company had no unrecognized tax benefits. During the
years ended December 31, 2008 and 2007, the Company recognized no adjustments
for uncertain tax benefits. The Company would recognize interest and penalties,
if any, related to uncertain tax positions in general and administrative
expenses. No interest and penalties related to uncertain tax positions were
accrued at December 31, 2008. The Company expects no material changes to
unrecognized tax positions within the next twelve months.





Cash
Equivalents





The
Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.





Trade
Receivables





The
Company is subject to credit risk associated with the purchases of its produced
natural gas. Exposure to this risk is controlled through credit approvals and
monitoring procedures. Collateral is not required. The Company believes all
trade receivables currently outstanding are collectible, accordingly, no
allowance for doubtful accounts has been established.





Concentrations
of Credit Risk





The
Company’s cash balance is maintained in a single financial institution. Also,
the Company’s receivables are due from entities within the oil & gas
industry and are dependent on the general economic conditions of the industry.
The receivables are not collateralized.





Fair
Value of Financial Instruments





The
Company’s financial instruments consist of primarily of trade receivables,
accounts payable and accrued production taxes and royalties. The carrying amount
of trade receivables, accounts payable and accrued production taxes and
royalties approximates its fair value because of the short-term maturity of such
instruments




F-7


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007


Impairment
of Long-Lived Assets





Long-lived
assets and identifiable intangibles are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable. If the expected undiscounted future cash flows from the use of the
assets and their eventual disposition is less than the carrying amount of the
assets, an impairment loss is recognized and measured using the assets’ fair
value or discounted cash flows.





Earnings
per Share of Common Stock





Basic
earnings per share is determined in accordance with Statement of Financial
Accounting Standard  (SFAS) No. 128 using net income divided by the
weighted average shares outstanding during the period.  Diluted
earnings per share is computed by dividing net income by the weighted average
shares outstanding, assuming all dilutive potential common shares were
issued.  The effect of outstanding common stock warrants and options
was anti-dilutive for 2008 and 2007.





Oil
and Gas Properties





The
Company utilizes the full cost method of accounting for oil and gas
properties.  Accordingly, all costs associated with the acquisition,
exploration and development of oil and gas reserves (including costs of
abandoned leaseholds, delay lease rentals, dry hole costs, geological and
geophysical costs, certain internal costs associated directly with acquisition,
drilling and well equipment inventory, exploration and development activities,
estimated dismantlement and abandonment costs, site restoration and
environmental exit costs, etc.) are capitalized.





All
capitalized costs of oil and gas properties, net of estimated salvage values,
plus the estimated future costs to develop proved reserves, are amortized on the
unit-of-production method using estimates of proved
reserves.  Investments in unproved properties and major development
projects are not amortized until proved reserves associated with the projects
can be determined or until impairment occurs.  If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.





In
addition, the capitalized costs are subject to a “ceiling test” which basically
limits such costs to the aggregate of the “estimated present value,” discounted
at a 10-percent interest rate, of future net revenues from proved reserves,
based on current economic and operating conditions, plus the lower of cost or
fair market value of unproved properties.





Gains or
losses are not recognized upon the sale or other disposition of oil and gas
properties, unless the sale represents a significant portion of oil and gas
interests and the gain significantly alters the relationship between capitalized
costs and proved oil and gas reserves of the cost center.




F-8


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007


Website
Development Costs





The
Company has capitalized the costs associated with development of its website,
and is amortizing the cost over a three year period.





Asset
Retirement Obligations





The
Company follows SFAS No. 143 “Accounting for Asset Retirement Obligations”. SFAS
No. 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 143 requires recognition of the present value of
obligations associated with the retirement of tangible long-lived assets in the
period in which it is incurred. The liability is capitalized as part of the
related asset’s carrying amount. Over time, accretion of the liability is
recognized as an operating expense and the capitalized cost is depreciated over
the expected useful life of the related asset. The Company’s retirement
obligations related to plugging, dismantlement, removal, site reclamation and
similar activities of its oil and gas exploration activities.





Revenue
Recognition





Revenue
from the sale of oil and gas production is recognized at the time of delivery of
the product to the purchaser.





Stock
Based Compensation





The
Company accounts for stock based compensation in accordance with SFAS No.123(R),
“Share-Based Payment,” which specifies the revised accounting alternative
requirements for pre-2006 stock based compensation grants existing at
January 1, 2006 and the required accounting for new grants starting
January 1, 2006.





The
Company values its stock options awarded on or after January 1, 2006 at the
fair value at grant date using the Black-Scholes option pricing model.
Compensation expense for stock options is recorded over the vesting period on a
straight line basis. Compensation paid in vested stock is valued at the fair
value at the applicable measurement date and charged to expense at that date.
The Company did not make any stock option awards prior to January 1,
2006.





During
the year ended December 31, 2007, the Company incurred a one-time expense for
options granted to a Director of the Company to purchase 125,000 shares at $0.38
per share. The fair value of these options, $21,295, was recorded as stock
compensation expense and additional paid in capital at the time the options were
granted. The fair value of these options was estimated on the date of grant
using the Black-Scholes valuation model. The key input variables used in valuing
these options granted in 2007 were: risk-free interest rate 5.1%; dividend yield
of zero; stock price volatility of 165% based on historical volatility of the
Company’s stock; and expected option lives of one half year based on stated life
of the options and future expectations.





During
the year ended December 31, 2008, the Company did not make any stock option
awards.




F-9


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007


Recently
Issued Accounting Pronouncements




Effective
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurement”,
which provides a framework for measuring fair value under generally accepted
accounting principles. SFAS No. 157 would apply to all financial instruments
that are being measured and reported on a fair value basis. Currently, the
Company has no financial instruments to which this statement would
apply.




On
December 4, 2007, SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements – an amendment of ARB No. 51” was issued. The objective of
SFAS No. 160 is to improve the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years, and interim period
within those fiscal years, beginning on or after December 15, 2008. The Company
does not have a noncontrolling interest in a subsidiary at this time and cannot
evaluate the impact SFAS No. 160 will have on future financial
statements.




