SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-Q


(Mark
one)




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




For the
quarterly period ended:September
30, 2008




OR





|_|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934




For the
transition period from _________ to ___________




Commission
File Number: 000-51430





INDEX OIL AND GAS
INC.


(Exact
name of registrant as specified in its charter)





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




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


(713)
683-0800


(Registrant’s
Telephone number, including area code)





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




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




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):




Large
accelerated filer  [   
]                                                                Accelerated
filer  [    ]




Non-accelerated
filer    [   
]                                                                Smaller
reporting company   [ X ]


(Do not
check if smaller reporting company)




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




The
number of shares of the registrant's Common Stock, $0.001 par value per share,
outstanding as of November 12, 2008 was 71,510,889.







Table
      of ContentsPart
      I –
            Financial
      Information
            3Item
      1. Financial Statements (unaudited)
            3Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
            19Item
      3. Quantitative and Qualitative Disclosures about Market
    Risk
            28Item
      4T. Controls and Procedures
            29Part
      II –
            Other
      Information
            29Item
      1. Legal Proceedings
            29Item
      1A. Risk Factors
            30Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
            30Item
      3. Defaults upon Senior Securities
            30Item
      4. Submission of Matters to a Vote of Security Holders
            30Item
      5. Other Information
            30Item
      6. Exhibits
            31Signatures
            
            32Exhibit
      Index
            33Rule
      13a-14(a) Certification executed by Lyndon WestRule
      13a-14(a) Certification executed by Andrew BoetiusSection
      1350 Certification executed
      by Lyndon WestSection
      1350 Certification executed by Andrew Boetius




2











PART
I


FINANCIAL
INFORMATION





Item
1. Financial Statements.





INDEX
OIL AND GAS INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS




September
      30, 2008
                
                
                March
      31, 2008(unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
                
                $
                1,782,739
                
                
                $
                2,537,302Accounts
      receivable, net of allowance for doubtful accounts of $49,320 and $0 at
      September 30, 2008 and March 31, 2008, respectively (Note
    2)
                
                
                453,534
                
                
                
                970,794Other
      receivables (Note 2)
                
                
                957
                
                
                
                5,402Other
      current assets (Note 2)
                
                
                67,347
                
                
                
                43,460Total
      current assets
                
                
                2,304,577
                
                
                
                3,556,958Oil
      and natural gas properties, full cost method, net of accumulated depletion
      (Notes 2, 3, 6 and 10)
                
                
                9,563,932
                
                
                
                12,595,091Property
      and equipment, net of accumulated depreciation (Note 3)
                
                
                25,904
                
                
                
                26,031Total
      oil and natural gas properties and property and equipment,
    net
                
                
                9,589,836
                
                
                
                12,621,122Total
      assets
                
                $
                11,894,413
                
                
                $
                16,178,080Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts
      payable
                
                $
                253,638
                
                
                $
                667,133Accrued
      liabilities
                
                
                165,005
                
                
                
                358,761Total
      current liabilities
                
                
                418,643
                
                
                
                1,025,894Long-term
      liabilities:Asset
      retirement obligation (Note 5)
                
                
                64,098
                
                
                
                88,209Total
      liabilities
                
                
                482,741
                
                
                
                1,114,103Commitments
      and contingencies (Note 6)
                
                
                -
                
                
                
                -Stockholders'
      equity: (Notes 4, 6, 7, 8 and 9)Common
      stock, $0.001 par value; authorized 150 million shares; issued 71,510,889
      shares and 71,369,880 shares at September 30, 2008
                  and
      March 31, 2008, respectively (Note 7)
                
                
                71,511
                
                
                
                71,370Additional
      paid-in capital
                
                
                21,872,977
                
                
                
                21,738,764Other
      comprehensive (loss) income (Notes 2 and 4)
                
                
                (9,036
                )
                
                
                1,510Accumulated
      deficit
                
                
                (10,523,780
                )
                
                
                (6,747,667
                )Total
      stockholders' equity
                
                
                11,411,672
                
                
                
                15,063,977Total
      liabilities and stockholders' equity
                
                $
                11,894,413
                
                
                $
                16,178,080


See
accompanying notes to unaudited condensed consolidated financial
statements


3






INDEX
OIL AND GAS INC.




CONDENSED
CONSOLIDATED STATEMENT OF LOSSES


(unaudited)










Three
      Months Ended
              September
      30,
            
            
            Six
      Months Ended
              September
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Revenues:Natural
      gas sales
            
            $
            475,039
            
            
            $
            65,213
            
            
            $
            1,546,582
            
            
            $
            129,165Oil
      sales
            
            
            222,730
            
            
            
            72,362
            
            
            
            580,265
            
            
            
            159,784Total
      revenues (Note 10)
            
            
            697,769
            
            
            
            137,575
            
            
            
            2,126,847
            
            
            
            288,948Operating
      Costs and Expenses:Lease
      operating expense
            
            
            112,278
            
            
            
            37,216
            
            
            
            302,618
            
            
            
            59,495Depreciation,
      depletion, amortization and impairment (Note 3)
            
            
            3,177,867
            
            
            
            74,560
            
            
            
            3,944,050
            
            
            
            147,961Production
      taxes
            
            
            28,909
            
            
            
            10,958
            
            
            
            128,095
            
            
            
            22,928General
      and administrative costs
            
            
            751,989
            
            
            
            549,420
            
            
            
            1,544,086
            
            
            
            1,119,297Total
      operating costs and expenses
            
            
            4,071,043
            
            
            
            672,154
            
            
            
            5,918,849
            
            
            
            1,349,681Operating
      loss
            
            
            (3,373,274
            )
            
            
            (534,579
            )
            
            
            (3,792,002
            )
            
            
            (1,060,732
            )Other
      (income)Interest
      income
            
            
            (9,964
            )
            
            
            (59,938
            )
            
            
            (15,890
            )
            
            
            (149,254
            )Total
      other expense
            
            
            (9,964
            )
            
            
            (59,938
            )
            
            
            (15,890
            )
            
            
            (149,254
            )Loss
      before income taxes
            
            
            (3,363,310
            )
            
            
            (474,641
            )
            
            
            (3,776,112
            )
            
            
            (911,478
            )Income
      taxes benefit
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      loss
            
            $
            (3,363,310
            )
            
            $
            (474,641
            )
            
            $
            (3,776,112
            )
            
            $
            (911,478
            )Earnings
      per share:Basic
      and diluted
            
            $
            (0.05
            )
            
            $
            (0.01
            )
            
            $
            (0.05
            )
            
            $
            (0.01
            )Weighted
      average shares outstanding:Basic
      and diluted (Note 9)
            
            
            71,490,001
            
            
            
            65,803,698
            
            
            
            71,444,320
            
            
            
            65,770,913




See
accompanying notes to unaudited condensed consolidated financial
statements


4


INDEX
OIL AND GAS INC.


CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS


(unaudited)




Six
      Months Ended
                September
      30,2008
              
              
              2007Cash
      flows from operating activitiesNet
      loss
              
              $
              (3,776,112
              )
              
              $
              (911,478
              )Adjustments
      to reconcile net loss to net cash from operating
activitiesDepreciation,
      depletion, amortization and impairment
              
              
              3,944,050
              
              
              
              147,961Stock
      compensation expense
              
              
              134,354
              
              
              
              141,739Allowance
      for doubtful accounts
              
              
              49,320
              
              
              
              -Change
      in operating assets and liabilities:Decrease
      in receivables and other current assets
              
              
              448,116
              
              
              
              5,154(Decrease)
      in accounts payable and accrued expenses
              
              
              (604,444
              )
              
              
              (304,137
              )Net
      cash provided by (used in) operating activities
              
              
              195,284
              
              
              
              (920,760
              )Cash
      flows from investing activitiesAcquisition
      of oil and gas properties and property and equipment
              
              
              (936,875
              )
              
              
              (4,366,831
              )Net
      cash (used in) investing activities
              
              
              (936,875
              )
              
              
              (4,366,831
              )Cash
      flows from financing activitiesProceeds
      from issuances of common stock
              
              
              -
              
              
              
              9,333Net
      cash provided by financing activities
              
              
              -
              
              
              
              9,333Effect
      of exchange rate changes on cash and cash equivalents
              
              
              (12,972
              )
              
              
              (6,242
              )Net
      (decrease) in cash and cash equivalents
              
              
              (754,563
              )
              
              
              (5,284,500
              )Cash
      and cash equivalents, beginning of period
              
              
              2,537,301
              
              
              
              10,141,125Cash
      and cash equivalents, end of period
              
              $
              1,782,739
              
              
              $
              4,856,625Supplemental
      non-cash disclosures:Cash
      received during the period for interest
              
              $
              15,890
              
              
              $
              149,254Non-cash
      financing and investing transactions:Non-cash
      stock based compensation cost
              
              $
              134,354
              
              
              $
              141,739






See
accompanying notes to unaudited condensed consolidated financial
statements


5


INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2008





NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY





Organization





We are an
independent oil and natural gas company engaged in the acquisition, exploration,
development, production and sale of oil and natural gas properties in North
America.  We have interests in properties in Kansas, Louisiana and
Texas.





