**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington, D.C. 20549







**FORM
      10-QSB**




(Mark
      one)




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




For the quarterly period ended: **December
      31, 2006**




**|_|**
            **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 small business issuer 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**


(Issuer’s
      telephone Number)







Check
      whether the issuer: (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 shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes |_| No |X|




As
      of
      February 14, 2007, there were 65,509,943 outstanding shares of Common Stock.



















**TABLE
      OF CONTENTS**







PART
                I. FINANCIAL INFORMATIONITEM 1.
            Condensed
                Consolidated financial statements (unaudited)Condensed
                Consolidated balance sheets atDecember
                31, 2006and March 31, 2006
            3Condensed
                Consolidated statements of losses for the three and nine months ended
                December 31, 2006 and 2005
            4Condensed
                Consolidated statement of cash flows for the nine months ended December
                31, 2006 and 2005
            5Notes
                to Condensed Consolidated financial statements
            6ITEM 2
            Management’s
                Discussion and Analysis or Plan of Operation
            28ITEM 3
            Controls
                and procedures
            39PART
                II. OTHER INFORMATIONITEM
                1
            Legal
                proceedings
            39ITEM
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            39ITEM 3.
            Defaults
                Upon Senior Securities
            40ITEM 4.
            Submission
                of Matters to a Vote of Security Holders.
            40ITEM 5.
            Other
                Information
            41ITEM 6
            Exhibits
            41Signatures
            42
















2





**Item
      1.**  **Financial
      Statements:**


**INDEX
      OIL AND GAS, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**





***December
                31,***
              ***2006***
              ***(unaudited)***
            
            ***March
                31,***
              ***2006***ASSETSCurrent
                Assets:Cash
                and cash equivalents (Note 2)
            
            $
            12,180,690
            
            $
            5,536,006Trade
                receivables, net of allowance for doubtful accounts of $0
            
            
            57,970
            
            
            12,501Prepaid
                costs and other receivables
            
            
            108,650
            
            
            6,254Other
                current assets
            
            
            -
            
            
            8,600Total
                Current Assets
            
            
            12,347,310
            
            
            5,563,361Oil
                & Gas Properties, full cost, net of accumulated depletion (Notes 2,
                3,
                6, 7 and 12)
            
            
            3,506,284
            
            
            951,199Property
                and Equipment, net of accumulated depreciation (Notes 2 and
                3)
            
            
            6,651
            
            
            1,727Total
                Oil & Properties and Property and Equipment
            
            
            3,512,935
            
            
            952,926Total
                Assets
            
            $
            15,860,245
            
            $
            6,516,287LIABILITIES AND STOCKHOLDERS' EQUITYCurrent
                Liabilities:Accounts
                payable and accrued expenses
            
            $
            873,914
            
            $
            555,452Bank
                loan (Notes 5 and 11)
            
            
            -
            
            
            48,569Other
                current liability (Note 11)
            
            
            -
            
            
            1,007Total
                Current Liabilities
            
            
            873,914
            
            
            605,028Long-Term
                Liabilities:Asset
                retirement obligation (Notes 3 and 6)
            
            
            41,552
            
            
            25,300Total
                Liabilities
            
            
            915,466
            
            
            630,328Commitments
                and Contingencies (Note 7)
            
            
            -
            
            
            -Stockholders
                Equity: (Notes 5, 7, 8, 9 and 12)Common
                stock, par value $0.001, 500 million shares authorized, 65,509,943
                and
                54,544,345 shares issued and outstanding at December 31, 2006 and
                March
                31, 2006, respectively (see Notes 7 and 8)
            
            
            65,510
            
            
            54,544Preferred
                stock, par value $0.001, 10 million shares authorized, no shares
                issued
                and outstanding at December 31, 2006 and March 31, 2006 (Notes 7
                and
                8)
            
            
            -
            
            
            -Additional
                paid in capital
            
            
            18,719,538
            
            
            8,387,306Accumulated
                deficit
            
            
            (3,858,155
            )
            
            (2,575,581
            )Other
                comprehensive income (Notes 2 and 4)
            
            
            17,886
            
            
            19,690Total
                Stockholders' Equity
            
            
            14,944,779
            
            
            5,885,959Total
                Liabilities and Stockholders' Equity
            
            $
            15,860,245
            
            $
            6,516,287








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 Ended****December
                31,**
            
            **December
                31,**
            
            **December
                31,**
            
            **December
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Revenue:
                (Note 12)Oil
                and Gas sales
            
            $
            131,976
            
            $
            49,238
            
            $
            305,787
            
            $
            146,089Operating
                Expenses:Operating
                costs
            
            
            43,082
            
            
            12,088
            
            
            90,321
            
            
            29,459Depreciation
                and amortization (Note 3)
            
            
            61,256
            
            
            16,990
            
            
            114,027
            
            
            56,844General
                and administrative expenses (Note 2)
            
            
            585,077
            
            
            99,743
            
            
            1,625,040
            
            
            303,412Total
                Operating Expenses
            
            
            689,415
            
            
            128,821
            
            
            1,829,388
            
            
            389,715Loss
                from Operations
            
            
            (557,439
            )
            
            (79,583
            )
            
            (1,523,601
            )
            
            (243,626
            )Other
                Income (Expense):Debt
                issue costs
            
            
            -
            
            
            -
            
            
            -
            
            
            (43,234
            )Interest
                income (expense)
            
            
            135,194
            
            
            (889
            )
            
            241,027
            
            
            2,114Total
                Other Income (Expense)
            
            
            135,194
            
            
            (889
            )
            
            241,027
            
            
            (41,120
            )Loss
                before Income Taxes
            
            
            (422,245
            )
            
            (80,472
            )
            
            (1,282,574
            )
            
            (284,746
            )Income
                Taxes Benefit
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                Loss
            
            $
            (422,245
            )
            $
            (80,472
            )
            $
            (1,282,574
            )
            $
            (284,746
            )Loss
                per share (Note 10):Basic
                and assuming dilution
            
            $
            (0.01
            )
            $
            (0.00
            )
            $
            (0.02
            )
            $
            (0.01
            )Weighted
                average shares outstanding (Note 10):Basic
                and assuming dilution
            
            
            65,383,822
            
            
            19,751,078
            
            
            65,383,822
            
            
            19,751,078








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 Ended****December
                31,**
            
            **December
                31,****2006**
            
            **2005**Cash
                Flows From Operating Activities:Net
                loss
            
            $
            (1,282,574
            )
            $
            (284,746
            )Adjustments
                to reconcile net loss to net cash (used in) operating
                activities:Non
                cash stock based compensation cost
            
            
            563,048
            
            
            -Amortization
                of debt issue costs
            
            
            -
            
            
            43,234Non-cash
                interest expense on warrant issuance on loan conversion
            
            
            -
            
            
            1,476Depreciation
                and amortization
            
            
            114,027
            
            
            56,844(Increase)
                decrease in receivables
            
            
            (138,532
            )
            
            (35,011
            )Increase
                (decrease) in accounts payable and accrued expenses
            
            
            311,187
            
            
            (138,503
            )Net
                Cash (Used In) Operating Activities
            
            
            (432,844
            )
            
            (356,706
            )Cash
                Flows From Investing Activities:Payments
                for oil and gas properties and property and equipment
            
            
            (2,657,784
            )
            
            (334,562
            )Net
                Cash (Used In) Investing Activities
            
            
            (2,657,784
            )
            
            (334,562
            )Cash
                Flows From Financing Activities:Proceeds
                from issue of shares
            
            
            -
            
            
            523,651Proceeds
                from issue of warrants
            
            
            -
            
            
            8,377Proceeds
                from convertible notes payable
            
            
            -
            
            
            676,664Proceeds
                from issue of common stock
            
            
            10,965,598
            
            
            -Proceeds
                from bank term debt
            
            
            -
            
            
            51,374Repayment
                of bank term debt
            
            
            (51,797
            )
            
            -Payment
                for debt issue costs
            
            
            -
            
            
            (43,234
            )Payment
                for share issue costs
            
            
            (1,185,449
            )
            
            (23,219
            )Net
                Cash Provided by Financing Activities
            
            
            9,728,352
            
            
            1,193,613Effect of exchange rate
                changes on cash and cash equivalents
            
            
            6,961
            
            
            (26,130
            )Net
                Increase in Cash and Cash Equivalents
            
            
            6,644,685
            
            
            476,215Cash
                and cash equivalents at beginning of period
            
            $
            5,536,005
            
            $
            8,673Cash
                and cash equivalents at the end of period
            
            $
            12,180,690
            
            $
            484,888Supplemental
                Disclosures of Cash Flow Information:Cash
                (received) paid during the period for interest
            
            $
            (241,027
            )
            $
            (2,114
            )Cash
                paid during the period for taxes
            
            $
            -
            
            $
            -Non-cash
                Financing and Investing Transactions:Non
                cash stock based compensation cost
            
            $
            563,048
            
            $
            -Conversion
                of loan capital into share capital
            
            $
            -
            
            $
            750,630Non-cash
                interest expense on warrant issuance on loan conversion
            
            
            -
            
            
            1,476





See
      accompanying notes to unaudited condensed consolidated financial
      statements


5





**INDEX
      OIL AND GAS, INC.**




**TO
      NOTES****CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





**NOTE
      1 - ORGANIZATION AND OPERATIONS OF THE COMPANY**





Organization





In
      March
      2004, a company named Thai One On, Inc. (“Thai”) was incorporated under the laws
      of the State of Nevada. Thai then acquired a wholly owned subsidiary, Thai
      Pasta
      Enterprise Sdn. Bhd., a privately held Malaysian company (“Thai Pasta”). In
      December of 2005, Thai changed its name from Thai One On Inc. to Index Oil
      and
      Gas, Inc (the “Company” or “Index Inc.”).





On
      January 20, 2006, the stockholders of Index Ltd., a company formed under the
      laws of United Kingdom, entered into Acquisition and Share Exchange Agreements
      (“Acquisition Agreements”, the “Transaction” or “Merger”) with the Company.
      Effective with the Acquisition Agreements, all previously outstanding equity
      stock owned by Index Ltd.’s stockholders were exchanged for an aggregate of
      22,615,552 shares of the Company’s Common Stock and all issued warrants to
      purchase shares of equity stock in Index Ltd. were exchanged for 1,092,676
      warrants to purchase shares of Common Stock of the Company.





Prior
      to
      the Merger, the Company’s year-end for accounting purposes was December 31,
      2005. As a result of the Merger, there was a change in control of the public
      entity. In accordance with Statement of Financial Accounting Standards 141,
      Index Ltd. was deemed to be the acquiring entity. While the transaction is
      accounted for using the purchase method of accounting, in substance the Merger
      is a recapitalization of Index Ltd.’s capital structure. For accounting
      purposes, the Company accounted for the transaction as a reverse acquisition
      and
      Index was the surviving entity. The total purchase price and carrying value
      of
      net assets acquired was $1,578. The Company did not recognize goodwill or any
      intangible assets in connection with the transaction.





In
      addition, the Company also completed a private placement on January 20, 2006
      for
      8,533,333 shares of the Company’s common stock, $0.001 par value per share, at a
      price of $0.60 per share for aggregate proceeds of approximately $5.1 million.





For
      a
      complete summary of the Company’s history and its historical organizational
      activities for up to the period ended September 30, 2006 see the Company’s
      Annual Report filed with the SEC on Form 10-K on July 17, 2006 and its Quarterly
      Reports filed with the SEC on Form 10-QSB on August 11, 2006 and November 14,
      2006.




Operations





The
      company has a phased approach to its growth strategy. Phase 1, largely
      completed, consists of exploration projects with very low risk, low cost, low
      working interest, and limited upside. Phase 2, in progress, consists of projects
      with low risk, low to medium cost, low to medium working interests commensurate
      with funding capability and risk. These projects have increased upside. Phase
      3,
      recently commenced, consists of projects with low to medium risk, medium to
      high
      costs, and working interests commensurate with the funding capability and risk.
      The Company expects these projects to deliver much higher upside.





PHASE
      1
      GROWTH STRATEGY: EIGHT-WELL DRILLING PROGRAM IN KANSAS





On
      August
      21, 2006, the company announced an update to its Kansas drilling program that
      consisted of up to eight-wells. On January 9, 2007, the Company announced that
      six of the eight wells had been drilled, three in Barton County and three in
      Stafford County. All well locations are supported by modern 3D seismic
      data.





On
      January 9, 2007, the company announced that in Barton County where the Company
      has a 3.25% working interest, two
      of
      the wells drilled were completed as oil producers. Schartz 1-18 and Rogers
      Unit
      1-1 wells began producing in October 2006 with gross daily oil production of
      seven barrels and eight barrels, respectively. Pan John 1-11 was a dry hole.
      Panning 1-1 spud is pending receipt of a US Army Corps of Engineers permit.











6














**INDEX
      OIL AND GAS, INC.**




**NOTES**  **TO**  **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





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





In
      Stafford County where the Company has a 5% working interest, two wells were
      completed as oil producers. The Hay Witt 1-11 and the Hayden 1-14 wells began
      producing in November 2006 and December 2006, respectively, with a gross daily
      oil production of 42 barrels and eight barrels, respectively. The Hull Witt
      1-11
      was a dry hole. No further wells were drilled.