In March
2008, SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities – an amendment of SFAS No. 133” was issued. SFAS No. 161 gives
financial statement users better information about he reporting entity’s hedges
by providing for qualitative disclosures about the objectives and strategies for
using derivatives, quantitative data bout the fair value of and gains and losses
on derivative contracts, and details of credit-risk-related contingent features
in their hedged positions. SFAS No. 161 is effective for the Company as of
January 1, 2009, with early application encouraged. The adoption of this new
standard is expected to have no effect on the financial and reporting
disclosures of the Company.




In May
2008, SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”
was issued. The objective of SFAS No. 162 is to identify the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). SFAS No. 162 will go into effect 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
(PCAOB) amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.” Management is
assessing the impact the adoption of SFAS No. 162 will have on the
Company.




In
December 2008 the SEC unanimously approved amendments to revise its oil and gas
reserves estimation and disclosure requirements. The amendments, among other
things, allows the use of new technologies to determine proved reserves; permits
the optional disclosure of probable and possible reserves; modifies the prices
used to estimate reserves for SEC disclosure purposes to a 12-month average
instead of a period end price; and requires that if a third party is primarily
responsible for preparing or auditing reserve estimates, the Company make
disclosures relating to the independence and qualifications of the third party,
including filing as an exhibit any report received from the third party. The
revised rules are effective January 1, 2010. The new requirements do not have an
impact on the Company’s 2008 financial statements.




F-10


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007


NOTE 2 - ORGANIZATION AND
DEVELOPMENT OF THE COMPANY





The
Company was formed on April 16, 2002 as a corporation. The Company is a
development stage enterprise and it is management’s intention that operations
will ultimately consist of oil and natural gas development and production in the
Rocky Mountain region. The accompanying financial statements reflect
organizational activities and limited oil and gas development and production
activities and they are not necessarily indicative of what the financial
statements will reflect once the intended operations of the Company are fully
underway.





The
Company is currently traded on the Over the Counter Bulletin Board under the
symbol MJOG.OB.





NOTE 3 -NON-CASH
TRANSACTIONS AND BUSINESS COMBINATION





During
the year ended December 31, 2007, the Company issued a total of 330,000 shares
of its common stock to Michael Williams, Esq. in payment of ongoing legal fees
associated with compliance with securities law. This resulted in a $147,000
charge to legal expense during the year ended December 31, 2007.





The
Company follows SFAS No. 143 “Accounting for Asset Retirement Obligations”. SFAS
No. 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 143 requires recognition of the present value of
obligations associated with the retirement of tangible long-lived assets in the
period in which it is incurred. As of December 31, 2008, an additional asset
retirement obligation of $5,686 was recorded, and a corresponding amount was
added to the full cost pool bringing the total asset retirement obligation to
$8,879. No accretion expense was recorded for the years ended December 31, 2008
and 2007, as it was not considered to be significant.





NOTE 4 -COMMON STOCK
WARRANTS





The
Company issued common stock warrants to the stockholders that purchased common
stock from the Company for cash. These warrants entitle the holders to purchase
additional shares of common stock from the Company for $0.25 per share. During
the year ended December 31, 2007, a total of 938,000 of the 1,390,000 warrants
issued and outstanding were exercised for a total of $234,500. As of December
31, 2008, $2,000 remained to be collected, and is reflected as a stock
subscription receivable. The remaining 452,000 warrants expired.





The
warrants were issued 1:1 for each common share purchased for cash as follows:
during the years ended December 31, 2008 and 2007 no warrants were issued, and
during the period from inception (April 16, 2002) through December 31, 2008 a
total of 1,390,000 warrants were issued.





F-11


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007


NOTE 5 - RELATED PARTY
TRANSACTIONS





Altamont
Oil & Gas, Inc. (Altamont), an entity related through common ownership and
management, is the operator of the wells in which the Company owns its working
interests.  As the operator of the wells, Altamont is responsible for
remitting production taxes to the taxing authorities and royalty payments to the
royalty interest owners. Currently, all revenue earned by the Company is
received from Altamont. As of December 31, 2008, the Company had an outstanding
receivable from Altamont of $24,070 for gas sales, and a payable to Altamont of
$4,409 for production taxes and royalties.





During
2007, the Company entered into a Farm-out Agreement with Altamont Oil & Gas,
Inc and Numbers, Inc., an entity related through common ownership and
management, to conduct a 10-well natural gas development
program.  This development program is still pending and will involve
the drilling of 5 wells in the Lake Frances Gas Field and 5 wells in the
Williams Gas Field, located in Pondera County, Montana.   The
Lake Frances Field is located south of Valier, Montana just offsetting the Lake
Frances reservoir.  The Williams Field is located 7 miles east of the
town of Valier, Montana.





NOTE 6 - INCOME
TAXES





The
effective income tax rate differs from the U.S. Federal statutory income tax
rate due to the following:




2008
                        
                        
                        2007Federal
      statutory income tax rate
                        
                        
                        34.00%
                        
                        
                        
                        34.00%State
      income tax rate
                        
                        
                        6.75%
                        
                        
                        
                        6.75%Permanent
      differencesValuation
      allowance
                        
                        
                        -40.75%
                        
                        
                        
                        -40.75%Effective
      tax rate
                        
                        
                        0.00%
                        
                        
                        
                        0.00%




The
sources of temporary differences resulting in deferred tax assets and deferred
tax liabilities are as follows:




Deferred
      tax assetsFederal
      and state net operating loss carryovers
                                  
                                  $
                                  197,700
                                  
                                  
                                  $
                                  93,900Organizational
      costs
                                  
                                  
                                  2,300
                                  
                                  
                                  
                                  7,400Total
      deferred tax assets
                                  
                                  
                                  200,000
                                  
                                  
                                  
                                  101,300Deferred
      tax liabilitiesOil
      and gas properties and related equipment
                                  
                                  
                                  (83,600
                                  )
                                  
                                  
                                  (59,600
                                  )Total
      deferred tax liabilities
                                  
                                  
                                  (83,600
                                  )
                                  
                                  
                                  (59,600
                                  )Net
      deferred tax asset
                                  
                                  
                                  116,400
                                  
                                  
                                  
                                  41,700Less:
      Valuation allowance
                                  
                                  
                                  (116,400
                                  )
                                  
                                  
                                  (41,700
                                  )Deferred
      tax liability
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -




During
the years ended December 31, 2008 and 2007, the Company recorded valuation
allowances that reduced the total deferred tax assets to zero. Realization of
deferred tax assets is dependent upon sufficient future taxable income during
the period that the carry-forwards are expected to be available to reduce
taxable income. Because the Company is in the development stage, and may not
achieve its desired level of profitability in its intended area of operation, a
valuation allowance has been established that reduces the deferred tax asset to
zero in all periods presented. There was no other activity in the valuation
allowance during the years ended December 31, 2008 and 2007, or during the
period from inception (April 16, 2002) to December 31, 2008.