Index Oil
and Gas Inc. (“Index”, “Index Inc.”, “the Company” or “we”, “us”, or “our”)
was incorporated in March 2004 under the laws of the State of Nevada and is
the parent company with four group subsidiaries: Index Oil & Gas Limited
(“Index Ltd”), a United Kingdom holding company, which provides management
services to the Company and its United States operating subsidiaries; Index Oil
& Gas (USA) LLC (“Index USA”), an operating company; Index Investments North
America Inc. (“Index Investments”); and Index Offshore LLC (“Index Offshore”), a
wholly owned subsidiary of Index Investments and also an operating company.
Index Inc., through its subsidiaries, is engaged in exploration, appraisal,
development, production and sale of oil and natural gas. The Company does not
currently operate any of its properties and sells its oil and gas production to
domestic purchasers.





These
interim financial statements have not been audited.  However, in the
opinion of management, all adjustments, consisting of only normal recurring
adjustments necessary for a fair presentation of the financial statements have
been included.  Results of operations for interim periods are not
necessarily indicative of the results of operations that may be expected for the
entire year.  In addition, these financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all disclosures required for financial statements prepared in conformity
with accounting principles generally accepted in the United States of
America.  These financial statements and notes should be read in
conjunction with the Company’s audited Consolidated Financial Statements and the
notes thereto included in the Company’s Annual Report on Form 10-K for the year
ended March 31, 2008.





Overview





Production
rose approximately 264% from 18.0 MMcfe for the three months ended
September 30, 2007 to 65.6 MMcfe for the three months ended September 30,
2008.  Correspondingly, revenues increased approximately 407% from
$137,575 for the three months ended September 30, 2007 to $697,770 for the three
months ended September 30, 2008.  The average price for natural gas
rose from $5.29 per Mcf to $8.68 per Mcf, or 64%.  The average price
for oil rose 61% from $76.01 per Bbl to $122.18 per Bbl.  Overall, the
average price per Mcfe rose 39% from $7.63 per Mcfe to $10.63 per Mcfe. In the
three and six months to September 30, 2008, the Company recorded a full cost
ceiling test impairment write down to its oil and gas properties of
approximately $2.6 million, due to a downward adjustment to oil and gas reserves
and lower oil and gas market prices at the end of the period. See Note
3.





Operations





The
Company’s initial exploration project is located in Kansas, and is a low-risk,
low-cost, low-working interest, and limited upside project and which is not
expected to be a significant contributor to future growth.  Our
working interest (“WI”) in the Kansas Area of Mutual Interest (“AMI”) wells is
either 5% for wells drilled in Stafford County or 3.25% for wells drilled in
Barton County and the net revenue interest (“NRI”) is either approximately
4.155% or 2.64%, respectively. The Company has committed to an ongoing program
of 14 wells for low-risk prospects in Stafford and Barton Counties. To-date, in
this program, the Company has participated in eight wells, of which in September
2008, four are now on production (including one Stafford County well which was
drilled under farm in arrangements and in which Index has a 2.5% WI), one is
completed and three have been plugged and abandoned.





6






INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2008







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





Further
activity is expected at approximately two wells per month to complete the
current program, dependent on commodity pricing and evaluation of the program to
date.  Total net production for the three months ended September, 2008
for all Kansas wells was 4.1 MMcfe (thousand Mcf of natural gas
equivalent).





The
Company’s onshore drilling program in Louisiana includes its interest in
the Walker 1 discovery well (WI 12.5%, approximate NRI 9.36%). Following
recompletion attempts between March and June 2008, production from the Walker
well is expected to remain marginally economic. The Walker 1 well produced 0.1
MMcfe for the three months ended September 30, 2008. In April 2007, the Company
signed agreements to participate in the Shadyside prospect, located in St. Mary
Parish, Louisiana. Index had an initial 15% WI in the prospect, reducing to
13.5% after prospect payout. The Shadyside 1 well was drilled to a total depth
of approximately 16,294 feet and due to non-participation by the former
operator, Index now has a 30% working interest in the well.  The well
has been hooked up and began flowing to sales in January 2008 and net production
was approximately 11.5 MMcfe for the three months ended September 30,
2008.  The Shadyside well has experienced production issues and is
currently shut-in awaiting workover operations.





The
Company’s onshore drilling program in Texas includes its interest in Vieman 1
(19.5% WI, approximate NRI 14.56%) in Brazoria County Texas which began
production in February 2007 and has been recompleted. The Vieman well had net
production of 0.6 MMcfe for the three months ended September 30, 2008. The well
failed to produce at economic rates and is currently shut-in awaiting operator’s
recommendations.  The Hawkins 1 well (WI 12.5%, approximate NRI
10.01%), also in Texas, in Matagorda County, began production into the local
pipeline grid in January 2008 and had net production of 6.4 MMcfe for the three
months ended September 30, 2008.  The Friedrich Gas Unit 1 (WI 37.5%,
approximate NRI 28.125%), in Victoria County, had net production of
approximately 8.1 MMcfe for the three months ended September 30, 2008, while the
Schroeder Gas Unit 1 (WI 37.5%, approximate NRI 28.125%), in Goliad County, had
net production of  0.3 MMcfe during the same period. The operator has
remediated the Schroeder Gas Unit 1 and it is expected that production levels
will increase in the next period.





The
George Cason 1 well, the Cason 2 well and the Cason 3 well, drilled on the Fern
Lake prospect in Nacogdoches County, Texas had net production of approximately
0.5 MMcfe, 1.3 MMcfe and 0.6 MMcfe, respectively for the three months ended
September 30, 2008. Index currently has a 25.0% WI and an approximate 18.7% NRI
in all three Cason wells. The Company is currently participating, with other
partners, in geological analyses on other formations encountered in the
wells.  The Cason wells are proving to be challenging in terms of
volumes and maintaining production. The operator is currently conducting a
series of workover procedures in the wells in an effort to increase production
levels. Currently, the Cason 1 and 2 wells are producing; the Cason 3 well is
shut-in.





The
Company is participating in an exploration agreement at 20% WI in
the Supple Jack Creek lease area. The first well, HNH Gas Unit 1, targeted
gas in the Edwards Limestone in Lavaca County, Texas. The well reached a total
depth of approximately 15,000 feet, was sidetracked laterally to approximately
16,000 feet but the attempt to complete the well in the Edwards formation was
unsuccessful. The well is currently suspended pending a decision on producing
multiple, logged pay intervals within the overlying Wilcox formation. Subject to
results, the Company will evaluate additional drilling. The gas unit designated
for the well covers 566.59 acres. However, the contract AMI for the overall
prospect extends over a much larger area, of which approximately 5,000 gross and
net acres are currently under lease.





The
Ducroz 1 (WI 7.5%, approximate NRI 5.25%), which targets gas in stacked Miocene
objectives, produced 8.3 MMcfe for the three months ended September 30,
2008.  Ducroz 1 is considered by the Company to be a single well
project.







7





INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2008







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





The
Outlar 1 (approximate NRI 8.2% before payout, 7.0% after payout) produced of
23.8 MMcfe net for the three months ended September 30, 2008. The Company views
the West Wharton project as potentially significant for the Company
as it has existing leases on up to five well-defined prospects. The second well
in this prospect, Stewart 1 was spudded in May 2008 and reached total depth at
11,922 feet in June 2008.  The targeted reservoir section was
penetrated and contained gas-bearing intervals which were deemed to be
sub-commercial.  A shallower sand was tested and deemed
non-commercial.  The Stewart 1 well is shut-in awaiting a decision to
sidetrack. The Company has also participated in additional leasing opportunities
with the operator.





In July
2007, the Company announced that it has signed a Purchase and Sale Agreement to
acquire a 5.0% WI and approximate 3.5% NRI in the Alligator Bayou exploration
prospect located beneath onshore portions of Brazoria and Matagorda Counties,
Texas. The prospect covers up to several thousand acres. The first well,
Armour-Runnells 1, was spudded in April 2008, is currently being drilled and
targets gas in the deep, high pressure, high temperature Wilcox
formation.  Drilling of the Armour-Runnells 1 well is expected to be
completed in November 2008. The Company anticipates this well to have the
highest potential impact and to be the highest risk well in its
portfolio.




NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





The
Company has provided a discussion of significant accounting policies, estimates
and judgments in its Annual Report on Form 10-K for the year ended March 31,
2008.





Principles of
Consolidation/Basis of Presentation





The
unaudited condensed consolidated financial statements as of September 30, 2008
and March 31, 2008 and for the three months ended September 30, 2008 and 2007
include the accounts of the Company and its wholly owned subsidiaries, Index
USA, Index Investments, Index Offshore and Index Ltd, after eliminating all
significant intercompany accounts and transactions.





