**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549







**FORM
      10-QSB**




(Mark
      one)




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




For the quarterly period ended: **September
      30, 2006**




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




For the transition period from _________ to
      ___________




Commission file number 000-51430








**INDEX
      OIL AND GAS INC.**


(Exact
      name of small business issuer as specified in its charter)







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




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





**(713)
      683-0800**


(Issuer’s
      telephone Number)







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





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




As
      of
      November 8, 2006, there were 65,509,943 outstanding shares of Common Stock.




1










**TABLE
      OF CONTENTS**







PART
                I. FINANCIAL INFORMATIONITEM 1.
            Condensed
                Consolidated financial statements (unaudited)Condensed
                Consolidated balance sheets at September 30, 2006 and March 31,
                2006
            3Condensed
                Consolidated statements of losses for the three and six months ended
                September 30, 2006 and 2005
            4Condensed
                Consolidated statement of cash flows for the six months ended September
                30, 2006 and 2005
            5Notes
                to Condensed Consolidated financial statements
            6ITEM 2
            Management’s
                Discussion and Analysis or Plan of Operation
            20ITEM 3
            Controls
                and procedures
            25PART
                II. OTHER INFORMATIONITEM 1
            Legal
                proceedings
            25ITEM 2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            25ITEM 3.
            Defaults
                Upon Senior Securities
            26ITEM 4.
            Submission
                of Matters to a Vote of Security Holders.
            26ITEM 5.
            Other
                Information
            27ITEM 6
            Exhibits
            27Signatures
            28










2




**Item
      1. Financial Statements:**





**INDEX
      OIL AND GAS, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**





**September
                30,**
              **2006**
              **(unaudited)**
            
            **March
                31,**
              **2006****ASSETS**Current
                Assets:Cash
                and cash equivalents (Note 2)
            
            $
            10,003,956
            
            $
            5,536,006Restricted
                cash (Note 2)
            
            
            3,063,950
            
            
            -Trade
                receivables, net of allowance for doubtful accounts of $0
            
            
            42,900
            
            
            12,501Prepaid
                costs and other receivables
            
            
            106,166
            
            
            6,254Other
                current assets
            
            
            3,724
            
            
            8,600Total
                Current Assets
            
            
            13,220,696
            
            
            5,563,361Oil
                & Gas Properties, full cost, net of accumulated depletion (Notes 2,
                3,
                6, 7 and 12)
            
            
            1,896,129
            
            
            951,199Property
                and Equipment, net of accumulated depreciation (Notes 2 and
                3)
            
            
            1,402
            
            
            1,727Total
                Oil & Properties and Property and Equipment
            
            
            1,897,531
            
            
            952,926Total
                Assets
            
            **$**
            **15,118,227**
            
            **$**
            **6,516,287****LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                Liabilities:Accounts
                payable and accrued expenses
            
            $
            590,761
            
            $
            555,452Bank
                loan (Notes 5 and 11)
            
            
            -
            
            
            48,569Other
                current liability (Note 11)
            
            
            -
            
            
            1,007Total
                Current Liabilities
            
            
            590,761
            
            
            605,028Long-Term
                Liabilities:Asset
                retirement obligation (Notes 3 and 6)
            
            
            27,135
            
            
            25,300Total
                Liabilities
            
            
            617,896
            
            
            630,328Commitments
                and Contingencies (Note 7)
            
            
            -
            
            
            -Stockholders
                Equity: (Notes 5, 7, 8, 9 and 12)Common
                stock, par value $0.001, 500 million shares authorized, 61,642,243
                and
                54,544,345 shares issued and outstanding atSeptember
                30, 2006 and March 31, 2006, respectively (see Notes 7 and
                8)
            
            
            61,642
            
            
            54,544Preferred
                stock, par value $0.001, 10 million shares authorized, no shares
                issued
                and outstanding atSeptember
                30, 2006 and March 31, 2006 (Notes 7 and 8)
            
            
            -
            
            
            -Additional
                paid in capital
            
            
            15,103,108
            
            
            8,387,306Subscriptions
                received, net (Notes 8, 10 and 13)
            
            
            2,747,765
            
            
            -Accumulated
                deficit
            
            
            (3,435,909
            )
            
            (2,575,581
            )Other
                comprehensive income (Notes 2 and 4)
            
            
            23,725
            
            
            19,690Total
                Stockholders' Equity
            
            
            14,500,331
            
            
            5,885,959Total
                Liabilities and Stockholders' Equity
            
            **$**
            **15,118,227**
            
            **$**
            **6,516,287**










See
      accompanying notes to unaudited condensed consolidated financial
      statements





3





**INDEX
      OIL AND GAS, INC.**


**CONDENSED
      CONSOLIDATED STATEMENT OF LOSSES**


**(unaudited)**





**For
                the Three Months Ended**
            
            **For
                the Six Months Ended****September
                30,**
            
            **September
                30,**
            
            **September
                30,**
            
            **September
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Revenue:
                (Note 12)Oil
                sales
            
            $
            103,354
            
            $
            49,454
            
            $
            173,811
            
            $
            96,851Operating
                Expenses:Operating
                costs
            
            
            23,323
            
            
            9,892
            
            
            47,239
            
            
            17,371Depreciation
                and amortization (Note 3)
            