F-12


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007


Operating
loss carry-forwards total approximately $514,000 as of December 31, 2008 and for
tax purposes expire in the years 2026 through 2028.








NOTE 7 - STOCK
OPTIONS





Although
the Company does not have a formal stock option plan, all options granted in the
past have been approved by the Board of Directors.





The
Company granted a non-qualified stock option to buy 125,000 shares at $0.38 per
share to a member of the Company’s Board of Directors on August 9,
2007.  These options expired on August 9, 2008, without being
exercised. The Company recorded a total of $21,295 for stock compensation
expense.





The
following table presents the stock options outstanding at December
31:




Weighted
      AverageShares
                              
                              
                              Exercise
      PriceOutstanding
      at December 31, 2007
                              
                              
                              125,000
                              
                              
                              $
                              0.38Granted
                              
                              
                              -
                              
                              
                              
                              -Exercised
                              
                              
                              -
                              
                              
                              
                              -Forfeited
                              
                              
                              (125,000
                              )
                              
                              
                              (0.38
                              )Outstanding
      at December 31, 2008
                              
                              
                              -
                              
                              
                              $
                              -Exercisable
      at December 31, 2008
                              
                              
                              -
                              
                              
                              $
                              -





NOTE 8 - COMMITMENTS AND
CONTINGENCIES





On July
1, 2004, the Company entered into an operating agreement with Altamont Oil &
Gas, Inc., through which Altamont Oil & Gas, Inc. will operate the wells in
which the Company has acquired a working interest. The payments received by the
Company for its share of monthly production revenue from Altamont Oil & Gas,
Inc. are net of its share of monthly operating costs and production royalty
payments, both of which are paid directly by Altamont Oil & Gas,
Inc.






NOTE 9 - OIL AND GAS PROPERTY
ACQUISITIONS





During
the year ended December 31, 2007 the Company entered into a Farm-out Agreement
with Altamont and Numbers, Inc., an entity whose owner is a member of the Board
of Directors of the Company, to drill a 10-well natural gas development
program.  This development program will involve the drilling of 5
wells in the Lake Frances Gas Field and 5 wells in the Williams Gas Field,
located in Pondera County, Montana.  The Lake Frances Field is located
south of Valier, Montana just offsetting the Lake Frances
reservoir.  The Williams Field is located 7 miles east of the town of
Valier, Montana. The locations for the development program were determined from
information gathered from a geological and engineering study.  The
surveying of each location and the permitting of each drill site with the
Montana Board of Oil & Gas is currently being completed.  The
Company will receive 100% of the revenues until the drilling and completion
costs have been recovered, at which time the Company's interest will revert to
50%. No wells have as yet been drilled under this agreement.




F-13


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007


The
Company participated in a drilling program during late 2007 and early 2008. As
part of this drilling program, the Company has a 25% working interest in the B.
Ag 25-1 well, a 25% working interest in the Vandenbos 19-1 well, a 12.5% working
interest in the Vandenbos 19-2 well, a 25% working interest in the Jody Fields
4-1 well, a 25% working interest in the Boucher 18-1 well, and a 25% working
interest in the Stoltz 18-1 well, all of which are in Pondera County, Montana.
The B. Ag 25-1 well, the Vandenbos 19-1 well, the Boucher 18-1 and the Stoltz
18-1 well are producing gas wells. The Vandenbos 19-2 well and the Jody Fields
4-1 well were dry holes.





The
Company acquired a variety of oil and gas leases during the years ended December
31, 2008 and 2007, both from unrelated third parties and from Altamont. These
leases are for future oil and gas development and are not part of any current
drilling program. The amount paid to Altamont was the same amount originally
paid by Altamont to acquire the leases.





On June
10, 2004, the Company acquired a 25% working interest the Boucher 27-1 well in
Pondera County, Montana from an unrelated third party for
$32,187.  The Boucher 27-1 well is a producing gas well.





On July
1, 2004, the Company acquired 100% of the outstanding stock of Grizzly Energy,
Inc. from Altamont Oil & Gas, Inc., an entity related through common
ownership and management. Grizzly Energy, Inc. was acquired in a stock-for-stock
exchange where 100% of the outstanding shares of Grizzly Energy, Inc. were
acquired for 1,600,000 shares of the Company. Grizzly Energy, Inc. owns a 25%
working interest in the State 36-1 well, a producing gas well in Pondera County,
Montana.




F-14


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007


Net
capitalized costs related to the Company’s oil and gas producing activities are
summarized as follows as of December 31, 2007 and 2006:




2008
                              
                              
                              2007Proved
      properties:Capitalized
      costs
                              
                              $
                              455,894
                              
                              
                              $
                              325,051Less
      accumulated depletion,depreciation,
      amortizationand
      impairment
                              
                              
                              (129,400
                              )
                              
                              
                              (68,800
                              )Net
      capitalized costs - proved properties
                              
                              $
                              326,494
                              
                              
                              $
                              256,251Unproved
      propertiesCapitalized
      costs
                              
                              
                              138,383
                              
                              
                              
                              124,526Net
      capitalized costs
                              
                              $
                              464,877
                              
                              
                              $
                              380,777





Under the
full cost method, depletion is computed on the units of production method based
on proved reserves, or upon reasonable estimates where proved reserves have not
been established due to the recent commencement of production. Depletion expense
recognized was $60,600 and $18,300 for the years ended December 31, 2008 and
2007, respectively.