Fair Value Measurements. In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements”, which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”), and expands disclosures about
fair value measurements (“SFAS 157”). Prior to this SFAS 157, there were
different definitions of fair value and limited guidance for applying those
definitions in GAAP. SFAS 157 provides the definition to increase consistency
and comparability in fair value measurements and for expanded disclosures about
fair value measurements. SFAS 157 emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. SFAS 157 clarifies that market
participant assumptions include assumptions about risk, i.e. the risk inherent
in a particular valuation technique used to measure fair value and/or the risk
inherent in the inputs to the valuation technique. SFAS 157 expands disclosures
about the use of fair vale to measure assets and liabilities in interim and
annual periods subsequent to initial recognition. The disclosures focus on the
inputs used to measure fair value and for recurring fair value measurements
using significant unobservable inputs, the effect of the measurements on
earnings for the period. SFAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. Earlier application is encouraged, provided that the
reporting entity has not yet issued financial statements for that fiscal year,
including the financial statements for an interim period within that fiscal
year. In November 2007, the FASB deferred the implementation of SFAS 157 for
non-financial assets and liabilities until October 2008.  The Company
partially adopted this standard on April 1, 2008, as to financial assets and
liabilities and has chosen to defer the implementation of nonfinancial assets
and liabilities in accordance with the FASB deferral in Staff Position FAS
157-2. The adoption of this standard did not have an impact on
its consolidated financial position results of operations or cash flows as
the Company has not engaged in any financial activities to which this
standard would apply.




8





INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2008







NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





In
October 2008, the FASB issued Staff Position FAS 157-3, Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active, to
clarify the application of FASB Statement No. 157, Fair Value Measurements,in a
market that is not active and to provide an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active.  The adoption of this
standard and related staff positions do not have an impact on
its consolidated financial position results of operations or cash flows as
the Company has not engaged in any financial activities to which this
standard would apply.





In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115” (“SFAS 159”), permitting entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
measurement. SFAS 159 applies to all entities, including not-for profit
organizations. Most of the provisions of SFAS 159 apply only to entities that
elect the fair value option. However, the amendment to FASB Statement No. 115,
“Accounting for Certain Investments in Debt and Equity Securities”, applies to
all entities with available-for-sale and trading securities. The Company also
elected to adopt this standard on April 1, 2008, but has not elected to
present assets and liabilities at fair value that were not required to be
measured at fair value prior to adoption of SFAS 159.





Accounting for Bad Debts and
Allowances





Bad debts
and allowances are provided based on historical experience and management's
evaluation of outstanding accounts receivable. The management periodically
evaluates past due or delinquency of accounts receivable in evaluating its
allowance for doubtful accounts. The Company recorded an allowance for doubtful
accounts at September 30, 2008 in the amount of $49,320 due to the bankruptcy
filing of one of the purchasers of crude oil prior to July 15,
2008.  There was no allowance for doubtful accounts at March 31,
2008.





Other Current
Assets





Other
receivables at September 30, 2008 and March 31, 2008, of $957 and $5,402,
respectively, consist primarily of an income tax receivable and a value added
tax recoverable in the United Kingdom by the Company. Other current assets of
$67,347 and $43,460 at September 30, 2008 and March 31, 2008, respectively,
consist of prepaid expenses.





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 year-end exchange rates. Revenue and expense items are translated at
average exchange rates prevailing during the fiscal year. Translation
adjustments are included in “Accumulated other comprehensive loss” in the equity
section of the Consolidated Balance Sheet and totaled $(9,036) and $8,791
as of September 30, 2008 and 2007, respectively, and foreign currency
transaction (losses)/gains are included in the Consolidated Statement of
Operations.





9


INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2008







NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





New Accounting
Pronouncements Not Yet Adopted





The Hierarchy of Generally Accepted
Accounting Principles.  In May 2008, the FASB issued SFAS No.
162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS
162”).   SFAS 162 identifies the sources of accounting principles and
the framework for selecting the principles used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with
generally accepted accounting principles (GAAP) in the United States (the GAAP
hierarchy).  SFAS 162 shall be effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board (PCAOB) amendments to
AU Section 411, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles.  An entity that has and continues to follow an
accounting treatment in category (c) or category (d) as of March 15, 1992, need
not change to an accounting treatment in a higher category ((b) or (c)) if its
effective date was before March 15, 1992.  For pronouncements whose
effective date is after March 15, 1992, and for entities initially applying an
accounting principle after March 15, 1992 (except for EITF consensus positions
issued before March 16, 1992, which become effective in the hierarchy for
initial application of an accounting principle after March 15, 1993), an entity
shall follow this Statement.  Any effect of applying the provisions of
SFAS 162 shall be reported as a change in accounting principle in accordance
with FASB Statement No. 154, Accounting Changes and Error
Corrections (“SFAS 154”). An entity shall follow the disclosure
requirements of SFAS 154, and additionally, disclose the accounting principles
that were used before and after the application of the provisions of SFAS 154
and the reason why applying SFAS 154 resulted in a change in accounting
principle. The Company does not expect the adoption of SFAS 162 to have a
material impact on its consolidated financial position, results of
operations or cash flows.





Disclosures about Derivative
Instruments and Hedging Activities.  In May 2008, the FASB
issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities-an Amendment to FASB Statement No. 133” (“SFAS
161”).  Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, establishes, among other things, the
disclosure requirements for derivative instruments and for hedging activities
(“Statement 133”). SFAS 161 amends and expands the disclosure requirements of
Statement 133 with the intent to provide users of financial statements with an
enhanced understanding of:





a.
            How
      and why an entity uses derivative instruments.b.
            How
      derivative instruments and related hedged items are accounted for under
      Statement 133 and its related interpretations.c.
            How
      derivative instruments and related hedged items affect an entity’s
      financial position, financial performance, and cash
  flows.





To meet
those objectives, SFAS 161 requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements.  
SFAS 161 shall be effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. Early application is
encouraged.  SFAS 161 encourages but does not require disclosures for
earlier periods presented for comparative purposes at initial adoption. In years
after initial adoption, this Statement requires comparative disclosures only for
periods subsequent to initial adoption  In September 2008, the FASB
issued Staff Position  133-1 and FASB Interpretation No. 45-4,
“Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of
FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the
Effective Date of FASB Statement No. 161”, which addressed various issues
related to FASB No. 133 and FIN 45, but also clarified the effective date of
SFAS 161 to be any period, annual or interim beginning after November 15, 2008.
The adoption of SFAS 161 is not expected to have an impact on the Company’s
consolidated financial position, results of operations or cash flows as the
Company has not engaged in any derivative instruments or hedging
activities.




10





INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2008







NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





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





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





NOTE
3 - PROPERTY, PLANT AND EQUIPMENT, PROPERTY ACQUISITIONS AND DISPOSITONS
AND CAITALIED INTEREST





Oil and Gas
Properties





Major
classes of oil and gas properties under the full cost method of accounting at
September 30, 2008 and March 31, 2008 consist of the following:





September
      30,
                2008
              
              March
      31,
                2008(unaudited)Proved
      properties
              
              $
              8,670,532
              
              
              $
              11,181,430Unevaluated
      and unproved properties
              
              
              3,653,589
              
              
              
              2,821,271Total
      oil and natural gas properties-onshore
              
              
              12,324,121
              
              
              
              14,002,701Less:
      Accumulated depletion
              
              
              (2,760,189
              )
              
              
              (1,407,610
              )Net
      oil and natural gas properties-onshore
              
              $
              9,563,932
              
              
              $
              12,595,091


Quarterly,
the Company assesses the value of unamortized capitalized costs within its cost
center over the discounted present value of cash flows associated with its
reserves. Any excess requires an immediate write-down of its capital costs by
this amount.





During
the three months ended September 30, 2008, the excess of unamortized capitalized
costs over the related cost ceiling limitation was $2,587,274 and the Company
recorded a full cost ceiling test impairment write down of this amount to its
oil and gas properties. This impairment was due primarily to a decrease in
estimated reserves on Shadyside and a full write-down on Vieman of approximately
199.0 MMcfe in aggregate. Both wells are currently shut-in. In addition, the
projected average prices per MMcfe used in the ceiling tests for its oil and
natural gas reserves was reduced from $11.93 at March 31, 2008 to $9.55 at
September 30, 2008.




11





INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2008





NOTE
3 - PROPERTY, PLANT AND EQUIPMENT, PROPERTY ACQUISITIONS AND DISPOSITONS
AND CAITALIED INTEREST (continued)





Proved
properties are reported net of cumulative impairment charges of $2,674,822 at
September 30, 2008, inclusive of the current period impairment charge, and
$87,548 at March 31, 2008, respectively. The Consolidated Statement of Losses
for the three and six months to September 30, 2008 are stated inclusive of this
impairment expense of $2,587,274, and which is reported within the expense
category “Depreciation, depletion, amortization and impairment”.