            
            31,223
            
            
            15,972
            
            
            52,771
            
            
            39,854General
                and administrative expenses (Note 2)
            
            
            651,965
            
            
            107,101
            
            
            1,039,963
            
            
            203,670Total
                Operating Expenses
            
            
            706,511
            
            
            132,964
            
            
            1,139,973
            
            
            260,895Loss
                from Operations
            
            
            (603,157
            )
            
            (83,511
            )
            
            (966,162
            )
            
            (164,044
            )Other
                Income (Expense):Debt
                issue costs
            
            
            -
            
            
            (43,234
            )
            
            -
            
            
            (43,234
            )Interest
                income
            
            
            62,229
            
            
            2,746
            
            
            105,834
            
            
            3,003Total
                Other Income (Expense)
            
            
            62,229
            
            
            (40,488
            )
            
            105,834
            
            
            (40,231
            )Loss
                before Income Taxes
            
            
            (540,928
            )
            
            (123,999
            )
            
            (860,328
            )
            
            (204,274
            )Income
                Taxes Benefit
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                Loss
            
            $
            (540,928
            )
            $
            (123,999
            )
            $
            (860,328
            )
            $
            (204,274
            )Loss
                per share (Note 10):Basic
                and assuming dilution
            
            $
            (0.01
            )
            $
            (0.01
            )
            $
            (0.02
            )
            $
            (0.01
            )Weighted
                average shares outstanding (Note 10):Basic
                and assuming dilution
            
            
            57,013,179
            
            
            14,925,008
            
            
            57,013,179
            
            
            14,925,008








See
      accompanying notes to unaudited condensed consolidated financial
      statements





4





**INDEX
      OIL AND GAS, INC.**


**CONDENSED
      CONSOLIDATED STATEMENT OF CASH FLOWS**


**(unaudited)**








**For
                the Six Months Ended****September
                30,**
            
            
            **September
                30,****2006**
            
            
            **2005**Cash
                Flows From Operating Activities:Net
                loss
            
            $
            (860,328
            )
            $
            (204,274
            )Adjustments
                to reconcile net loss to net cash (used in) operating
                activities:Non
                cash stock based compensation cost
            
            
            355,001
            
            
            -Amortization
                of debt issue costs
            
            
            -
            
            
            43,234Depreciation
                and amortization
            
            
            52,771
            
            
            39,854(Increase)
                decrease in receivables
            
            
            (125,035
            )
            
            (4,913
            )Increase
                (decrease) in accounts payable and accrued expenses
            
            
            31,371
            
            
            90,110Net
                Cash (Used In) Operating Activities
            
            
            (546,221
            )
            
            (35,988
            )Cash
                Flows From Investing Activities:Payments
                for oil and gas properties and property and equipment
            
            
            (995,540
            )
            
            (220,434
            )Net
                Cash (Used In) Investing Activities
            
            
            (995,540
            )
            
            (220,434
            )Cash
                Flows From Financing Activities:Proceeds
                from convertible notes payable
            
            
            -
            
            
            676,664Proceeds
                from issue of common stock
            
            
            7,097,898
            
            
            -Proceeds
                from bank term debt
            
            
            -
            
            
            51,374Proceeds
                from stock subscriptions received, net of costs of
                $316,185
            
            
            2,747,765
            
            
            -Repayment
                of bank term debt
            
            
            (51,797
            )
            
            -Payment
                for debt issue costs
            
            
            -
            
            
            (43,234
            )Payment
                for share issue costs
            
            
            (730,000
            )Net
                Cash Provided by Financing Activities
            
            
            9,063,866
            
            
            684,804Effect of exchange rate
                changes on cash and cash equivalents
            
            
            9,795
            
            
            (15,251
            )Net
                Increase in Cash and Cash Equivalents
            
            
            7,531,900
            
            
            413,131Cash
                and cash equivalents at beginning of period
            
            $
            5,536,005
            
            $
            8,673Cash
                and cash equivalents at the end of period
            
            $
            13,067,906
            
            $
            421,804Supplemental
                Disclosures of Cash Flow Information:Cash
                (received) paid during the period for interest
            
            $
            (105,834
            )
            $
            (3,003
            )Cash
                paid during the period for taxes
            
            $
            -
            
            $
            -Non-cash
                Financing and Investing Transactions:Non
                cash stock based compensation cost
            
            $
            355,001
            
            $
            -Conversion
                of loan capital into share capital
            
            $
            -
            
            $
            663,872








See
      accompanying notes to unaudited condensed consolidated financial
      statements





5





**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**





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





Organization





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





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





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





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





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




Operations






The
      Company announced on August 19, 2006 that the Walker 1 well went on production.
      Initial gross production of the Walker 1 well in Louisiana, in which Index
      has a
      12.5% working interest, was approximately 200 barrels of oil produced per day.
      Associated gross gas production was approximately 0.175 million cubic feet
      per
      day. Walker 1 is the first productive well from the Company's initial Phase
      2
      "Four Well Portfolio," which now forms just part of the company's expanding
      operations going forward. Of the remaining 3 wells in this program, Vieman
      1 has
      commenced drilling operations, Taffy 1 and Taffy 2, are expected to commence
      operations in Quarter 3 2007 with, as has been previously announced on July
      18,
      2006 under a joint operating agreement with a partner, with increased working
      interests in Vieman 1 (17%) and Taffy 2 (20%). Subsequently the Company
      announced a further increase in working interest in the Vieman well to 19.5%.
      This strategy is in line with the Company's strategy to rapidly build a balanced
      portfolio of producing assets without exposing investors to single critical
      events.