The
unproved properties include a variety of lease acquisitions in Pondera County,
and costs associated with an exploratory oil well in Pondera County which has
not been completed. These capitalized costs associated with unproved properties
have been excluded from amortization, and we do not know when they will be
complete and added to the amortization base.





The
Company follows SFAS No. 143 “Accounting for Asset Retirement Obligations”. SFAS
No. 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 143 requires recognition of the present value of
obligations associated with the retirement of tangible long-lived assets in the
period in which it is incurred. As of December 31, 2008, an asset retirement
obligation of $8,879 was recorded, and a corresponding amount was added to the
full cost pool. No accretion expense was recorded during the years ended
December 31, 2008 and 2007, as it was not considered to be significant. As of
December 31, 2007, the estimated future cost to plug and abandon the Company’s
gas wells was $3,193. The estimated liability is based on historical experience
in plugging and abandoning wells, estimated cost to plug and abandon wells in
the future and federal and state regulatory requirements.




F-15


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007


The
following table presents the Company’s current asset retirement obligation
activity in 2008:




Asset
      retirement obligations at December 31, 2007
                        
                        $
                        3,193Liabilities
      incurred during the year
                        
                        
                        5,686Liabilities
      settled during the year
                        
                        
                        -Accretion
      expense
                        
                        
                        -Asset
      retirement obligations at December 31, 2008
                        
                        $
                        8,879




The
Company’s results of operations from oil and gas producing activities (excluding
corporate overhead and financing costs) are presented below for the years ended
December 31, 2008, 2007 and the period from April 16, 2002 (Inception) to
December 31, 2008:




Period
      FromYear
                        
                        
                        Year
                        
                        
                        InceptionEnded
                        
                        
                        Ended
                        
                        
                        (April
      16, 2002)December
      31,
                        
                        
                        December
      31,
                        
                        
                        to2008
                        
                        
                        2007
                        
                        
                        December
      31, 2008Oil
      and gas sales
                        
                        $
                        130,623
                        
                        
                        $
                        41,189
                        
                        
                        $
                        427,219Production
      costs
                        
                        
                        (32,155
                        )
                        
                        
                        (12,885
                        )
                        
                        
                        (124,106
                        )Depletion,
      depreciationand
      amortization
                        
                        
                        (60,600
                        )
                        
                        
                        (18,300
                        )
                        
                        
                        (129,400
                        )37,868
                        
                        
                        
                        10,004
                        
                        
                        
                        173,713Income
      tax provision
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -$
                        37,868
                        
                        
                        $
                        10,004
                        
                        
                        $
                        173,713







F-16







MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY





SUPPLEMENTARY
INFORMATION

















MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 SUPPLEMENTARY
INFORMATION
 DISCLOSURE
OF OIL & GAS PRODUCING ACTIVITIES AND PROPERTIES - UNAUDITED
 DECEMBER
31, 2008 AND 2007


OIL
AND GAS PRODUCING ACTIVITIES AND PROPERTIES





Net
capitalized costs related to the Company’s oil and gas producing activities are
summarized as follows as of December 31, 2008 and 2007:




2008
                          
                          
                          2007Proved
      properties:Capitalized
      costs
                          
                          $
                          455,894
                          
                          
                          $
                          325,051Less
      accumulated depletion,depreciation,
      amortizationand
      impairment
                          
                          
                          (129,400
                          )
                          
                          
                          (68,800
                          )Net
      capitalized costs - proved properties
                          
                          $
                          326,494
                          
                          
                          $
                          256,251Unproved
      propertiesCapitalized
      costs
                          
                          
                          138,383
                          
                          
                          
                          124,526Net
      capitalized costs
                          
                          $
                          464,877
                          
                          
                          $
                          380,777


Costs
incurred in oil and gas property acquisition, exploration and development
activities, including capital expenditures are summarized as follows for the
years ended December 31, 2008, 2007, and the period from April 16, 2002
(Inception) to December 31, 2008:




Period
      FromYear
                          
                          
                          Year
                          
                          
                          InceptionEnded
                          
                          
                          Ended
                          
                          
                          (April
      16, 2002)December
      31,
                          
                          
                          December
      31,
                          
                          
                          to2008
                          
                          
                          2007
                          
                          
                          December
      31, 2008Property
      acquisition costs:Proved
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          192,187Unproved
                          
                          
                          13,857
                          
                          
                          
                          124,526
                          
                          
                          
                          138,383Exploration
      costs
                          
                          
                          -
                          
                          
                          
                          13,335
                          
                          
                          
                          13,335Development
      costs
                          
                          
                          125,157
                          
                          
                          
                          116,336
                          
                          
                          
                          241,493Asset
      retirement obligation
                          
                          
                          5,686
                          
                          
                          
                          3,193
                          
                          
                          
                          8,879$
                          144,700
                          
                          
                          $
                          257,390
                          
                          
                          $
                          594,277




F-17


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 SUPPLEMENTARY
INFORMATION
 DISCLOSURE
OF OIL & GAS PRODUCING ACTIVITIES AND PROPERTIES - UNAUDITED
 DECEMBER
31, 2008 AND 2007


The
Company’s results of operations from oil and gas producing activities (excluding
corporate overhead and financing costs) are presented below for the years ended
December 31, 2008 and 2007, and the period from April 16, 2002 (Inception) to
December 31, 2008:





Period
      FromYear
                          
                          
                          Year
                          
                          
                          InceptionEnded
                          
                          
                          Ended
                          
                          
                          (April
      16, 2002)December
      31,
                          
                          
                          December
      31,
                          
                          
                          to2008
                          
                          
                          2007
                          
                          
                          December
      31, 2008Oil
      and gas sales
                          
                          $
                          130,623
                          
                          
                          $
                          41,189
                          
                          
                          $
                          427,219Production
      costs
                          
                          
                          (32,155
                          )
                          
                          
                          (12,885
                          )
                          
                          
                          (124,106
                          )Depletion,
      depreciationand
      amortization
                          
                          
                          (60,600
                          )
                          
                          
                          (18,300
                          )
                          
                          
                          (129,400
                          )37,868
                          
                          
                          
                          10,004
                          
                          
                          
                          173,713Income
      tax provision
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -$
                          37,868
                          
                          
                          $
                          10,004
                          
                          
                          $
                          173,713




Estimated
Quantities of Proved Oil and Gas Reserves (Unaudited)





The
reserve information presented below is based upon reports prepared by the
independent petroleum engineering firm of Citadel Engineering Ltd. The Company
emphasizes that reserve estimates are inherently imprecise and that estimates of
new discoveries are more imprecise than those of mature producing oil and gas
properties. Accordingly, these estimates are expected to change as future
information becomes available. All of the Companies reserves are located in the
United States.