Included
in the Company's oil and gas properties are asset retirement obligations
of $64,098 and $88,209 as of September 30, 2008 and March 31, 2008,
respectively.





Depletion
expense was $588,325 and $73,808 or $8.96 and $4.09 per Mcfe of production for
the three months ended September 30, 2008 and 2007, respectively.





At
September 30, 2008 and March 31, 2008, the Company excluded the following
capitalized costs from depletion, depreciation and amortization:




September
      30,
                2008
              
              March
      31,
                2008Not
      subject to depletion-onshore:
              
              (unaudited)Exploration
      costs
              
              $
              2,817,003
              
              
              $
              1,960,886Cost
      of undeveloped acreage
              
              
              836,586
              
              
              
              860,385Total
      not subject to depletion
              
              $
              3,653,589
              
              
              $
              2,821,271


It is
anticipated that the cost of undeveloped acreage of $0.8 million and exploration
costs of $2.8 million will be included in depreciation, depletion and
amortization when the related projects are planned and drilled and completed, as
appropriate. Included in exploration costs and undeveloped acreage are costs of
approximately $1.7 million related to exploration costs for the HNH Gas Unit 1,
approximately $0.4 million in undeveloped acreage for the Supple Jack Creek
prospect, approximately $0.1 million in undeveloped acreage for the West Wharton
prospect, exploration costs and undeveloped acreage of approximately $1.0
million and $0.1 million, respectively, for the Armour-Runnells 1 and
approximately $0.3 million in undeveloped acreage for the Alligator Bayou
prospect.







12





INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2008







NOTE
3 - PROPERTY, PLANT AND EQUIPMENT, PROPERTY ACQUISITIONS AND DISPOSITONS
AND CAITALIED INTEREST (continued)





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 the
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 September 30, 2008 and March 31, 2008 were as
follows:




September
      30,
                  2008
                
                
                March
      31,
                  2008(unaudited)Computer
      costs, including foreign translation adjustment
                
                $
                45,218
                
                
                $
                42,069Less:
      accumulated depreciation
                
                
                (19,314
                )
                
                
                (16,038
                )Total
      property and equipment, net
                
                $
                25,904
                
                
                $
                26,031


Depreciation
expenses from continuing operations amounted to $2,268 and $753 for the three
months ended September 30, 2008 and 2007, respectively. There was no interest
capitalized in property, plant and equipment at September 30, 2008 and
2007.





NOTE
4 - COMPREHESIVE LOSS





For the
three and six months ended September 30, 2008 and 2007, comprehensive income
consisted of the amounts listed below.







Three
      Months Ended September 30,
              
              
              Six
      Months Ended September 30,2008
              
              
              2007
              
              
              2008
              
              
              2007(unaudited)
              
              
              (unaudited)Accumulated
      other comprehensive income (loss) beginning of period
              
              
              
              
              
              $
              (3,729
              )
              
              
              
              
              
              $
              11,278
              
              
              
              
              
              
              $
              1,510
              
              
              
              
              
              
              $
              15,399Net
      (loss)
              
              $
              (3,363,310
              )
              
              
              
              
              
              $
              (474,641
              )
              
              
              
              
              
              $
              (3,776,112
              )
              
              
              
              
              
              $
              (911,478
              )Foreign
      currency translation
              
              
              (5,307
              )
              
              
              
              
              
              
              (2,487
              )
              
              
              
              
              
              
              (10,546
              )
              
              
              
              
              
              
              (6,608
              )Total
      other comprehensive income (loss)
              
              
              (5,307
              )
              
              
              (5,307
              )
              
              
              (2,487
              )
              
              
              (2,487
              )
              
              
              (10,546
              )
              
              
              (10,546
              )
              
              
              (6,608
              )
              
              
              (6,608
              )Comprehensive
      income (loss)
              
              $
              (3,368,617
              )
              
              
              
              
              
              $
              (477,128
              )
              
              
              
              
              
              $
              (3,786,658
              )
              
              
              
              
              
              $
              (918,086
              )Accumulated
      other comprehensive income (loss)
              
              
              $
              (9,036
              )
              
              
              
              
              
              $
              8,791
              
              
              
              
              
              
              $
              (9,036
              )
              
              
              
              
              
              $
              8,791





Comprehensive
loss for the three and six months to September 30, 2008 is stated inclusive of
impairment expense of $2,587,274, and which is a component of net loss within
the measure of comprehensive loss.





13





INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2008





NOTE
5 - ASSET RETIREMENT OBLIGATION





Activity
related to the Company’s ARO during the three months ended September 30, 2008 is
as follows:





Three
      Months Ended September 30, 2008(unaudited)ARO
      as of June 30, 2008
            
            $
            88,209Revision
      of previous estimates
            
            
            (24,111
            )Liabilities
      incurred during period
            
            
            -Accretion
      expense
            
            
            -ARO
      as of September 30, 2008
            
            $
            64,098




Of the
total ARO, $64,098 and $88,209 is classified as a long-term liability at
September 30, 2008 and March 31, 2008, respectively. For each of the three
months ended September 30, 2008 and 2007, the Company recognized no accretion
expense related to its ARO, due to the assumption of a full offset of salvage
values to future costs.




NOTE 6 - COMMITMENTS AND
CONTINGENCIES





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





Lease
Commitments





The
Company does not have any capital lease commitments. The Company rents its main
operating office in Houston on a month-to-month basis for which payments began
in November 2005. The Company also has two leases related to corporate housing
in Houston for UK based officers while periodically working at the corporate
office, on a month-to-month basis and a remaining 10-month lease
respectively.





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 the
consultant terminates such engagement by written notice.





Stockholder
Matters





There
were no stockholder matters during the quarter ended September 30,
2008.





Litigation





The
Company is subject to various legal proceedings and claims, including currently
legal proceedings relating to the Ilse 1 well, 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 this and other 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.




14





INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2008





NOTE
7 - CAPITAL STOCK





During
the quarter ended September 30, 2008:




Three
      Months Ended September 30, 2008(unaudited)Balance
      as of June 30, 2008
            
            
            71,473,994Issuance
      of common stock awards
            
            
            36,895Balance
      as of September 30, 2008
            
            
            71,510,889




In June
2008, the Company revised its agreement with a consulting firm, whereby the
contractor will receive 715 shares of restricted stock for the first ten
equivalent work days per month and 1,250 shares of restricted stock for each
equivalent work day exceeding 10 during the same month.  The market
price per share has been calculated based on the close of market price on the
last working day of the relevant month.  The contractor was granted
36,895 shares of vested restricted stock during the quarter at market prices
ranging from $0.30 to $0.55 per share.




NOTE
8 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION





The Board
of Directors of Index Inc. agreed to the adoption of the 2006 Incentive Stock
Option Plan (the “Stock Option Plan”) and approved it on March 14, 2006
effective as of January 20, 2006, providing for the issuance of up to 5,225,000
shares of Common Stock of Index Inc. to officers, directors, employees and
consultants of Index Inc. and/or its subsidiaries. Pursuant to the Stock Option
Plan, Index Inc. 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. who had held options to purchase ordinary shares of Index
Ltd prior to the completion of the acquisition.  These options to
purchase shares are fully vested, and therefore, no compensation expense was
recorded for these options during the three months ended September 30,
2008.





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 a change of control of Index Inc.; (3) 12 months after loss ofoffice due to health
related incapacity or redundancy; or (4) 12 months after the retirement of the
options holder from a position with Index Inc. All options have a 5-year
expiring term.




The
remaining compensation expense associated with total unvested awards as of
September 30, 2008 was $21,971 and will be recognized during this fiscal
year.   Total compensation expense for the three months ended
September 30, 2008 and 2007 was $54,485 and $44,916, respectively.





