UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION




WASHINGTON,
D.C. 20549




FORM
10-Q





(Mark
one)




|X|
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
quarterly period ended:December
31, 2007




|_|
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
  ACT




For the
transition period from _________ to ___________




Commission
file number 000-51430





INDEX OIL AND GAS,
INC.


(Exact
name of registrant as specified in its charter)




Nevada
              (State
      or other jurisdiction of incorporation or organization)
            20-0815369
              (I.R.S.
      Employer Identification No.)




10000
      Memorial Drive, Suite 440
              Houston, Texas 77024
              (Address
      of principal executive offices)





(713)
683-0800


(Registrant’s
telephone number, including area code)




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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Securities
Exchange Act of 1934.  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|




As of
February 14, 2008, there were outstanding 65,803,698 shares of Common
Stock.






1






TABLE
OF CONTENTS





PART
      I. FINANCIAL INFORMATIONPage
      #ITEM
      1.
            Condensed
      Consolidated financial statements (unaudited)Condensed
      Consolidated balance sheets at December 31, 2007 and March 31,
      2007
            3Condensed
      Consolidated statements of losses for the three and nine months ended
      December 31, 2007 and 2006
            4Condensed
      Consolidated statement of cash flows for the nine months ended December
      31, 2007 and 2006
            5Notes
      to Condensed Consolidated financial statements
            6ITEM
      2
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            25ITEM
      3
            Quantitative
      and Qualitative Disclosures About Market Risk
            34ITEM
      4
            Controls
      and Procedures
            35PART
      II. OTHER INFORMATIONITEM
      1
            Legal
      Proceedings
            36ITEM
      1A.
            Risk
      Factors
            36ITEM
      2.
            Unregistered
      Sales of Equity Securities and Use Of Proceeds
            36ITEM
      3.
            Defaults
      Upon Senior Securities
            36ITEM
      4.
            Submission
      Of Matters to a Vote of Security Holders.
            36ITEM
      5.
            Other
      Information
            36ITEM
      6
            Exhibits
            37Signatures
            38









2




















Item
1. Financial Statements:


INDEX
OIL AND GAS, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS





December
      31, 2007
              (unaudited)
            
            
            March
      31, 2007ASSETSCurrent
      Assets:Cash
      and cash equivalents  (Note 2)
            
            $
            2,772,908
            
            
            $
            10,141,125Trade
      receivables (Note 2)
            
            
            134,479
            
            
            
            80,342Other
      receivables
            
            
            2,156
            
            
            
            6,688Other
      current assets
            
            
            80,364
            
            
            
            72,936Total
      Current Assets
            
            
            2,989,907
            
            
            
            10,301,091Oil
      & Gas Properties, full cost, net of accumulated depletion (Notes 2, 3,
      6, 11 and 12)
            
            
            11,067,612
            
            
            
            4,866,050Property
      and Equipment, net of accumulated depreciation (Notes 2 and
    3)
            
            
            16,845
            
            
            
            12,493Total
      Oil & Properties and Property and Equipment
            
            
            11,084,457
            
            
            
            4,878,543Total
      Assets
            
            $
            14,074,364
            
            
            $
            15,179,634LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      Liabilities:Accounts
      payable and accrued expenses
            
            $
            930,677
            
            
            $
            814,449Bank
      loan (Note 5)
            
            
            
            
            
            
            -Total
      Current Liabilities
            
            
            930,677
            
            
            
            814,449Long-Term
      Liabilities:Asset
      retirement obligation (Notes 2 and 6)
            
            
            73,119
            
            
            
            41,552Total
      Liabilities
            
            
            1,003,796
            
            
            
            856,001Commitments
      and Contingencies (Note 7)
            
            
            -
            
            
            
            -Stockholders
      Equity: (Notes 5, 7, 8, and 9)Common
      stock, par value $0.001, 500 million shares authorized , 65,803,698 and
      65,737,036 issued and outstanding at December 31, 2007 and March 31, 2007,
      respectively (see Note 8)
            
            
            65,804
            
            
            
            65,737Additional
      paid in capital
            
            
            19,243,165
            
            
            
            19,043,734Accumulated
      deficit
            
            
            (6,238,976
            )
            
            
            (4,801,237
            )Other
      comprehensive income (Notes 2 and 4)
            
            
            575
            
            
            
            15,399Total
      Stockholders' Equity
            
            
            13,070,568
            
            
            
            14,323,633Total
      Liabilities and Stockholders' Equity
            
            $
            14,074,364
            
            
            $
            15,179,634






See
accompanying notes to unaudited condensed consolidated financial
statements










3






INDEX OIL AND GAS, INC.


CONDENSED
CONSOLIDATED STATEMENT OF LOSSES


(unaudited)




For the Three Months
      Ended
            
            
            For the Nine
      Months EndedDecember
      31,
            
            
            December
      31,
            
            
            December
      31,
            
            
            December
      312007
            
            
            2006
            
            
            2007
            
            
            2006Revenue:
      (Note 11)Oil
      and gas sales
            
            $
            185,314
            
            
            $
            131,976
            
            
            $
            474,263
            
            
            $
            305,787Operating
      Expenses:Operating
      costs
            
            
            59,373
            
            
            
            43,082
            
            
            
            141,796
            
            
            
            90,321Depreciation
      and amortization (Note 3)
            
            
            108,036
            
            
            
            61,256
            
            
            
            255,997
            
            
            
            114,027General
      and administrative expenses (Note 2)
            
            
            581,668
            
            
            
            585,077
            
            
            
            1,700,965
            
            
            
            1,625,040Total
      Operating Expenses
            
            
            749,077
            
            
            
            689,415
            
            
            
            2,098,758
            
            
            
            1,829,388Loss
      from Operations
            
            
            (563,763
            )
            
            
            (557,439
            )
            
            
            (1,624,495
            )
            
            
            (1,523,601
            )Other
      Income (Expense):Interest
      income
            
            
            37,503
            
            
            
            135,194
            
            
            
            186,756
            
            
            
            241,027Total
      Other Income (Expense)
            
            
            37,503
            
            
            
            135,194
            
            
            
            186,756
            
            
            
            241,027Loss
      before Income Taxes
            
            
            (526,260
            )
            
            
            (422,245
            )
            
            
            (1,437,739
            )
            
            
            (1,282,574
            )Income
      Taxes Benefit
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      Loss
            
            $
            (526,260
            )
            
            $
            (422,245
            )
            
            $
            (1,437,739
            )
            
            $
            (1,282,574
            )Loss
      per share (Note 10):Basic
      and assuming dilution
            
            $
            (0.01
            )
            
            $
            (0.01
            )
            
            $
            (0.02
            )
            
            $
            (0.02
            )Weighted
      average shares outstanding (Note 10):Basic
      and assuming dilution
            
            
            65,803,698
            
            
            
            65,383,822
            
            
            
            65,782,366
            
            
            
            65,383,822








See
accompanying notes to unaudited condensed consolidated financial
statements






4




INDEX
OIL AND GAS, INC.


CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS


(unaudited)





For
      the Nine Months EndedDecember
      31, 2007
            
            
            December
      31, 2006Cash
      Flows From Operating Activities:Net
      loss
            
            $
            (1,437,739
            )
            
            $
            (1,282,574
            )Adjustments
      to reconcile net loss to net cash (Used In) operating
      activities:Non
      cash stock based compensation cost
            
            
            205,165
            
            
            
            563,048Depreciation
      and amortization
            
            
            255,997
            
            
            
            114,027Decrease
      (Increase) in receivables
            
            
            (56,760
            )
            
            
            (138,532
            )(Decrease)
      Increase in accounts payable and accrued expenses
            
            
            115,673
            
            
            
            311,187Net
      Cash (Used In) Operating Activities
            
            
            (917,664
            )
            
            
            (432,844
            )Cash
      Flows From Investing Activities:Payments
      for oil and gas properties and property and equipment
            
            
            (6,430,344
            )
            
            
            (2,657,784
            )Net
      Cash (Used In) Investing Activities
            
            
            (6,430,344
            )
            
            
            (2,657,784
            )Cash
      Flows From Financing Activities:Proceeds
      from issue of common stock
            
            
            9,333
            
            
            
            10,965,598Repayment
      of bank term debt
            
            
            -
            
            
            
            (51,797
            )Payment
      for share issue costs
            
            
            (15,000
            )
            
            
            (1,185,449
            )Net
      Cash Provided by Financing Activities
            
            
            (5,667
            )
            
            
            9,728,352Effect of exchange rate
      changes on cash and cash equivalents
            
            
            (14,542
            )
            
            
            6,961Net
      (decrease) increase in Cash and Cash Equivalents
            
            
            (7,368,217
            )
            
            
            6,644,685Cash
      and cash equivalents at beginning of period
            
            $
            10,141,125
            
            
            $
            5,536,005Cash
      and cash equivalents at the end of period
            
            $
            2,772,908
            
            
            $
            12,180,690Supplemental
      Disclosures of Cash Flow Information:Cash
      (received) during the period for interest
            
            $
            (186,757
            )
            
            $
            (241,027
            )Cash
      paid during the period for taxes
            
            $
            -
            
            
            $
            -Non-cash
      Financing and Investing Transactions:Non
      cash stock based compensation cost
            
            $
            205,165
            
            
            $
            563,048






See
accompanying notes to unaudited condensed consolidated financial
statements






5






INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY





Organization





Index Oil
and Gas, Inc. (“Index Inc.” or  “the Company”) is the parent company
with four group subsidiaries: Index Oil & Gas Ltd., a United Kingdom holding
company, which provides management services to the Company, and United States
operating subsidiaries; Index Oil & Gas (USA) LLC (“Index USA”), an
operating company; Index Investments North America Inc. (“Index Investments”);
and Index Offshore LLC (“Index Offshore”), a wholly owned subsidiary of Index
Investments and also an operating company. Index Inc., through its subsidiaries,
is engaged in exploration, appraisal, development, production and sale of oil
and natural gas. The Company does not currently operate any of its properties
and sells its oil and gas production to domestic purchasers.





Operations





The
Company’s initial exploration project is located in Kansas, and is a very low
risk, low cost, low working interest, and limited upside project and which is
not expected to be a significant contributor to future growth. Seven wells were
drilled in Kansas during the fiscal year 2007, of which five wells were
successful and became oil producers and two wells were unsuccessful. Our working
interest (“WI”) in the Kansas AMI wells is either 5% for wells drilled in
Stafford County or 3.25% for wells drilled in Barton County and the net revenue
interest (“NRI”) is either approximately 4.155% or 2.64%, respectively. The
Company has committed to a current program of 14 wells for low-risk prospects in
Stafford and Barton Counties. To-date the Company has participated in six wells,
of which three are now on production (including one Stafford County well which
was drilled under farm in arrangements and in which Index has a 2.5% WI) and
three have been plugged and abandoned. Further activity is expected at
approximately two wells per month dependent on commodity pricing and evaluation
of the program to date.