The
      company is planning its calendar year 2007 drilling program on its leases in
      the
      two counties. Approximately four wells are planned.








PHASES
      2
& 3 GROWTH STRATEGIES: EIGHT-WELL DRILLING PROGRAM IN TEXAS AND
      LOUISIANA





Phase
      2
      Growth Strategy





The
      Company has made progress with its onshore Phase 2 drilling program and
      announced on August 21, 2006 that the Walker 1 discovery well drilled in
      Louisiana began producing on August 18, 2006. Initial gross production of the
      well, in which Index has a 12.5% working interest, was approximately 200 barrels
      of oil per day with associated gross gas production of approximately 175
      thousand cubic feet per day. Walker 1 is the first productive well from the
      Company's initial Phase 2 "Four Well Portfolio,”





The
      remaining seven wells in the current Phases 2 and 3 eight-well program are
      in
      Texas. Vieman 1 in Brazoria County was spudded October 15, 2006 with a goal
      of
      converting Proved Undeveloped reserves to Proved Developed reserves. Index
      built
      its working interest from an original 12.5% WI to a final 19.5% prior to
      spudding. On December 20, 2006, the Company announced that the deviated well
      had
      been drilled to a total depth of 10,383 feet true vertical depth, 11,340 feet
      measured depth. Electric logs indicated two potential pay zones below 10,000
      feet true vertical depth totaling approximately 15 feet of net gas bearing
      reservoir. The well took longer than anticipated to drill due to unplanned
      sidetrack operations and pressure control requirements in the lower of the
      two
      pay sections, and has incurred costs significantly in excess of pre-drill
      estimate. The current operation is preparing for hook-up to the local pipeline
      grid to allow testing of the deeper reservoir and concurrent gas
      sales.





The
      three-well Taffy drilling program was announced on December 5, 2006. Originally
      planned as a two-well program, a third well was added prior to drilling. The
      Company originally agreed to a 7.5% working interest in the two Taffy wells.
      The
      Company increased its working interest to 12.5% in Taffy 1, renamed Hawkins
      1,
      and to 30% in Taffy 2, renamed Dark 1. The company took a 30% working interest
      in a third Taffy well named Ruse 1. The three wells target relatively shallow
      Miocene gas reservoirs between
      5,000 and 7,000 feet in
      Matagorda County.





On
      January 25, 2007, the Company announced the
      Hawkins 1 commercial discovery. A completion test confirmed gas flow at a
      measured rate of approximately 1.04 million cubic feet per day through a choke
      of 9/64th inch with a flowing tubing pressure of 1,850 pounds per square
      inch. The well is
      scheduled to begin production into the local pipeline grid during the second
      quarter of calendar year 2007.




Ruse
      1
      was non-commercial and has been plugged and abandoned.






Dark
      1 is
      expected to spud as soon as the drill site becomes accessible. Heavy rains
      in
      the area have delayed the mobilization of the rig. It is expected that
      operations will recommence during the first or second quarter of calendar year
      2007.






As
      announced on May 2, 2006 and July 12, 2006, the Company entered into two Phases,
      I and II of an exploration agreement with ADC to reprocess seismic data and
      develop prospects to drill in four areas in Texas, Mississippi, and
      Alabama. This
      project is capable of delivering Phase 2, as well as, Phase 3 Growth Strategy
      projects. The first drillable prospect generated as a result of this agreement
      that the Company has verbally committed to drill is an exploration well in
      Nacogdoches County. The well, named Cason 1, will target the Travis Peak gas
      reservoir and is planned for calendar year 2007 drilling.




Phase
      3
      Growth Strategy





On
      September 10, 2006, the Company signed an agreement to participate in the New
      Taiton Project in Wharton County. The first well, Ilse 1 with a planned total
      depth of over 17,000 feet, will target stacked Wilcox sands on trend with large
      nearby gas fields producing gas from the same Wilcox reservoirs. The prospect
      is
      defined by modern 3D seismic data. If Ilse 1 proves successful, the Company
      expects to participate in further wells to develop the potential of the New
      Taiton Project. The Company has a 10% working interest before payout and an
      8%
      working interest after payout in the New Taiton Project. Ilse 1 spudded on
      December 1, 2006.








7





**INDEX
      OIL AND GAS, INC.**




**NOTES**  **TO**  **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





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





On
      December 4, 2006, the Company announced
      that it has signed an exploration agreement to participate at 15% working
      interest in the West 1 exploration well targeting the high-potential Edwards
      Limestone in Lavaca County, Texas. The proposed total depth of the well is
      approximately 14,700 feet. The company announced on January 23, 2007 that it
      had
      increased its working interest in the West 1 well to 20%. The well is planned
      to
      spud during the first half of calendar year 2007 with drilling results expected
      during the same period.  The
      medium-risk West 1 well, if successful in finding commercial gas, will pave
      the
      way for follow-on drilling activity in the leased area defined in the
      exploration agreement. The prospect is adjacent to fields producing from the
      Edwards Limestone. Combined cumulative gas production from these fields exceeds
      400 billion cubic feet.





Funding





On
      September 9, 2006, the Company announced the completion of a private placement
      for 7,097,898 shares of $0.001 par value common stock of the Company at a price
      of $1.00 per share for aggregate gross proceeds of approximately $7.1 million.





On
      October 10, 2006, the Company announced the completion of a private placement
      for 3,867,700 shares of $0.001 par value common stock of the Company at a price
      of $1.00 per share for aggregate proceeds of approximately $3.9
      million.





The
      net
      proceeds of these two placements will be applied to the expansion of the
      Company’s operations in the United States as the Company hopes to fund
      additional Phase 2 and 3 Growth Strategies consisting of drilling generated
      by
      successful new ventures, as well as, success in existing ventures such as the
      West 1 and Isle 1 higher potential wells.








8


**INDEX
      OIL AND GAS, INC.**




**NOTES**  **TO**  **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





*Principles
      of Consolidation/Basis of Presentation*





The
      unaudited condensed consolidated financial statements as of March 31, 2006
      and
      for the three and nine months ended December 31, 2005 include the accounts
      of
      the Company and its wholly owned subsidiaries, Index USA, Index Investments,
      Index Offshore and Thai Pasta (inactive) at March 31, 2006, after eliminating
      all significant intercompany accounts and transactions. As of and for the three
      and nine months ended December 31, 2006, the unaudited condensed consolidated
      financial statements include the accounts, after eliminating all significant
      intercompany accounts and transactions, of the Company and its wholly owned
      subsidiaries named above, except that in the third quarter of fiscal 2007,
      Thai
      Pasta ceased to be a subsidiary of the Company. This resulted in no impact
      to
      the financial position, results of operations or cash flows of the Company
      for
      the three and nine months ended December 31, 2006 as there is no value assigned
      to the assets, liabilities or equity of Thai Pasta following the reverse merger
      transaction discussed below (See Note 7, Commitments and Contingencies). Results
      of operations are included from the date of incorporation and to the extent
      of
      differences in dates of incorporation, the results of operations for the three
      and nine months ended December 31, 2006 are not comparable with the same periods
      ended December 31, 2005. 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 financial statements at December 31, and March
      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.





*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. Our balance sheet at March 31, 2006 is derived
      from the March 31, 2006 audited financial statements, but does not include
      all
      disclosures required by GAAP. 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-K for
      the year ended March 31, 2006.





*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 three 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, 2006 and March 31, 2006.








9





**INDEX
      OIL AND GAS, INC.**




**NOTES**  **TO**  **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





*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, 2006 and 2005. 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, 2006 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 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 three months ended
      December 31, 2006 and 2005. 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 three months ended
      December 31, 2006 and 2005. 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 equipment, which
      is
      recorded at cost and depreciated on a straight-line basis over useful lives
      of
      five years. 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.



















10


**INDEX
      OIL AND GAS, INC.**




**NOTES**  **TO**  **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**




**DECEMBER
      31, 2006**


**(unaudited)**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





*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 quarter. Translation
      adjustments are included in Accumulated other comprehensive loss in the equity
      section of the condensed consolidated balance sheet with the corresponding
      foreign currency transaction (losses)/gains included in - other comprehensive
      loss - foreign currency translation in the statement of operations and totaled
      $17,886 and $19,690 at December 31, 2006 and March 31, 2006,
      respectively.





*Stock
      Based Compensation*





In
      determining our accounting policies, the Company chose to apply the intrinsic
      value method pursuant to Accounting Standards Board (“APB”) APB No. 25,
“Stock Issued to Employees” (“APB No. 25”) effective February 2003. Under
      APB No. 25, no compensation is recognized when the exercise price for
      options granted equals the fair value of the Company’s common stock on the date
      of the grant. Accordingly, the provisions of SFAS No. 123, “Accounting for
      Stock-Based Compensation,” permit the continued use of the method prescribed by
      APB No. 25, but require additional disclosure, including pro forma
      calculations of net income (loss) per share as if the fair value method of
      accounting prescribed by SFAS No. 123 had been applied. Although the
      Company applied the intrinsic method in accounting for stock issued to
      employees, it does record compensation expense for the difference between the
      fair market value and the exercise price at the date of the grant using the
      Black Scholes valuation model. There was no pro forma impact for the three
      months ended December 31, 2005.





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 $208,047 and $563,048 for the three and nine months ended
      December 31, 2006, respectively and there was no impact on the condensed
      consolidated statement of cash flows. The effect on net loss per share for
      the
      nine months ended December 31, 2006 for basic and diluted is $0.02. See Note
      10
      of the notes to the condensed consolidated financial statements for additional
      disclosure.





*Accounting
      Changes and Error Corrections*




In
      May
      2005, the Financial Accounting Standards Board (FASB) issued Statement of
      Financial Accounting Standards (SFAS) No. 154, *Accounting
      Changes and Error Corrections-A replacement of APB Opinion No. 20 (APB 20)
      and FASB Statement No. 3* (SFAS
      154). In order


to
      enhance financial reporting consistency between periods, SFAS 154 modifies
      the
      requirements for the accounting and reporting of the direct effects of changes
      in accounting principles. Under APB 20, the cumulative effect of voluntary
      changes in accounting principle was recognized in net income in the period
      of
      the change. Unlike the treatment previously prescribed by APB 20, retrospective
      application is now required, unless it is not practical to determine the
      specific effects in each period or the cumulative effect. If the period specific
      effects cannot be determined, it is required that the new accounting principle
      must be retrospectively applied in the earliest period possible to the balance
      sheet


11





**INDEX
      OIL AND GAS, INC.**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





*Accounting
      Changes and Error Corrections (continued)*




accounts
      and a corresponding adjustment be made to the opening balance of retained
      earnings or another equity account. If the cumulative effect cannot be
      determined, it is necessary to apply the new accounting principles prospectively
      at the earliest practical date. If it is not feasible to retrospectively apply
      the change in principle, the reason that this is not possible and the method
      used to report the change is required to be disclosed. The statement also
      provides that changes in accounting for depreciation, depletion or amortization
      should be treated as changes in an accounting estimate inseparable from a change
      in accounting principle and that disclosure of the preferability of the change
      is required. SFAS 154 is effective for accounting changes made in fiscal years
      beginning after December 15, 2005. The Company adopted this FASB on April
      1, 2006. The adoption of this pronouncement did not materially impact the
      Company’s operating results, financial position or cash flows.





*New
      Accounting Pronouncements Not Yet Adopted*





*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 does not
      expect its adoption of this new standard to have a material impact on its
      financial position, results of operations or cash flows as it currently does
      not
      have any hybrid instruments outstanding at December 31, 2006.




*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. An entity should adopt this Statement as of the beginning of its
      first fiscal year that begins after September 15, 2006. Earlier adoption is
      permitted as of the beginning of an entity’s fiscal year, provided the entity
      has not yet issued financial statements, including interim financial statements,
      for any period of that fiscal year. The effective date of this Statement is
      the
      date an entity adopts the requirements of this Statement. The Company has not
      yet determined the impact the Company’s condensed consolidated financial
      position or results of operations.





*Accounting
      for Fair Value Measurements,* In
      September 2006, the FASB issued SFAS No. 157, *“Fair
      Value Measurements”* (“SFAS
      No. 157”), to define fair value and establish a framework for measuring fair
      value in generally accepted accounting principles (“GAAP”) and to expand
      disclosures about fair value measurements. This Statement applies under other
      accounting pronouncements that require or permit fair value measurements. Prior
      to this Statement, there were different definitions of fair value and limited
      guidance for applying those definitions in GAAP. A single definition of fair
      value, together with a framework for measuring fair value, should result in
      increased consistency and comparability in fair value measurements. The expanded
      disclosures about the use of fair value to measure assets and liabilities should
      provide users of financial statements with better information about the extent
      to which fair value is used to measure recognized assets and liabilities, the
      inputs used to develop the measurements and the effect of certain of the
      measurements on earnings (or changes in net assets) for the period. SFAS No.
      157
      is effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods with those fiscal years. Early adoption
      is permitted. ** The
      Company has not yet determined the impact the Company’s condensed consolidated
      financial position or results of operations.