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






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






The
      Barton wells formed part of a planned 8 well drilling program which includes
      4
      additional wells in the adjacent and similar Seward area already in production,
      in which Index has a 5% working interest. Drilling operations in Seward
      commenced on September 20, 2006 and 1 well was drilled at September 30, 2006
      with two wells drilled subsequent to quarter end (the 4 th being
      delayed to the next drilling program), and of these two wells, one has been
      completed as a producer and one is non-commercial.






On
      August
      29, 2006, the Company completed a private placement for 7,097,898 shares of
      $0.001 par value common stock of the Company at a price of $1.00 per share
      for
      aggregate gross proceeds of approximately $7.1 million. The
      net
      proceeds of this placement will be applied to the expansion of Company's
      operations in the U.S. as the Company hopes to enter a busy drilling period
      over
      the coming 12 months.






On
      September 19, 2006, the Company signed an agreement to participate in the New
      Taiton exploration project in South Texas. The first well, Ilse No. 1, in the
      New Taiton project will target stacked Wilcox sands, on trend with nearby gas
      fields with expected cumulative production in the 30 BCF range from the same
      reservoirs. The Company believes that the prospect is clearly identified by
      3D
      seismic data and shows strong seismic attributes corresponding with the mapped
      structural closure. If Ilse No. 1 proves successful the Company expects to
      participate in further wells to develop the potential of the New Taiton area.
      As
      such, Ilse No. 1 could, in a success case, lead to Index's participation in
      what
      will be a significant field development for the Company. It is expected that
      Ilse No. 1 will spud in the fourth calendar quarter of 2006 with a proposed
      Total Depth (TD) of around 17,000 feet. The Company has taken a 10% Working
      Interest ("WI") in the New Taiton project and a 10% WI in Ilse No. 1.


6










**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**





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





*Principles
      of Consolidation/Basis of Presentation*





The
      unaudited condensed consolidated financial statements as of September 30, 2006
      and March 31, 2006 and for the three and six months ended September 30, 2006
      and
      2005 include the accounts of the Company and its wholly owned subsidiaries,
      Index USA, Index Investments, Index Offshore, and Thai Pasta (inactive), after
      eliminating all significant intercompany accounts and transactions. Results
      of
      operations are included from the date of incorporation and to the extent of
      differences in dates of incorporation, the results of operations for the three
      months ended September 30, 2006 are not comparable with September 30, 2005.
      For
      the reverse merger between the Company and Index Ltd. at January 20, 2006 the
      stockholder’s equity section and earnings per share in the Condensed
      Consolidated financial statements at September 30 and March 31, 2006 were
      restated to reflect the exchange of shares using a conversion ratio of
      approximately 2.857 shares of the Company to 1 share of Index Ltd.





*Use
      of Estimates*





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





7










**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**





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





*Interim
      Financial Statements*





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared without audit, pursuant to the rules and regulations of the Securities
      and Exchange Commission (“SEC”). Certain information and footnote disclosures
      normally included in financial statements prepared in accordance with accounting
      principles generally accepted in the United States of America (“GAAP”) have been
      condensed or omitted, although we believe that the disclosures contained herein
      are adequate to make the information presented not misleading. In the opinion
      of
      management, all adjustments (consisting of normal recurring accruals) considered
      necessary for a fair presentation have been included. Operating results for
      interim periods are not necessarily indicative of the results that may be
      expected for the entire year. Our balance sheet at March 31, 2006 is derived
      from the March 31, 2006 audited financial statements, but does not include
      all
      disclosures required by GAAP. These unaudited condensed consolidated financial
      statements included herein should be read in conjunction with the Financial
      Statements and Notes included in the Company’s Annual Report on Form 10-K for
      the year ended March 31, 2006.





*Cash
      and Cash Equivalents, and Concentrations of Credit Risk*





Cash
      and
      cash equivalents represent cash in banks. The Company considers any highly
      liquid debt instruments purchased with a maturity date of three months or less
      to be cash equivalents. The Company’s accounts receivable are concentrated among
      entities engaged in the energy industry, within the United States. Financial
      instruments and related items, which potentially subject the Company to
      concentrations of credit risk, consist primarily of cash, cash equivalents
      and
      related party receivables. The Company places its cash and temporary cash
      investments with credit quality institutions. At times, such investments may
      be
      in excess of the FDIC insurance limit. Allowance for doubtful accounts was
      $0 at
      September 30, 2006 and March 31, 2006.





Included
      in cash and cash equivalents in all unaudited condensed consolidated financial
      statements is restricted cash of approximately $3.1 million which is held in
      escrow at September 30, 2006 until a second closing under a private placement offering was consummated. This was done on October 4, 2006 when the
      company sold an additional 693.54 units of its securities at a price of $5,000
      per unit to certain accredited investors, each unit consisting of 5000 shares
      of
      common stock of the Company for gross proceeds of approximately $3.5 million.
      Subsequently the company sold another 80 units on October 5, 2006, for an
      overall total of 3,867,700 shares of $0.001 par value common stock of the
      Company at a price of $1.00 per share for overall aggregate proceeds of
      approximately $3.9 million.