15





INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2008





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





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, stockholders and others at September 30,
2008:




Number
      of Shares
            
            
            Weighted
      Average Exercise Price Per ShareOutstanding
      at March 31, 2008
            
            
            5,202,526
            
            $
            0.42Granted
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Canceled
      or expired
            
            
            -
            
            
            -Outstanding
      at June 30, 2008
            
            
            5,202,526
            
            $
            0.42Granted
            
            
            
            
            
            -Exercised
            
            
            
            
            
            -Canceled
      or expired
            
            
            (250,000)
            
            
            (1.42)Outstanding
      at September 30, 2008
            
            
            4,952,526
            
            $
            0.37




The
Company has assumed an annual forfeiture rate of 5 % for the awards granted
in 2008 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
      ExercisableNumber
            
            
            Weighted Average
      Remaining
            
            
            Weighted Average Exercise
            
            
            Number
            
            
            Weighted
      Average ExerciseExercise
      Price
            
            
            Outstanding
            
            
            Contractual Life
      (Years)
            
            
            Price
            
            
            Exercisable
            
            
            Price$
            0.35
            
            
            
            4,577,526
            
            
            
            2.31
            
            
            $
            0.35
            
            
            
            4,577,526
            
            
            $
            0.35$
            0.83
            
            
            
            125,000
            
            
            
            3.97
            
            
            $
            0.83
            
            
            
            93,750
            
            
            $
            0.83$
            0.60
            
            
            
            100,000
            
            
            
            4.26
            
            
            $
            0.60
            
            
            
            50,000
            
            
            $
            0.60$
            0.51
            
            
            
            150,000
            
            
            
            4.32
            
            
            $
            0.51
            
            
            
            75,000
            
            
            $
            0.51$
            0.37
            
            
            
            4,952,526
            
            
            
            2.45
            
            
            $
            0.36
            
            
            
            4,796,276
            
            
            $
            0.36





16





INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2008





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





Warrants





The
following tables summarize the changes in warrants outstanding and exercised,
excluding 5,541,182 contingent warrants potentially issuable in the
$2.77 million private placement in February 2008, and the related exercise
prices for the shares of the Company’s common stock issued as
follows:





Number
      of Shares
            
            
            Weighted
      Average Exercise Price Per ShareOutstanding
      and exercisable at March 31, 2008
            
            
            901,421
            
            $
            0.13Granted
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Canceled
      or expired
            
            
            -
            
            
            -Outstanding
      at June 30, 2008
            
            
            901,421
            
            $
            0.13Granted
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Canceled
      or expired
            
            
            -
            
            
            -Outstanding
      at September 30, 2008
            
            
            901,421
            
            $
            0.13




Warrants
      Outstanding
            
            
            
            
            
            
            
            
            Warrants
      ExercisableNumber
            
            
            Weighted
      Average Remaining
            
            
            Weighted
      Average Exercise
            
            
            Number
            
            
            Weighted
      Average ExerciseExercise
      Price
            
            
            Outstanding
            
            
            Contractual Life
      (Years)
            
            
            Price
            
            
            Exercisable
            
            
            Price$
            0.07
            
            
            
            138,655
            
            
            
            2.00
            
            
            $
            0.07
            
            
            
            138,655
            
            
            $
            0.07$
            0.14
            
            
            
            143,037
            
            
            
            2.00
            
            
            $
            0.14
            
            
            
            143,037
            
            
            $
            0.14$
            0.14
            
            
            
            253,961
            
            
            
            2.00
            
            
            $
            0.14
            
            
            
            253,961
            
            
            $
            0.14$
            0.14
            
            
            
            339,033
            
            
            
            2.00
            
            
            $
            0.14
            
            
            
            339,033
            
            
            $
            0.14$
            0.14
            
            
            
            26,735
            
            
            
            2.00
            
            
            $
            0.14
            
            
            
            26,735
            
            
            $
            0.14$
            0.13
            
            
            
            901,421
            
            
            
            2.00
            
            
            $
            0.13
            
            
            
            901,421
            
            
            $
            0.13




NOTE 9 - EARNINGS PER
SHARE
 
 Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
contracts to issue common stock and related stock options were exercised at the
end of the period. For the three months ended September 30, 2008 and 2007,
excluded from diluted earnings per share are 901,421 and 5,503,947, respectively
of “in-the-money” warrants and/or options to acquire common stock. At September
30, 2008, all options were “out-of-the-money”.






17






INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


SEPTEMBER
30, 2008





NOTE 9 - EARNINGS PER
SHARE (continued)





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




Three
      Months Ended
                September
      30,
              
              
              Six
      Months Ended
                September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Basic
      weighted average number of shares outstanding
              
              
              71,490,001
              
              
              
              65,803,698
              
              
              
              71,444,320
              
              
              
              65,770,913Dilution
      effect of stock option and awards at the end of the period
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Diluted
      weighted average number of shares outstanding
              
              
              71,490,001
              
              
              
              65,803,698
              
              
              
              71,444,320
              
              
              
              65,770,913Anti-dilutive
      stock awards and shares
              
              
              901,421
              
              
              
              5,503,947
              
              
              
              901,421
              
              
              
              5,503,947


NOTE
10 - 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 September 30, 2008 and as of September 30, 2008, 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.




Three
      Months Ended and As Of September 30, 2008Total
      Oil and Gas Revenue
                  
                  
                  Total
      Oil and Gas Assets (1)Kansas
                  
                  $
                  77,863
                  
                  
                  $
                  895,938Louisiana
                  
                  
                  89,876
                  
                  
                  
                  2,943,159Texas
                  
                  
                  530,031
                  
                  
                  
                  11,159,846$
                  697,770
                  
                  
                  $
                  14,998,943Less
      : Impairment
                  
                  
                  
                  
                  
                  
                  (2,674,822
                  )Accumulated
      depletion
                  
                  
                  
                  
                  
                  
                  (2,760,189
                  )Total
      oil and natural gas properties
                  
                  
                  
                  
                  
                  $
                  9,563,932


(1)
            Total
      assets at September 30, 2008 are reported gross, and are not presented net
      of depreciation, depletion and amortization and impairments. Under the
      full cost method of accounting for oil and gas properties, depreciation,
      depletion and amortization and impairments are not allocated to
      properties.







NOTE
11 - SUBSEQUENT EVENTS




None
to report.




18






Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.





CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS





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





·
            our
      ability to attract and retain
management;




·
            our
      growth strategies;




·
            anticipated
      trends in our business;




·
            our
      future results of operations;




·
            our
      ability to make or integrate
acquisitions;




·
            our
      liquidity and ability to finance our exploration, acquisition and
      development activities;




·
            our
      ability to successfully and economically explore for and develop oil and
      gas resources;




·
            market
      conditions in the oil and gas
industry;




·
            the
      timing, cost and procedure for proposed
  acquisitions;




·
            the
      impact of government regulation;




·
            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;






19






·
            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;




·
            exploration
      and development risks;




·
            the
      availability and costs of drilling rigs and other oilfield
      services;




·
            environmental
      risks;




·
            exploration
      and development risks;




·
            competition;




·
            the
      inability to realize expected value from
  acquisitions;




·
            the
      ability of our management team to execute its plans to meet its
      goals;




·
            general
      economic conditions, whether internationally, nationally or in the
      regional and local market areas in which we are doing business, that may
      be less favorable than expected;
and




·
            other
      economic, competitive, governmental, legislative, regulatory, geopolitical
      and technological factors that may negatively impact our businesses,
      operations and pricing.




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




20






Overview





Organization





We are an
independent oil and natural gas company engaged in the acquisition, exploration,
development, production and sale of oil and natural gas properties in North
America.  We have interests in properties in Kansas, Louisiana and
Texas.





Index Oil
and Gas Inc. (“Index”, Index Inc.”, “the Company” or “we”, “us”, or “our”)
was incorporated in March 2004 under the laws of the State of Nevada and is
the parent company with four group subsidiaries: Index Oil & Gas Limited
(“Index Ltd”), a United Kingdom holding company, which provides management
services to the Company and its United States operating subsidiaries; Index Oil
& Gas (USA) LLC (“Index USA”), an operating company; Index Investments North
America Inc. (“Index Investments”); and Index Offshore LLC (“Index Offshore”), a
wholly owned subsidiary of Index Investments and also an operating company.
Index Inc., through its subsidiaries, is engaged in exploration, appraisal,
development, production and sale of oil and natural gas. The Company does not
currently operate any of its properties and sells its oil and gas production to
domestic purchasers.




Overview





Production
rose approximately 264% from 18.0 MMcfe for the three months ended
September 30, 2007 to 65.6 MMcfe for the three months ended September 30,
2008.  Correspondingly, revenues increased approximately 407% from
$137,575 for the three months ended September 30, 2007 to $697,770 for the three
months ended September 30, 2008.  The average price for natural gas
rose from $5.29 per Mcf to $8.68 per Mcf or 64%.  The average price
for oil rose 61% from $76.01 per Bbl to $122.18 per Bbl. Overall, the
average price per Mcfe rose 39% from $7.63 per Mcfe to $10.63 per
Mcfe.





In the
three months to September 30, 2008 the Company recorded a full cost ceiling test
impairment write down to its oil and gas properties of approximately $2.6
million, due to a downward adjustment to oil and gas reserves and lower oil and
gas market prices at the end of the period.  The impact of this
impairment charge is that our net loss for the three and six months to September
30, 2008 is substantially higher than any prior equivalent period. In addition
the carrying amounts in our balance sheet at September 30, 2008 of oil and
natural gas properties, total assets and total stockholders equity are all
significantly reduced as a result of this $2.6 million charge.





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 September 30, 2008 Compared to Three Months Ended September 30,
2007





We had a
net loss of $3.4 million for the three months ended September 30, 2008 compared
to a net loss of $0.5 million for the three months ended September 30, 2007. The
increase in the net loss was primarily due to our ceiling test limitation
write-down of approximately $2.6 million, due to the reduction in estimated
reserves and oil and natural gas prices, discussed further below. Revenue
increased by $0.6 million, but was offset by general and administrative costs of
$0.8 million, which increased by $0.2 million, increased
depletion of $0.5 million to $0.6 million, and lower
interest income on capital previously raised and used in our operations. The
following table summarizes key items of revenue and their related increase
(decrease) for the fiscal three months ended September 30, 2008 and
2007.