12








**INDEX
      OIL AND GAS, INC.**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**








*New
      Accounting Pronouncements Not Yet Adopted (continued)*





*Employers’
      Accounting for Defined Benefit Pension and Other Postretirement
      Plans,* In
      September 2006 the FASB issued its Statement of Financial Accounting Standards
      158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
      Plans”. This Statement improves financial reporting by requiring an employer to
      recognize the overfunded or underfunded status of a defined benefit
      postretirement plan (other than a multiemployer plan) as an asset or liability
      in its statement of financial position and to recognize changes in that funded
      status in the year in which the changes occur through comprehensive income
      of a
      business entity or changes in unrestricted net assets of a not-for-profit
      organization. This Statement also improves financial reporting by requiring
      an
      employer to measure the funded status of a plan as of the date of its year-end
      statement of financial position, with limited exceptions. The effective date
      for
      an employer with publicly traded equity securities is as of the end of the
      fiscal year ending after December 15, 2006. The Company does not expect adoption
      of this standard will have a material impact on its financial position,
      operations or cash flows








13


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(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, 2006 and March 31, 2006 consist of the following:





**December
                31, 2006**
            
            **March
                31,****2006**Proved
                properties
            
            $2,038,866
            
            $722,056Unevaluated
                and unproved properties
            
            
            1,708,542
            
            
            356,729Gross
                oil and gas properties-onshore
            
            
            3,747,408
            
            
            1,078,785Less:
                accumulated depletion
            
            
            (241,124
            )
            
            (127,586
            )Net
                oil and gas properties-onshore
            
            $
            3,506,284
            
            $
            951,199





Included
      in the Company's oil and gas properties are asset retirement obligations of
      $41,552 and $25,300 as of December 31, 2006 and March 31, 2006,
      respectively.





Depletion
      expense was $61,093 and $16,674 or $25.41 and $19.14 per barrel of production
      for the three months ended December 31, 2006 and 2005,
      respectively.





At
      December 31, 2006 and March 31, 2006, the Company excluded the following
      capitalized costs from depletion, depreciation and amortization:





**December
                31, 2006**
            
            **March
                31,****2006**Not
                subject to depletion-onshore:Exploration
                costs
            
            $
            1,489,227
            
            $
            236,806Cost
                of undeveloped acreage
            
            
            219,315
            
            
            119,923Total
                not subject to depletion
            
            $
            1,708,542
            
            $
            356,729




It
      is
      anticipated that the cost of undeveloped acreage of $219,315 and exploration
      costs of $1,489,227 will be included in depreciation, depletion and amortization
      when the related projects are planned and drilled and completed. Included in
      the
      exploration costs is approximately $370,000 of costs incurred on the Vieman
      1
      well, which are estimated to relate to a second pay zone which is currently
      being evaluated for potential reserves. 50% of the Barton project entry costs
      (approximately $28,000) are included in the amortization base at December 31,
      2006.











14





**INDEX
      OIL AND GAS, INC.**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





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





*Acquisitions
      and Dispositions*





The
      Company paid $375,000 in July 2003 to acquire its interest in the oil and gas
      leases comprising the Kansas properties, which included rights to a number
      of
      newly drilled wells that were in the process of being brought on stream at
      that
      time. Initially $100,000 of the overall acquisition cost was allocated to proved
      property acquisition costs and $275,000 to unproved property acquisition costs.
      It is expected that at least 24 prospects will be drilled in total on these
      properties and for each well that has been drilled on the Kansas properties
      subsequent to the acquisition and through to December 31, 2006, $16,000 per
      well
      (being approximately 1/24 of the original acquisition cost) has been
      reclassified as proved property costs and brought into the calculation of
      amortization against estimated proven reserves. In addition an equivalent
      transfer where required has been made for future well locations for which proven
      undeveloped reserves have been ascribed at December 31, 2006 and 2005. Drilling
      and completion of wells on the Kansas properties generally takes no more than
      one month in total. In fiscal year 2006, the Company acquired its interest
      in
      the Barton County Kansas exploration project.





During
      June 2006, the Company committed to exercise of its option for Phase 2, at
      a
      cost of $142,726, including data processing charges, and its 18% participation
      in the first well with ADC in Nacogdoches County in East Texas.





During
      July 2006, the Company agreed to increase its working interest in Vieman 1
      from
      12.5% to 17% and Taffy 2 from 7.5% to 20%. Subsequently, the Company announced
      a
      further increase in working interest in the Vieman 1 to 19.5%.





The
      commencement of the Taffy drilling program was announced on December 12, 2006.
      Originally planned as two wells, a third was added prior to drilling. Index
      originally agreed to take a 7.5% WI in the Taffy 1 and 2 wells. Just prior
      to
      drilling, the Company had taken a 12.5% WI in Taffy 1, and 30% in both the
      Taffy
      2 and 3 wells.





The
      well
      names, as is the convention, were confirmed prior to drilling as Taffy 1
      (Hawkins 1), Taffy 2 (Dark 1) and Taffy 3 (Ruse 1)




Index
      also announced on August 19, 2006 that the first of 4 wells in the Barton County
      exploration project in Kansas ("Barton") was expected to start drilling by
      third
      quarter of calendar year 2007 anticipating that all 4 wells will be drilled
      back
      to back. These new wells are located on prospects interpreted from a newly
      acquired 17.25 square mile 3-D seismic survey (of which approximately 9.45
      square miles cover Index leases). The Company believes several other leads
      have
      been identified from the Barton data, and that additional drilling opportunities
      may exist in the area. Drilling operations commenced in August 2006 in the
      area
      and three wells were drilled (the fourth well being delayed pending final
      permitting), of these wells, two have been completed in October 2006 as
      producers and one is non-commercial and has been plugged and
      abandoned.




The
      Company also has spread its oil and gas lease participation over approximately
      an additional 2120 acres of land, bringing the Barton project total to
      approximately 6900 acres. Index's ownership in Barton is now a 3.25% interest
      following this agreement to spread its ownership over an increased number of
      leases and therefore, additional opportunities while maintaining the same net
      acreage position in the project.




The
      Barton wells formed part of a planned eight well Kansas drilling program which
      includes four additional wells in the adjacent and similar Seward area already
      in production, in which Index has a 5% working interest. Drilling operations
      consisting of three wells (the fourth well has been delayed to calendar year
      2007) in Seward commenced in September 2006 and finished in the fourth quarter
      of calendar year 2006 and two of these three wells have been completed as
      producers and one is non-commercial.






On
      January 9 2007 the Company announced the hook up of the four successful wells
      from its 2006 exploration program in Kansas. Index completed a 6 well (from
      the
      planned 8), low-risk exploration drilling program in the Seward project in
      Stafford County, and the Katy project in Barton County, Kansas, in the fourth
      quarter of calendar year 2006.






Based
      on
      the successful results of its calendar year 2006 Stafford and Barton drilling
      program, which resulted in these four wells, Index is planning a calendar year
      2007 drilling program in these two areas that is expected to consist of
      approximately four additional wells.




On
      September 19, 2006, the Company signed an agreement to participate in the New
      Taiton exploration project in South Texas. The first well, Ilse 1, in the New
      Taiton project will target stacked Wilcox sands, on trend with nearby gas fields
      with cumulative production in the 30 BCF range from the same reservoirs. The
      Company believes that the prospect is clearly identified by 3D seismic
      data.





15





**INDEX
      OIL AND GAS, INC.**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





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





If
      Ilse 1
      proves successful the Company expects to participate in further wells to develop
      the potential of the New Taiton area. Ilse 1 spudded in the fourth quarter
      of
      calendar year 2006 with a proposed Total Depth (TD) of around 17,000ft. The
      Company has taken a 10% WI before payout and 8% working interest after payout
      in
      the New Taiton project and Ilse 1.





On
      December 4 2006, the Company announced
      that it has signed an exploration agreement to participate in the West 1
      exploration well. The well targets the high-potential Cretaceous Edwards
      limestone in Lavaca County, Texas. The proposed total depth of the well is
      14,700ft.





Index
      will have a 20% working interest in the well that is planned to spud in first
      half of calendar year 2007. Drilling
      results are expected during calendar year 2007.





*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, 2006 and March 31, 2006 were as
      follows:





**December
                31, 2006**
            
            **March
                31,****2006**Computer
                costs, including foreign translation adjustment
            
            $
            17,457
            
            $
            11,217Less:
                accumulated depreciation
            
            
            (10,806
            )
            
            (9,490
            )Total
                other property and equipment
            
            $
            6,651
            
            $
            1,727





Depreciation
      expenses from continuing operations amounted to $163 and $316 for the three
      months ended December 31, 2006 and 2005, respectively. There was no interest
      capitalized in property, plant and equipment at December 31, 2006 and 2005.




**NOTE
      4 - COMPREHESIVE LOSS**





For
      the
      three months ended December 31, 2006 and 2005, comprehensive loss consisted
      of
      the amounts listed below.






**For
                the Three Months Ended December 31,****2006**
            
            
            **2005**Net
                loss
            
            $
            (422,245
            )
            $
            (80,472
            )Foreign
                currency translation
            
            
            (5,839
            )
            
            (4,849
            )Comprehensive
                Loss
            
            $
            (428,084
            )
            $
            (85,321
            )










16

















**INDEX
      OIL AND GAS, INC.**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





**NOTE
      5 - NOTES PAYABLE**





Index
      Ltd
      incurred debt and raised capital through a series of rounds of fundraising
      from
      inception through December 31, 2006. All of the Index Ltd. stockholder debt
      funding was later converted to common stock at par and additional paid in
      capital. After all conversion of stock, notes payable at December 31, 2006
      and
      March 31, 2006 was $0.





There
      was
      no debt issue cost incurred during the three months ended December 31, 2006
      and
      2005. There was no debt issue amortization expense in the three months ended
      December 31, 2006 and 2005. There was no unamortized debt issue cost at December
      31, 2006 and March 31, 2006.





There
      were no outstanding bank loans at December 31, 2006 and $49,535 outstanding
      bank
      loans at December 31, 2005  which
      was
      a one-year term note for additional financing for operations. The amount
      borrowed was $51,374 (with a valuation of $48,569 at March 31, 2006) in quarter
      1 of fiscal year 2006 at the ruling transaction rate. The term loan was financed
      at a rate of 2% over the bank’s prime interest rate. At expiration date in April
      2006, the bank renewed the loan for up to an additional year. The bank held
      the
      following security: Debenture including fixed equitable charge over all present
      and future freehold and leasehold property of Index Ltd; First fixed charge
      over, among other things, book and other debts, chattels, goodwill and uncalled
      capital. First floating charge over all assets and undertakings both present
      and
      future of Index Ltd.; Joint and several guarantees were given by Lyndon West
      and
      Michael Scrutton. This bank loan was repaid during June 2006, being $51,797
      at
      the transaction date.





**NOTE
      6**  **-**  **ASSET
      RETIREMENT OBLIGATION**





Activity
      related to the Company’s ARO during the three months ended December 31, 2006 is
      as follows:





**For
                the Three Months Ended December 31, 2006**ARO
                as of beginning of period
            
            $27,135Liabilities
                incurred during period
            
            
            14,417Liabilities
                settled during period
            
            
            -Accretion
                expense
            
            
            -Balance
                of ARO as of end of period
            
            $
            41,552





Of
      the
      total ARO, $41,552 is classified as a long-term liability at December 31, 2006.
      For each of the three months ended December 31, 2006 and 2005, the Company
      recognized no accretion expense related to its ARO, due to the assumption of
      a
      full offset of salvage values.




17





**INDEX
      OIL AND GAS, INC.**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(Unaudited)**





**NOTE
      7**  **-**  **COMMITMENTS
      AND CONTINGENCIES**





The
      Company has no commitments to oil and gas exploration and production capital
      expenditure other than ongoing planned expenditures on the Kansas properties,
      and the commitments relating to new wells in Texas and Louisiana. In July 2006,
      the Company agreed with operator Crawford Energy to increase its WI (working
      interest) in the Vieman 1 well from 12.5% to 17% and subsequently further
      increased its working interest in this well to 19.5%. The Company originally
      agreed to take a 7.5% WI in the Taffy 1 (now named Hawkins 1). Just prior to
      drilling, the Company increased its interest in the Taffy 1 well to 12.5% and
      the Taffy 2 (now named Dark 1) and Taffy 3 (now named Ruse 1) wells to
      30%.




As
      announced on May 2, 2006 and July 12, 2006, the Company entered into two Phases,
      I and II, of an exploration agreement with Advanced Drilling Concepts (“ADC”) to
      reprocess seismic data and develop prospects to drill in four areas in Texas,
      Mississippi, and Alabama .
      This
      project is capable of delivering Phase 2 as well as Phase 3 Growth Strategy
      projects. The first drillable prospect generated as a result of this agreement
      that the Company has verbally committed to drill is an exploration well in
      Nacogdoches County. The well, named Cason 1, will target the Travis Peak gas
      reservoir and is planned for calendar year 2007 drilling.




Index
      also announced on August 19, 2006 that the first of 4 wells in the Barton County
      exploration project in Kansas ("Barton") was expected to start drilling by
      fourth quarter of calendar year 2006, subsequently 3 wells were drilled and
      one
      delayed. These new wells are located on prospects interpreted from a newly
      acquired 17.25 square mile 3-D seismic survey (of which approximately 9.45
      square miles cover Index leases). The Company believes several other leads
      have
      been identified from the Barton data, and that additional drilling opportunities
      may exist in the area.