*Oil
      and Gas Properties*





The
      Company follows the full cost method of accounting for oil and gas properties.
      Accordingly, all costs associated with acquisition, exploration, and development
      of properties within a relatively large geopolitical cost center are capitalized
      when incurred and are amortized as mineral reserves in the cost center are
      produced, subject to a limitation that the capitalized costs not exceed the
      value of those reserves. In some cases, however, certain significant costs,
      such
      as those associated with offshore U.S. operations, are deferred separately
      without amortization until the specific property to which they relate is found
      to be either productive or nonproductive, at which time those deferred costs
      and
      any reserves attributable to the property are included in the computation of
      amortization in the cost center. All costs incurred in oil and gas producing
      activities are regarded as integral to the acquisition, discovery, and
      development of whatever reserves ultimately result from the efforts as a whole,
      and are thus associated with the Company’s reserves. The Company capitalizes
      internal costs directly identified with performing or managing acquisition,
      exploration and development activities. The Company has not capitalized any
      internal costs or interest at September 30, 2006 and 2005. Unevaluated costs
      are
      excluded from the full cost pool and are periodically evaluated for impairment
      rather than amortized. Upon evaluation, costs associated with productive
      properties are transferred to the full cost pool and amortized. Gains or losses
      on the sale of oil and natural gas properties are generally included in the
      full
      cost pool unless the entire pool is sold.





Capitalized
      costs and estimated future development costs are amortized on a
      unit-of-production method based on proved reserves associated with the
      applicable cost center. The Company has assessed the impairment for oil and
      natural gas properties for the full cost pool at September 30, 2006 and will
      assess quarterly thereafter using a ceiling test to determine if impairment
      is
      necessary. Specifically, the net unamortized costs for each full cost pool
      less
      related deferred income taxes should not exceed the following: (a) the present
      value, discounted at 10%, of future net cash flows from estimated production
      of
      proved oil and gas reserves plus (b) all costs being excluded from the
      amortization base plus (c) the lower of cost or estimated fair value of unproved
      properties included in the amortization base less (d) the income tax effects
      related to differences between the book and tax basis of the properties
      involved. The present value of future net revenues should be based on current
      prices, with consideration of price changes only to the extent provided by
      contractual arrangements, as of the latest balance sheet presented. The full
      cost ceiling test must take into account the prices of qualifying cash flow
      hedges in calculating the current price of the quantities of the future
      production of oil and gas reserves covered by the hedges as of the balance
      sheet
      date. In addition, the use of the hedge-adjusted price should be consistently
      applied in all reporting periods and the effects of using cash flow hedges
      in
      calculating the ceiling test, the portion of future oil and gas production
      being
      hedged, and the dollar amount that would have been charged to income had the
      effects of the cash flow hedges not been considered in calculating the ceiling
      limitation should be disclosed. Any excess is charged to expense during the
      period that the excess occurs. The Company did not have any hedging activities
      during the three months ended September 30, 2006 and 2005. Application of the
      ceiling test is required for quarterly reporting purposes, and any write-downs
      cannot be reinstated even if the cost ceiling subsequently increases by
      year-end. No ceiling test write-down was recorded for the three months ended
      September 30, 2006 and 2005. Sales of proved and unproved properties are
      accounted for as adjustments of capitalized costs with no gain or loss
      recognized, unless such adjustments would significantly alter the relationship
      between capitalized costs and proved reserves of oil and gas, in which case
      the
      gain or loss is recognized in income. **** Abandonment of properties is accounted for as adjustments of capitalized costs
      with no loss recognized.





*Other
      Property, Plant and Equipment*





Other
      property, plant and equipment primarily includes computer equipment, which
      is
      recorded at cost and depreciated on a straight-line basis over useful lives
      of
      five years. Repair and maintenance costs are charged to expense as incurred
      while acquisitions are capitalized as additions to the related assets in the
      period incurred. Gains or losses from the disposal of property,








8










**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**





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





plant
      and
      equipment are recorded in the period incurred. The net book value of the
      property, plant and equipment that is retired or sold is charged to accumulated
      depreciation and amortization, and the difference is recognized as a gain or
      loss in the results of operations in the period the retirement or sale
      transpires.





*Segment
      Information*





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





*Foreign
      Currency Translation*





The
      Company translates the foreign currency financial statements in accordance
      with
      the requirements of Statement of Financial Accounting Standards No. 52, “Foreign
      Currency Translation.” Assets and liabilities of non-U.S. subsidiaries whose
      functional currency is not the U.S. dollar are translated into U.S. dollars
      at
      fiscal period-end exchange rates. Revenue and expense items are translated
      at
      average exchange rates prevailing during the fiscal quarter. Translation
      adjustments are included in Accumulated other comprehensive loss in the equity
      section of the condensed consolidated balance sheet with the corresponding
      foreign currency transaction (losses)/gains included in - other comprehensive
      loss - foreign currency translation in the statement of operations and totaled
      $23,725 and $19,690 at September 30, 2006 and March 31, 2006,
      respectively.