Proved
oil and gas reserves are the estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.





The
standardized measure of discounted future net cash flows is computed by applying
year-end prices of oil and gas to the estimated future production of proved oil
and gas reserves, less estimated future expenditures to be incurred in
developing and producing the proved reserves, less estimated future income tax
expenses to be incurred on pretax net cash flows less tax basis of the
properties and available credits, and assuming continuation of existing economic
conditions. The estimated future net cash flows are then discounted using a rate
of 10 percent a year to reflect the estimated timing of the future cash
flows.




F-18


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 SUPPLEMENTARY
INFORMATION
 DISCLOSURE
OF OIL & GAS PRODUCING ACTIVITIES AND PROPERTIES - UNAUDITED
 DECEMBER
31, 2008 AND 2007


Presented
below is a summary of the changes in estimated proved reserves of the Company
for the years ended December 31, 2008 and 2007:





2008
                      
                      
                      2007Oil
                      
                      
                      Gas
                      
                      
                      Oil
                      
                      
                      Gas(Bbls)
                      
                      
                      (Mcf)
                      
                      
                      (Bbls)
                      
                      
                      (Mcf)Proved
      reservesBeginning
      of the year
                      
                      
                      -
                      
                      
                      
                      116,462
                      
                      
                      
                      -
                      
                      
                      
                      81,426Revisions
      of previous estimates
                      
                      
                      -
                      
                      
                      
                      (10,891
                      )
                      
                      
                      -
                      
                      
                      
                      (30,934
                      )Improved
      recovery
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Purchases
      of reserves in place
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Extensions
      and discoveries
                      
                      
                      -
                      
                      
                      
                      25,708
                      
                      
                      
                      -
                      
                      
                      
                      75,283Production
                      
                      
                      -
                      
                      
                      
                      (21,831
                      )
                      
                      
                      -
                      
                      
                      
                      (9,313
                      )Sales
      of reserves in place
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -End
      of the year
                      
                      
                      -
                      
                      
                      
                      109,448
                      
                      
                      
                      -
                      
                      
                      
                      116,462




All of
the proved reserves currently owned by the Company are proved developed
reserves. Proved developed reserves are those expected to be recovered through
existing wells, equipment, and operating methods.





2008
                            
                            
                            2007Standardized
      Measure of Discounted FutureNet
      Cash FlowsFuture
      cash inflows
                            
                            $
                            479,000
                            
                            
                            $
                            477,000Future
      production costs
                            
                            
                            (44,000
                            )
                            
                            
                            (34,000
                            )Future
      development costs
                            
                            
                            (9,000
                            )
                            
                            
                            (5,000
                            )Future
      income tax expenses
                            
                            
                            (44,000
                            )
                            
                            
                            (44,000
                            )Future
      net cash flows
                            
                            
                            382,000
                            
                            
                            
                            394,00010%
      annual discount for estimatedtiming
      of cash flows
                            
                            
                            (108,000
                            )
                            
                            
                            (130,000
                            )Standardized
      measures of discounted future netcash
      flows relating to proved oil and gas reserves
                            
                            $
                            274,000
                            
                            
                            $
                            264,000






F-19


MAJESTIC
OIL & GAS, INC. AND SUBSIDIARY
 (A
Development Stage Company)
 SUPPLEMENTARY
INFORMATION
 DISCLOSURE
OF OIL & GAS PRODUCING ACTIVITIES AND PROPERTIES - UNAUDITED
 DECEMBER
31, 2008 AND 2007


The
following reconciles the standardized measure of discounted future net cash flow
during 2008 and 2007:




2008
                      
                      
                      2007Beginning
      of the year
                      
                      $
                      264,000
                      
                      
                      $
                      162,000Net
      change in prices and production costs
                      
                      
                      79,000
                      
                      
                      
                      (3,000
                      )Extensions
      and discoveries
                      
                      
                      58,000
                      
                      
                      
                      170,000Revision
      of previous estimates
                      
                      
                      (25,000
                      )
                      
                      
                      (47,000
                      )Net
      change in estimated future development costs
                      
                      
                      (4,000
                      )
                      
                      
                      10,000Sales
      of oil and gas produced, net of production costs
                      
                      
                      (98,000
                      )
                      
                      
                      (28,000
                      )End
      of the year
                      
                      $
                      274,000
                      
                      
                      $
                      264,000




















F-20


Item 8. Changes In
and Disagreements With Accountants on Accounting and Financial
Disclosure.





None




ITEM
8A. CONTROLS AND PROCEDURES




Evaluation of Disclosure
Controls and Procedures





The
Company’s Chief Executive Officer/Chief Financial Officer has evaluated the
effectiveness of the Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31,
2008. Based upon such evaluation, the Chief Executive Officer/Chief Financial
Officer has concluded that, as of December 31, 2008, the Company’s disclosure
controls and procedures were ineffective. This conclusion by the
Company’s Chief Executive Officer/Chief Financial Officer does not
relate to reporting periods after December 31, 2008.





Management’s Report on
Internal Control Over Financial Reporting





Under the
supervision and with the participation of our management, including our Chief
Executive Officer/Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as of December
31, 2008 based on the framework stated by the Committee of Sponsoring
Organizations of the Treadway Commission. Furthermore, due to our financial
situation, we will be implementing further internal controls as we become
operative so as to fully comply with the standards set by the Committee of
Sponsoring Organizations of the Treadway Commission.





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control
system was designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes, in accordance with generally accepted accounting principles. Because
of inherent limitations, a system of internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate due to change in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.