The
Company has made progress with its onshore drilling program in Texas and
Louisiana with its interest in the Walker 1 discovery well (WI 12.5%,
approximate NRI 9.36%) drilled in Louisiana in Fiscal Year 2006 and which began
producing in August 2006 and its interest in Vieman 1 (19.5% WI, approximate NRI
14.56%) in Brazoria County Texas which began production in February 2007 and is
currently recompleting.  The Hawkins 1 well (WI 12.5%, approximate NRI
10.01%), also in Texas, in Matagorda County, began production into the local
pipeline grid in January 2008.  The Ruse and Dark wells, also in
Matagorda County, were dry holes.




The
Company also drilled two successful wells in south Texas. The Serrano well,
renamed Friedrich Gas Unit 1 (WI 37.5%, approximate NRI 28.125%) , in Victoria
County, found 13 feet of net gas pay with  production, since May 2007,
of 20,550 per Mcfe, with net production of approximately 2,865 Mcfe in December
2007. The Habanero well, renamed Schroeder Gas Unit 1 (WI 37.5%, approximate NRI
28.125%), in Goliad County, found 10 feet of net gas pay and began producing in
August 2007 for total net production of 7,432 Mcfe and net production of 2,051
Mcfe in December 2007.







6











INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY (continued)





The Ilse
1 well (WI 10% Before Project Payout and WI 8% After Project Payout, approximate
NRI 6%), drilled in the New Taiton Project area in Wharton County, Texas, has
been drilled to total depth of approximately 17,000 feet and logged. Analysis of
the logs revealed two zones of interest in the Wilcox C and Wilcox A,
respectively. The lowest zone, the Wilcox C, has been perforated and stimulated
by a reservoir “fracture” process. Gas flow from the formation to surface has
not been achieved. The preliminary decision from the operator was that this
interval would not be productive and would not have any proved reserves. The
well is currently suspended, pending a possible test to attempt to achieve gas
flows from the upper zone of interest, the Wilcox A.





All
non-operator members of the joint venture (“non-operators”), including Index,
have agreed to a successor operator and have requested an audit of the
accounting records of the original operator be performed in accordance with the
Joint Operating Agreement.  The original operator, however, refused to
sign a change in operator form to be filed with the Texas Railroad
Commission.  The non-operators filed a Temporary Restraining Order and
a Temporary Injunction against the original operator.  This was denied
by the Court with parties ordered to mediate.  Mediation was held in
October 2007 with no agreement reached. An Injunction Hearing was
held in late 2007 and is now in continuance status with dates being sought from
the court for further proceedings.  Contemporaneous with these Hearing
proceedings, non-operators have submitted a single-signature P4 (Change of
Operator) Form to the Texas Railroad Commission and will file for binding
arbitration under the Joint Operating Agreement.





Since
July 26, 2007, the Company, as a joint interest owner, has received various
Texas Property Code Notices of Intent to File Lien Against Property with regard
to materials/equipment sold and/or leased and amounts owed to third parties by
the operator of the Ilse property. Under Texas case law, the operator is deemed
to be responsible for these unpaid amounts owed to third parties. The Company,
along with other non-operators, is in the data gathering stage and is assessing
the implications and magnitude of these Notices and other legal issues and the
potential financial impact to the Company. The Company was billed for these
services by the operator on their operating statements received to December 2007
and these costs have been accrued in our condensed consolidated financial
statements as costs related to the Ilse well. It is the Company’s position that
no other contingency accrual is currently required.





Capital
costs associated with the Ilse 1 well have been held outside the full cost pool,
because a determination as to whether the well has found proved reserves has not
been completed. At the future point when a determination is made, the costs
associated with Ilse 1 will be included in the full cost pool. To the extent
that Ilse 1 does not find any proved reserves, ignoring all other unrelated
factors, this will lead to higher unit depletion charges in future periods and
makes it likely Index will suffer a ceiling test impairment charge. Index is
carrying approximately $1.2 million of costs at December 31, 2007 related to the
Ilse 1 well.





The
George Cason 1 well, drilled on the Fern Lake prospect in Nacogdoches County,
Texas, spudded on June 22, 2007 and reached a total depth of 11,147 feet on July
14, 2007 and produced approximately 1.0 MMcfe net in December 2007. This is the
first well resulting from the agreements to reprocess seismic data and develop
prospects to drill in up to four areas in Texas, Mississippi, and Alabama. The
Company has drilled the Cason 2 well which has been successfully completed and
tested and recently came on to production. The Cason 3 well spudded in early
February 2008. Index has an approximate after payout interest of 18.36% WI and
13.77% NRI in all three Cason wells. Following this third well, a review will be
undertaken of results and costs to date, prior to participating in any further
leasing or drilling in the area.








7






INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY (continued)





In
December 2006, the Company announced that it has signed an exploration agreement
to participate at 15% WI, subsequently increased to 20%, in the Supple Jack
Creek lease area (formerly described as West). The first well, now named HNH Gas
Unit 1, targeted gas in the Edwards Limestone in Lavaca County, Texas. The well
reached a total depth of approximately 15,000 feet and is currently being
evaluated following completion and testing operations. Subject to results, the
Company will evaluate additional drilling, particularly in a success case. The
gas unit designated for the well covers 566.59 acres. However, the contract Area
of Mutual Interest (AMI) for the overall prospect extends over a much larger
area, of which approximately 5,000 gross and net acres are currently under
lease.





In April
2007, the Company signed agreements to participate in the Shadyside prospect,
located in St. Mary Parish, Louisiana. Index had an initial 15% WI in the
prospect, reducing to 13.5% after prospect payout. The Shadyside 1 well was
drilled to a total depth of approximately 16,294 feet and due to
non-participation by the former operator, Index now has a 30% working interest
in the well.  The well is been hooked up and began flowing to sales in
January 2008 at an initial rate of approximately 1,600 Mcf per day and 134
barrels of oil per day, gross. The Company is considering the potential of both
deeper and shallower prospects on current leases.





In June
2007, the Company announced that it had entered into Participation and Joint
Operating Agreements for the drilling of the Cow Trap project ("Cow Trap") to be
located in Brazoria County, Texas. The Cow Trap well, named Ducroz 1 (WI 7.5%,
approximate NRI 5.25%), targets gas in stacked Miocene objectives at depths
ranging from 4,900 feet to 6,400 feet. The well had a total depth of
approximately 6,500 feet. Ducroz 1 has been drilled, completed and tested at
approximately 4,000 Mcf per day, and has recently been brought on to production
with an initial flow rate of approximately 2,950 Mcf per day, combined from two
intervals, and a small quantity of water production.





The
Company announced in April 2007 that it has signed a Participation Agreement to
explore for gas in the West Wharton prospect. This project could consist of up
to four exploration wells within the area of mutual interest in Wharton County,
Texas. Index has a 12.5% working interest in the project that will reduce to
9.38% after prospect payout. The first well, Outlar 1 (approximate NRI 7.0%),
spudded on August 12, 2007 and reached total depth in September 2007. Testing of
the well achieved test flow rates of approximately 1.6 million cubic feet of gas
per day (mmcfpd) and 77 barrels of condensate per day (bcpd) using a 7/64ths
choke. The Outlar 1 well produced a total of 5.7 MMcfe net in December 2007
..  The Company has also participated in additional leasing
opportunities with the operator.





In July
2007, the Company announced that it has signed a Purchase and Sale Agreement to
acquire a 5% WI and approximate 3.5% NRI in the Alligator Bayou exploration
prospect located beneath onshore portions of Brazoria and Matagorda Counties,
Texas. The prospect covers up to several thousand acres. The first well is
planned to spud in the second calendar quarter 2008.













8











INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Principles of
Consolidation/Basis of Presentation





The
unaudited condensed consolidated financial statements as of December 31, 2007
and March 31, 2007 and for the nine months ended December 31, 2007 and 2006
include the accounts of the Company and its wholly owned subsidiaries, Index
USA, Index Investments, Index Offshore and Index Limited, after eliminating all
significant intercompany accounts and transactions. Results of operations are
included from the date of incorporation. For the reverse merger between the
Company and Index Ltd. at January 20, 2006, the stockholder’s equity section and
earnings per share in the Condensed Consolidated balance sheet at December 31,
2006 were restated to reflect the exchange of shares using a conversion ratio of
approximately 2.857 shares of the Company to 1 share of Index
Ltd.  Certain reclassifications of prior year balances have been made
to conform such amounts to corresponding 2007 classifications.  These
reclassifications have no impact on net income.





Use of
Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Certain accounting policies involve
judgments and uncertainties to such an extent that there is reasonable
likelihood that materially different amounts could have been reported under
different conditions, or if different assumptions had been used. We evaluate our
estimates and assumptions on a regular basis. We base our estimates on
historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates and assumptions used in preparation of our financial statements. The
most significant estimates with regard to these financial statements relate to
the provision for income taxes, dismantlement and abandonment costs, estimates
to certain oil and gas revenues and expenses and estimates of proved oil and
natural gas reserve quantities used to calculate depletion, depreciation and
impairment of proved oil and natural gas properties and equipment.





Interim Financial
Statements





The
accompanying unaudited condensed consolidated financial statements have been
prepared without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) have been
condensed or omitted, although we believe that the disclosures contained herein
are adequate to make the information presented not misleading. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
interim periods are not necessarily indicative of the results that may be
expected for the entire year. These unaudited condensed consolidated financial
statements included herein should be read in conjunction with the Financial
Statements and Notes included in the Company’s Annual Report on Form 10-KSB for
the year ended March 31, 2007.








9





INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)





Cash and Cash Equivalents,
and Concentrations of Credit Risk





Cash and
cash equivalents represent cash in banks. The Company considers any highly
liquid debt instruments purchased with a maturity date of six months or less to
be cash equivalents. The Company’s accounts receivable are concentrated among
entities engaged in the energy industry, within the United States. Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
related party receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may be
in excess of the FDIC insurance limit. Allowance for doubtful accounts was $0 at
December 31, 2007 and March 31, 2007.





Oil and Gas
Properties





The
Company follows the full cost method of accounting for oil and gas properties.
Accordingly, all costs associated with acquisition, exploration, and development
of properties within a relatively large geopolitical cost center are capitalized
when incurred and are amortized as mineral reserves in the cost center are
produced, subject to a limitation that the capitalized costs not exceed the
value of those reserves. In some cases, however, certain significant costs, such
as those associated with offshore U.S. operations, are deferred separately
without amortization until the specific property to which they relate is found
to be either productive or nonproductive, at which time those deferred costs and
any reserves attributable to the property are included in the computation of
amortization in the cost center. All costs incurred in oil and gas producing
activities are regarded as integral to the acquisition, discovery, and
development of whatever reserves ultimately result from the efforts as a whole,
and are thus associated with the Company’s reserves. The Company capitalizes
internal costs directly identified with performing or managing acquisition,
exploration and development activities. The Company has not capitalized any
internal costs or interest at December 31, 2007 and 2006. Unevaluated costs are
excluded from the full cost pool and are periodically evaluated for impairment
rather than amortized. Upon evaluation, costs associated with productive
properties are transferred to the full cost pool and amortized. Gains or losses
on the sale of oil and natural gas properties are generally included in the full
cost pool unless the entire pool is sold.