21





Three
      Months Ended
              September
      30,2008
            
            
            2007
            
            
            %
      Change
              Increase/
              (Decrease)Total
      revenues
            
            $
            697,769
            
            
            $
            137,575
            
            
            
            407
            %Production:Gas
      (Mcf)
            
            
            54,701
            
            
            
            12,328
            
            
            
            344
            %Oil
      (MBbls)
            
            
            1.823
            
            
            
            0.952
            
            
            
            91
            %Total
      Equivalents (Boe)
            
            
            10.940
            
            
            
            3.007
            
            
            
            264
            %Total
      Equivalents (MMcfe)
            
            
            65.626
            
            
            
            18.040
            
            
            
            264
            %$
      per unit:Avg.
      Gas Price per Mcf
            
            $
            8.68
            
            
            $
            5.29
            
            
            
            64
            %Avg.
      Oil Price per Bbl
            
            $
            122.18
            
            
            $
            76.01
            
            
            
            61
            %Avg.
      Price per Boe
            
            $
            63.78
            
            
            $
            45.76
            
            
            
            39
            %Avg.
      Price per Mcfe
            
            $
            10.63
            
            
            $
            7.63
            
            
            
            39
            %




For the
three months ended September 30, 2008, oil and natural gas sales increased $0.6
million, from the same period in 2007, to $0.7 million. The increase for the
quarter was primarily due to the increase in production volumes of 47.6 MMcfe
from 18.0 MMcfe to 65.6 MMcfe or approximately $0.5 million of the $0.6 million
increase. The increase in volumes of 47.6 MMcfe was primarily due to new
volumes from Outlar of 23.8 MMcfe, Ducroz of 8.3 MMcfe, Shadyside of 11.5 MMcfe,
Friedrich of 0.3 MMcfe, Hawkins of 6.4 MMcfe and the three Cason wells of 2.3
MMcfe.  This increased production was offset by decreases in
production from Schroeder of  1.2 MMcfe, Kansas wells
of  0.1 MMcfe and Walker of 3.7 MMcfe. Total oil production was
1.8  MBbls and total natural gas production was 54.7
MMcf.





Additionally,
our revenues increased due to year on year price changes, with our average price
per MMcfe increasing by $3.00, or 39%, to $10.63 per Mcfe in fiscal 2008 from
$7.63 per Mcfe in fiscal 2007. Our revenues also reflected an increased
proportion of natural gas volumes, which had a lower energy equivalent value.
Weighted average gas volumes increased in price by $3.39 per Mcf and weighted
average oil volumes increased in price per barrel by $46.17. We benefited from
increased product prices in the quarter ended September 30, 2008, both for oil
and natural gas.  However, our production and sales mix has switched
to become predominantly natural gas comprised and the year on year price
increase on a Boe basis is less significant than the absolute price changes for
each product, due to natural gas realizing a lower energy equivalent price
compared to crude oil.




22




Three
      Months Ended
              September
      30,2008
            
            
            2007
            
            
            %
      Change
              Increase/
              (Decrease)Lease
      operating expense
            
            $
            112,278
            
            
            $
            37,216
            
            
            
            202
            %Production
      taxes
            
            
            28,909
            
            
            
            10,958
            
            
            
            164
            %Depreciation,
      depletion and amortization
            
            
            590,593
            
            
            
            74,561
            
            
            
            692
            %Ceiling
      test impairment expense
            
            
            2,587,274
            
            
            
            -
            
            
            
            -General
      and administrative costs:General
      and administrative costs
            
            
            697,504
            
            
            
            504,504
            
            
            
            38
            %Stock-based
      compensation
            
            
            54,485
            
            
            
            44,916
            
            
            
            21
            %$
      per unit:Avg.
      lease operating expense per Mcfe
            
            $
            1.71
            
            
            $
            2.06
            
            
            
            (17
            %)Avg.
      production taxes per Mcfe
            
            $
            0.44
            
            
            $
            0.61
            
            
            
            (28
            %)Avg.
      DD&A per Mcfe
            
            $
            9.00
            
            
            $
            4.13
            
            
            
            118
            %Avg.
      ceiling test impairment expense
            
            $
            39.42
            
            
            $
            -
            
            
            
            -Avg.
      G&A per McfeAvg.
      G&A per Mcfe
            
            $
            10.63
            
            
            $
            27.97
            
            
            
            (62
            %)Avg.
      Stock-based compensation per Mcfe
            
            $
            0.83
            
            
            $
            2.49
            
            
            
            (67
            %)




Lease
operating expenses increased $0.1 million for the three months ended September
30, 2008 as compared to the same period in 2007. The increase was primarily due
to production from new wells that came on production after the first quarter of
2007, principally the three Cason wells, Ducroz, Shadyside, Hawkins, and Outlar
1.  On a per unit basis, lease operating expenses decreased 17% from
$2.06 per Mcfe in 2007 to $1.71 per Mcfe in 2007 due to an increase in
production volumes.





Taxes
other than income increased $18,000 for the three months ended September 30,
2008 as compared to the same period in 2007 due to higher oil and gas revenues,
but on a per unit basis decreased $0.17 per Mcfe to $0.44 per
Mcfe.  Production taxes are generally assessed as a percentage of
gross oil and/or natural gas sales.





General
and administrative expense, excluding stock-based compensation, for the three
months ended September 30, 2008 increased 38% or $0.2 million to $0.7 million
compared to the same period in 2007, although on a per unit basis, decreased
$17.35 per Mcfe to $10.63 per Mcfe.  The primary reason for the
increase was legal and professional fees incurred for SEC filings and other
professional and legal consultation as the Company pursues growth
strategies.





Stock-based
compensation expense was relatively flat or approximately $54,000 for the three
months ended September 30, 2008, compared to approximately $45,000 for
stock-based compensation in the same period of 2007. This is primarily due to
the timing of vesting on larger stock-based awards granted in previous years to
officers and directors, including those at the effective date of the reverse
merger with Index Ltd, offset by a smaller awards of stock to officers and
consultants in fiscal year 2007 and 2008. During the three months ended
September 30, 2008 and 2007, the Company did not grant any stock options or
warrants.  The Company did award restricted stock to a consultant for
a total of $18,000 in stock compensation expense for the three months ended
September 30, 2008. On a per unit basis, stock-based compensation decreased
$1.66 per Mcfe to $0.83 per Mcfe.





Depletion,
depreciation and amortization (“DD&A”) expense increased $0.5 million from
the same period in 2007 to $0.6 million for the three months ended September 30,
2008. The increase is primarily due to increased production from new wells that
came on production after the first quarter of 2007, principally the three Cason
wells, Ducroz, Shadyside, Hawkins, and Outlar 1, and an increase in the unit
depletion cost rate. Depletion for oil and gas properties is calculated
using the unit of production method, which essentially depletes the capitalized
costs associated with the proved properties based on the ratio of production
volume for the current period to total remaining reserve volume for the
evaluated properties.  On a per unit basis, DD&A expense increased
from $4.13 per Mcfe to $9.00 per Mcfe.




23




Ceiling
test impairment expense was recorded in the three months ended September 30,
2008 in the amount of $2.6 million. Quarterly, the Company assesses the value of
unamortized capitalized costs within its cost center over the discounted present
value of cash flows associated with its reserves.  Any excess requires
an immediate write-down of its capital costs by this amount.  During
the three months ended September 30, 2008, excess of unamortized capitalized
costs over the related cost ceiling limitation was $2.6 million due a decrease
in estimated reserves on Shadyside and Vieman of approximately 199.0 MMcfe. In
addition, adjustments to the projected average prices for the purposes of the
ceiling test for our oil and natural gas reserves lead to a reduction from
$11.93/Mcfe at March 31, 2008 to $9.55/Mcfe at September 30, 2008. The impact of
this impairment charge is that our net loss for the three months to September
30, 2008 is substantially higher than any prior equivalent period. In addition
the carrying amounts in our balance sheet at September 30, 2008 of oil and
natural gas properties, total assets and total stockholders equity are all
significantly reduced as a result of this $2.6 million charge.





Interest
income and other decreased $50,000 for the three months ended September 30, 2008
compared to the same period 2007. This decrease relates to interest income
earned on equity fund raising in prior fiscal years.





There was
no provision for income taxes for the fiscal three months ended 2008 and 2007
due to a 100% valuation allowance recorded for the three months ended September
30, 2008 and 2007, respectively on the total tax provision as the Company
believed that it is more likely than not that the asset will not be utilized
during the next year.