Based on
its evaluation as of December 31, 2008, our management concluded that our
internal controls over financial reporting were ineffective as of December 31,
2008. A material weakness is a deficiency, or a combination of control
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the Company’s annual or
interim financial statements will not be prevented or detected on a timely
basis.





The
material weakness relates to the lack of segregation of duties in that our CEO
and CFO are the same person.  In the preparation of
audited financial statements, footnotes and financial data all of our
financial reporting is carried out by our Chief Financial Officer, and we do not
have an audit committee or independent CEO to monitor or review the work
performed.   The lack of segregation of duties results
from lack of a separate Chief Financial Officer with accounting technical
expertise necessary for an effective system of internal control.  We are,
in fact, a small, relatively simple operation from a financial point of view. In
order to mitigate this material weakness to the fullest extent possible, all
financial reports are reviewed by an outside accounting firm that is not our
audit firm. All unexpected results are investigated. At any time, if it appears
that any control can be implemented to continue to mitigate such weaknesses, it
is immediately implemented. To mitigate further this material weakness to the
fullest extent possible, although our CEO/CFO has identified the financial
reporting risks and the controls and address and monitors the controls on an
ongoing basis, our outside accounting firm that is not our audit firm performed
direct tests of our internal controls and procedures in place during the year
ended December 31, 2008 to identify material weaknesses that in its opinion need
to be addressed. No material weaknesses, other than the material weakness
identified above, were identified as a result of this testing. Finally, as soon
as our finances allow, we will hire an independent Chief Financial
Officer.





15


This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management’s report in this Annual Report on Form 10-K.





Changes in Internal Control
Over Financial Reporting





No change
in the Company’s internal control over financial reporting occurred during the
quarter ended December 31, 2008 that materially affected, or is reasonably
likely to materially affect, the Company s internal control over financial
reporting.







PART
II - ITEM 8B. OTHER INFORMATION





None—Not
Applicable




PART
III




Item
9. Directors, Executive Officers, Promoters and Control Persons; Compliance With
Section 16(a) of the Exchange Act.





Name
              
              Age
              
              PositionPatrick
      M. Montalban
              
              51
              
              President,
      CEO and DirectorDanny
      M. Mitchell
              
              80
              
              Corporate
      Secretary and DirectorBruce
      D. Hirsche
              
              60
              
              Director





Mr.
Patrick M. Montalban has been our President, CEO, and director since our
inception. He has been President, CEO and director of our wholly-owned
subsidiary Grizzly Energy Inc. from August 2002 to date. He has been President,
CEO and director of Altamont Oil and Gas which owns and operates gas producing
wells in Montana from April 1999 to date. From September 2000 to January 2002 he
was Director, President and CEO of Mountainview Energy Ltd. a publicly listed
oil and gas company on the CDNX. From January 1999 to date, he has
beenVice-President of Exploration and Production and Director for Montalban Oil
& Gas Operations, Inc, a company primarily engaged in the business of the
exploration and production of oil and gas properties. Previously, Mr. Montalban
was a director, Executive Vice President and Chief Operating Officer of
Quicksilver Resources, Inc., formerly MSR Exploration Ltd., and predecessor
companies from July 1983 to January 1999. Between January, 1990 and January,
1999, Mr. Montalban was director, President and Chief Operating Officer of Gypsy
Highview Gathering System Inc., a gas gathering, compression and pipeline
company and subsidiary of Quicksilver Resources Inc. Mr. Montalban is currently
a director Great Northern Drilling Company a private oil and gas company. He is
a petroleum geologist who obtained a BA in Geology from the University of
Montana in 1981. He devotes 50% of his time to our business.





Mr. Danny
Mack Mitchell has been our Vice President and director since our inception. He
has been President and CEO and director of Comanche Drilling Company from 1961
to date. Comanche Drilling Co. owned and operates oil and gas wells in the State
of Montana from 1959 to date. Comanche Drilling has drilled over 2000 wells in
the Northern Rockies from 1961 to July 2000. From 1965 to July 2000 he was
President and CEO of Danco a private Pipe and Sales Company. From 1986 to July
2000 he was owner President and CEO and director of Tulsa Tool Works. Tulsa Tool
Works manufactured and fabricated oil field equipment. He is a Mechanical
Engineer who obtained a BS in Mechanical Engineer from Gonzaga University in
1959.





Bruce D.
Hirsche, Barrister & Solicitor was appointed to the Board of Directors on
December 13, 2006. Mr. Hirsche is a partner with Parlee McLaws, a law firm,
specializing in Securities Law. He received his Bachelor of Law (L.L.B.) Degree
in 1974 from the University of Alberta and his Masters Degree (L.L.M.) in 2003
from York University, Osgoode Hall Law School. Mr. Hirsche is currently a member
of the Law Society of Alberta, the Canadian Bar Association and the Edmonton Bar
Association. Mr. Hirsche is currently a Director and Officer of several public
and private companies, as follows:




16





Mr.
Hirsche was a Director and Officer of MSR Exploration Ltd, now Quicksilver
Resources, Inc from July 1991 to September 1997. Other Directorship and Officer
positions include Global Tree Technologies from January 1991 to present, Shelton
Canada Corp from June 1997 to present, Rock Resources, Inc from February 2000 to
July 2003, EquiTech Corporation from June 2000 to February 2004, Innovotech Inc
from January 2001 to present, AltaRex Corp (now Twin Butte Energy) from May 2003
to February 2004, AltaRex Medical Corp from December 2003 to present, ViRexx
Medical Corp from December 2003 to Present, Arrow Energy Ltd from September 2008
to present.





Directors
serve for a one-yearterm. Our bylaws
currently provide for a board of directors comprised of a minimum of one
director.





Board
Committees





We
currently have no compensation committee or other board committee performing
equivalent functions. Currently, all members of our board of directors
participate in discussions concerning executive officer
compensation.





Family
Relationships





There are
no family relationships among our officers or directors.





Legal
matters





No
officer, director, or persons nominated for such positions, promoter or
significant employee has been involved in the last five years in any of the
following, except as set forth below:





·
            Any
      bankruptcy petition filed by or against any business of which such person
      was a general partner or executive officer either at the time of the
      bankruptcy or within two years prior to that
  time.