Capitalized
costs and estimated future development costs are amortized on a
unit-of-production method based on proved reserves associated with the
applicable cost center. The Company has assessed the impairment for oil and
natural gas properties for the full cost pool at December 31, 2007 and will
assess quarterly thereafter using a ceiling test to determine if impairment is
necessary. Specifically, the net unamortized costs for each full cost pool less
related deferred income taxes should not exceed the following: (a) the present
value, discounted at 10%, of future net cash flows from estimated production of
proved oil and gas reserves plus (b) all costs being excluded from the
amortization base plus (c) the lower of cost or estimated fair value of unproved
properties included in the amortization base less (d) the income tax effects
related to differences between the book and tax basis of the properties
involved. The present value of future net revenues should be based on current
prices, with consideration of price changes only to the extent provided by
contractual arrangements, as of the latest balance sheet presented. The full
cost ceiling test must take into account the prices of qualifying cash flow
hedges in calculating the current price of the quantities of the future
production of oil and gas reserves covered by the hedges as of the
balance










10




INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





sheet
date. In addition, the use of the hedge-adjusted price should be consistently
applied in all reporting periods and the effects of using cash flow hedges in
calculating the ceiling test, the portion of future oil and gas production being
hedged, and the dollar amount that would have been charged to income had the
effects of the cash flow hedges not been considered in calculating the ceiling
limitation should be disclosed. Any excess is charged to expense during the
period that the excess occurs. The Company did not have any hedging activities
during the nine months ended December 31, 2007 and 2006. Application of the
ceiling test is required for quarterly reporting purposes, and any write-downs
cannot be reinstated even if the cost ceiling subsequently increases by
year-end. No ceiling test write-down was recorded for the nine months ended
December 31, 2007 and 2006. Sales of proved and unproved properties are
accounted for as adjustments of capitalized costs with no gain or loss
recognized, unless such adjustments would significantly alter the relationship
between capitalized costs and proved reserves of oil and gas, in which case the
gain or loss is recognized in income.Abandonment of
properties is accounted for as adjustments of capitalized costs with no loss
recognized.





Other Property, Plant and
Equipment





Other
property, plant and equipment primarily includes computer software equipment and
office furniture and fittings, which are recorded at cost and depreciated on a
straight-line basis over useful lives of five and three years respectively.
Repair and maintenance costs are charged to expense as incurred while
acquisitions are capitalized as additions to the related assets in the period
incurred. Gains or losses from the disposal of property, plant and equipment are
recorded in the period incurred. The net book value of the property, plant and
equipment that is retired or sold is charged to accumulated depreciation and
amortization, and the difference is recognized as a gain or loss in the results
of operations in the period the retirement or sale transpires.





Segment
Information





The
Company has one reportable segment, oil and natural gas exploration and
production, as determined in accordance with SFAS No. 131, “Disclosure
About Segments of an Enterprise and Related Information”.





Foreign Currency
Translation





The
Company translates the foreign currency financial statements in accordance with
the requirements of Statement of Financial Accounting Standards No. 52, “Foreign
Currency Translation.” Assets and liabilities of non-U.S. subsidiaries whose
functional currency is not the U.S. dollar are translated into U.S. dollars at
fiscal period end exchange rates. Revenue and expense items are translated at
average exchange rates prevailing during the fiscal year. Translation
adjustments are included in Accumulated other comprehensive gain /(loss) in the
equity section of the balance sheet, with a cumulative total of $575 and $15,399
at December 31, 2007, and March 31, 2007, respectively, and foreign currency
transaction gains/(losses) are included in the statement of
operations







11









INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





Stock Based
Compensation





On
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004)
“Share-Based Payments” (“SFAS-123R”). This statement applies to all awards
granted, modified, repurchased or cancelled after January 1, 2006 and to
the unvested portion of all awards granted prior to that date. The Company
adopted this statement using the modified version of the prospective application
(modified prospective application). Under the modified prospective application,
compensation cost for the portion of awards for which the employee’s requisite
service has not been rendered that are outstanding as of January 1, 2006
must be recognized as the requisite service is rendered on or after that date.
The compensation cost for that portion of awards shall be based on the original
fair market value of those awards on the date of grant as calculated for
recognition under SFAS 123. The compensation cost for these earlier awards shall
be attributed to periods beginning on or after January 1, 2006 using the
attribution method that was used under SFAS 123. The impact of adoption of
SFAS-123R decreased income from operations and income before income taxes and
net income by $205,165 and $563,048 relating to stock option awards for the nine
months ended December 31, 2007 and 2006 respectively and there was no impact on
the Condensed Consolidated Statement of Cash Flows. The effect on net income per
share for basic and diluted is $0.00 and $(0.01) for these respective periods.
See Note 9 of the notes to the Condensed Consolidated Financial Statements for
additional disclosure.





Correction of
Errors





The
Company adopted SFAS 154, “Accounting Changes and Error Corrections—a
replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”)” in
April 1, 2007, in which it changed the requirements for the accounting for and
the reporting of a change in accounting principle. The Company requires that a
new accounting principle be applied to the balances of assets and liabilities as
of the beginning of the earliest period for which retrospective application is
practicable and that a corresponding adjustment is made to the opening balance
of retained earnings (or other appropriate components of equity or net assets in
the balance sheet) for that period rather than being reported in the statement
of operations. When it is impracticable to determine the cumulative effect of
applying a change in accounting principle to all prior periods, The Company
applies the new accounting principle as if it were adopted prospectively from
the earliest date practicable. The Company will also revise previously issued
financial statements to reflect the correction of an error, should one occur,
and limit the application to the direct effects of the change. Indirect effects
of a change in accounting principle will be recognized in the period of the
accounting change. The Company will continue to account for a change in
accounting estimate in accordance with APB 20. The adoption of this
pronouncement had no impact to the Company’s consolidated financial position or
results of operations.










12







INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





Certain Hybrid Instruments.
On February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain
Hybrid Instruments,” which amends SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities,” and SFAS 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 155
allows financial instruments that have embedded derivatives to be accounted for
as a whole (eliminating the need to bifurcate the derivative from its host) if
the holder elects to account for the whole instrument on a fair value basis.
SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS
140. This statement is effective for all financial instruments acquired or
issued in fiscal years beginning after September 15, 2006. The Company
adopted this new standard, effective April 1, 2007, with no impact on its
financial position, results of operations or cash flows as it currently does not
have any hybrid instruments outstanding at December 31, 2007 and March 31, 2007,
respectively.





Accounting for Servicing of
Financial Assets. In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of
Financial Assets—an amendment of FASB Statement No. 140”(“SFAS No. 156”),
which amends FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, with
respect to the accounting for separately recognized servicing assets and
servicing liabilities. This Statement requires that all separately recognized
servicing assets and servicing liabilities be initially measured at fair value,
if practicable. The Board concluded that fair value is the most relevant
measurement attribute for the initial recognition of all servicing assets and
servicing liabilities, because it represents the best measure of future cash
flows. This Statement permits, but does not require, the subsequent measurement
of servicing assets and servicing liabilities at fair value. An entity that uses
derivative instruments to mitigate the risks inherent in servicing assets and
servicing liabilities is required to account for those derivative instruments at
fair value. Under this Statement, an entity can elect subsequent fair value
measurement of its servicing assets and servicing liabilities by class, thus
simplifying its accounting and providing for income statement recognition of the
potential offsetting changes in fair value of the servicing assets, servicing
liabilities, and related derivative instruments. An entity that elects to
subsequently measure servicing assets and servicing liabilities at fair value is
expected to recognize declines in fair value of the servicing assets and
servicing liabilities more consistently than by reporting other-than-temporary
impairments.  The Company adopted this new standard effective April 1,
2007, with no impact the Company’s Condensed Consolidated financial position or
results of operations as the Company does not have any derivative or hedging
instruments.





Income Taxes.In June 2006,
the FASB issued FASB Interpretation No 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”, which
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB 109. The
Interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Company adopted the new standard
effective April 1, 2007 with no material impact on the Company’s consolidated
financial position or results of operations.










13





INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





In
December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
Payment Arrangements ("FSP 00-19-2") which addresses accounting for registration
payment arrangements. FSP 00-





New Accounting
Pronouncements Not Yet Adopted





Business
Combinations.  In December 2007, the FASB issued SFAS No.
141(R), "Business Combinations" ("SFAS 141(R)"), which replaces SFAS No. 141.
SFAS No. 141(R) establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest in the acquiree
and the goodwill acquired. The Statement also establishes disclosure
requirements which will enable users to evaluate the nature and financial
effects of the business combination. SFAS 141(R) is effective for fiscal years
beginning after December 15, 2008. The adoption of SFAS 141(R) will have an
impact on accounting for business combinations once adopted, but the effect is
dependent upon acquisitions at that time.





Noncontrolling
Interests.  In December 2007, the FASB issued SFAS No. 160,
"Noncontrolling Interests in Consolidated Financial Statements - an amendment of
Accounting Research Bulletin No. 51" ("SFAS 160"), which establishes accounting
and reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parent's ownership
interest and the valuation of retained non-controlling equity investments when a
subsidiary is deconsolidated. The Statement also establishes reporting
requirements that provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the
non-controlling owners. SFAS 160 is effective for fiscal years beginning after
December 15, 2008. The Company does not currently have any noncontrolling
interests in subsidiaries , but once adopted, the effects will be dependent upon
acquisitions after that time.





Fair Value Measurements.In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements”, which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”), and expands disclosures about
fair value measurements. Prior to this Statement, there were different
definitions of fair value and limited guidance for applying those definitions in
GAAP. This Statement provides the definition to increase consistency and
comparability in fair value measurements and for expanded disclosures about fair
value measurements. The Statement emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. The Statement clarifies that
market participant assumptions include assumptions about risk, i.e. the risk
inherent in a particular valuation technique used to measure fair value and/or
the risk inherent in the inputs to the valuation technique. The Statement
expands disclosures about the use of fair vale to measure assets and liabilities
in interim and annual periods subsequent to initial recognition. The disclosures
focus on the inputs used to measure fair value and for recurring fair value
measurements using significant unobservable inputs, the effect of the
measurements on earnings for the period. The Statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued financial
statements for that fiscal year, including the financial statements for an
interim period within that fiscal year. In November207, the FASB deferred the
implementation of SFAS 157 for non-financial assets and liabilities until
October 2008.  The Company does not expect adoption of this standard
will have a material impact on its financial position, operations or cash
flows.





The Fair Value Option for Financial
Assets and Financial Liabilities.In February 2007, the FASB issued SFAS
159, “The Fair Value Option for Financial Assets and Financial
Liabilities—including an amendment of FASB Statement No. 115”, permitting
entities to choose to measure many financial instruments and certain other items
at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting measurement. The statement applies to all entities,
including not-for profit organizations. Most of the provisions of this Statement
apply only to entities that elect the fair value option. However, the amendment
to FASB Statement No. 115, “Accounting for Certain Investments in Debt and
Equity Securities”, applies to all entities with available-for-sale and trading
securities. The Company does not expect adoption of this standard will have a
material impact on its financial position, operations or cash
flows.