Six
Months Ended September 30, 2008 Compared to Six Months Ended September 30,
2007





We had a
net loss of $3.8 million for the six months ended September 30, 2008 compared to
a net loss of $0.9 million for the three months ended September 30, 2007. The
increase in the net loss was primarily due to our ceiling test limitation
write-down of approximately $2.6 million, due to the reduction in estimated
reserves and oil and natural gas prices. Revenue increased by $1.8 million
during 2008, but was offset by operating costs of $0.4 million, which increased
$0.3 million due to increased production, general and administrative costs of
$1.5 million, which increased by $0.4 million, increased
depletion of $1.2 million to $1.4 million, the ceiling test
impairment expense of $2.6 million,  and lower interest income on capital
previously raised and used in our operations.  The following table
summarizes key items of revenue and their related increase (decrease) for
the fiscal six months ended September 30, 2008 and 2007.


Six
      Months Ended
                  September
      30,2008
                
                
                2007
                
                
                %
      Change
                  Increase/
                  (Decrease)Total
      revenues
                
                $
                2,126,847
                
                
                $
                288,948
                
                
                
                636
                %Production:Gas
      (Mcf)
                
                
                143,352
                
                
                
                21,128
                
                
                
                578
                %Oil
      (MBbls)
                
                
                4.830
                
                
                
                2.306
                
                
                
                109
                %Total
      Equivalents (Boe)
                
                
                28.722
                
                
                
                5.827
                
                
                
                393
                %Total
      Equivalents (MMcfe)
                
                
                172,316
                
                
                
                34,964
                
                
                
                393
                %$
      per unit:Avg.
      Gas Price per Mcf
                
                $
                10.79
                
                
                $
                6.11
                
                
                
                77
                %Avg.
      Oil Price per Bbl
                
                $
                120.14
                
                
                $
                69.29
                
                
                
                73
                %Avg.
      Price per Boe
                
                $
                74.05
                
                
                $
                49.59
                
                
                
                49
                %Avg.
      Price per Mcfe
                
                $
                12.34
                
                
                $
                8.26
                
                
                
                49
                %




24






For the
six months ended September 30, 2008, oil and natural gas sales increased $1.8
million, from the same period in 2007, to $2.1 million. The increase for the six
months was primarily due to the increase in production volumes of 137.4 MMcfe
from 35.0 MMcfe to 172.3 MMcfe, or approximately $1.7 million of the $1.8
million increase. The increase in volumes of 137.4 MMcfe was primarily due
to new volumes from Outlar of 51.5 MMcfe, Ducroz of 23.4 MMcfe, Shadyside of
46.8 MMcfe, Friedrich of 4.1 MMcfe and our Kansas wells which increased, in
total, by 1.0 MMcfe, offset by Walker which decreased 9.7 MMcfe and Schroeder
which decreased by 1.2 MMcfe. The Cason wells also contributed 9.0 MMcfe along
with Hawkins which contributed 12.5 MMcfe.  Total oil production was
4.8 MBbls and total natural gas production was 143.4
MMcf.





Additionally,
our revenues increased due to year on year price changes, with an increase in
our average price per MMcfe of $4.08, or 49.0%, to $12.34 per Mcfe in fiscal
2008 from $8.26 per Mcfe in fiscal 2007. Our revenues also reflected an
increased proportion of natural gas volumes, which had a lower energy equivalent
value. Our weighted average gas volumes increased in price by $4.68 per Mcf and
weighted average oil volumes increased in price by $50.85 per barrel. We
benefited from increased product prices in the six months ended September 30,
2008, both for oil and natural gas.  However, our production and sales
mix has switched to become predominantly natural gas comprised, and the year on
year price increase on a Boe basis is less significant than the absolute price
changes for each product, due to natural gas realizing a lower energy equivalent
price compared to crude oil.







Six
      Months Ended
              September
      30,2008
            
            
            2007
            
            
            %
      Change
              Increase/
              (Decrease)Lease
      operating expense
            
            $
            302,618
            
            
            $
            59,495
            
            
            
            409
            %Production
      taxes
            
            
            128,095
            
            
            
            22,928
            
            
            
            459
            %Depreciation,
      depletion and amortization
            
            
            1,356,776
            
            
            
            147,961
            
            
            
            2566
            %Ceiling
      test impairment expense
            
            
            2,587,274
            
            
            
            -
            
            
            
            -General
      and administrative costs:General
      and administrative costs
            
            
            1,409,731
            
            
            
            977,557
            
            
            
            44
            %Stock-based
      compensation
            
            
            134,354
            
            
            
            141,739
            
            
            
            (5
            %)$
      per unit:Avg.
      lease operating expense per Mcfe
            
            $
            1.76
            
            
            $
            1.70
            
            
            
            4
            %Avg.
      production taxes per Mcfe
            
            $
            0.74
            
            
            $
            0.66
            
            
            
            12
            %Avg.
      DD&A per Mcfe
            
            $
            7.87
            
            
            $
            4.23
            
            
            
            441
            %Avg.
      ceiling test impairment expense
            
            $
            15.01
            
            
            $
            -
            
            
            
            -Avg.
      G&A per McfeAvg.
      G&A per Mcfe
            
            $
            8.18
            
            
            $
            27.96
            
            
            
            (71
            %)Avg.
      Stock-based compensation per Mcfe
            
            $
            0.78
            
            
            $
            4.05
            
            
            
            (81
            %)




Lease
operating expenses increased $0.2 million for the six months ended September 30,
2008 as compared to the same period in 2007. The increase was primarily due to
new volumes from our three Cason wells, Outlar, Ducroz, Hawkins, Shadyside,
Friedrich and our Kansas wells.    On a per unit basis,
lease operating expenses increased only slightly from $1.70 per Mcfe in 2007 to
$1.76 per Mcfe in 2007, due to the increase in production volumes.





Taxes
other than income increased $0.1 million for the six months ended September 30,
2008 as compared to the same period in 2007 due to higher oil and gas revenues
and on a per unit basis increased $0.08 per Mcfe to $0.74 per Mcfe.  
Production taxes are generally assessed as a percentage of gross oil and/or
natural gas sales.





General
and administrative expense, excluding stock-based compensation, for the six
months ended September 30, 2008 increased 44% or $0.4 million to $1.4 million
compared to the same period in 2007, although on a per unit basis, decreased
$19.78 per Mcfe to $8.18 per Mcfe.  The primary reason for the
increase was legal and professional fees incurred for SEC filings and other
professional and legal consultation as the Company pursues growth
strategies.




25






Stock-based
compensation expense was relatively flat or approximately $0.1 million for the
six months ended September 30, 2008, compared to approximately $0.1 million for
stock-based compensation in the same period of 2007. This is primarily due to
the timing of vesting on larger stock-based awards granted in previous years to
officers and directors, including those at the effective date of the reverse
merger with Index Ltd., offset by a smaller awards of stock to officers and
consultants in fiscal year 2007 and 2008.  During the six months ended
September 30, 2008 and 2007, the Company did not grant any stock options or
warrants.  On a per unit basis, stock-based compensation decreased
$3.27 per Mcfe to $0.78 per Mcfe.





Depletion,
depreciation and amortization (“DD&A”) expense increased $1.2 million from
the same period in 2007 to $1.4 million for the six months ended September 30,
2008. The increase is primarily due to increased production from new wells that
came on production after the first quarter of 2007, principally the three Cason
wells, Ducroz, Shadyside, Hawkins, and Outlar 1. Depletion for oil and gas
properties is calculated using the unit of production method, which essentially
depletes the capitalized costs associated with the proved properties based on
the ratio of production volume for the current period to total remaining reserve
volume for the evaluated properties.  On a per unit basis, DD&A
expense increased from $4.23 per Mcfe to $7.87 per Mcfe.





As
discussed above, a ceiling test impairment expense was recorded in the three
months ended September 30, 2008 in the amount of $2.6 million. Quarterly,
the Company assesses the value of unamortized capitalized costs within its cost
center over the discounted present value of cash flows associated with its
reserves.  Any excess requires an immediate write-down of its capital
costs by this amount.  During the three months ended September 30,
2008, excess of unamortized capitalized costs over the related cost ceiling
limitation was $2.6 million due a decrease in estimated reserves on Shadyside
and Vieman of approximately 199.0 MMcfe. In addition, adjustments to the
projected average prices for the purposes of the ceiling test for our oil and
natural gas reserves lead to a reduction from $11.93/Mcfe at March 31, 2008 to
$9.55/Mcfe at September 30, 2008.





Interest
income and other decreased $0.1 million for the six months ended September 30,
2008 compared to the same period 2007. This decrease is due to interest income
earned on an equity fund raising in prior fiscal years.





There was
no provision for income taxes for the fiscal six months ended 2008 and 2007 due
to a 100% valuation allowance recorded for the six months ended September 30,
2008 and 2007, respectively on the total tax provision as the Company believed
that it is more likely than not that the asset will not be utilized during the
next year.