The
      Barton wells formed part of a planned Kansas 8 well drilling program which
      includes 4 additional wells in the adjacent and similar Seward area already
      in
      production, in which Index has a 5% working interest. Drilling operations in
      Seward commenced on September 20, 2006 and 3 wells were drilled at December
      31,
      2006 (the  fourth
      well being delayed to the next drilling program), and of these three wells
      two
      have been completed as producers and one is non-commercial.




The
      Company also has spread its oil and gas lease participation over approximately
      an additional 2120 acres of land, bringing the Barton project total to
      approximately 6900 acres. Index's ownership in Barton is now a 3.25% interest
      following this agreement to spread its ownership over an increased number of
      leases and therefore, additional opportunities while maintaining the same net
      acreage position in the project.




On
      January 9 2007 the Company announced the hook up of four successful wells from
      its 2006 exploration program in Kansas. Index completed a 6 well (from the
      planned 8), drilling program in the Seward project in Stafford County, and
      the
      Katy project in Barton County, Kansas, in the fourth quarter of calendar year
      2006. The wells targeted oil in the Lansing and Arbuckle reservoirs at drill
      depths between 3,500 and 3,800ft in two areas.




Four
      of
      the wells were successful and are now producing oil. Two of the wells were
      drilled and completed in Barton County, where Index has a 3.25% WI; the Schartz
      1-18 and Rogers Unit 1-1 wells began producing in October 2006.






The
      other
      two wells were drilled and completed in Stafford County, where Index has a
      5%
      WI; the Hayden 1-14 and Hay Witt Unit 1-11 wells began producing in November
      and
      December 2006, respectively.






The
      Pan
      John Unit 1-11 in Barton County and the Hull Witt 1-11 in Stafford County were
      non-commercial. Both wells have been plugged and abandoned.




Based
      on
      the successful results of its calendar year 2006 Stafford and Barton drilling
      program, which resulted in these four wells, Index is planning a calendar year
      2007 drilling program in these two areas that is expected to consist of
      approximately four additional wells.





On
      September 19, 2006, the Company signed an agreement to participate in the New
      Taiton exploration project in South Texas. The first well, Ilse 1, in the New
      Taiton project will target stacked Wilcox sands, on trend with nearby gas fields
      with cumulative production in the 30 BCF range from the same reservoirs. The
      prospect is clearly identified by 3D seismic data.





If
      Ilse 1
      proves successful the Company expects to participate in further wells to develop
      the potential of the New Taiton area. It is expected that Ilse 1 will spud
      in
      the fourth quarter of calendar year 2006 with a proposed Total Depth (“TD”) of
      around 17,000 feet. The Company has taken a 10% working interest before payout
      ("WI") and an 8% working interest after payout in the New Taiton
      project.




On
      December 4, 2006, the Company announced
      that it has signed an exploration agreement to participate in the West 1
      exploration well. The well targets the high-potential Cretaceous Edwards
      limestone in Lavaca County, Texas. The proposed total depth of the well is
      14,700ft. Subsequent
      to the three months ended December 31, 2006, the Company agreed with operator
      Broad Oak Energy, Inc. to increase its working interest (“WI”) in the West 1
      well from 15% to 20%.





Index
      will have a 20% working interest in the well that is planned to spud in first
      half of calendar year 2007 with drilling results expected during calendar year
      2007.  The
      medium-risk West 1 well, if successful in finding commercial gas, will pave
      the
      way for follow-on drilling activity in the leased area defined in the
      exploration agreement. Combined cumulative production from fields nearby exceeds
      400 billion cubic feet of gas from the Edwards limestone.





During
      the three months ended and as of December 31, 2006, the Company transferred
      the
      ordinary shares of Thai Pasta to a third party as part of a voluntary process
      to
      liquidate the entity and Thai Pasta ceased to be a subsidiary of the Company.
      This resulted in no impact to the financial position, results of operations
      or
      cash flows of the Company for the three and nine months ended December 31,
      2006
      as there is no value assigned to the assets, liabilities or equity of Thai
      Pasta
      following the reverse merger transaction which occurred on January 20, 2006.





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.





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.





Registration
      Statement






On
      August
      29, 2006, the Company completed a private placement offering in which the
      Company sold 1419.58 units of its securities at a price of $5,000 per unit
      to
      certain accredited investors (“Investors #1”), each unit consisting of 5,000
      shares of common stock of the Company for a total of 7,097,898 shares of $0.001
      par value common stock of the Company at a price of $1.00 per share for
      aggregate proceeds of approximately $7.1 million. Furthermore on October 4,
      2006, the company completed a second closing of the private placement offering
      in which the Company sold an additional 693.54 units of its securities at a
      price of $5,000 per unit to certain accredited investors (“Investors #2”,
      Investors #1 and Investors #2 shall collectively be referred to as the
“Investors”) , each unit consisting of 5000 shares of common stock of the
      Company for gross proceeds of approximately $3.5 million and subsequently sold
      another 80 units on October 5, 2006, for an overall total of 3,867,700 shares
      of
      $0.001 par value common stock of the Company at a price of $1.00 per share
      for
      overall aggregate proceeds of approximately $3.9 million.






Subsequently,
      on October 11, 2006 pursuant to the requirements of the Registration Rights
      Agreement entered into by and among the Company and the Investors, the Company
      filed a Registration Statement with the SEC on Form SB-2 to register, among
      other securities, the units of common stock sold in the private placement
      offering. The Company has agreed to have the Registration Statement declared
      effective by the SEC no later than 180 days from August 29, 2006. If the Company
      should fail to have the Registration Statement declared effective on or before
      them time frame described, the Investors will entitled to the liquidated damages
      from the Company in an amount equal to 2% of the aggregate subscription amounts
      per month for each month that the Company is delinquent in failing to obtain
      the
      effectiveness of the Registration Statement, subject to an overall limit of
      up
      to 15 months of partial liquidated damages. On February 9, 2007, the SEC
      declared the Registration Statement effective, and therefore did not incur
      any
      liquidated damages.




18


**INDEX
      OIL AND GAS, INC.**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





**NOTE
      7**  **-**  **COMMITMENTS
      AND CONTINGENCIES (continued)**





Litigation





The
      Company is subject from time to time 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 material adverse effect on its
      financial position, results of operations or liquidity. Consequently, the
      Company has not recorded any reserve for legal matters.





**NOTE
      8 - CAPITAL STOCK**





As
      our
      Common Stock is a security registered pursuant to Section 12 of the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”), we must solicit proxies
      or obtain consent or authorizations by or on behalf of our management from
      the
      holders of record of our common stock in accordance with the rules and
      regulations of the Exchange Act, including those prescribed in Section 14.
      On
      November 25, 2005, prior management of the Company obtained the approval of
      the
      majority of stockholders of the Company authorizing it to increase the
      authorized common stock of the Company from 25,000,000 to 75,000,000 (the
“Increase”).





In
      September 2006, the stockholders of the Company holding the majority of issued
      and outstanding common stock of the Company approved the increase in authorized
      common stock of the Company from 75,000,000 shares to 500,000,000 shares and
      to
      create 10,000,000 shares of “blank check” preferred stock, $0.001 par value per
      share (the “Approvals”). Subsequently, the Company filed a Certificate of
      Amendment to its Articles of Incorporation, as amended, with the Secretary
      of
      State of the State of Nevada that was effective as of September 21, 2006. The
      Amendment was filed to effect the Approvals.





On
      August
      29, 2006, the Company completed the first closing under a private placement
      offering in which the Company sold 1419.58 units of its securities at a price
      of
      $5,000 per unit to certain accredited investors, each unit consisting of 5,000
      shares of common stock of the Company for a total of 7,097,898 shares of $0.001
      par value common stock of the Company at a price of $1.00 per share for
      aggregate gross proceeds of approximately $7.1 million. The net proceeds of
      this
      placement will be applied to the expansion of Index's operations in the U.S.
      as
      the Company hopes to enter a busy drilling period over the coming 12 months.
        The proposed application of the proceeds is in line with Index's strategy
      to develop its activities to include higher upside, carefully risked
      opportunities appropriate to its financial resources and spread across a
      balanced and managed portfolio. Total fees paid on the first closing of the
      private placement were approximately $0.8 million.




Furthermore
      on October 4, 2006, the Company completed a second closing of the private
      placement offering in which the Company sold an additional 693.54 units of
      its
      securities at a price of $5,000 per unit to certain accredited investors, each
      unit consisting of 5000 shares of common stock of the Company for gross proceeds
      of approximately $3.5 million and it subsequently sold another 80 units on
      October 5, 2006, for a total of 3,867,700 shares of common stock of the Company
      at a price of $1.00 per share for overall aggregate proceeds of approximately
      $3.9 million. Total fees paid on the second and third closing of the private
      placement were approximately $0.4 million.




The
      purchasers agreed not to sell the Common stock included in the units for a
      period of six months from the date of their purchase, unless permitted earlier
      by the Company. Notwithstanding the foregoing, the purchasers further agreed
      to
      be bound by any lock-up period required by state or federal regulation. The
      shares of common stock are restricted securities under Securities Act of 1933,
      as amended and applicable state securities laws and, therefore, may only be
      transferred pursuant to the registration requirements of federal and state
      securities laws or pursuant to an exemption from such registration
      requirements.





Subsequently,
      on October 11, 2006 pursuant to the requirements of the Registration Rights
      Agreement entered into by and among the Company and the Investors, the Company
      filed a Registration Statement with the SEC on Form SB-2 to register, among
      other securities, the units of common stock sold in the private placement
      offering. The Company has agreed to have the Registration Statement declared
      effective by the SEC no later than 180 days from August 29, 2006. If the Company
      should fail to have the Registration Statement declared effective on or before
      them time frame described, the Investors will be entitled to the liquidated
      damages from the Company in an amount equal to 2% of the








19














**INDEX
      OIL AND GAS, INC.**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





**NOTE
      8**  **-**  **CAPITAL
      STOCK (continued)**





aggregate
      subscription amounts per month for each month that the Company is delinquent
      in
      failing to obtain the effectiveness of the Registration Statement, subject
      to an
      overall limit of up to 15 months of partial liquidated damages. On February
      9,
      2007, the SEC declared the Registration Statement effective, and therefore
      did
      not incur any liquidated damages.




**NOTE
      9 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION**





The
      Board
      of Directors of the Company 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. The plan was ratified by
      the
      current stockholders in September 2006. Pursuant to the Stock Option Plan,
      Index
      Inc. allowed for the issuance of options to purchase 4,577,526 shares of Common
      Stock at $0.35 per share to newly appointed directors and officers of Index
      Inc.
      that had held options to purchase ordinary shares of Index Ltd. prior to the
      completion of the acquisition.





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 January 20, 2006; (2) 25% on January 20, 2007; and (3) 25% on January
      20,
      2008. The options granted are exercisable at $0.35 per share. 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 of **** office
      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.





On
      August
      29, 2006, the Board of Directors appointed John Williams as Executive Vice
      President of Exploration and Production and a director of the Company effective
      August 1, 2006. In addition to Mr. Williams’ salary of $150,000 per year, he was
      awarded a restricted bonus stock award of 50,000 shares of the Company’s common
      stock contingent on 183 days of continuous service to the Company. Upon
      satisfaction of the terms of the award, Mr. Williams will be issued 50,000
      shares of restricted common stock of the Company.





Total
      compensation expense recorded for the issuance of all options and restricted
      stock in the third quarter of fiscal 2007 was $208,047.





Adoption
      of SFAS-123R





In
      determining the Company’s accounting policies, the Company chose to apply the
      intrinsic value method pursuant to Accounting Standards Board (“APB”)
      No. 25, “Stock Issued to Employees” (“APB No. 25”), effective in 2003.
      Under APB No. 25, no compensation is recognized when the exercise price for
      options granted equals the fair value of the Company’s common stock on the date
      of the grant. Accordingly, the provisions of SFAS No. 123 permit the
      continued use of the method prescribed by APB No. 25 but require additional
      disclosures, including pro forma calculations of net income (loss) per share
      as
      if the fair value method of accounting prescribed by SFAS No. 123 had been
      applied.

















20


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**








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





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. The Company did not issue any stock
      options during the three months ended December 31, 2005 and therefore had no
      compensation expense.





The
      remaining compensation expense associated with total unvested stock option
      awards as of December 31, 2006 was $263,296 and will be recognized over a
      remaining weighted average period of approximately 1 year. A total of $208,047
      was recorded as compensation expense for the three months ended December 31,
      2006. Since there was no public market for the Company’s stock and operations
      were not comparable to a peer group prior to the acquisition, the stock issuance
      price for the private equity raising at the date of acquisition of $0.60 was
      used as the share market price and an exercise price of $0.35. The
      weighted-average fair value of options granted under the fair valued based
      method or $0.398, using the Black Scholes model, was determined using the
      following assumptions: (1) a risk free rate of 4.38%; (2) a volatility rate
      of
      100%; (3) a zero dividend rate; (4) a zero percent forfeiture rate; (5) the
      latest stock issuance price used as the share market price; and (6) 2 year
      life.





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 and stockholders at December 31, 2006 and March 31, 2006
      restated for the recapitalization which occurred on January 20, 2006 at an
      exchange rate of one Index Ltd. share or warrant for approximately 2.857 shares
      or warrants of the Company’s.