14








INDEX OIL AND GAS,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
3 - PROPERTY, PLANT AND EQUIPMENT, PROPERTY ACQUISITIONS AND DISPOSITIONS AND
CAPITALIZED INTEREST





Oil and Gas
Properties





Major
classes of oil and gas properties under the full cost method of accounting at
December 31, 2007 and March 31, 2007 consist of the following:




December
      31, 2007
            
            
            March
      31,
              2007Proved
      properties
            
            $
            8,030,395
            
            
            $
            3,254,211Unevaluated
      and unproved properties
            
            
            3,606,287
            
            
            
            1,927,776Gross
      oil and gas properties-onshore
            
            
            11,636,682
            
            
            
            5,181,987Less:  accumulated
      depletion
            
            
            (569,070
            )
            
            
            (315,937
            )Net
      oil and gas properties-onshore
            
            $
            11,067,612
            
            
            $
            4,866,050





Included
in the Company's oil and gas properties are asset retirement obligations of
$73,119 and $41,552 as of December 31, 2007 and March 31, 2007,
respectively.





Depletion
expense was $253,134 and $113,538 or $25.77 and $22.10 per boe, or $4.30 and
$3.68 per mcfe, of production for the nine months ended December 31, 2007 and
2006, respectively.





At
December 31, 2007 and March 31, 2007, the Company excluded the following
capitalized costs from depletion, depreciation and amortization:





December
      31, 2007
            
            
            March
      31,
              2007Not
      subject to depletion-onshore:Exploration
      costs
            
            $
            2,766,593
            
            
            $
            1,669,478Cost
      of undeveloped acreage
            
            
            839,694
            
            
            
            258,298Total
      not subject to depletion
            
            $
            3,606,287
            
            
            $
            1,927,776





It is
anticipated that the cost of undeveloped acreage of $0.8 million and exploration
costs of $2.8 million will be included in depreciation, depletion and
amortization when the related projects are planned and drilled and completed.
Included in exploration cost and undeveloped acreage costs at December 31, 2007
are approximately: $1.2 million related to the Ilse 1 well that has been
drilled, but not fully tested or completed (see Note 1), $1.1 million related to
undeveloped leasehold for the Supple Jack Creek project area and HNH Gas Unit 1
well, $0.2 million related to seismic reprocessing agreements, $0.1 million
related to the West Wharton prospect area, $0.6 million related to the Cason 2
and 3 wells and $0.3 million related to the Alligator Bayou
prospect.








15








INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
3 - PROPERTY, PLANT AND EQUIPMENT, PROPERTY ACQUISITIONS AND DISPOSITIONS AND
CAPITALIZED INTEREST (continued)





Acquisitions and
Dispositions





In the
third quarter 2007, the Company announced that it plans to drill 14 low-risk
wells in Stafford and Barton counties, Kansas. To-date the Company has
participated in six wells, of which three are now on production and three have
been plugged and abandoned. Further activity is expected at approximately two
wells per month dependent on commodity pricing and evaluation of the program to
date.





The
Company announced in April 2007 that it has signed a Participation Agreement to
explore for gas in the West Wharton prospect. This project could consist of up
to four exploration wells within the area of mutual interest in Wharton County,
Texas and the Company has recently participated in additional leasing
opportunities with the operator.





In April
2007, the Company signed agreements to participate in the Shadyside prospect,
located in St. Mary Parish, Louisiana.





In June
2007, the Company announced that it had entered into Participation and Joint
Operating Agreements for the drilling of the Cow Trap project ("Cow Trap") to be
located in Brazoria County, Texas.





In July
2007, the Company announced that it has signed a Purchase and Sale Agreement to
acquire a 5% WI and approximate 3.5% NRI in the Alligator Bayou exploration
prospect located beneath onshore portions of Brazoria and Matagorda Counties,
Texas. The prospect covers up to several thousand acres. The first well is
planned to spud in the second calendar quarter 2008.





See also
Note 1 - Organization and Operations of the Company.





Other Property and
Equipment





Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are depreciated using the straight-line method over their
estimated useful lives of the assets. Maintenance, repairs, and minor renewals
are charged against earnings when incurred. Additions and major renewals are
capitalized. Major assets at December 31, 2007 and March 31, 2007 were as
follows:





December
      31, 2007
            
            
            March
      31,
              2007Computer
      costs and furniture and fixtures, including foreign translation
      adjustment
            
            $
            31,204
            
            
            $
            23,858Less:
      accumulated depreciation
            
            
            (14,359
            )
            
            
            (11,365
            )Total
      other property and equipment
            
            $
            16,845
            
            
            $
            12,493





Depreciation
expenses from continuing operations amounted to $2,863 and $489 for the nine
months ended December 31, 2007 and 2006, respectively. There was no interest
capitalized in property, plant and equipment at December 31, 2007 and
2006.








16









INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)








NOTE
4 - COMPREHENSIVE LOSS





For the
nine months ended December 31, 2007 and 2006, comprehensive income (loss)
consisted of the amounts listed below.






For
      the Nine Months Ended December 31,2007
            
            
            2006Net
      loss
            
            $
            (1,437,739
            )
            
            $
            (1,282,574
            )Foreign
      currency translation gain / (loss)
            
            
            (14,824
            )
            
            
            (1,804
            )Comprehensive
      Loss
            
            $
            (1,452,563
            )
            
            $
            (1,284,378
            )







17










INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
5 - NOTES PAYABLE





Index
Ltd. had incurred debt and raised capital through a series of rounds of
fundraising from inception through December 31, 2006. The entire Index Ltd.
convertible debt stockholder funding has been converted to common stock at par
and additional paid in capital. After all conversion of stock, notes payable at
December 31, 2007 and March 31, 2007 were $0.  There was no debt issue
cost incurred during the nine months ended December 31, 2007 and 2006 and no
debt issue amortization expense in the nine months ended December 31, 2007 and
2006.  There was no unamortized debt issue cost at December 31, 2007
and March 31, 2007. There were no outstanding bank loans at December 31, 2007
and March 31, 2007.





NOTE
6 - ASSET RETIREMENT OBLIGATION





Activity
related to the Company’s Asset Retirement Obligation (“ARO”) during the nine
months ended December 31, 2007 is as follows:





For
      the Nine Months Ended December 31, 2007ARO
      as of beginning of period
            
            $
            41,552Liabilities
      incurred during period
            
            
            31,567Liabilities
      settled during period
            
            
            -Accretion
      expense
            
            
            -Balance
      of ARO as of end of period
            
            $
            73,119





Of the
total ARO, $73,119 is classified as a long-term liability at December 31, 2007.
For each of the nine months ended December 31, 2007 and 2006, the Company
recognized no accretion expense related to its ARO, due to the assumption of a
full offset of salvage values.










18










INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
7 - COMMITMENTS AND CONTINGENCIES





The
Company has various commitments to oil and gas exploration and production
capital expenditures, with ongoing expenditures on the Kansas properties, and
expenditures and commitments relating to wells in Texas and Louisiana arising
out of the normal course of business.





Lease
Commitments





The
Company does not have any capital lease commitments. The Company rents its main
operating office in Houston on a month-to-month basis for which payments began
in November 2005. The Company also has an original nine month lease, committed
to in April 2007, and recently extended to May 2008, related to corporate
housing for UK based officers while periodically working at the corporate
office.





Consulting
Agreements





The
Company has held consulting agreements with outside contractors, certain of whom
are also Company stockholders. The Agreements are generally for a fixed term
from inception and renewable from time to time unless either the Company or
Consultant terminates such engagement by written notice.





Stockholder
Matters





There
were no stockholder matters during the quarter ended December 31,
2007.





Litigation





The
Company is subject to various legal proceedings and claims, which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have a material adverse effect on its financial position,
results of operations or liquidity. Consequently, the Company has not recorded
any reserve for legal matters.





All
non-operator members of the joint venture drilling the Ilse well
(“non-operators”), including Index, have agreed to the appointment of a
successor operator and have requested an audit of the accounting records of the
original operator be performed in accordance with the Joint Operating
Agreement.  The original operator, however, refused to sign a change
in operator form to be filed with the Texas Railroad Commission.  The
non-operators filed a Temporary Restraining Order and a Temporary Injunction
against the original operator.  This was denied by the Court with
parties ordered to mediate.  Mediation was held in October 2007 with
no agreement reached.  An Injunction Hearing was
held in late 2007 and is now in continuance status with dates being sought from
the court for further proceedings.  Contemporaneous with these Hearing
proceedings, non-operators have submitted a single-signature P4 (Change of
Operator) Form to the Texas Railroad Commission and will file for binding
arbitration under the Joint Operating Agreement.





Since
July 26, 2007, the Company, as a joint interest owner, has received various
Texas Property Code Notices of Intent to File Lien Against Property with regard
to materials/equipment sold and/or leased and amounts owed to third parties by
the operator of the Ilse property.  Under Texas case law, the operator
is deemed to be responsible for these unpaid amounts owed to third
parties.   The Company, along with other non-operators, is in the
data gathering stage and is assessing the implications and magnitude of these
Notices and other legal issues and the potential financial impact to the
Company.  The Company was billed for these services by the operator on
their operating statements received to December 2007 and these costs have been
accrued in our condensed consolidated financial statements as costs related to
the Ilse well. It is the Company’s position that no other contingency accrual is
currently required.







19









INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
8 - CAPITAL STOCK





During
the three months ended December 31, 2007, there were no stock transactions as
follows:





Balance
      at September 30, 2007
            
            
            65,803,698Issuance
      of stock
            
            
            -Sale
      of stock
            
            
            -Balance
      of December 31, 2007
            
            
            65,803,698





During
the nine months to December 31, 2007 an executive officer and board member
acquired, on the open market, 56,947 shares of our common stock, $0.001 par
value, at an average price of $0.70 per share.  In addition, another
executive officer and board member, acquired, on the open market, 10,000 shares
of our common stock, $0.001 par value, at a price of $0.70 per
share.





On August
13, 2007, Mr. John G. Williams informed the Company that he was resigning from
his position as Executive Vice President Exploration and Production effective as
of November 1, 2007.  As such, 25,000 unvested shares previously
awarded to Mr. Williams in March 2007 were forfeited.   This
resulted in a revision in our previous estimate of forfeiture rate for stock
awards with a corresponding reduction in compensation expense of approximately
$7,000 from grant date through December 30, 2007 and zero compensation expense
in the quarter ended December 31, 2007.  In addition, compensation
expense for the forfeiture of this award in the future will be reduced by
approximately $23,400.





During
the nine months ended December 31, 2007, the Company issued a stock award of
25,000 shares of common stock to an employee contingent on 183 days of
continuous service.  Upon satisfaction of the terms of the award, the
employee will be issued 25,000 shares of restricted common stock of the
Company.





The net
stock compensation expense for all stock award transactions for the quarter
ended December 31, 2007 and 2006 was $10,242 and $35,844,
respectively.