LIQUIDITY
AND CAPITAL RESOURCES





Operating
cash flow fluctuations were substantially driven by commodity prices and changes
in our production volumes. Prices for oil and natural 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. In the six months ended September 30,
2008 cash flows were generated by operating activities, inclusive of working
capital movements, but did not contribute any material funding to exploration
and development expenditures. The ceiling test limitation impairment charge is a
non-cash item and had no impact on the cash flows of the Company and did not
affect its liquidity. See below for additional discussion and analysis of cash
flow.





Six
      Months Ended September 30,2008
            
            
            2007Cash
      flows provided by operating activities
            
            $
            195,284
            
            
            $
            (920,760
            )Cash
      flows used in investing activities
            
            
            (936,875
            )
            
            
            (4,366,831
            )Cash
      flows provided by financing activities
            
            
            -
            
            
            
            9,333Effect
      of exchange rate changes
            
            
            (12,972
            )
            
            
            (6,242
            )Net
      increase (decrease) in cash and cash equivalents
            
            $
            (754,563
            )
            
            $
            (5,284,500
            )




26





Operating
Activities





Net cash
flow from operating activities during the six months ended September 30, 2008
was $0.2 million which was a positive change in use of cash of $1.1 million from
$0.9 million net cash outflow during the six months ended September 30, 2007.
The six months ended September 30, 2008 generated positive cash flow from
operating activities, offset by negative working capital movements, and netted
broadly neutral cash flow at the operating level.





Investing
Activities





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





Cash used
in investing activities during the six months ended September 30, 2008 was $0.9
million, which was a decrease of $3.4 million from $4.4 million of cash used in
investing activities during the six months ended September 30, 2007. This
decrease was primarily due to decreased exploration and development activity in
the six months ended September 30, 2008 versus September 30,
2007.  Current period capital spending was primarily on the Stewart 1
well of approximately $0.1 million and the Armour-Runnells 1 well of $0.5
million.  The activity included in prior year capital spending was
primarily for drilling operations on the Cason 1 well of $0.6 million, initial
combined expenditures on the Shadyside and Alligator Bayou prospects of $2.4
million, Outlar 1 of $0.7 million, Ducroz of $0.3 million and an aggregate of
spending on other projects and wells of $0.4 million.





Financing
Activities





There was
no cash used or provided by financing activities during the six months ended
September 30, 2008, as no proceeds were received for capital transactions and no
financing or debt transactions occurred.   During the six months
ended September 30, 2007, a director exercised a total of 66,662 warrants at a
price of $0.14 for a total of $9,333 and a total of 66,662 shares of common
stock, $0.001 par value, were issued.





Management
is of the view that the Company will find it very difficult in the current
market conditions to raise any new finance through new debt or equity offerings.
This may force us to curtail or reconsider any growth strategies in the
immediate future.




As of
September 30, 2008 and 2007, our common stock is the only class of stock
outstanding and we have no outstanding long-term debt
financing.





Based on
our current cash resources and other current assets, and forecasts, management
believes we have sufficient liquidity to fund operations for the immediate
future. We continue to seek new debt and/or equity financing sources, but
believe that these are not currently available in the current market conditions.
This situation raises doubts as to our ability to fund expenditures for
potential acquisitions and other discretionary expansions of our business. We do
not currently have any commitments for such financing and there is no assurance
that we will be successful in obtaining such funds. If we cannot obtain
additional financing, we will have to significantly curtail our acquisition
plans and possibly our operations.





Contractual
Obligations





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





Off-Balance
Sheet Arrangements




As of
September 30, 2008, we did not have any off-balance sheet
arrangements.




27




Plan
of Operation for Fiscal Year 2009





On an
annual basis, we generally expect to fund most of our capital and exploration
activities, including oil and gas property acquisitions, with cash generated
from operations and from equity financings. We have budgeted for capital
expenditures relating to continuing work programs on certain of our oil and
natural gas properties described in the Results of Operations. We are currently
limiting discretionary capital expenditures to those which we feel can be funded
out of current cash resources, and are currently reviewing our levels of general
and administrative costs.





Inflation





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




Item
3. Quantitative and Qualitative Disclosures About Market Risk.





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





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





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





·
            The
      domestic and foreign supply of oil and
gas;




·
            The
      level of consumer product demand;




·
            Weather
      conditions;




·
            Political
      conditions in oil producing regions, including the Middle
      East;




·
            The
      ability of the members of the Organization of Petroleum Exporting
      Countries to agree to and maintain oil price and production
      controls;




·
            The
      price of foreign imports;




·
            Actions
      of governmental authorities;




·
            Domestic
      and foreign governmental
regulations;




·
            The
      price, availability and acceptance of alternative fuels;
    and




·
            Overall
      economic conditions.







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





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





Fair
Market Value of Financial Instruments





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




28




Interest
Sensitivity





Since we
do not have any long-term debt subject to variable interest rates, the Company
is not exposed to interest rate sensitivity at September 30,
2008.





Item
4T. Controls and Procedures.





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 September 30, 2008 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.







PART
II


OTHER
INFORMATION





Item
1. Legal Proceedings.





From time
to time we may be a defendant or 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, Management of the Company does not believe that there are any
proceedings to which any director, officer, or affiliate of the Company, any
owner of record of the beneficially owned more than five percent of the common
stock of the Company, or any associate of any such director, officer, affiliate
of the Company, or security holder is a party adverse to the Company or has a
material interest adverse to the Company.




For the
month of June 2008 and for the first 18 days of July 2008, Eaglwing, L.P.
purchased substantially all of the crude oil production of certain properties in
Barton and Stafford Counties, Kansas, in which Index has a working
interest.   Our operator then ceased selling crude oil production
to said entity.  As publicly reported, on July 22, 2008, SemCrude, L.P.
("SemCrude") and certain of its affiliates, including Eaglwing, L.P.
("Eaglwing"), voluntarily filed for bankruptcy in the United States Bankruptcy
Court for the District of Delaware.  Index has not received payment for
such sales. Recovery on such accounts receivable will depend on, among other
things, the bankruptcy process governing SemCrude and Eaglwing.




By demand
for Reclamation of Goods dated July 25, 2008, our operator demanded the return
of all such oil received by Eaglwing for the period from June 7, 2008 through
July 21, 2008.  The demand was made by our operator for itself and as agent
for all interest owners, including Index USA, on whose behalf our operator sold
oil to Eaglwing.  Subsequently, Index executed a Letter of Authorization to
our operator to act as its agent and attorney-in-fact to take certain measures
on Index’s behalf in, and in connection with, the bankruptcy
proceedings.




29




Item
1A. Risk Factors.





There
have been no material changes in our risk factors from those disclosed in Item 1A of our Annual Report on Form 10-K for
the year ended March 31, 2008.





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





Issuance
of Unregistered Securities.





None.





Purchases
of Equity Securities by the Issuer and Affiliated Purchasers.





None.





Item
3. Defaults Upon Senior Securities.





None.





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





None.





Item 5.
Other Information.




In
connection with the Company’s preparation of the financial statements for the
quarterly period ended September 30, 2008, management determined that a
write-down of approximately $2.6 million was required under our full cost
ceiling test limitation, primarily from a reduction in estimated reserves and
estimated oil and gas prices. It is not expected that the impairment will result
in future cash expenditures. The disclosure set forth in this Item 5 is included
in this Quarterly Report on Form 10-Q in accordance with the instructions to
Item 2.06 of Form 8-K.





30


Item 6.
Exhibits.





3.1
            Restated
      Articles of Incorporation of Index Oil and Gas Inc. (Incorporated by
      reference to Exhibit 3.1 of our Current Report on Form 8-K filed on
      September 5, 2008.)3.2
            Bylaws,
      as amended October 7, 2008 (Incorporated by reference to Exhibit 3(ii) of
      our Current Report on Form 8-K filed on October 9,
  2008.)31.1
            Certification
      of Periodic Financial Reports by Lyndon West in satisfaction of Section
      302 of the Sarbanes-Oxley Act of 200231.2
            Certification
      of Periodic Financial Reports by Andrew Boetius in
      satisfaction of Section 302 of the Sarbanes-Oxley Act of
      200232.1
            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
      135032.2
            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


31







SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.






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




Date: November
      14, 2008
            By:
            /s/ Andrew
      BoetiusAndrew
      BoetiusChief
      Financial Officer







32


Exhibit
Index








Exhibit
      Number
            
            Exhibit Description3.1
            
            Restated
      Articles of Incorporation of Index Oil and Gas Inc. (Incorporated by
      reference to Exhibit 3.1 of our Current Report on Form 8-K filed on
      September 5, 2008.)3.2
            
            Bylaws,
      as amended October 7, 2008 (Incorporated by reference to Exhibit 3(ii) of
      our Current Report on Form 8-K filed on October 9,
  2008.)31.1
            
            Certification
      of Periodic Financial Reports by Lyndon West in satisfaction of Section
      302 of the Sarbanes-Oxley Act of 200231.2
            
            Certification
      of Periodic Financial Reports by Andrew Boetius in satisfaction of Section
      302 of the Sarbanes-Oxley Act of 200232.1
            
            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
      135032.2
            
            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













33