*Stock
      Based Compensation*





In
      determining our accounting policies, the Company chose to apply the intrinsic
      value method pursuant to Accounting Standards Board (“APB”) APB No. 25,
“Stock Issued to Employees” (“APB No. 25”) effective February 2003. Under
      APB No. 25, no compensation is recognized when the exercise price for
      options granted equals the fair value of the Company’s common stock on the date
      of the grant. Accordingly, the provisions of SFAS No. 123, “Accounting for
      Stock-Based Compensation,” permit the continued use of the method prescribed by
      APB No. 25, but require additional disclosure, including pro forma
      calculations of net income (loss) per share as if the fair value method of
      accounting prescribed by SFAS No. 123 had been applied. Although the
      Company applied the intrinsic method in accounting for stock issued to
      employees, it does record compensation expense for the difference between the
      fair market value and the exercise price at the date of the grant using the
      Black Scholes valuation model. There was no pro forma impact for the three
      months ended September 30, 2005.





On
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004)
“Share-Based Payments” (“SFAS-123R”). This statement applies to all awards
      granted, modified, repurchased or cancelled after January 1, 2006 and to
      the unvested portion of all awards granted prior to that date. The Company
      adopted this statement using the modified version of the prospective application
      (modified prospective application). Under the modified prospective application,
      compensation cost for the portion of awards for which the employee’s requisite
      service has not been rendered that are outstanding as of January 1, 2006
      must be recognized as the requisite service is rendered on or after that date.
      The compensation cost for that portion of awards shall be based on the original
      fair market value of those awards on the date of grant as calculated for
      recognition under SFAS 123. The compensation cost for these earlier awards
      shall
      be attributed to periods beginning on or after January 1, 2006 using the
      attribution method that was used under SFAS 123. The impact of adoption of
      SFAS-123R decreased income from operations and income before income taxes and
      net income by $172,203 and $342,534 for the three and six months ended
      September 30, 2006, respectively and there was no impact on the condensed
      consolidated statement of cash flows. The effect on net loss per share for
      basic
      and diluted is $0.01. In addition, a stock award was granted to an officer
      during the three months ended September 30, 2006 and compensation expense was
      recorded in the amount of $12,467, before income taxes. See Note 10 of the
      notes
      to the condensed consolidated financial statements for additional
      disclosure.





*Accounting
      Changes and Error Corrections*





In
      May
      2005, the Financial Accounting Standards Board (FASB) issued Statement of
      Financial Accounting Standards (SFAS) No. 154, *Accounting
      Changes and Error Corrections-A replacement of APB Opinion No. 20 (APB 20)
      and FASB Statement No. 3* (SFAS
      154). In order to enhance financial reporting consistency between periods,
      SFAS
      154 modifies the requirements for the accounting and reporting of the direct
      effects of changes in accounting principles. Under APB 20, the cumulative effect
      of voluntary changes in accounting principle was recognized in net income in
      the
      period of the change. Unlike the treatment previously prescribed by APB 20,
      retrospective application is now required, unless it is not practical to
      determine the specific effects in each period or the cumulative effect. If
      the
      period specific effects cannot be determined, it is required that the new
      accounting principle must be retrospectively applied in the earliest period
      possible to the balance sheet accounts and a corresponding adjustment be made
      to
      the opening balance of retained earnings or another equity account. If the
      cumulative effect cannot be determined, it is necessary to apply the new
      accounting principles prospectively at the earliest practical date. If it is
      not
      feasible to retrospectively apply the change in principle, the reason that
      this
      is not possible and the method used to report the change is required to be
      disclosed. The statement also provides that changes in accounting for
      depreciation, depletion or amortization should be treated as changes in an
      accounting estimate inseparable from a change in accounting principle and that
      disclosure of the preferability of the change is required. SFAS 154 is effective
      for accounting changes made in fiscal years beginning after December 15,
      2005. The Company adopted this FASB on April 1, 2006. The adoption of this
      pronouncement did not materially impact the Company’s operating results,
      financial position or cash flows.


9










**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**





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





*New
      Accounting Pronouncements Not Yet Adopted*





*Certain
      Hybrid Instruments,* On
      February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain Hybrid
      Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and
      Hedging Activities,” and SFAS 140, “Accounting for Transfers and Servicing of
      Financial Assets and Extinguishments of Liabilities.” SFAS 155 allows financial
      instruments that have embedded derivatives to be accounted for as a whole
      (eliminating the need to bifurcate the derivative from its host) if the holder
      elects to account for the whole instrument on a fair value basis. SFAS 155
      also
      clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This
      statement is effective for all financial instruments acquired or issued in
      fiscal years beginning after September 15, 2006. The Company does not
      expect its adoption of this new standard to have a material impact on its
      financial position, results of operations or cash flows as it currently does
      not
      have any hybrid instruments outstanding at September 30, 2006.