NOTE
9 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION





The Board
of Directors of Index Inc. agreed to the adoption of the 2006 Incentive Stock
Option Plan (the “Stock Option Plan”) and approved it on March 14, 2006,
effective as of January 20, 2006, providing for the issuance of up to 5,225,000
shares of Common Stock of Index Inc. to officers, directors, employees and
consultants of Index Inc. and/or its subsidiaries. Pursuant to the Stock Option
Plan, Index Inc. has allowed for the issuance of options to purchase 4,952,526
shares of Common Stock as at December 31, 2007.  Total compensation
expense recorded for the issuance of stock options under the Stock Option Plan
in the quarter and nine months ended December 31, 2007 was $53,183 and $194,255,
respectively.





The
principal terms and conditions of the share options granted under the Stock
Option Plan are that vesting of the options granted occurs in three stages: (1)
50% on grant; (2) 25% one year after grant; and (3) 25% two years after grant.
Furthermore, the share options granted under the Share Option Plan are generally
non-transferable other than to a legal or beneficial holder of the options upon
the option holder’s death. The rights to vested but unexercised options cease to
be effective: (1) 18 months after death of the stock options holder; (2) 6
months after Change of Control of Index Inc.; (3) 12 months after loss ofoffice due to health
related incapacity or redundancy; or (4) 12 months after the retirement of the
options holder from a position with Index Inc. All options have a 5 year
expiring term.







20













INDEX OIL AND GAS,
INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
9 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION (continued)





During
the nine months ended December 31, 2007, the Company also issued stock options
to purchase 125,000 shares of common stock to a new employee, of which 62,500
options vested on date of grant.  In March 2007, stock options to
purchase 500,000 shares of common stock were awarded to John Williams, of which
250,000 options vested on date of grant.





On August
13, 2007, Mr. John G. Williams informed the Company that he was resigning from
his position as Executive Vice President Exploration and Production effective as
of November 1, 2007.  As such, 250,000 unvested options previously
awarded to Mr. Williams in March 2007 were forfeited and the term of exercise
for the remaining 250,000 vested options is now approved by the Index Board to
end on July 31, 2008. This resulted in a revision in our previous estimate of
forfeiture rate for stock options with a corresponding reduction in compensation
expense of approximately $20,000 from grant date through September 30, 2007, net
of a correction to previously recorded compensation expense on this award of
approximately $8,000 during the quarter ended December 31, 2007.  No
other compensation expense for this award was recorded in the current
quarter.  In addition, total compensation expense related to the
forfeiture of this award of approximately $79,400 will no longer be
recorded.





The
remaining compensation expense associated with total unvested stock and stock
option awards as of December 31, 2007, including transactions described above,
was approximately $37,000, and will be recognized over the remaining weighted
average vesting period.  Total overall stock based compensation
expense was $63,425 and $208,047 for the three months ended December 31, 2007
and 2006, respectively.





Effective
January 1, 2006, the Company began accounting for stock-based compensation
under SFAS-123R, whereby the Company records compensation expense based on the
fair value of awards described below.





Stock
Options





The
following tables summarize the changes in options outstanding and exercised and
the related exercise prices for the shares of the Company's common stock issued
to certain directors, employees and stockholders at December 31,
2007:





Number
      of Shares
            
            
            Weighted
      Average Exercise Price Per ShareOutstanding
      at March 31, 2007
            
            
            5,077,526
            
            
            $
            0.46Granted
            
            
            125,000
            
            
            $
            0.83Exercised
            
            
            -
            
            
            
            -Canceled,
      forfeited or expired
            
            
            (250,000
            )
            
            $
            1.42Outstanding
      at December 31, 2007
            
            
            4,952,526
            
            
            $
            0.42





The
Company has assumed an annual forfeiture rate of 5% for the awards granted based
on the Company’s history for this type of award to various employee groups.
Compensation expense is recognized ratably over the requisite service period and
immediately for retirement-eligible employees.








21






INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
9 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION (continued)





Options
      Outstanding
            
            
            Options
      ExercisableExercise
      Price
            
            
            Number
              Outstanding
            
            
            Weighted
      Average Remaining Contractual Life (Years)
            
            
            Weighted
      Average Exercise Price
            
            
            Number
              Exercisable
            
            
            Weighted
      Average Exercise Price$
            0.35
            
            
            
            4,577,526
            
            
            
            3.08
            
            
            $
            0.35
            
            
            
            3,433,145
            
            
            $
            0.35$
            1.42
            
            
            
            250,000
            
            
            
            0.58
            
            
            $
            1.42
            
            
            
            250,000
            
            
            $
            1.42$
            0.83
            
            
            
            125,000
            
            
            
            4.75
            
            
            $
            0.83
            
            
            
            62,500
            
            
            $
            0.83$
            0.42
            
            
            
            4,952,526
            
            
            
            3.00
            
            
            $
            0.42
            
            
            
            3,745,645
            
            
            $
            0.43





Warrants





The
following tables summarize the changes in warrants outstanding and exercised and
the related exercise prices for the shares of the Company's common stock issued
as follows:





Number
      of Shares
            
            
            Weighted
      Average Exercise Price Per ShareOutstanding
      and Exercisable March 31, 2007
            
            
            968,083
            
            
            $
            0.13Exercised
            
            
            (66,662
            )
            
            
            (0.14
            )Exchanged
            
            
            -
            
            
            
            -Canceled
      or expired
            
            
            -
            
            
            
            -Outstanding
      and Exercisable at December 31, 2007
            
            
            901,421
            
            
            $
            0.13









22













INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





Warrants
      Outstanding
            
            
            Warrants
      ExercisableExercise
      Prices
            
            
            Number
      Outstanding
            
            
            Weighted
      Average Remaining Contractual Life (Years)
            
            
            Weighted
      Average Exercise Price
            
            
            Number
      Exercisable
            
            
            Weighted
      Average Exercise Price$
            0.07
            
            
            
            138,655
            
            
            
            2.75
            
            
            $
            0.07
            
            
            
            138,655
            
            
            $
            0.07$
            0.14
            
            
            
            143,037
            
            
            
            2.75
            
            
            $
            0.14
            
            
            
            143,037
            
            
            $
            0.14$
            0.14
            
            
            
            253,961
            
            
            
            2.75
            
            
            $
            0.14
            
            
            
            253,961
            
            
            $
            0.14$
            0.14
            
            
            
            339,033
            
            
            
            2.75
            
            
            $
            0.14
            
            
            
            339,033
            
            
            $
            0.14$
            0.14
            
            
            
            26,735
            
            
            
            2.75
            
            
            $
            0.14
            
            
            
            26,735
            
            
            $
            0.14901,421
            
            
            
            2.75
            
            
            $
            0.13
            
            
            
            901,421
            
            
            $
            0.13





In June
2007, a total of 66,662 warrants were exercised at a price of $0.14 for a total
of $9,333 and a total of 66,662 shares of common stock, $0.001 par value, were
issued to a director.





NOTE 10 - EARNINGS PER
SHARE





Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
contracts to issue common stock and related stock options were exercised at the
end of the period. For the periods ended December 31, 2007 and 2006, excluded
from diluted earnings per share are 901,421 and 1,092,676, respectively of
warrants to acquire common stock. As of both December 31, 2007 and 2006, there
are 4,577,526 of options to acquire the Company’s common stock that were
excluded from the computation of diluted earnings per share and which at
September 2007 excluded 375,000 of out of the money options.





The
following is a calculation of basic and diluted weighted average shares and/or
options and warrants outstanding:




For
      the Three Months Ended
            
            
            For
      the Nine Months EndedDecember
      31,
            
            
            December
      31,2007
            
            
            2006
            
            
            2007
            
            
            2006Shares—basic
            
            
            65,803,698
            
            
            
            65,383,822
            
            
            
            65,782,366
            
            
            
            65,383,822Dilution
      effect of stock option and awards at end of period
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Shares—diluted
            
            
            65,803,698
            
            
            
            65,383,822
            
            
            
            65,782,366
            
            
            
            65,383,822Stock
      awards and shares excluded from diluted earnings per share due to
      anti-dilutive effect
            
            
            5,478,947
            
            
            
            5,670,202
            
            
            
            5,478,947
            
            
            
            5,670,202Earnings
      per share
            
            $
            (0.01
            )
            
            $
            (0.01
            )
            
            $
            (0.02
            )
            
            $
            (0.02
            )







23








INDEX
OIL AND GAS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007


(unaudited)





NOTE
11 - OPERATING SEGMENTS





The
Company has one reportable segment, oil and natural gas exploration and
production, as determined in accordance with SFAS No. 131, “Disclosure
About Segments of an Enterprise and Related Information.” See below for
information by geographic location.





Geographic
Area Information





During
the nine months ended December 31, 2007 and as of December 31, 2007, the Company
owned oil and natural gas interests in three main geographic areas in the United
States. Geographic revenue and oil and gas property information below is based
on physical location of the assets at the end of each period.




December
      31, 2007Total Oil & Gas
              Revenue
            
            
            Total Oil
      and Gas Assets (1)Kansas
            
            $
            123,843
            
            
            $
            828,416Louisiana
            
            
            124,316
            
            
            
            2,706,403Texas
            
            
            226,104
            
            
            
            8,116,292Total
            
            $
            474,263
            
            
            $
            11,651,111





(1)
            Total
      oil and gas property assets at December 31, 2007 are reported gross. Under
      the full cost method of accounting for oil and gas properties,
      depreciation, depletion and amortization and impairment is not allocated
      to properties. Asset Retirement Obligation assets are also not
      included.




NOTE
12 - SUBSEQUENT EVENTS





In
January 2008 the Company committed to participate in the drilling of the Cason 3
well, and which spudded in early February 2008.




24







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





CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS





Some of
the statements contained in this Quarterly Report on Form 10-Q (“Form 10-Q”)
that are not historical facts are "forward-looking statements" which can be
identified by the use of terminology such as "estimates," "projects," "plans,"
"believes," "expects," "anticipates," "intends," or the negative or other
variations, or by discussions of strategy that involve risks and uncertainties.
We urge you to be cautious of the forward-looking statements, that such
statements, which are contained in this Form 10-Q, reflect our current beliefs
with respect to future events and involve known and unknown risks, uncertainties
and other factors affecting our operations, market growth, services, products
and licenses. No assurances can be given regarding the achievement of future
results, as actual results may differ materially as a result of the risks we
face, and actual events may differ from the assumptions underlying the
statements that have been made regarding anticipated events. Factors that may
cause actual results, our performance or achievements, or industry results, to
differ materially from those contemplated by such forward-looking statements
include without limitation:





•
            
            our
      ability to attract and retain management;•
            
            our
      growth strategies;•
            
            anticipated
      trends in our business;•
            
            our
      future results of operations;•
            
            our
      ability to make or integrate acquisitions;•
            
            our
      liquidity and ability to finance our exploration, acquisition and
      development activities;•
            
            our
      ability to successfully and economically explore for and develop oil and
      gas resources;•
            
            market
      conditions in the oil and gas industry;•
            
            the
      timing, cost and procedure for proposed acquisitions;•
            
            the
      impact of government regulation;•
            
            estimates
      regarding future net revenues from oil and natural gas reserves and the
      present value thereof;•
            
            planned
      capital expenditures (including the amount and nature
      thereof);•
            
            increases
      in oil and gas production;•
            
            the
      number of wells we anticipate drilling in the future;•
            
            estimates,
      plans and projections relating to acquired properties;•
            
            the
      number of potential drilling locations;•
            
            our
      financial position, business strategy and other plans and objectives for
      future operations;









25




•
            
            the
      possibility that our acquisitions may involve unexpected
      costs;•
            
            the
      volatility in commodity prices for oil and gas;•
            
            the
      accuracy of internally estimated proved reserves;•
            
            the
      presence or recoverability of estimated oil and gas
    reserves;•
            
            the
      ability to replace oil and gas reserves;•
            
            the
      availability and costs of drilling rigs and other oilfield
      services;•
            
            environmental
      risks;•
            
            exploration
      and development risks;•
            
            competition;•
            
            the
      inability to realize expected value from acquisitions;•
            
            the
      ability of our management team to execute its plans to meet its
      goals;•
            
            general
      economic conditions, whether internationally, nationally or in the
      regional and local market areas in which we are doing business, that may
      be less favorable than expected; and•
            
            other
      economic, competitive, governmental, legislative, regulatory, geopolitical
      and technological factors that may negatively impact our businesses,
      operations and pricing.