**Number
                of Shares**
            
            **Weighted
                Average Exercise Price Per Share**Outstanding
                at March 31, 2005
            
            
            -
            
            $
            -Granted
            
            
            4,577,526
            
            
            0.35Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                at March 31, 2006
            
            
            4,577,526
            
            $
            0.35GrantedExercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                at December 31, 2006
            
            
            4,577,526
            
            $
            0.35





The
      Company has assumed an annual forfeiture rate of 0 % for the awards granted
      in 2006 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.





**Options
                Outstanding**
            
            **Options
                Exercisable at December 31, 2006**Exercise
                Price
            
            Number
              Outstanding
            
            Weighted
                Average Remaining Contractual Life (Years)
            
            Weighed
                Average Exercise Price
            
            Number
              Exercisable
            
            Weighted
                Average Exercise Price$
                0.35
            
            4,577,526
            
            4.05
            
            $
                0.35
            
            2,288,763
            
            $
                0.35








21




**INDEX
      OIL AND GAS, INC.**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





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





Aggregate
      intrinsic value of options outstanding and options exercisable at December
      31,
      2006 was $4,806,402 and $2,403,201, respectively. Aggregate intrinsic value
      represents the difference between the Company's closing stock price on the
      last
      trading day of the fiscal period, which was $1.40 as of December 31, 2006,
      and
      the exercise price multiplied by the number of options outstanding. As of
      December 31, 2006, total unrecognized stock-based compensation expense related
      to non-vested stock options was approximately $263,296, which is expected to
      be
      recognized over a weighted average period of approximately 12 months. No
      options vested during the nine-month periods ended December 31, 2006 and
      2005, respectively.


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 Share**Outstanding
                and Exercisable March 31, 2005
            
            138,655
            
            $
              0.07Granted
            
            
            954,021
            
            
            0.14Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                and Exercisable March 31, 2006
            
            
            1,092,676
            
            $
            0.13Granted
            
            
            -
            
            
            -Exchanged
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                and Exercisable at December 31, 2006
            
            
            1,092,676
            
            $
            0.13










**Warrants
                Outstanding**
            
            
            **Warrants
                Exercisable**Exercise
                Prices
            
            
            Number
                Outstanding
            
            
            Weighted
                Average Remaining Contractual Life (Years)
            
            
            Weighted
                Average Exercise Price
            
            
            Number
                Exercisable
            
            
            Weighted
                Average Exercise Price$0.07
            
            
            138,655
            
            
            3.75
            
            
            $0.07
            
            
            138,655
            
            
            $0.07$0.14
            
            
            143,037
            
            
            3.75
            
            
            $0.14
            
            
            143,037
            
            
            $0.14$0.14
            
            
            392,839
            
            
            3.75
            
            
            $0.14
            
            
            392,839
            
            
            $0.14$0.14
            
            
            391,410
            
            
            3.75
            
            
            $0.14
            
            
            391,410
            
            
            $0.14$0.14
            
            
            26,735
            
            
            3.75
            
            
            $0.14
            
            
            26,735
            
            
            $0.141,092,676
            
            
            3.75
            
            
            $0.13
            
            
            1,092,676
            
            
            $0.13





22





**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**


**NOTE
      10**  **-**  **EARNINGS
      PER SHARE**





In
      February 2003, Index Ltd. was capitalized with 100 million shares of common
      stock authorized. On January 20, 2006, in a reverse merger between the Company
      and Index Ltd., 22,615,552 of the Company’s Common Stock were exchanged for
      7,916,232 shares of Index Ltd. and 8,533,333 shares were sold to private
      investors in connection with the Transaction. In addition, as of January 20,
      2006, the Company had 23,091,667 shares of Common Stock issued and outstanding.
      The Company also issued 303,793 shares of common stock to management as
      compensation expense, which had been reserved for issue as part of the share
      exchange transaction. Additional fund raisings during the fiscal year ended
      2007
      of $10.9 million were sold to private investors with a total of 10,965,598
      shares of common stock issued. 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. In addition, for the three months ended
      December 31, 2006 and 2005, excluded from diluted earnings per share are
      5,670,202 and 1,092,676, respectively of warrants, options and/or subscriptions
      received to acquire common stock.





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 Ended****December
                31,**
            **December
                31,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005**Shares—basic
            
            
            65,383,822
            
            
            19,751,078
            
            
            65,383,822
            
            
            19,751,078Dilution
                effect of stock option and awards at end of period
            
            
            -
            
            
            -
            
            
            -
            
            
            -Shares—diluted
            
            
            65,383,822
            
            
            19,751,078
            
            
            65,383,822
            
            
            19,751,078Stock
                awards and shares excluded from diluted earnings per share due to
                anti-dilutive effect
            
            
            5,670,202
            
            
            1,092,676
            
            
            5,670,202
            
            
            1,092,676




**NOTE
      11 - RELATED PARTY TRANSACTIONS**





Lyndon
      West and Michael Scrutton, jointly and severally, guaranteed the bank loan.
      During June 2006, the Company repaid the bank loan.





**NOTE
      12 - 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 three months ended December 31, 2006 and as of December 31, 2006, the
      Company owned oil and natural gas interests in three main geographic areas
      in
      the United States. Geographic revenue and property, plant and equipment
      information below is based on physical location of the assets at the end of
      each
      period.






**December
                31, 2006****Total Oil & Gas****Revenue**
            
            
            **Total
                Assets****(1)**Kansas
            
            
            $
            38,072
            
            $
            606,184Louisiana
            
            
            
            93,904
            
            
            294,323Texas-
            
            
            
            
            
            
            2,758,029Other
            
            
            
            -
            
            
            176,421Total
            
            
            $
            131,976
            
            $
            3,834,957





(1)
            Total
                assets at December 31, 2006 are reported gross. Under the full cost
                method
                of accounting for oil and gas properties, accumulated depreciation,
                depletion and amortization and impairment is not allocated to
                properties.




23







**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**





**NOTE
      13 - SUBSEQUENT EVENTS**





Subsequent
      to the three months ended December 31, 2006, the Company agreed to increase
      its
      working interest (“WI”) in the West 1 well from 15% to 20%. The West 1 program
      targets the Cretaceous Edwards limestone in Lavaca County, Texas. The proposed
      total depth of the well is14,700 feet and is now expected to spud in the first
      half of calendar year 2007, subject to rig availability.






In
      January 2007, the Company announced the hook up of four successful wells from
      its calendar year 2006 Kansas exploration program. The Company has completed
      a
      six-well, low-risk exploration drilling program in the Seward project in
      Stafford County, and the Katy project in Barton County, Kansas, in the fourth
      quarter of calendar year 2006. The wells targeted oil in the Lansing and
      Arbuckle reservoirs at drill depths between 3,500 and 3,800 feet in two areas.
      Four of the wells were successful and are now producing oil. Two of the wells
      were drilled and completed in Barton County, where Index has a 3.25% working
      interest; the Schartz 1-18 and Rogers Unit 1-1 wells began producing in October
      2006. The other two wells were drilled and completed in Stafford County, where
      Index has a 5% working interest; the Hayden 1-14 and Hay Witt Unit 1-11 wells
      began producing in November and December 2006, respectively. The Pan John Unit
      1-11 in Barton County and the Hull Witt 1-11 in Stafford County were
      non-commercial. Both wells have been plugged and abandoned. Based on the
      successful results of its 2006 Stafford and Barton drilling program, which
      resulted in these four long-life oil wells, the Company is planning a 2007
      drilling program in these two areas that is expected to consist of approximately
      four additional wells in these Kansas assets.






Also
      in
      January, the Company announced that the Hawkins 1 exploration well in the Taffy
      area of Matagorda County, Texas (formerly named Taffy 1) is a commercial
      discovery. A completion test confirmed gas flow at a measured rate of
      approximately1.04 million cubic feet per day through a choke of 9/64th inch
      with
      a flowing tubing pressure of 1,850 psi. Index has a 12.5% Working Interest
      in
      Hawkins 1. Hawkins 1 is scheduled to begin production from a Miocene sandstone
      reservoir at approximately 5,000 feet deep into the local pipeline grid during
      the second calendar quarter 2007. Hawkins 1, once hooked up and producing,
      will
      add incrementally to the Company's reserves and cashflow in line with the
      Company's strategy to rapidly build a balanced portfolio of producing assets,
      without exposing investors to single critical events. Ruse 1 (formerly Taffy
      3)
      was non-commercial and has been plugged and abandoned. The third and final
      exploration well in this program, Dark 1 (formerly Taffy 2), is expected to
      spud
      as soon as the drill site becomes accessible. To date, heavy rain in the area
      and the consequent ground conditions have precluded the mobilization of the
      rig.
      It is expected that operations will recommence during the first half of calendar
      year 2007.






On
      October 4, 2006, the Company completed a second closing of the private placement
      offering, which initially closed in September 2006, in which the Company sold
      an
      additional 693.54 units of its securities at a price of $5,000 per unit to
      certain accredited investors, each unit consisting of 5000 shares of common
      stock of the Company for gross proceeds of approximately $3.5 million and it
      subsequently sold another 80 units on October 5, 2006, for a total of 3,867,700
      shares of $0.001 par value common stock of the Company at a price of $1.00
      per
      share for overall aggregate proceeds of approximately $3.9 million. Index has
      entered a 12-14 well drilling program.  The purchasers agreed not to sell
      the Common stock included in the units for a period of six months from the
      date
      of their purchase, unless permitted earlier by the Company. Notwithstanding
      the
      foregoing, the purchasers further agreed to be bound by any lock-up period
      required by state or federal regulation. The shares of common stock are
      restricted securities under Securities Act of 1933, as amended and applicable
      state securities laws and, therefore, may only be transferred pursuant to the
      registration requirements of federal and state securities laws or pursuant
      to an
      exemption from such registration requirements.




Subsequently,
      on October 11, 2006 pursuant to the requirements of the Registration Rights
      Agreement entered into by and among the Company and the Investors, the Company
      filed a Registration Statement with the SEC on Form SB-2 to register, among
      other securities, the units of common stock sold in the private placement
      offering. The Company has agreed to have the Registration Statement declared
      effective by the SEC no later than 180 days from August 29, 2006. If the Company
      should fail to have the Registration Statement declared effective on or before
      them time frame described, the Investors will entitled to the liquidated damages
      from the Company in an amount equal to 2% of the aggregate subscription amounts
      per month for each month that the Company is delinquent in failing to obtain
      the
      effectiveness of the Registration Statement, subject to an overall limit of
      up
      to 15 months of partial liquidated damages. On February 9, 2007, the SEC
      declared the Registration Statement effective The Company has therefore, not
      recorded any contingent liability associated with the liquidated
      damages.








24


**ITEM
      2.** **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**




CAUTIONARY
      NOTE REGARDING FORWARD LOOKING STATEMENTS





Some
      of
      the statements contained in this Form 10-QSB 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-QSB, 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;





**•**
            
            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;






25






**•**
            
            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-QSB 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.





**Risk
      Factors**





You
      should read the following discussion and analysis in conjunction with the
      Financial Statements and related Notes contained elsewhere in this Quarterly
      Report on Form 10-QSB ("Report"). The information in this Report is not a
      complete description of our business or the risks associated with an investment
      in our common stock. The Company urges you to carefully review and consider
      the
      various disclosures made by us in this Report and in our other reports filed
      with the SEC, including the Company’s Annual Report on Form 10-K for the year
      ended March 31, 2006.





The
      section entitled "Risk Factors" set forth in the Company’s Annual Report on Form
      10-K for the year ended March 31, 2006 and similar types of discussions in
      other
      SEC filings discuss some of the important risks that may affect the Company’s
      business, results of operations and financial condition. Some of those risks
      are
      as follows:





*The
      Company is at an early stage of development, has a limited operating history
      and
      has incurred significant losses since inception and anticipates that it will
      continue to incur losses for the foreseeable future.





*The
      Company’s business may be subject to liability risks, which could be costly and
      negatively impact its business and financial results.





*The
      Company’s stock price can be extremely volatile.





You
      should carefully consider those risks, in addition to the other information
      in
      this Report and in the Company’s other filings with the SEC, before deciding to
      invest in our Company or to maintain or decrease your investment.





**Overview**





Index
      Oil
      and Gas, Inc. (“Index” or “the Company”) is an independent oil and gas company
      engaged in the acquisition, development, production and exploration of oil
      and
      gas properties located in North America. Our subsidiaries include a United
      Kingdom company, which provides management services and United States operating
      subsidiaries, which are engaged in the exploration for, development, production
      and sale of oil and natural gas, primarily in Kansas and the Gulf Coast of
      Texas
      and Louisiana. We have increased our proved reserves and production principally
      through acquisitions in conjunction with an active drilling program. We do
      not
      currently operate any of our properties and sell our current oil and gas
      production to domestic purchasers.




The
      Company has a phased approach to its growth strategy. Phase 1, largely
      completed, consists of exploration projects with very low risk, low cost, low
      working interest, and limited upside. Phase 2, in progress, consists of projects
      with low risk, low to medium cost, low to medium working interests commensurate
      with funding capability and risk. These projects have increased upside. Phase
      3,
      recently commenced, consists of projects with low to medium risk, medium to
      high
      costs, and working interests commensurate with the funding capability and risk.
      The Company expect these projects to deliver much higher upside.