*Accounting
      for Servicing of Financial Assets* ,
      In
      March 2006, the FASB issued SFAS No. 156, “Accounting *for
      Servicing of Financial Assets—an amendment of FASB Statement No. 140”
(“* SFAS
      No.
      156”), which amends FASB Statement No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities,* with
      respect to the accounting for separately recognized servicing assets and
      servicing liabilities. This Statement requires that all separately recognized
      servicing assets and servicing liabilities be initially measured at fair value,
      if practicable. The Board concluded that fair value is the most relevant
      measurement attribute for the initial recognition of all servicing assets and
      servicing liabilities, because it represents the best measure of future cash
      flows. This Statement permits, but does not require, the subsequent measurement
      of servicing assets and servicing liabilities at fair value. An entity that
      uses
      derivative instruments to mitigate the risks inherent in servicing assets and
      servicing liabilities is required to account for those derivative instruments
      at
      fair value. Under this Statement, an entity can elect subsequent fair value
      measurement of its servicing assets and servicing liabilities by class, thus
      simplifying its accounting and providing for income statement recognition of
      the
      potential offsetting changes in fair value of the servicing assets, servicing
      liabilities, and related derivative instruments. An entity that elects to
      subsequently measure servicing assets and servicing liabilities at fair value
      is
      expected to recognize declines in fair value of the servicing assets and
      servicing liabilities more consistently than by reporting other-than-temporary
      impairments. An entity should adopt this Statement as of the beginning of its
      first fiscal year that begins after September 15, 2006. Earlier adoption is
      permitted as of the beginning of an entity’s fiscal year, provided the entity
      has not yet issued financial statements, including interim financial statements,
      for any period of that fiscal year. The effective date of this Statement is
      the
      date an entity adopts the requirements of this Statement. The Company has not
      yet determined the impact the Company’s condensed consolidated financial
      position or results of operations.





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





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





10


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**





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





*Oil
      and Gas Properties*





Major
      classes of oil and gas properties under the full cost method of accounting
      at
      September 30, 2006 and March 31, 2006 consist of the following:





**September
                30, 2006**
            
            **March
                31,**
              **2006**Proved
                properties
            
            $
            1,326,345
            
            $
            722,056Unevaluated
                properties
            
            
            749,815
            
            
            356,729Gross
                oil and gas properties-onshore
            
            
            2,076,160
            
            
            1,078,785Less:
                accumulated depletion
            
            
            (180,031
            )
            
            (127,586
            )Net
                oil and gas properties-onshore
            
            $
            1,896,129
            
            $
            951,199





Included
      in the Company's oil and gas properties are asset retirement obligations of
      $27,135 and $25,300 as of September 30, 2006 and March 31, 2006,
      respectively.





Depletion
      expense was $31,060 and $15,858 or $19.29 and $19.11 per barrel of production
      for the three months ended September 30, 2006 and 2005,
      respectively.





At
      September 30, 2006 and March 31, 2006, the Company excluded the following
      capitalized costs from depletion, depreciation and amortization:




**September
                30, 2006**
            
            **March
                31,**
              **2006**Not
                subject to depletion-onshore:Exploration
                costs
            
            
            575,065
            
            
            236,806Cost
                of undeveloped acreage
            
            
            174,750
            
            
            119,923Total
                not subject to depletion
            
            
            749,815
            
            
            356,729




It
      is
      anticipated that the cost of undeveloped acreage of $174,750 and exploration
      costs of $575,065 will be included in depreciation, depletion and amortization
      when the related projects are planned and drilled.





11





**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**





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





*Acquisitions
      and Dispositions*





The
      Company paid $375,000 in July 2003 to acquire its interest in the oil and gas
      leases comprising the Kansas properties, which included rights to a number
      of
      newly drilled wells that were in the process of being brought on stream at
      that
      time. Initially $100,000 of the overall acquisition cost was allocated to proved
      property acquisition costs and $275,000 to unproved property acquisition costs.
      It is expected that at least 24 prospects will be drilled in total on these
      properties and for each well that has been drilled on the Kansas properties
      subsequent to the acquisition and through to September 30, 2006, $16,000 per
      well (being approximately 1/24 of the original acquisition cost) has been
      reclassified as proved property costs and brought into the calculation of
      amortization against estimated proven reserves. In addition an equivalent
      transfer has been made for future well locations for which proven undeveloped
      reserves have been ascribed at September 30, 2006 and 2005. Drilling and
      completion of wells on the Kansas properties generally takes no more than one
      month in total. In fiscal year 2006, the Company acquired its interest in the
      Barton County Kansas exploration project.





During
      June 2006, the Company committed to exercise of its option for Phase 2, at
      a
      cost of $142,726, including data processing charges, and its 18% participation
      in the first well with ADC in Nacogdoches County in East Texas, which is
      expected to be drilled during fiscal year ended 2007.





During,
      July 2006, the Company agreed with operator Crawford Energy to increase its
      WI
      (working interest) in wells Vieman 1 from 12.5% to 17% and Taffy 2 from 7.5%
      to
      20%. Subsequently,
      the Company announced a further increase in working interest in the Vieman
      well
      to 19.5%.




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






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






The
      Barton wells formed part of a planned 8 well drilling program which includes
      4
      additional wells in the adjacent and similar Seward area already in production,
      in which Index has a 5% working interest. Drilling operations in Seward
      commenced on September 20, 2006 and 1 well was drilled at September 30, 2006
      with two wells drilled subsequent to quarter end (the 4 th being
      delayed to the next drilling program), and of these three wells two have been
      completed as producers and one is non-commercial.