All
written and oral forward-looking statements made in connection with this Form
10-Q that are attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Given the
uncertainties that surround such statements, you are cautioned not to place
undue reliance on such forward-looking statements.




26









RISK
FACTORS




Please
see the risk factors applicable to our company and our business set forth in our
Annual Report filed on Form 10-KSB for the year ended March 31, 2007 filed with
the SEC on June 22, 2007, which are hereby incorporated by
reference.





Overview





Index Oil
and Gas, Inc. (“Index” or the “Company”) is an independent oil and gas company
engaged in the acquisition, exploration, appraisal, development and production
of oil and gas properties located in North America. The Company includes a
United Kingdom company, which provides management services and United States
operating subsidiaries, which are engaged in oil and gas activities, primarily
in Kansas and the Gulf Coast of Texas and Louisiana. The Company has increased
our proved reserves and production principally through property acquisitions in
conjunction with an active drilling program. The Company does not currently
operate any of its properties and sells its current oil and gas production to
domestic crude oil and natural gas purchasers.




The
following are key elements of our strategy:





· a continued focus
of our short and medium term efforts on known petroleum basins within the United
States, and currently on projects  which are proximal to our current
activities in the onshore part of the Gulf of Mexico basin;




· the further
development of our oil and gas reserves so that cash flow contributions can
cover not only our overhead but also contribute toward increased capital
requirements for investing in new and additional projects. We believe we can
achieve this objective by utilizing a risk managed approach of investing in a
portfolio of drilling opportunities. By combining a number of key metrics, our
management is able to select and invest in the very best prospects. We have
adjusted our business strategy to include more high-impact wells that can
deliver, if successful, much higher value, volume, and follow-on drilling that
has the potential to deliver exponential growth. Index also protects itself and
its investors by limiting any single prospect investment to a small percentage
of the overall funding that the company has at its disposal.





Index’s
current focus is directed towards:





•
            Efficiently
      influencing the management of ongoing projects;•
            Identifying,
      characterizing, and capturing appropriate gas and oil opportunities;
      and•
            Efficiently
      using its business assets to raise additional capital as
      needed.





This
current stage of the development of the Company includes new alliances.
Furthermore, the Company has built a strong portfolio of prospects during the
2007 fiscal year for drilling in the 2008 fiscal year, which include potential
high impact wells. The Company hopes to increase shareholder value by profitably
increasing its reserves, production, cash flow and earnings, through a risk and
equity balanced program of exploration and production drilling. The Company will
also consider acquisitions, provided they can meet the Company’s metrics and
augment its growth strategy and objectives.





At March
31, 2007, our estimated total proved oil and gas reserves were approximately
114.578 Mboe, consisting of 24.333 thousand barrels of oil (MBbls) and 541.470
million cubic feet (MMcf) of natural gas. Approximately 99% of our proved
reserves were classified as proved developed and proved behind pipe. Our focus
is on maintaining a portfolio of long-lived, lower risk reserves along with
shorter lived, higher margin reserves. We believe that this balanced reserve mix
can provide a diversified cash flow foundation to fund our development and
exploration drilling program.





Our
financial results depend upon many factors, particularly the price of oil and
gas and our ability to market our production. Commodity prices are affected by
changes in market demands, which are impacted by overall economic activity,
weather, pipeline capacity constraints, inventory storage levels, basis
differentials and other factors. As a result, we cannot accurately predict
future oil and gas prices, and therefore, we cannot determine what effect
increases or decreases will have on our capital program, production volumes and
future revenues. In addition to production volumes and commodity prices, finding
and developing sufficient amounts of oil and gas reserves at economical costs
are critical to our long-term success.





Like all
oil and natural gas exploration and production companies, we face the challenge
of natural production declines. As initial reservoir pressures are depleted, oil
and natural gas production from a given well naturally decreases. Thus, an oil
and natural gas exploration and production company depletes part of its asset
base with each unit of oil or natural gas it produces. We attempt to overcome
this natural decline by drilling and acquiring more reserves than we produce.
Our future growth will depend on our ability to continue to add reserves in
excess of production. We will maintain our focus on costs to add reserves
through drilling and acquisitions as well as the costs necessary to produce our
reserves. Our ability to add reserves through drilling is dependent on our
capital resources and can be limited by many factors, including the ability to
timely obtain drilling permits and regulatory approvals.






27










RESULTS
OF OPERATIONS




Three
Months Ended December 31, 2007 Compared to Three Months Ended December 31,
2006





We had a
net loss of $526,260 for the three months ended December 31, 2007 compared to a
net loss of $422,245 for the three months ended December 31, 2006, primarily
resulting from increased production, offset by an increase in depletion costs
related to production. Overall general and administrative costs were relatively
flat with increased advisory costs and business expenses and reduced interest
income related to use of funds in operations offset by a decrease in stock
compensation costs for historic grants, as a result of the passing of further
vesting points and a forfeiture event.  The following table summarizes key
items of comparison and their related increase (decrease) for the three
months ended December 31, 2007 and 2006.





Three
      Months Ended December 31,
            
            
            Increase/2007
            
            
            2006
            
            
            (Decrease)Oil
      sales
            
            $
            51,145
            
            
            $
            123,135
            
            
            $
            (71,990
            )Gas
      sales
            
            
            134,169
            
            
            
            8,841
            
            
            
            125,328Total
      revenue
            
            
            185,314
            
            
            
            131,976
            
            
            
            53,338Production
      expenses:Lease
      operating
            
            
            46,798
            
            
            
            30,413
            
            
            
            16,385Taxes
      other than income
            
            
            12,575
            
            
            
            12,669
            
            
            
            (94
            )General
      and administrative:General
      and administrative
            
            
            518,243
            
            
            
            377,030
            
            
            
            141,213Stock-based
      compensation
            
            
            63,425
            
            
            
            208,047
            
            
            
            (144,622
            )Depletion
      — Full cost
            
            
            106,678
            
            
            
            61,093
            
            
            
            45,585Depreciation
      — Other
            
            
            1,358
            
            
            
            163
            
            
            
            1,195Impairment
            
            
            -
            
            
            
            -
            
            
            
            -Interest
      expense (income) and other
            
            
            (37,503
            )
            
            
            (135,194
            )
            
            
            97,691Income
      tax benefit (provision)
            
            
            -
            
            
            
            -
            
            
            
            -Net
      (loss) income
            
            $
            (526,260
            )
            
            $
            (422,245
            )
            
            $
            (104,015
            )Production:Natural
      Gas — MMcf
            
            
            18.907
            
            
            
            1.345
            
            
            
            17.562Crude
      Oil — MBbls
            
            
            0.843
            
            
            
            2.180
            
            
            
            (1.337
            )Equivalent
      — Mboe
            
            
            3.994
            
            
            
            2.404
            
            
            
            1.590Equivalent
      — MMcfe
            
            
            23.965
            
            
            
            14.425
            
            
            
            9.540Average
      price per unit :Gas
      price per Mcf
            
            $
            7.10
            
            
            $
            6.57
            
            
            $
            0.53Oil
      price per Bbl
            
            $
            60.67
            
            
            $
            56.48
            
            
            $
            4.19Equivalent
      per Boe
            
            $
            46.40
            
            
            $
            54.90
            
            
            $
            (8.50
            )Equivalent
      per Mcfe
            
            $
            7.73
            
            
            $
            9.15
            
            
            $
            (1.42
            )Average
      cost per Boe:Production
      expenses:Lease
      operating
            
            $
            11.72
            
            
            $
            12.65
            
            
            $
            (0.93
            )Taxes
      other than income
            
            $
            3.15
            
            
            $
            5.27
            
            
            $
            (2.12
            )General
      and administrative expense:General
      and administrative
            
            $
            129.76
            
            
            $
            156.83
            
            
            $
            (27.07
            )Stock-based
      compensation
            
            $
            15.88
            
            
            $
            86.54
            
            
            $
            (70.66
            )Depletion
      expense
            
            $
            26.71
            
            
            $
            25.41
            
            
            $
            1.30Average
      cost per Mcfe:Production
      expenses:Lease
      operating
            
            $
            1.95
            
            
            $
            2.11
            
            
            $
            (0.16
            )Taxes
      other than income
            
            $
            0.52
            
            
            $
            0.88
            
            
            $
            (0.36
            )General
      and administrative expense:General
      and administrative
            
            $
            21.62
            
            
            $
            26.14
            
            
            $
            (4.52
            )Stock-based
      compensation
            
            $
            2.65
            
            
            $
            14.42
            
            
            $
            (11.77
            )Depletion
      expense
            
            $
            4.45
            
            
            $
            4.24
            
            
            $
            (0.21
            )








28







For the
three months ended December 31, 2007, oil and gas sales were $185,314, an
increase of $53,338 from the same period in 2006. The increase for the three
months ended December 31, 2007 was primarily due to the increase in volumes of
9.5 MMcfe from 14.4 MMcfe to 24.0 MMcfe or approximately $74,000. The increase
in volumes is primarily due to production in the current quarter from Vieman of
0.6 MMcfe, Schroeder of 5.1 MMcfe, Friedrich of 8.0 MMcfe, Outlar 1 of 5.7 MMcfe
and Cason 1 of 1.0 MMcfe, offset primarily by lower Walker production in the
quarter of 0.3 MMcfe. Oil production from Kansas was marginally lower.
Additionally, revenue decreased approximately $20,000 due to a dip in commodity
prices as our average price per Mcf equivalent decreased $1.42, or 15.5%, for
the three months ended December 31, 2007 to $7.73 per Mcfe from $9.15 per Mcfe
for the three months ended December 31, 2006. This is due to a higher proportion
of gas in the production volume mix, together with changes in absolute product
prices.