·
            Any
      conviction in a criminal proceeding or being subject to a pending criminal
      proceeding (excluding traffic violations and other minor
      offenses);





·
            Being
      subject to any order, judgment, or decree, not subsequently reversed,
      suspended or vacated, of any court of competent jurisdiction, permanently
      or temporarily enjoining, barring, suspending or otherwise limiting his
      involvement in any type of business, securities or banking activities;
      and





·
            Being
      found by a court of competent jurisdiction (in a civil action), the
      Commission or the Commodity Futures Trading Commission to have violated a
      federal or state securities or commodities law, and the judgment has not
      been reversed, suspended, or
vacated.





Section 16(a) of the
Securities Exchange Act of 1934, as amended





Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's
directors and executive officers, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
beneficial ownership and changes in beneficial ownership of the Company's
securities with the SEC on Forms 3 (Initial Statement of Beneficial Ownership),
4 (Statement of Changes of Beneficial Ownership of Securities) and 5 (Annual
Statement of Beneficial Ownership of Securities). Directors, executive officers
and beneficial owners of more than 10% of the Company's Common Stock are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms that they file. Our directors and executive officers have filed such
reports as required, except for a Form 4 for options to Mr. Hirsche, which has
now been filed.





17


Item
10. Executive Compensation.





Summary Compensation
Table





The table
below summarizes all compensation awarded to, earned by, or paid to our
Principal Executive Officer for the years ended December 31, 2008 and
2007.





Name
              Title
              Year
              Commission
              Bonus
              Stock
                awards
              Option
                Awards
                *
              Non-
      equity
                Incentive
                plan
                compen-sation
              Non
      qualified
                deferred
                compen-sation
              All
      other
                Compen-sation
              TotalPatrick
      Montalban
              President
              2008
              0
              0
              0
              0
              0
              0
              0
              0Patrick
      Montalban
              President
              2007
              0
              0
              0
              0
              0
              0
              0
              0




Summary Equity Awards
Table




The
following table sets forth certain information for our executive officers
concerning unexercised options, stock that has not vested, and equity incentive
plan awards as of December 31, 2008.







OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END MARCH 31, 2008Name
              Number
      of
                Securities
                Underlying
                Unexercised
                Options
                (#)
                Exercisable
              Number
      of
                Securities
                Underlying
                Unexercised
                Options
                (#)
                Unexercisable
              Equity
                Incentive
      Plan
                Awards:
                Number
      of
                Securities
                Underlying
                Unexercised
                Unearned
                Options
      (#)
              Option
                Exercise
                Price
              Option
                Expiration
                Date
                
                
                
                
                
                None
              Number
      of
                Shares
      or
                Units
      of
                Stock
      That
                Have
      Not
                Vested
                (#)
              Market
                Value
      of
                Shares
      or
                Units
      of
                Stock
      That
                Have
      Not
                Vested
              Equity
                Incentive
                Plan
                Awards:
                Number
                Of
                Unearned
                Shares,
                Units
      or
                Other
                Rights
                That
      Have
                Not
                Vested
                (#)
              Equity
                Incentive
                Plan
                Awards:
                Market
      or
                Payout
                Value
      of
                Unearned
                Shares,
                Units
      or
                Other
                Rights
                ThatHave
                Not
                VestedPatrick
      Montalban
              0
              0
              0
              0
              None
              0
              0
              0
              0





Narrative disclosure to
summary compensation and option tables





We have no employment or
other compensation agreement or arrangement with Mr.
Montalban.





At no
time during the last fiscal year with respect to any person listed in the Table
above was there:




·
            any
      outstanding option or other equity-based award repriced or otherwise
      materially modified (such as by extension of exercise periods, the change
      of vesting or forfeiture conditions, the change or elimination of
      applicable performance criteria, or the change of the bases upon which
      returns are determined;


·
            any
      waiver or modification of any specified performance target, goal or
      condition to payout with respect to any amount included in non-stock
      incentive plan compensation or
payouts;


·
            any
      option or equity grant;


·
            any
      non-equity incentive plan award made to a named executive
      officer;


·
            any
      nonqualified deferred compensation plans including nonqualified defined
      contribution plans; or


·
            any
      payment for any item to be included under All Other Compensation in the
      Summary Compensation Table.




18




Board of
Directors




Director
Compensation




Name
                Year
      ended
                  December
      31, 2008
                Fees
      earned or paid in cash
                  ($)
                Stock
      awards
                  ($)
                Option
      awards
                  ($)
                Non-equity
                  incentive
      plan
                  compensation
                  ($)
                Nonqualified
      deferred
                  compensation
      earnings
                  ($)
                All
      other compensation
                  ($)
                Total
                  ($)Patrick
      M. Montalban
                0
                0
                0
                0
                0
                0
                0
                0Dan
      Mitchell
                0
                0
                0
                0
                0
                0
                0
                0Bruce
      D. Hirsche
                0
                0
                0
                0
                0
                0
                0
                0




Narrative
to Director Compensation Table




We have
no compensation arrangements (such as fees for retainer, committee service,
service as chairman of the board or a committee, and meeting attendance) with
directors.




Item 11. Security
Ownership of Certain Beneficial Owners and Management.





The
following table sets forth the ownership, as of the date of this annual report,
of our common stock by each person known by us to be the beneficial owner of
more than 5% of our outstanding common stock, our directors, and our executive
officers and directors as a group. There are not any pending or anticipated
arrangements that may cause a change in control.




The
information presented below regarding beneficial ownership of our voting
securities has been presented in accordance with the rules of the Securities and
Exchange Commission and is not necessarily indicative of ownership for any other
purpose. Under these rules, a person is deemed to be a "beneficial owner" of a
security if that person has or shares the power to vote or direct the voting of
the security or the power to dispose or direct the disposition of the security.
A person is deemed to own beneficially any security as to which such person has
the right to acquire sole or shared voting or investment power within 60 days
through the conversion or exercise of any convertible security, warrant, option
or other right. More than one person may be deemed to be a beneficial owner of
the same securities. The percentage of beneficial ownership by any person as of
a particular date is calculated by dividing the number of shares beneficially
owned by such person, which includes the number of shares as to which such
person has the right to acquire voting or investment power within 60 days, by
the sum of the number of shares outstanding as of such date plus the number of
shares as to which such person has the right to acquire voting or investment
power within 60 days. Consequently, the denominator used for calculating such
percentage may be different for each beneficial owner. Except as otherwise
indicated below and under applicable community property laws, we believe that
the beneficial owners of our common stock listed below have sole voting and
investment power with respect to the shares shown.