On
      September 19, 2006, the Company signed an agreement to participate in the New
      Taiton exploration project in South Texas. The first well, Ilse No. 1, in the
      New Taiton project will target stacked Wilcox sands, on trend with nearby gas
      fields with cumulative production in the 30 BCF range from the same reservoirs.
      The Company believes that the prospect is clearly identified by 3D seismic
      data
      and shows strong seismic attributes corresponding with the mapped structural
      closure. If Ilse No. 1 proves successful the Company expects to participate
      in
      further wells to develop the potential of the New Taiton area. It is expected
      that Ilse No. 1 will spud in the fourth calendar quarter of 2006 with a proposed
      Total Depth (TD) of around 17,000 feet. The Company has taken a 10% Working
      Interest ("WI") in the New Taiton project and a 10% WI in Ilse No. 1.







*Other
      Property and Equipment*





Property
      and equipment are stated at cost. When retired or otherwise disposed, the
      related carrying value and accumulated depreciation are removed from the
      respective accounts and the net difference less any amount realized from
      disposition, is reflected in earnings. For financial statement purposes,
      property and equipment are depreciated using the straight-line method over
      their
      estimated useful lives of the assets. Maintenance, repairs, and minor renewals
      are charged against earnings when incurred. Additions and major renewals are
      capitalized. Major assets at September 30, 2006 and March 31, 2006 were as
      follows:








**September
                30, 2006**
            
            **March
                31,****2006**Computer
                costs, including foreign translation adjustment
            
            $
            11,644
            
            $
            11,217Less:
                accumulated depreciation
            
            
            (10,242
            )
            
            (9,490
            )Total
                other property and equipment
            
            $
            1,402
            
            $
            1,727





Depreciation
      expenses from continuing operations amounted to $163 and $114 for the three
      months ended September 30, 2006 and 2005, respectively. There was no interest
      capitalized in property, plant and equipment at September 30, 2006 and 2005.





**NOTE
      4 - COMPREHESIVE LOSS**





For
      the
      three months ended September 30, 2006 and 2005, comprehensive loss consisted
      of
      the amounts listed below.






**For
                the Three Months Ended September
                30,****2006**
            
            
            **2005**Net
                loss
            
            $
            (540,928
            )
            $
            (123,999
            )Foreign
                currency translation
            
            
            2,159
            
            
            (4,538
            )Comprehensive
                Loss
            
            $
            (538,768
            )
            $
            (128,537
            )










12










**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**





**NOTE
      5 - NOTES PAYABLE**





Index
      Ltd
      incurred debt and raised capital through a series of rounds of fundraising
      from
      inception through September 30, 2006. All of the Index Ltd. stockholder debt
      funding was later converted to common stock at par and additional paid in
      capital. After all conversion of stock, notes payable at September 30, 2006
      and
      March 31, 2006 was $0.





There
      was
      no debt issue cost incurred during the three months ended September 30, 2006
      and
      $20,421 incurred during the three months ended September 30, 2005. There was
      no
      debt issue amortization expense in the three months ended September 30, 2006
      and
      $43,234 for the three months ended September 30, 2005 associated with the
      conversion of shareholder loans discussed above. The debt issue costs were
      capitalized and were amortized up to the point of conversion to common stock.
      There was no unamortized debt issue cost at September 30, 2006 and March 31,
      2006.





In
      addition, during the three months ended September 30, 2006 Index Ltd had a
      one-year term note for additional financing for operations. The amount borrowed
      was $51,374 (with a valuation of $48,569 at March 31, 2006) in quarter 1 of
      fiscal year 2006 at the ruling transaction rate. The term loan was financed
      at a
      rate of 2% over the bank’s prime interest rate. At expiration date in April
      2006, the bank renewed the loan for up to an additional year. The bank held
      the
      following security: Debenture including fixed equitable charge over all present
      and future freehold and leasehold property of Index Ltd; First fixed charge
      over, among other things, book and other debts, chattels, goodwill and uncalled
      capital. First floating charge over all assets and undertakings both present
      and
      future of Index Ltd.; Joint and several guarantees were given by Lyndon West
      and
      Michael Scrutton. This bank loan was repaid during the three months ended
      September 30, 2006, being $51,797 at the transaction date, and there were no
      outstanding bank loans at September 30, 2006.




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





Activity
      related to the Company’s ARO during the three months ended September 30, 2006 is
      as follows:





**For
                the Three Months Ended September 30, 2006**ARO
                as of beginning of period
            
            $
            25,300Liabilities
                incurred during period
            
            
            1,835Liabilities
                settled during period
            
            
            -Accretion
                expense
            
            
            -Balance
                of ARO as of end of period
            
            $
            27,135





Of
      the
      total ARO, $27,135 is classified as a long-term liability at September 30,
      2006.
      For each of the three months ended September 30, 2006 and 2005, the Company
      recognized no accretion expense related to its ARO, due to the assumption of
      a
      full offset of salvage values.




13







**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(Unaudited)**





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





The
      Company has no commitments to oil and gas exploration and production capital
      expenditure other than ongoing planned expenditures on the Kansas properties,
      and the commitments relating to new wells in Texas and Louisiana. In July 2006,
      the Company agreed with operator Crawford Energy to increase its WI (working
      interest) in wells Vieman 1 from 12.5% to 17% and Taffy 2 from 7.5% to 20%, subsequently
      the Company announced a further increase in working interest in the Vieman
      well
      to 19.5%.