Lease
operating expenses increased $16,385 for the three months ended December 31,
2007 as compared to the same period in 2006. The increase was primarily due to
production from our new fiscal 2008 wells, the Friedrich, Schroeder Outlar 1 and
Cason 1 wells, together with new wells that came on production in our Kansas
properties. On a per unit basis, lease operating expenses decreased 7.6% from
$2.11 per Mcfe in fiscal 2007 to $1.95 per Mcfe in fiscal 2008 due to changes in
production volume mix.





Taxes
other than income were broadly equivalent for the three months ended December
31, 2007 as compared to the same period in 2006 and on a per unit basis
decreased $0.36 per Mcfe to $0.52 per Mcfe, reflecting a change in the mix and
location of production. Production taxes are generally assessed as a percentage
of gross oil and/or natural gas sales.





General
and administrative expense, excluding stock-based compensation for the three
months ended December 31, 2007 increased $141,213 to $518,243 compared to the
same period in 2006 primarily due with increased advisory costs and business
expenses, including travel.





Stock-based
compensation expense was approximately $63,000 for the three months ended
December 31, 2007, compared to approximately $208,000 for stock-based
compensation in the same period of 2006. This is primarily due to a decrease in
stock compensation costs of approximately $130,000 relating to historic grants,
as a result of the passing of further vesting points and a forfeiture
event.





Depletion
expense increased $45,585 from the same period in 2006 to $106,678 for the three
months ended December 31, 2007. This increase is primarily due to production
from the Friedrich Schroeder, Outlar 1 and Cason 1 wells. Depletion for oil and
gas properties is calculated using the unit of production method, which
essentially depletes the capitalized costs associated with the proved properties
based on the ratio of production volume for the current period to total
remaining proved reserve volumes for the evaluated properties. On a per unit
basis, depletion expense increased from $4.24 to $4.45 per Mcfe.





Interest
income and other decreased $97,691 for the three months ended December 31, 2007
compared to the same period 2006. This decrease is due to use of cash in
operations.





There was
no provision for income taxes for the fiscal three months ended December 31,
2007 and 2006 due to a 100% valuation allowance recorded for the nine months
ended December 31, 2007 and 2006, respectively on the total tax provision as the
Company believed that it is more likely than not that the asset will not be
utilized during the next year.






29








Nine
Months Ended December 31, 2007 Compared to Nine Months Ended December 31,
2006





We had a
net loss of $1,437,739 for the nine months ended December 31, 2007 compared to a
net loss of $1,282,574 for the nine months ended December 31, 2006, primarily
resulting from increased production, offset by an increase in depletion costs
related to production and small increases in other general and administrative
costs and other operating expenses. This increased cost was primarily related to
an increase in advisory costs, business expenses (including travel) and director
costs, as well as, a decrease in interest income related to use of funds in
operations offset by a decrease in stock compensation costs for historic grants,
as a result of the passing of further vesting points and a forfeiture
event.  The following table summarizes key items of comparison and
their related increase (decrease) for the nine months ended December 31,
2007 and 2006.





Nine
      Months Ended December 31,
            
            
            Increase/2007
            
            
            2006
            
            
            (Decrease)Oil
      sales
            
            $
            210,929
            
            
            $
            294,059
            
            
            $
            (83,130
            )Gas
      sales
            
            
            263,334
            
            
            
            11,728
            
            
            
            251,606Total
      revenue
            
            
            474,263
            
            
            
            305,787
            
            
            
            168,476Production
      expenses:Lease
      operating
            
            
            106,294
            
            
            
            68,018
            
            
            
            38,276Taxes
      other than income
            
            
            35,502
            
            
            
            22,303
            
            
            
            13,199General
      and administrative:General
      and administrative
            
            
            1,495,800
            
            
            
            1,061,992
            
            
            
            433,808Stock-based
      compensation
            
            
            205,165
            
            
            
            563,048
            
            
            
            (357,883
            )Depletion
      — Full cost
            
            
            253,134
            
            
            
            113,538
            
            
            
            139,596Depreciation
      — Other
            
            
            2,863
            
            
            
            489
            
            
            
            2,374Impairment
            
            
            -
            
            
            
            -
            
            
            
            -Interest
      expense (income) and other
            
            
            (186,756
            )
            
            
            (241,027
            )
            
            
            54,271Income
      tax benefit (provision)
            
            
            -
            
            
            
            -
            
            
            
            -Net
      (loss) income
            
            $
            (1,437,739
            )
            
            $
            (1,282,574
            )
            
            $
            (155,165
            )Production:Natural
      Gas — Mcf
            
            
            40.035
            
            
            
            4.814
            
            
            
            35.221Crude
      Oil — MBbls
            
            
            3.150
            
            
            
            1.941
            
            
            
            (1.209
            )Equivalent
      — Mboe
            
            
            9.822
            
            
            
            5.137
            
            
            
            4.685Equivalent
      — MMcfe
            
            
            58.935
            
            
            
            30.825
            
            
            
            28.110Average
      price per unit :Gas
      price per Mcf
            
            $
            6.58
            
            
            $
            6.04
            
            
            $
            0.54Oil
      price per Bbl
            
            $
            66.96
            
            
            $
            61.08
            
            
            $
            5.88Equivalent
      per Boe
            
            $
            48.29
            
            
            $
            59.53
            
            
            $
            (11.24
            )Equivalent
      per Mcfe
            
            $
            8.05
            
            
            $
            9.92
            
            
            $
            (1.87
            )Average
      cost per Boe:Production
      expenses:Lease
      operating
            
            $
            10.82
            
            
            $
            13.24
            
            
            $
            (2.42
            )Taxes
      other than income
            
            $
            3.61
            
            
            $
            4.34
            
            
            $
            (0.73
            )General
      and administrative expense:General
      and administrative
            
            $
            152.29
            
            
            $
            206.73
            
            
            $
            (54.44
            )Stock-based
      compensation
            
            $
            20.89
            
            
            $
            109.61
            
            
            $
            (88.72
            )Depletion
      expense
            
            $
            25.77
            
            
            $
            22.10
            
            
            $
            3.67Average
      cost per Mcfe:Production
      expenses:Lease
      operating
            
            $
            1.80
            
            
            $
            2.21
            
            
            $
            (0.41
            )Taxes
      other than income
            
            $
            0.60
            
            
            $
            0.72
            
            
            $
            (0.12
            )General
      and administrative expense:General
      and administrative
            
            $
            25.38
            
            
            $
            34.45
            
            
            $
            (9.07
            )Stock-based
      compensation
            
            $
            3.48
            
            
            $
            18.27
            
            
            $
            (14.79
            )Depletion
      expense
            
            $
            4.30
            
            
            $
            3.68
            
            
            $
            0.62






30







For the
nine months ended December 31, 2007, oil and gas sales increased $168,476, from
the same period in 2006, to $474,263. The increase for the nine months ended
December 31, 2007 was primarily due to the increase in volumes of 28.1 MMcfe
from 30.8 MMcfe to 58.9 MMcfe or approximately $227,000. The increase in gas
volumes of 38.1 MMcfe is primarily due to new volumes in the current year from
Vieman of 3.2 MMcfe, Schroeder of 7.4 MMcfe, Friedrich of 20.6 MMcfe, Outlar 1
of 5.7 MMcfe and Cason 1 of 1.0 MMcfe. Production from the Walker well and in
Kansas was lower in the fiscal 2008 nine months than in the previous year.
Additionally, revenue decreased approximately $58,000 due to lower commodity
prices as our average price per Mcf equivalent decreased $1.87 per Mcfe or
18.9%, in fiscal 2007 to $8.05 per Mcfe from $9.92 per Mcfe in fiscal 2007. This
is primarily due to a higher proportion of gas in the production volume
mix.





Lease
operating expenses increased $38,276 for the nine months ended December 31, 2007
as compared to the same period in 2006. The increase was due primarily to
increased production from our new wells, Friedrich, Schroeder, Outlar 1 and
Cason 1, which have come on production, together with Vieman. On a per unit
basis, lease operating expenses decreased 18.6% from $2.21 per Mcfe in fiscal
2008 to $1.80 per Mcfe in 2008 due to an increase in production volumes and a
different set of wells coming into production.





Taxes
other than income increased $13,199 for the nine months ended December 31, 2007
as compared to the same period in 2006 due to higher oil and gas revenues and a
change in the mix and location of production and on a per unit basis decreased
$0.14 per Mcfe to $0.60 per Mcfe. Production taxes are generally assessed as a
percentage of gross oil and/or natural gas sales.





General
and administrative expense, excluding stock-based compensation for the nine
months ended December 31, 2007 increased $433,808 to $1,495,800 compared to the
same period in 2006 primarily due to increased management costs from the growth
in operations of the Company. In addition there were increased costs of being a
public company. Salaries, benefits and business expenses for employees/directors
increased approximately $300,000, reflecting in part an adverse foreign exchange
effect. SEC filing fees, investor relations costs and other professional fees
also increased approximately $128,000.





Stock-based
compensation expense was approximately $205,000 for the nine months ended
December 31, 2007, compared to approximately $563,000 for stock-based
compensation in the same period of 2006. This is primarily due to a stock-based
award in 2006 granted to all officers and directors, at the effective date of
the reverse merger with Index Ltd., whose cost is almost 90% charged, offset by
a smaller award of stock to a new employee which vested at 50% in 2007 and the
forfeiture of a contingent stock award and stock options by a former
director.





Depletion
expense increased $139,596 from the same period in 2006 to $253,134 for the nine
months ended December 31, 2007. This increase is primarily due to production
from our new wells, the Friedrich, Schroeder, Outlar 1 and Cason 1 wells,
together with Vieman, that came on production in fiscal 2008. Depletion for oil
and gas properties is calculated using the unit of production method, which
essentially depletes the capitalized costs associated with the proved properties
based on the ratio of production volume for the current period to total
remaining proved reserve volumes for the evaluated properties. On a per unit
basis, depletion expense increased from $3.68 to $4.30 per Mcfe.





Interest
income and other decreased $54,271 for the nine months ended December 31, 2007
compared to the same period 2006. This decrease is due to the utilization of
cash in operations.





There was
no provision for income taxes for the fiscal nine months ended December 31, 2007
and 2006 due to a 100% valuation allowance recorded for these periods,
respectively on the total tax provision as the Company believed that it is more
likely than not that the asset will not be utilized during the next
year.









31




LIQUIDITY
AND CAPITAL RESOURCES





In the
nine months ended December 31, 2007 and 2006 we used cash for operational
purposes and invested in oil and gas properties. Operating revenue fluctuations
were substantially driven by commodity prices and changes in our production
volumes. Prices for oil and gas have historically been subject to seasonal
influences characterized by peak demand and higher prices in the winter heating
season for natural gas and summer travel for oil; however, the impact of other
risks and uncertainties have influenced prices throughout the recent years.
Working capital was substantially influenced by these variables. Fluctuation in
cash flow may result in an increase or decrease in our capital and exploration
expenditures. See Results of Operations for a review of the impact of prices and
volumes on sales. See below for additional discussion and analysis of cash
flow.