PHASE
      1
      GROWTH STRATEGY: EIGHT-WELL DRILLING PROGRAM IN KANSAS





On
      August
      21, 2006, the company announced an update to its Kansas drilling program that
      consisted of up to eight-wells. On January 9, 2007, the Company announced that
      six of the eight wells had been drilled, three in Barton County and three in
      Stafford County. All well locations are supported by modern 3D seismic
      data.






26





On
      January 9, 2007, the company announced that in Barton County where the Company
      has a 3.25% working interest, two
      of
      the wells drilled were completed as oil producers. Schartz 1-18 and Rogers
      Unit
      1-1 wells began producing in October 2006 with gross daily oil production of
      seven barrels and eight barrels, respectively. Pan John 1-11 was a dry hole.
      Panning 1-1 spud is pending receipt of a US Army Corps of Engineers permit.





In
      Stafford County where the Company has a 5% working interest, two wells were
      completed as oil producers. The Hay Witt 1-11 and the Hayden 1-14 wells began
      producing in November 2006 and December 2006, respectively, with a gross daily
      oil production of 42 barrels and eight barrels, respectively. The Hull Witt
      1-11
      was a dry hole. No further wells were drilled.





The
      company is planning its 2007 drilling program on its leases in the two counties.
      Approximately four wells are planned.





PHASES
      2
& 3 GROWTH STRATEGIES: EIGHT-WELL DRILLING PROGRAM IN TEXAS AND
      LOUISIANA





Phase
      2
      Growth Strategy





The
      Company has made progress with its onshore Phase 2 drilling program and
      announced on August 21, 2006 that the Walker 1 discovery well drilled in
      Louisiana began producing on August 18, 2006. Initial gross production of the
      well, in which Index has a 12.5% working interest, was approximately 200 barrels
      of oil per day with associated gross gas production of approximately 175
      thousand cubic feet per day. Walker 1 is the first productive well from the
      Company's initial Phase 2 "Four Well Portfolio”.





The
      remaining seven wells in the current Phase 2 and 3 eight-well program are in
      Texas. Vieman 1 in Brazoria County was spudded October 15, 2006 with a goal
      of
      converting Proved Undeveloped reserves to Proved Developed reserves. Index
      built
      its working interest from an original 12.5% WI to a final 19.5% prior to
      spudding. On December 20, 2006, the Company announced that the deviated well
      had
      been drilled to a total depth of 10,383 feet true vertical depth, 11,340 feet
      measured depth. Electric logs indicated two potential pay zones below 10,000
      feet true vertical depth totaling approximately 15 feet of net gas bearing
      reservoir. The well took longer than anticipated to drill due to unplanned
      sidetrack operations and pressure control requirements in the lower of the
      two
      pay sections, and has incurred costs significantly in excess of pre-drill
      estimate. The current operation is preparing for hook-up to the local pipeline
      grid to allow testing of the deeper reservoir and concurrent gas
      sales.





The
      three-well Taffy drilling program was announced on December 5, 2006. Originally
      planned as a two-well, a third well was added prior to drilling. The Company
      originally agreed a 7.5% working interest in the two Taffy wells. The Company
      increased its working interest to 12.5% in Taffy 1, renamed Hawkins 1, and
      to
      30% in Taffy 2, renamed Dark 1. The company took a 30% working interest in
      a
      third Taffy well named Ruse 1. The three wells target relatively shallow Miocene
      gas reservoirs between
      5,000 and 7,000 feet in
      Matagorda County.





On
      January 25, 2007, the Company announced the
      Hawkins 1 commercial discovery. A completion test confirmed gas flow at a
      measured rate of approximately 1.04 million cubic feet per day through a choke
      of 9/64th inch with a flowing tubing pressure of 1,850 pounds per square
      inch. The well is
      scheduled to begin production into the local pipeline grid during the second
      quarter of calendar year 2007.




Ruse
      1
      was non-commercial and has been plugged and abandoned. Dark 1 is expected to
      spud as soon as the drill site becomes accessible. Heavy rains in the area
      have
      delayed the mobilization of the rig. It is expected that operations will
      recommence during the first or second quarter of calendar year 2007.






As
      announced on May 2, 2006 and July 12, 2006, the Company entered into two Phases,
      I and II, of an exploration agreement with ADC to reprocess seismic data and
      develop prospects to drill in four areas in Texas, Mississippi, and Alabama. This
      project is capable of delivering Phase 2 as well as Phase 3 Growth Strategy
      projects. The first drillable prospect generated as a result of this agreement
      that the Company has verbally committed to drill is an exploration well in
      Nacogdoches County. The well, named Cason 1, will target the Travis Peak gas
      reservoir and is planned for calendar year 2007 drilling.




Phase
      3
      Growth Strategy





On
      September 10, 2006, the Company signed an agreement to participate in the New
      Taiton Project in Wharton County, Texas. The first well, Ilse 1 with a planned
      total depth of over 17,000 feet, will target stacked Wilcox sands on trend
      with
      large nearby gas fields producing gas from the same Wilcox reservoirs. The
      prospect is defined by modern 3D seismic data. If Ilse 1 proves successful,
      the
      Company expects to participate in further wells to develop the potential of
      the
      New Taiton Project. The Company has a 10% working interest before payout and
      an
      8% working interest after payout in the New Taiton Project. Ilse 1 spudded
      on
      December 1, 2006.





On
      December 4, 2006, the Company announced
      that it has signed an exploration agreement to participate at 15% working
      interest in the West 1 exploration well targeting the high-potential Edwards
      Limestone in Lavaca County. The proposed total depth of the well is
      approximately 14,700 feet. The company announced on January 23, 2007 that it
      had
      increased its working interest in the West 1 well to 20%. The well is planned
      to
      spud during the first half of calendar year 2007 with drilling results expected
      during the same period.  The
      medium-risk West 1 well, if successful in finding commercial gas, will pave
      the
      way for follow-on drilling activity in the leased area defined in the
      exploration agreement. The prospect is adjacent to fields producing from the
      Edwards Limestone. Combined cumulative gas production from these fields exceeds
      400 billion cubic feet.







27


Funding





On
      September 9, 2006, the Company announced the completion of a private placement
      for 7,097,898 shares of $0.001 par value common stock of the Company at a price
      of $1.00 per share for aggregate gross proceeds of approximately $7.1 million.





On
      October 10, 2006, the Company announced the completion of a private placement
      for 3,867,700 shares of $0.001 par value common stock of the Company at a price
      of $1.00 per share for aggregate proceeds of approximately $3.9
      million.





The
      net
      proceeds of these two placements will be applied to the expansion of the
      Company’s operations in the United States as the Company hopes to fund
      additional Phase 2 and 3 Growth Strategies consisting of drilling generated
      by
      successful new ventures as well as success in existing ventures such as the
      West
      1 and Isle 1 higher potential wells.





On
      October 4, 2006, the Company completed a second closing of the private placement
      offering, which initially closed in September 2006, in which the Company sold
      an
      additional 693.54 units of its securities at a price of $5,000 per unit to
      certain accredited investors, each unit consisting of 5000 shares of common
      stock of the Company for gross proceeds of approximately $3.5 million and it
      subsequently sold another 80 units on October 5, 2006, for a total of 3,867,700
      shares of $0.001 par value common stock of the Company at a price of $1.00
      per
      share for overall aggregate proceeds of approximately $3.9 million. The
      purchasers agreed not to sell the Common stock included in the units for a
      period of six months from the date of their purchase, unless permitted earlier
      by the Company. Notwithstanding the foregoing, the purchasers further agreed
      to
      be bound by any lock-up period required by state or federal regulation. The
      shares of common stock are restricted securities under Securities Act of 1933,
      as amended and applicable state securities laws and, therefore, may only be
      transferred pursuant to the registration requirements of federal and state
      securities laws or pursuant to an exemption from such registration
      requirements.




Subsequently,
      on October 11, 2006 pursuant to the requirements of the Registration Rights
      Agreement entered into by and among the Company and the Investors, the Company
      filed a Registration Statement with the SEC on Form SB-2 to register, among
      other securities, the units of common stock sold in the private placement
      offering. The Company has agreed to have the Registration Statement declared
      effective by the SEC no later than 180 days from August 29, 2006. If the Company
      should fail to have the Registration Statement declared effective on or before
      them time frame described, the Investors will entitled to the liquidated damages
      from the Company in an amount equal to 2% of the aggregate subscription amounts
      per month for each month that the Company is delinquent in failing to obtain
      the
      effectiveness of the Registration Statement, subject to an overall limit of
      up
      to 15 months of partial liquidated damages. On February 9, 2007, the SEC
      declared the Registration Statement effective, and therefore the Company did
      not
      incur any liquidated damages.





Subsequent
      to the three months ended December 31, 2006, the Company agreed with operator
      Broad Oak Energy, Inc. to increase its working interest (“WI”) in the West 1
      well from 15% to 20%. The West 1 program targets the Cretaceous Edwards
      limestone in Lavaca County, Texas. The proposed total depth of the well is14,700
      feet and is now expected to spud in the first half of calendar year 2007,
      subject to rig availability.






In
      January 2007, the Company announced the hook up of four successful wells from
      its calendar year 2006 Kansas exploration program. The Company has completed
      a
      six-well, low-risk exploration drilling program in the Seward project in
      Stafford County, and the Katy project in Barton County, Kansas, in the fourth
      quarter of calendar year 2006. The wells targeted oil in the Lansing and
      Arbuckle reservoirs at drill depths between 3,500 and 3,800 feet in two areas.
      Four of the wells were successful and are now producing oil. Two of the wells
      were drilled and completed in Barton County, where Index has a 3.25% working
      interest; the Schartz 1-18 and Rogers Unit 1-1 wells began producing in October
      2006. The other two wells were drilled and completed in Stafford County, where
      Index has a 5% working interest; the Hayden 1-14 and Hay Witt Unit 1-11 wells
      began producing in November and December 2006, respectively. The Pan John Unit
      1-11 in Barton County and the Hull Witt 1-11 in Stafford County were
      non-commercial. Both wells have been plugged and abandoned. Based on the
      successful results of its calendar year 2006 Stafford and Barton drilling
      program, which resulted in these four long-life oil wells, the Company is
      planning a calendar year 2007 drilling program in these two areas that is
      expected to consist of three to four additional wells in these Kansas assets.






Also
      in
      January 2007, the Company announced that the Hawkins 1 exploration well in
      the
      Taffy area of Matagorda County, Texas (formerly named Taffy 1) is a commercial
      discovery. A completion test confirmed gas flow at a measured rate of 1.038
      million cubic feet per day through a choke of 9/64th inch with a flowing tubing
      pressure of 1,850 psi. In terms of barrels of oil, the above stated flow rate
      of
      gas can be converted to approximately 173 barrels of oil equivalent gross,
      using
      an industry standard conversion factor of 6. Index has a 12.5% Working Interest
      in Hawkins 1. Hawkins 1 is scheduled to begin production from a Miocene
      sandstone reservoir at approximately 5,000 feet deep into the local pipeline
      grid during the second calendar quarter 2007. Hawkins 1, once hooked up and

      producing, will add incrementally to the Company's reserves and cashflow in
      line
      with the Company's strategy to rapidly build a balanced portfolio of producing
      assets, without exposing investors to single critical events. Ruse 1 (formerly
      Taffy 3) was non-commercial and has been plugged and abandoned. The third and
      final exploration well in this program, Dark 1 (formerly Taffy 2), is expected
      to spud as soon as the drill site becomes accessible. To date, heavy rain in
      the
      area and the consequent ground conditions have precluded the arrival of the
      rig.
      It is expected that operations will recommence during the first quarter of
      calendar year 2007.






28




At
      March
      31, 2006, our estimated total proved oil and gas reserves were approximately
      59.471 Mboe, consisting of 35.401 thousand barrels of oil (MBbls) and 144.421
      million cubic feet (MMcf) of natural gas. Approximately 30.518 Mboe or 51.3%
      of
      our proved reserves were classified as proved developed. We focus on maintaining
      a portfolio of long-lived, lower risk reserves along with shorter lived, higher
      margin reserves. We believe that this balanced reserve mix provides 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.




**RESULTS
      OF OPERATIONS**





***Three
      Months Ended December 31, 2006 Compared to Three Months Ended December 31,
      2005***





We
      had a
      net loss of $422,245 for the three months ended December 31, 2006 compared
      to a
      net loss of $80,472 for the three months ended December 31, 2005, primarily
      resulting from $208,047 of stock compensation expense primarily related to
      the
      issuance of options under the Stock Option Plan at fair market value, as per
      SFAS 123-R, and an increase in other general and administrative costs for
      establishing corporate offices and costs of becoming a public company related
      to
      international and domestic travel expenses, higher director fees, preparation
      of
      multiple SEC filings requiring legal and professional fees, contract labor
      and
      other public company costs related to investor/public relation costs. The
      following table summarizes key items of comparison and their related increase
      (decrease) for the fiscal three months ended December 31, 2006 and
      2005.