Name
      and Address
                
                Number
      of Shares
                  of
      Common Stock
                
                PercentagePatrick
      M. Montalban [1]
                  P.O
      Box 488 Cut Bank, Montana 59427
                
                
                4,600,000
                
                
                61.3Danny
      Mitchell
                  P.O
      Box 488 Cut Bank, Montana 59427
                
                
                90,000
                
                
                1.2Bruce
      Hirsche [1]
                
                
                0
                
                
                0.0All
      officers and directors as a group [three persons]
                
                
                4,690,000
                
                
                62.5





[1]
Represents currently exercisable options.




19





This
table is based upon information derived from our stock records. Unless otherwise
indicated in the footnotes to this table and subject to community property laws
where applicable, each of the shareholders named in this table has sole or
shared voting and investment power with respect to the shares indicated as
beneficially owned. Except as set forth above, applicable percentages are based
upon 7,808,000 shares of common stock outstanding as of December 31,
2008.




Item
12. Certain Relationships and Related Transactions.





Grizzly
Energy acquired a 25% working interest from Altamont Oil and Gas, Inc., a
Montana corporation and an affiliate of our President, Mr. Patrick Montalban, in
July 2004 for 16,000 shares of Grizzly Energy common stock. Mr. Patrick
Montalban owns and manages Altamont Oil and Gas, Inc. Thereafter in July 2004,
Majestic Oil & Gas, Inc. acquired all 16,000 issued and outstanding shares
of Grizzly Energy, Inc. common stock for the issuance of 1,600,000 shares of our
common stock. Prior to the sale to Majestic Oil & Gas, Inc, Altamont Oil
& Gas, Inc. incurred an expense of $120,000 in the acquisition of a 50%
Working Interest in this well. Altamont retained the remaining 25% interest in
this well. The purpose of this transaction was to acquire the working
interest.





During
the period from inception (April 16, 2002) to December 31, 2002, the Company
paid consulting fees totaling $28,000 to Patrick M. Montalban, President, CEO
and director to the Company, for studies of various oil and natural gas
prospects. There has been no other cash compensation paid to Mr. Montalban
during the period from inception (April 16, 2002) through December 31, 2008 for
his services to the Company.





Majestic
Oil & Gas, Inc has participated in the drilling and completion of the
following producing natural gas wells, earning a 25% Working Interest: Boucher
#27-1, B. Ag #25-1,Vandenbos #19-1, Boucher #18-1 and Stoltz #18-1. Altamont Oil
& Gas, Inc. is the operator of all the wells in which the Company owns a
working interest. As the operator of the wells, Altamont is responsible for
remitting production taxes to the taxing authorities and royalty payments to the
royalty interest owners. The Company pays Altamont a fee of $250 per month per
well as an operating fee. The purpose of this transaction was to obtain the
services of an experienced operator necessary for the operation of the wells in
which we have a working interest.





During
the Second Quarter 2007, the Company entered into a Farm-out Agreement with
Altamont Oil & Gas, Inc and Numbers, Inc, a Montana corporation and an
affiliate of our Director, Mr. Bruce Hirsche, to conduct a 10-well natural gas
development program. This development program is still pending and will involve
the drilling of 5 wells in the Lake Frances Gas Field and 5 wells in the
Williams Gas Field, located in Pondera County, Montana. The Lake Frances Field
is located south of Valier, Montana just offsetting the Lake Frances reservoir.
The Williams Field is located 7 miles east of the town of Valier,
Montana.





We
believe the transactions and agreements with related parties were comparable to
terms we could have obtained from non-affiliated parties.





We have
adopted an oral policy that any opportunity to acquire or develop any oil and
gas property or any working interest therein which becomes known to Mr.
Montalban or Altamont will be first offered to us. As we would then develop the
property or interest, and not Altamont, we would bear all the costs and receive
all the profits from these properties or interests, if acquired.




Item
13. Exhibits and Reports on Form 8-K.





(a) List
of documents filed as part of this Report:





None





(b)
Exhibits:





31.1 Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Chief Financial
Officer, Patrick Montalban




32.1
Section 1350 Certification, Patrick Montalban




20


Item
14. Audit Fees





Audit
Fees





Audit
      fees paid during:The
      year ended December 31, 2008:
                
                $
                24,047The
      year ended December 31, 2007:
                
                $
                23,400





No other
fees as specified in Item 9(e) of Schedule 14A charged.





Signatures





In
accordance with Section 13 or 15(d) of the Exchange Act, the
registrant


caused
this report to be signed on its behalf by the undersigned, thereunto
duly


authorized.





Title
            
            Name
            
            Date
            
            SignaturePrincipal
      ExecutiveOfficer
            
            Patrick
      Montalban
            
            March
      30, 2009
            
            /s/
      Patrick MontalbanPrincipal
      Accounting
            
            Patrick
      Montalban
            
            March
      30, 2009
            
            /s/
      Patrick MontalbanOfficerPrincipal
      FinancialOfficer
            
            Patrick
      Montalban
            
            March
      30, 2009
            
            /s/
      Patrick Montalban





In
accordance with the Exchange Act, this report has been signed below by the
following persons and in the capacities and on the dates indicated.





SIGNATURE
            
            NAME
            
            TITLE
            
            DATE/s/
      Patrick Montalban
            
            Patrick
      Montalban
            
            Director
            
            March
      30, 2009/s/
      Bruce Hirsche
            
            Bruce
      Hirsche
            
            Director
            
            March
      30, 2009/s/
      Danny Mitchell
            
            Danny
      Mitchell
            
            Director
            
            March
      30, 2009







21