Nine
      Months Ended December 31,2007
            
            
            2006Cash
      flows (used in) operating activities
            
            $
            (917,664
            )
            
            $
            (432,844
            )Cash
      flows (used in)  investing activities
            
            
            (6,430,344
            )
            
            
            (2,657,784
            )Cash
      flows provided by financing activities
            
            
            (5,667
            )
            
            
            9,728,352Effect
      of exchange rate changes
            
            
            (14,542
            )
            
            
            6,961Net
      increase (decrease) in cash and cash equivalents
            
            $
            (7,368,217
            )
            
            $
            6,644,685





Operating
Activities





Net cash
outflow from operating activities during the nine months ended December 31, 2007
was $917,664 which was an increased outflow of $484,820 from $432,844 net cash
outflow during the nine months ended December 31, 2006. This increase was
primarily due to phasing impacts in working capital items, together with higher
operating expenses and taxes on our properties, as well as higher general and
administrative expenses, related to an increase in salaries, benefits and
business expenses for employees/directors, investor relations costs and other
professional and advisory fees. Revenues were higher due to increased production
and sales volumes, offset by lower average commodity prices, due to an increased
proportion of gas volumes. Average equivalent prices decreased $1.87 from $9.92
per Mcfe in the nine months ended December 31, 2006 to $8.05 per Mcf in the nine
months ended December 31, 2007. Production volumes increased 28.1 MMcfe from
30.8 MMcfe in the nine months ended December 31, 2006 to 58.9 MMcfe in the nine
months ended December 31, 2007. We expect the remainder fiscal year 2008
production to increase, but we are unable to predict the future.





Investing
Activities





The
primary driver of cash used in investing activities was capital
spending.





Cash used
in investing activities during the nine months ended December31, 2007 was
$6,430,344, which was an increase of $3,772,560 from $2,657,784 of cash used in
investing activities during the fiscal year ended December 31, 2006. This
increase was due to increased exploration and development activity. The main
approximate capital expenditures on the current year exploration and drilling
projects in the nine months to December 31, 2007 were on operations on the
following wells / projects : Cason wells $1,300,000, Shadyside 1 $2,400,000,
Outlar 1 and the West Wharton prospect $800,000, Ducroz 1 $400,000, Alligator
Bayou $300,000 and the Supple Jack Creek prospect and HNH Unit 1
$900,000.







32




Financing
Activities





Net cash
provided by financing activities decreased $9,734,019 during the nine months
ended December 31, 2007 to $(5,667) as compared to $9,728,352 during the nine
months ended December 31, 2006. During the nine months ended December 31, 2007,
a director exercised a total of 66,662 warrants at a price of $0.14 for a total
of $9,333 and a total of 66,662 shares of common stock, $0.001 par value, were
issued.  Additionally, share issue costs were incurred in the amount
of $15,000.





Management
believes that we may have the ability to finance through new debt or equity
offerings, if necessary, our capital requirements, including
acquisitions.





As of
December 31, 2007 and 2006, our common stock is the only class of stock
outstanding and we have no outstanding long-term debt
financing.





Based on
our current cash resources and other current assets, and forecasts, management
believes we have sufficient liquidity to fund operations for the next twelve
months. We are pursuing additional equity financing transactions that, if
successful, could fund expenditures for potential acquisitions and other
discretionary expansions of our business. We do not currently have any
commitments for such financing and there is no assurance that we will be
successful in obtaining such funds. If we cannot obtain additional financing, we
will have to significantly curtail our acquisition plans and possibly our
operations.





Contractual
Obligations





We have
no material long-term commitments associated with our capital expenditure plans
or operating agreements. Consequently, we believe we have a significant degree
of flexibility to adjust the level of such expenditures as circumstances
warrant. Our level of capital expenditures will vary in future periods depending
on the success we experience in our acquisition, exploration and developmental
activities, oil and gas price conditions and other related economic factors and
on success in future fundraising efforts. Currently no sources of liquidity or
financing are provided by off-balance sheet arrangements or transactions with
unconsolidated, limited-purpose entities.





Off-Balance
Sheet Arrangements




As of
December 31, 2007, we did not have any off-balance sheet
arrangements.











Plan
of Operation for 2008





On an
annual basis, we generally fund most of our capital and exploration activities,
including oil and gas property acquisitions, with cash generated from operations
and from equity financings. We have budgeted and planned for capital
expenditures relating to the work program described in Note 1 of the Condensed
Consolidated Financial Statements.





Inflation





In the
opinion of management, inflation has not had a material effect on the operations
of the Company.








33








Item
3. Quantitative and Qualitative Disclosures About Market Risk.




Oil
and gas prices fluctuate widely, and low prices for an extended period of time
are likely to have a material adverse impact on our business.





Our
operating revenues, operating results, financial condition and ability to borrow
funds or obtain additional capital depend substantially on prevailing prices for
gas and oil. Declines in oil and gas prices may materially adversely affect our
financial condition, liquidity, ability to obtain financing and operating
results. Lower oil and gas prices may also reduce the amount of oil and gas that
we can produce economically. Historically, oil and gas prices and markets have
been volatile, with prices fluctuating widely and they are likely to continue to
be volatile.





Prices
for oil and gas are subject to wide fluctuations in response to relatively minor
changes in the supply of and demand for oil and gas, market uncertainty and a
variety of additional factors that are beyond our control. These factors
include:





•
            
            The
      domestic and foreign supply of oil and gas;•
            
            The
      level of consumer product demand;•
            
            Weather
      conditions;•
            
            Political
      conditions in oil producing regions, including the Middle
      East;•
            
            The
      ability of the members of the Organization of Petroleum Exporting
      Countries to agree to and maintain oil price and production
      controls;•
            
            The
      price of foreign imports;•
            
            Actions
      of governmental authorities;•
            
            Domestic
      and foreign governmental regulations;•
            
            The
      price, availability and acceptance of alternative fuels;
    and•
            
            Overall
      economic conditions.





These
factors make it impossible to predict with any certainty the future prices of
oil and gas.





We do not
use hedges at this time to reduce price volatility, help ensure that we have
adequate cash flow to fund our capital programs and manage price risks and
returns on some of our acquisitions and drilling programs. This policy could
change in the future.





Fair
Market Value of Financial Instruments





The
estimated fair values for financial instruments under FASB Statement
No. 107,Disclosures
about Fair Value of Financial Instruments, are determined at discrete
points in time based on relevant market information. These estimates involve
uncertainties and cannot be determined with precision. The estimated fair value
of cash, cash equivalents, accounts receivable and accounts payable approximates
their carrying value due to their short-term nature.





Interest
Sensitivity





Since we
do not have any long-term debt subject to variable interest rates, we are not
exposed to interest rate sensitivity at December 31, 2007.






34







Item
4. Controls and Procedures.





(a)
Management’s Evaluation of Disclosure Controls and Procedures





In
accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of December 31, 2007 to provide reasonable
assurance that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s rules and forms.





Limitations
on the Effective of Controls





Our
management does not expect that our disclosure controls or our internal controls
over financial reporting will prevent all error and fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, but no
absolute, assurance that the objectives of a control system are met. Further,
any control system reflects limitations on resources, and the benefits of a
control system must be considered relative to its costs.  These limitations
also include the realities that judgments in decision-making can be faulty and
that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of a control. A design
of a control system is also based upon certain assumptions about potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate.  Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and may not be
detected.




(b)
Changes in Internal Controls





There was
no change in our internal controls or in other factors that could affect these
controls during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting that occurred during the our fiscal quarter ended December 31,
2007.







35







PART
II





Item
1. Legal Proceedings.





From time
to time we may be a defendant and plaintiff in various legal proceedings arising
in the normal course of our business. We are currently not a party to any
material pending legal proceedings or government actions, including any
bankruptcy, receivership, or similar proceedings. In addition, management is not
aware of any known litigation or liabilities involving the operators of our
properties that could affect our operations, other than as disclosed regarding
the Ilse well in Part I of this Form 10Q. Should any liabilities be incurred in
the future, they will be accrued based on management’s best estimate of the
potential loss. As such, there is no adverse effect on our consolidated
financial position, results of operations or cash flow at this time.
Furthermore, management of the Company does not believe that there are any
proceedings to which any director, officer, or affiliate of the Company, any
owner of record of the beneficially owned more than five percent of the common
stock of the Company, or any associate of any such director, officer, affiliate
of the Company, or security holder is a party adverse to the Company or has a
material interest adverse to the Company.




Item
1A. Risk Factors.





There
have been no material changes in our risk factors from those disclosed in Item 1A of our Annual Report on Form 10-KSB
for the year ended March 31, 2007.





Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.





Issuance
of Unregistered Securities





The
following unregistered securities have been issued by us during the nine months
ended December 31, 2007 and have not been previously disclosed in our Current
Reports on Form 8-K:




None.





Purchases
of Equity Securities by the Issuer and Affiliated Purchasers.





None.





Item
3. Defaults Upon Senior Securities.





None.





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





None.





Item 5.
Other Information





On
December 16, 2007, a Company director, Michael Scrutton, passed away. The
company is currently evaluating potential directors to replace the Board
position.







36





Item 6.
Exhibits





Exhibit
              Number
            
            Description3(i)1
            
            Articles
      of Incorporation of Index Oil & Gas, Inc. (2)3(i)(2)
            
            Certificate
      of Amendment to the Articles of Incorporation of Index Oil and Gas Inc.
      (the "Company"), filed with the Secretary of the State of Nevada on
      November 28, 2005, changing the name of the Company from Thai One On Inc.
      to Index Oil and Gas, Inc., and increasing the number of authorized shares
      from 25,000,000 to 75,000,000. (1)3(i)(2)
            
            Certificate
      of Amendment to the Articles of Incorporation of Index Oil and Gas Inc.
      (the "Company"), filed with the Secretary of the State of Nevada on
      September 21, 2006, increasing the number of authorized shares from
      75,000,000 to 500,000,000, and creating a class of preferred stock,
      authorizing the issuance of 10,000,000 shares, $0.001 par value per share,
      of preferred stock. (3)3(ii)
            
            By-laws
      of Index Oil and Gas Inc. (2)31.1
            
            Certification
      of Lyndon West in satisfaction of Section 302 of the Sarbanes-Oxley Act of
      2002. *31.2
            
            Certification
      of Andrew Boetius in satisfaction of Section 302 of the
      Sarbanes-Oxley Act of 2002. *32.1
            
            Certification
      of the Chief Executive Officer pursuant to U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    *32.2
            
            Certification
      of the Chief Financial Officer pursuant to U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    *





* Filed
herewith.


(1)
      Incorporated by reference to the Company’s Amended Current Report filed on
      Form 8-K/A with the SEC on March 15, 2006.(2)
      Incorporated by reference to the Company’s Registration Statement filed on
      Form SB-2 with the SEC on May 24, 2004.(3)
      Incorporated by reference to the Company’s Current Report filed on Form
      8-K with the SEC on September 28,
2006.








37











SIGNATURES




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






INDEXOIL AND GAS,
      INC.Date: February
      14, 2008
            By:
            /s/ Lyndon
      WestLyndon
      WestChief
      Executive Officer





Date: February
      14, 2008
            By:
            /s/ Andrew
      BoetiusAndrew
      BoetiusChief
      Financial Officer (and acting Principal Accounting
  Officer)








38