**Three
                Months Ended December 31,**
            
            **Increase/****2006**
            
            
            **2005**
            
            
            **(Decrease)**Oil
                sales
            
            $
            123,135
            
            $
            49,238
            
            $
            73,897Gas
                sales
            
            
            8,841
            
            
            -
            
            
            8,841Total
                Revenue
            
            
            131,976
            
            
            49,238
            
            
            82,738Production
                expenses:Lease
                operating
            
            
            30,413
            
            
            10,029
            
            
            20,384Taxes
                other than income
            
            
            12,669
            
            
            2,060
            
            
            10,609General
                and administrative:General
                and administrative
            
            
            377,030
            
            
            99,743
            
            
            277,287Stock-based
                compensation
            
            
            208,047
            
            
            -
            
            
            208,047Depletion
                — Full cost
            
            
            61,093
            
            
            16,674
            
            
            44,419Depreciation
                — Other
            
            
            163
            
            
            315
            
            
            (152
            )Impairment
            
            
            -
            
            
            -
            
            
            -Interest
                expense (income) and other*(1)*
            
            
            (135,194
            )
            
            889
            
            
            (136,083
            )Income
                tax benefit (provision)
            
            
            -
            
            
            -
            
            
            -Net
                (loss) income
            
            $
            (422,245
            )
            $
            (80,472
            )
            $
            (341,773
            )Production:Natural
                Gas — Mcf
            
            
            1.345
            
            
            -
            
            
            1.345Crude
                Oil — Mbbl
            
            
            2.180
            
            
            .871
            
            
            1.309Equivalent
                — Mboe
            
            
            2.404
            
            
            .871
            
            
            1.533Average
                price per unit*(2)*:Gas
                price per Mcf
            
            $
            6.57
            
            $
            -
            
            $
            6.57Oil
                price per Bbl
            
            $
            56.48
            
            $
            56.53
            
            $
            (0.05
            )Equivalent
                per Boe
            
            $
            54.90
            
            $
            56.53
            
            $
            (1.63
            )----Average
                cost per Boe:Production
                expenses:Lease
                operating
            
            $
            12.65
            
            $
            11.51
            
            $
            1.14Taxes
                other than income
            
            $
            5.27
            
            $
            2.37
            
            $
            2.90General
                and administrative expense:General
                and administrative
            
            $
            156.83
            
            $
            114.52
            
            $
            42.31Stock-based
                compensation
            
            $
            86.54
            
            $
            -
            
            $
            86.54Depletion
                expense
            
            $
            25.41
            
            $
            19.14
            
            $
            6.27






29





For
      the
      three months ended December 31, 2006, oil and gas sales increased $82,738,
      from
      the same period in 2005, to $131,976. The increase for the three months ended
      December 31, 2006 was primarily due to the increase in volumes of 1.5 MBoe
      from
      0.9 MBoe to 2.4 MBoe or approximately $84,000. This was offset by a slight
      decrease in revenue of approximately $1,400 due to slightly lower average
      commodity prices as our average price per BOE decreased $1.63 or approximately
      3.0%, in the third quarter of fiscal 2007 to $54.90 per Boe from $56.53 per
      Boe
      in the same period of fiscal 2006. Continued lower natural gas storage levels,
      a
      mild U.S. winter during the quarter, supply uncertainty due to global events
      and
      a weaker U.S. dollar favorably impacted crude oil prices again in
      2006.





Lease
      operating expenses increased $20,385 for the three months ended December 31,
      2006 as compared to the same period in 2005. The increase was primarily due
      to
      production costs for the Walker 1 well which came on production in the second
      quarter and accounted for 68% of the production or 1,636 Boe. On a per unit
      basis, lease operating expenses increased 10% from $11.51 per Boe in the third
      quarter of fiscal 2006 to $12.65 per Boe in the same period for fiscal 2007
      benefiting due to an increase in production volumes, primarily from the Walker
      1
      well, but more than offset by an increase in industry-wide service costs
      associated with the overall increase in commodity prices.





Taxes
      other than income taxes increased $10,610 for the three months ended December
      31, 2006 as compared to the same period in 2005 due to higher oil and gas
      revenues and on a per unit basis increased by $2.91 per Boe to $5.27 per Boe.
      Production taxes are generally assessed as a percentage of gross oil and/or
      natural gas sales. This increase is primarily due to the production attributed
      to the higher rate of taxes on the Walker 1 well in the State of Louisiana
      which
      averaged 11.8%.





General
      and administrative expenses for the three months ended December 31, 2006
      increased $277,877 to $377,030 compared to the same period in 2005 primarily
      due
      to costs related to becoming a public company such as international and domestic
      travel, higher director fees and the preparation of SEC filings requiring legal
      and professional services and contract labor of approximately $150,000.





Stock-based
      compensation expense was $208,047 for the three months ended December 31, 2006,
      primarily due to for stock option grants made in the fourth fiscal quarter
      of
      2006 and being ratable expensed over the service period and a restricted stock
      award to a new officer of 50,000 shares of the Company’s common stock at a price
      of $1.20 per share which is being amortized over the period of required service
      or 183 days. For the shares granted under the Incentive Stock Option plan,
      the
      exercise price and the fair market value of the stock options granted were
      $0.35
      and $0.60, respectively. All options vested 50% on the date of the grant with
      the remaining amounts to vest in 25% increments in each of the next two years.
      The compensation expense for the restricted stock award was calculated based
      on
      the fair market value at the date of the grant in accordance with SFAS 123(R).





Depletion
      expense increased $44,419 from the same period in 2005 to $61,093 for the three
      months ended December 31, 2006. This relates to the increase in production
      of
      1,533Boe over the prior year quarter. Depletion for oil and gas properties
      is
      calculated using the unit of production method, which essentially depletes
      the
      capital costs associated with the proven properties based on the ratio of
      production volume for the current period to total remaining reserve volume
      for
      the proven properties. On a per unit basis, depletion expense increased from
      $19.14 to $25.41 per Boe, primarily as a result of additional costs on the
      Vieman well, together with the inclusion of the costs of dry and non commercial
      wells in the depletion cost base.





Interest
      income and other income increased $136,082 for the three months ended December
      31, 2006 compared to the same period in 2005. This increase is due to interest
      income earned on a $5.12 million equity fund raising in the fourth quarter
      of
      fiscal 2006 compared to a $7.1 million private placement offering in August
      2006
      and $3.9 million private placement in October 2006 generating approximately
      $135,000.





There
      was
      no provision for income taxes for the fiscal three months ended December 31,
      2006 and 2005 due to a 100% valuation allowance recorded for both periods as
      we
      believe that it is more likely than not that the asset will not be utilized
      during the next year.





30





***Nine
      Months Ended December 31, 2006 Compared to Nine Months Ended December 31,
      2005***





We
      had a
      net loss of $1,282,574 for the nine months ended December 31, 2006 compared
      to a
      net loss of $284,746 for the nine months ended December 31, 2005, primarily
      resulting from $563,048 of compensation expense related to the issuance of
      options under the Stock Option Plan at fair market value, as per SFAS 123-R,
      and
      an increase in other general and administrative costs for establishing corporate
      offices and costs of becoming a public company related to international and
      domestic travel expenses, higher director fees, preparation of multiple SEC
      filings requiring legal and professional fees, contract labor and other public
      company costs related to investor/public relation costs. The following table
      summarizes key items of comparison and their related increase
      (decrease) for the fiscal nine months ended December 31, 2006 and
      2005.




**Nine
                Months Ended December 31,**
            
            **Increase/****2006**
            
            **2005**
            
            **(Decrease)**Oil
                sales
            
            $
            294,059
            
            $
            146,089
            
            $
            147,970Gas
                sales
            
            
            11,728
            
            
            -
            
            
            11,728Total
                Revenue
            
            
            305,787
            
            
            146,089
            
            
            159,698Production
                expenses:Lease
                operating
            
            
            68,018
            
            
            23,301
            
            
            44,717Taxes
                other than income
            
            
            22,303
            
            
            6,158
            
            
            16,145General
                and administrative:General
                and administrative
            
            
            1,061,992
            
            
            303,412
            
            
            758,579Stock-based
                compensation
            
            
            563,048
            
            
            -
            
            
            563,048Depletion
                — Full cost
            
            
            113,538
            
            
            50,747
            
            
            62,792Depreciation
                — Other
            
            
            489
            
            
            6,097
            
            
            (5,608
            )Impairment
            
            
            -
            
            
            -
            
            
            -Interest
                expense (income) and other*(1)*
            
            
            (241,027
            )
            
            41,120
            
            
            (282,147
            )Income
                tax benefit (provision)
            
            
            -
            
            
            -
            
            
            -Net
                (loss) income
            
            $
            (1,282,574
            )
            $
            (284,746
            )
            $
            (997,828
            )Production:Natural
                Gas — Mcf
            
            
            1.941
            
            
            -
            
            
            1.941Crude
                Oil — Mbbl
            
            
            4.814
            
            
            2.655
            
            
            2.159Equivalent
                — Mboe
            
            
            5.137
            
            
            2.655
            
            
            2.482Average
                price per unit*(2)*:Gas
                price per Mcf
            
            $
            6.04
            
            $
            -
            
            $
            6.04Oil
                price per Bbl
            
            $
            61.08
            
            $
            55.02
            
            $
            6.06Equivalent
                per Boe
            
            $
            59.53
            
            $
            55.02
            
            $
            4.51Average
                cost per Boe:Production
                expenses:Lease
                operating
            
            $
            13.24
            
            $
            4.54
            
            $
            8.70Taxes
                other than income
            
            $
            4.34
            
            $
            1.20
            
            $
            3.14General
                and administrative expense:General
                and administrative
            
            $
            206.73
            
            $
            114.28
            
            $
            92.45Stock-based
                compensation
            
            $
            109.61
            
            $
            -
            
            $
            109.61Depletion
                expense
            
            $
            22.10
            
            $
            19.11
            
            $
            2.99





For
      the
      nine months ended December 31, 2006, oil and gas sales increased $159,698,
      from
      the same period in 2005, to $305,787. The increase for the nine months ended
      December 31, 2006 was primarily due to the increase in volumes of 2.5 MBoe
      from
      2.6 MBoe to 5.1 MBoe or approximately $148,000 or 93%. Additionally, revenue
      increased approximately $12,000 due to higher commodity prices as our average
      price per Boe increased $4.51, or 8.2%, in fiscal year 2007 to $59.53 per Boe
      from $55.02 per Boe in fiscal year 2006. Continued lower natural gas storage
      levels, a milder winter than expected, supply uncertainty due to global events
      and a weaker U.S. dollar favorably impacted crude oil prices again in
      2006.





Lease
      operating expenses increased $44,717 for the nine months ended December 31,
      2006
      as compared to the same period in 2005. The increase was primarily due to
      production costs of approximately $21,000 for the Walker 1 well which came
      on
      production in the 2nd quarter of 2006 and accounted for 48% of the production
      or
      2,467 Boe. On a per unit basis, lease operating expenses increased from $4.54
      per Boe in fiscal year 2006 to $13.24 per Boe in fiscal year 2007 benefiting
      due
      to an increase in production volumes, primarily from the Walker 1 well, but
      more
      than offset by an increase in industry-wide service costs associated with the
      overall increase in commodity prices.






31





Taxes
      other than income taxes increased $44,717 for the nine months ended December
      31,
      2006 as compared to the same period in 2005 due to higher oil and gas revenues
      and on a per unit basis increase of $3.14 per Boe to $4.34 per Boe. Production
      taxes are generally assessed as a percentage of gross oil and/or natural gas
      sales. Most of this increase is due to the production attributed to the higher
      rate of taxes on the Walker 1 well in the State of Louisiana which averaged
      11.9%.





General
      and administrative expenses for the nine months ended December 31, 2006
      increased $758,579 to $1,061,992 compared to the same period in 2005 primarily
      due to costs related to the Company becoming a public company such as
      international and domestic travel, higher director fees, preparation of SEC
      filings requiring legal and professional services and contract labor of
      approximately $570,000. Other public company costs incurred related to investor
      /public relations costs of approximately $90,000, as well as, increased office
      costs entered into subsequent to December 31, 2005, in setting up corporate
      offices, additional accounting assistance and general office and supply expenses
      that have increased approximately $70,000.





Stock-based
      compensation expense was $563,048 for the nine months ended December 31, 2006,
      primarily for stock option grants made in the fourth fiscal quarter of 2006
      under the Stock Incentive Plan and an additional restricted stock grant in
      fiscal year 2007 to a new officer. The compensation expense related to the
      grants under the Stock Incentive Plan is being ratable expensed over the service
      period with no stock-based compensation in 2005. Additionally, the exercise
      price and this fair market value of the stock options granted were $0.35 and
      $0.60, respectively. All options vested 50% on the date of the grant with the
      remaining amounts to vest in 25% increments in each of the next two years.
      The
      expense was calculated based on fair market value at the date of the grant
      in
      accordance with SFAS 123(R). The compensation expense related to the restricted
      stock award to a new officer of 50,000 shares of the Company’s common stock was
      based on a price of $1.20 per share and amortization over the period of required
      service or 183 days.





Depletion
      expense increased $62,792 from the same period in 2005 to $113,538 for the
      nine
      months ended December 31, 2006. This primarily relates to the increase in
      production of 2,482 Boe over the prior year. Depletion for oil and gas
      properties is calculated using the unit of production method, which essentially
      depletes the capitalized costs associated with the proven properties based
      on
      the ratio of production volume for the current period to total remaining reserve
      volume for the proven properties. On a per unit basis, depletion expense
      increased from $22.10 to $19.11 per Boe, primarily as a result of costs on
      the
      Walker well and additional costs on the Vieman well, together with the inclusion
      of the costs of dry and non commercial wells in the depletion cost
      base.





Interest
      income and other increased $282,147 for the nine months ended December 31,
      2006
      compared to the same period 2005. This increase is due to interest income earned
      on a $5.12 million equity fund raising in the fourth quarter of fiscal 2006
      and
      approximately $11 million in two private placement offerings in August and
      October 2006, offset by placement fees and legal costs of approximately $1.1
      million.





There
      was
      no provision for income taxes for the fiscal nine months ended 2006 and 2005
      due
      to a 100% valuation allowance recorded for the nine months ended December 31,
      2006 and 2005, respectively on the total tax provision as we believe that it
      is
      more likely than not that the asset will not be utilized during the next year.





**LIQUIDITY
      AND CAPITAL RESOURCES**





Our
      primary sources of cash for the nine months ended December 31, 2006 and 2005
      were from a $5.12 million equity fund raising in the fourth quarter of fiscal
      2006 and approximately $11 million gross in two private placement offerings
      in
      August and October 2006. These financing activities were used in our business
      operations and to fund exploration and development expenditures. Operating
      cash
      flow 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,****2006**
            
            
            **2005**Cash
                flows (used in) provided by operating activities
            
            $
            (432,844
            )
            $
            (356,706
            )Cash
                flows used in investing activities
            
            
            (2,657,784
            )
            
            (334,562
            )Cash
                flows provided by (used in) financing activities
            
            
            9,728,352
            
            
            1,193,613Effect
                of exchange rate changes
            
            
            6,961
            
            
            (26,130
            )Net
                increase (decrease) in cash and cash equivalents
            
            $
            6,644,685
            
            $
            476,215






32





**Operating
      Activities**





Net
      cash
      outflow from operating activities during the nine months ended December 31,
      2006
      was $(432,844) which was an increase in cash outflow of $(76,138) in the current
      fiscal year 2007 from $(356,706) net cash outflow during the fiscal year ended
      2006. This increase was primarily due to a significant increase in operating
      expenses and taxes on our Kansas and Louisiana properties of approximately
      $61,000, as well as significantly higher general and administrative expenses of
      approximately $760,000 due to costs related to the Company becoming a public
      company, such as international and domestic travel, higher director fees
      preparation of SEC filings requiring legal and professional services and
      contract labor of approximately $570,000. Other public company costs incurred
      related to investor/public relations costs of approximately $90,000, as well
      as
      an increase in office costs entered into subsequent to December 31, 2005, in
      setting up corporate offices, additional accounting assistance and general
      office and supply expenses that have increased approximately $70,000. These
      higher costs were offset by higher commodity prices, which increased by 8.2%
      or
      $4.51 per BOE, and increased sales volumes which also increased by 93% or 2.482
      MBOE for a total increase in revenue of approximately $150,000 and an overall
      increase of 109% over the same period in 2005. Favorable working capital
      movements also acted to offset higher costs.





**Investing
      Activities**





The
      primary driver of cash used in investing activities was capital spending. We
      establish the budget for these amounts based, in part, on our estimate of future
      commodity prices. Due to the volatility of commodity prices and other factors,
      our budget may be periodically adjusted during any given year. Cash used in
      investing activities during the nine months ended December 31, 2006 was $2.7
      million, which was an increase of $2.4 million from $0.3 million of cash used
      in
      investing activities during the nine months ended December 31, 2005. The
      investment in wells during this period in 2005 related to drilling of wells
      in
      Kansas. We have continued to invest in Kansas with the drilling of six new
      wells
      in the Seward and Katy prospect areas. Two wells proved to be non-commercial
      at
      December 31, 2006 from the recent drilling program.





We
      believe the properties present a multi-year development opportunity primarily
      in
      the Lansing and Arbuckle formations at depths of 3,800 to 4,000 feet. Successful
      wells in these fields generally produce for more than 25 years and have low
      operating costs. We believe we have adequate expected cash flows from operations
      and available capital from our equity fund raising to cover our budgeted capital
      expenditures.





During
      September 2006, we signed an agreement to participate in the New Taiton
      exploration project in South Texas. The first well, Ilse1, in the New Taiton
      project will target stacked Wilcox sands, on trend with nearby gas fields with
      cumulative production in the 30 BCF range from the same reservoirs. The prospect
      is clearly identified by 3D seismic data. If Ilse 1 proves successful, we expect
      to participate in further wells to develop the potential of the New Taiton
      area.
      Ilse 1 spudded on December 1, 2006. During the three months ended December
      31,
      2006, we


have
      invested approximately $479,000 in the project.





We
      have
      made progress with our onshore Phase 2 drilling program and announced on August
      21, 2006 that the Walker 1 discovery well that was drilled in Louisiana began
      producing on August 18, 2006. Initial gross production of the well, in which
      Index has a 12.5% working interest, was approximately 200 barrels of oil per
      day
      with associated gross gas production of approximately 175 thousand cubic feet
      per day. Walker 1 is the first productive well from the Company's initial Phase
      2 "Four Well Portfolio.” During the three months ended December 31, 2006, we
      invested an additional $14,000 in this well being the final project
      costs.





The
      remaining seven wells in the current Phase 2 and 3 eight-well program are in
      Texas. Vieman 1 in Brazoria County was spudded October 15, 2006 with a goal
      of
      converting Proved Undeveloped reserves to Proved Developed reserves. We built
      our working interest from an original 12.5% WI to a final 19.5% prior to
      spudding. On December 20, 2006, we announced that the deviated well had been
      drilled to a total depth of 10,383 feet true vertical depth, 11,340 feet
      measured depth. Electric logs indicated two potential pay zones below 10,000
      feet true vertical depth totaling approximately 15 feet of net gas bearing
      reservoir. The well took longer than anticipated to drill due to unplanned
      sidetrack operations and pressure control requirements in the lower of the
      two
      pay sections, and has incurred costs significantly in excess of pre-drill
      estimate. The current operation is preparing for hook-up to the local pipeline
      grid to allow testing of the deeper reservoir and concurrent gas sales. During
      the three months ended December 31, 2006, we invested approximately $0.8 million
      in this well. We have invested a total of approximately $1.3 million in the
      Vieman well to date.





The
      three-well Taffy drilling program was announced on December 5, 2006. Originally
      planned as a two-well program, a third well was added prior to drilling. We
      originally agreed to a 7.5% working interest in the two Taffy wells. We
      subsequently increased our working interest to 12.5% in Taffy 1, renamed Hawkins
      1, and to 30% in Taffy 2, renamed Dark 1. Additionally, we took a 30% working
      interest in a third Taffy well named Ruse 1. The three wells target relatively
      shallow Miocene gas reservoirs between
      5,000 and 7,000 feet in
      Matagorda County. During the three months ended December 31, 2007, we invested
      approximately $270,000 in these three wells.







33


On
      January 25, 2007, we announced the
      Hawkins 1 commercial discovery. A completion test confirmed gas flow at a
      measured rate of approximately 1.04 million cubic feet per day through a choke
      of 9/64th inch with a flowing tubing pressure of 1,850 pounds per square
      inch. The well is
      scheduled to begin production into the local pipeline grid during the second
      quarter of calendar year 2007.




Ruse
      1
      was non-commercial and has been plugged and abandoned. Dark 1 is expected to
      spud as soon as the drill site becomes accessible. Heavy rains in the area
      have
      delayed the mobilization of the rig. It is expected that operations will
      recommence during the first or second quarter of calendar year 2007.




On
      December 4, 2006, we announced
      that it has signed an exploration agreement to participate in the West 1
      exploration well. The well targets the high-potential Cretaceous Edwards
      limestone in Lavaca County, Texas. The proposed total depth of the well is
      14,700 feet. We invested approximately $95,000 in this well during the three
      months ended December 31, 2006.





We
      will
      have a 20% working interest in the well that is planned to spud in first quarter
      of calendar year 2007 with drilling results expected during the same
      quarter.  The
      medium-risk West 1 well, if successful in finding commercial gas, will pave
      the
      way for follow-on drilling activity in the leased area defined in the
      exploration agreement. Combined cumulative production from fields nearby exceeds
      400 billion cubic feet of gas, equivalent to around 67 million barrels of oil,
      from the Edwards limestone.





**Financing
      Activities**





Net
      cash
      generated from financing activities increased $8.5 million during the nine
      months ended December 31, 2006 to $9.7 million as compared to $1.2 million
      during the nine months ended December 31, 2005. During the nine months ended
      December 31, 2006, we repaid our bank loan and had no debt outstanding. On
      August 29, 2006, we completed a private placement offering in which we sold
      1419.58 units of its securities at a price of $5,000 per unit to certain
      accredited investors, each unit consisting of 5,000 shares of our common stock
      for a total of 7,097,898 shares of our common stock at a price of $1.00 per
      share for aggregate gross proceeds of approximately $7.1 million, before fees
      of
      approximately $0.8 million. Furthermore on October 4, 2006, we completed a
      second closing of our private placement offering in which we sold an additional
      693.54 units of our securities at a price of $5,000 per unit to certain
      accredited investors, each unit consisting of 5000 shares of our common stock
      for gross proceeds of approximately $3.5 million and we subsequently sold
      another 80 units on October 5, 2006, for a total of 3,867,700 shares of our
      common stock at a price of $1.00 per share for an overall aggregate gross
      proceeds of approximately $3.9 million before fees of approximately $0.4
      million. Therefore, total funds received or attributable to us, before costs,
      at
      December 31, 2006 for these three transactions amounted to approximately $11
      million.





Cash
      provided by financing activities in the nine months ended December 31, 2005
      was
      due to proceeds from notes payable from affiliates and others of approximately
      $677,000, less of debt issue costs of approximately $43,000, and the bank loan
      of approximately $51,000 obtained during that period. We also issued shares
      and
      warrants to our officers and others for proceeds of approximately $532,000,
      less
      issue costs of approximately $23,000.





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





**Off-Balance
      Sheet Arrangements**




As
      of
      December 31, 2006, we did not have any off-balance sheet
      arrangements.





**Inflation**





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





**Item
      3.** **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, 2006 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. 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.





*(b)
      Changes In Internal Controls.*





34


There
      was
      no change in our internal controls or in other factors during our last fiscal
      quarter that has materially affected, or is reasonably likely to materially
      affect our internal control over financial reporting.





**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. 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, our Management does not believe that there are any proceedings
      to
      which any director, officer, or affiliate of our company, any owner of record
      who beneficially owns more than five percent of our common stock, or any
      associate of any such director, officer, affiliate of our company, or security
      holder is a party adverse to us or has a material interest adverse to
      us.





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





*Issuance
      of Unregistered Securities*




For
      the
      details of the Company’s unregistered sales of its equity securities, see the
      Company’s Current Report filed with the SEC on Form 8-K on October 11, 2006,
      which is hereby incorporated by reference.




*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**





None.





**Item 6.** **Exhibits**





3(i)1
            
            Articles
                of Incorporation of Index Oil and Gas, Inc. (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
                November 28, 2005, changing the name of the Company from Thai One
                On Inc.
                to Index Oil & Gas, Inc., and increasing the number of authorized
                shares from 25,000,000 to 75,000,000. (2)3(i)(3)
            
            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. (4)10.1
            
            Form
                of Subscription Agreement dated as of January 20, 2006.
                (2)10.2
            
            Form
                of Subscription Agreement dated as of August 29 and October 4, 2006.
                (5)10.3
            
            Form
                of Registration Rights Agreement dated as of August 29, 2006.
                (5)31.1
            
            Certification
                of Periodic Financial Reports by Lyndon West in satisfaction of Section
                302 of the Sarbanes-Oxley Act of 2002. *31.2
            
            Certification
                of Periodic
                Financial Reports by Andrew Boetius in satisfaction of Section 302
                of the
                Sarbanes-Oxley Act of 2002. *32.1
            
            Certification
                of Periodic Financial Reports by Lyndon West in satisfaction of Section
                906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350.
                *32.2
            
            Certification
                of Periodic Financial Reports by Andrew Boetius in satisfaction of
                Section
                906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350.
                *





*
      Filed
      Herewith


(1)
                Incorporated by reference to the Company’s Registration Statement filed on
                Form SB-2 with the SEC on May 24, 2004.(2)
                Incorporated by reference to the Company’s Amended Current Report filed on
                Form 8-K/A with the SEC on March 15, 2006.(3)
                Incorporated by reference to the Company’s Current Report filed on Form
                8-K with the SEC on September 28, 2006.(4)
                Incorporated by reference to the Company’s Registration Statement filed on
                Form SB-2 with the SEC on May 24, 2004.(5)
                Incorporated by reference to the Company’s Current Report filed on Form
                8-K with the SEC on September 11,
                2006.











35


**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.




**INDEX****O****IL
                AND GAS, INC.**Date: February
              14, 2007
            By:
            /s/ Lyndon
              WestLyndon
                WestChief
                Executive Officer




Date: February
              14, 2007
            By:
            /s/ Andrew
              BoetiusAndrew
                BoetiusChief
              Financial Officer








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