During
      the year ended March 31, 2006, the Company entered into two agreements: (1)
      a
      Seismic Reprocessing and Exploration Agreement (“Seismic Reprocessing
      Agreement”) with Advanced Drilling Concepts (“ADC”) covering prospective areas
      in the U.S. Gulf Coast; and (2) an agreement to acquire a 5% working interest
      in
      an exploration project in Barton County, Kansas. During June 2006, the Company
      announced the exercise of its option for Phase 2, at a cost of $142,726,
      including data processing charges, and its 18% participation in the first well
      with ADC in Nacogdoches County in East Texas, which is expected to be drilled
      during fiscal year ended 2007.





I ndex
      also
      announced on August 19, 2006 that the first of 4 wells in the Barton County
      exploration project in Kansas ("Barton") is expected to start drilling by Q4
      2006, subsequently 3 wells were drilled and one delayed. These new wells are
      located on prospects interpreted from a newly acquired 17.25 square mile 3-D
      seismic survey (of which approximately 9.45 square miles cover Index leases).
      The Company believes several other leads have been identified from the Barton
      data, and that additional drilling opportunities may exist in the area.




The
      Barton wells formed part of a planned 8 well drilling program which includes
      4
      additional wells in the adjacent and similar Seward area already in production,
      in which Index has a 5% working interest. Drilling operations in Seward
      commenced on September 20, 2006 and 1 well was drilled at September 30, 2006
      with two wells drilled subsequent to quarter end (the 4 th being
      delayed to the next drilling program), and of these three wells two have been
      completed as producers and one is non-commercial.






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






The
      Barton wells formed part of a planned 8 well drilling program which includes
      4
      additional wells in the adjacent and similar Seward area already in production,
      in which Index has a 5% working interest. Drilling operations in Seward
      commenced on September 20, 2006 and 1 well was drilled in at September 30,
      2006
      with two wells drilled subsequent to quarter end (the 4 th being
      delayed to the next drilling program), and of these three wells two have been
      completed as producers and one is non-commercial.






On
      September 19, 2006, the Company signed an agreement to participate in the New
      Taiton exploration project in South Texas. The first well, Ilse No. 1, in the
      New Taiton project will target stacked Wilcox sands, on trend with nearby gas
      fields with cumulative production in the 30 BCF range from the same reservoirs.
      The prospect is clearly identified by 3D seismic data and shows strong seismic
      attributes corresponding with the mapped structural closure. If Ilse No. 1
      proves successful the Company expects to participate in further wells to develop
      the potential of the New Taiton area. It is expected that Ilse No. 1 will spud
      in the fourth calendar quarter of 2006 with a proposed Total Depth (TD) of
      around 17,000 feet. The Company has taken a 10% Working Interest ("WI") in
      the
      New Taiton project and a 10% WI in Ilse No. 1.




Lease
      Commitments





The
      Company does not have any capital lease commitments. The Company rents its
      main
      operating office in Houston on a month-to-month basis for which payments began
      in November 2005.





Consulting
      Agreements





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





Stockholder
      Matters





As
      our
      Common Stock is a security registered pursuant to Section 12 of the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”), we must solicit proxies
      or obtain consent or authorizations by or on behalf of our management from
      the
      holders of record of our common stock in accordance with the rules and
      regulations of the Exchange Act, including those prescribed in Section 14 of
      the
      Act. On November 25, 2005, prior management of the Company obtained the approval
      of the majority of its stockholders ratifying the increase of authorized common
      stock of the Company from 25,000,000 to 75,000,000 which occurred in November
      2005 pursuant to stockholder approval under Nevada Revised Statutes. On
      September 15, 2006, the stockholders of the Company holding the majority of
      issued and outstanding common stock of the Company ratified the increase in
      the
      authorized common stock of the Company from 25,000,000 shares to 75,000,000
      shares





In
      addition, on September 15, 2006, the stockholders of the Company holding the
      majority of issued and outstanding common stock of the Company approved the
      increase in authorized common stock of the Company from 75,000,000 shares to
      500,000,000 shares and approved for the Company to create 10,000,000 shares
      of
“blank check” preferred stock, $0.001 par value per share (the “Approvals”).
      Subsequently, the Company filed a Certificate of Amendment to its Articles
      of
      Incorporation, as amended, with the Secretary of State of the State of Nevada
      that was effective as of September 21, 2006. The Amendment was filed to effect
      the Approvals.




Additionally,
      on equal date, the
      stockholders of the Company holding the majority of issued and outstanding
      common stock of the Company approved
      the adoption of the 2006 Incentive Stock Option Plan and ratified the selection
      of Russell Bedford Stefanou Mirchandani LLP (“RBSM”) as the Company’s
      independent auditors for the fiscal years ending March 31, 2006 and 2007.




Registration
      Statement






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






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




14





**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**





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





Litigation





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





**NOTE
      8 - CAPITAL STOCK**





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





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





On
      August
      29, 2006, the Company completed the first closing under a private placement
      offering in which the Company sold 1419.58 units of its securities at a price
      of
      $5,000 per unit to certain accredited investors, each unit consisting of 5,000
      shares of common stock of the Company for a total of 7,097,898 shares of $0.001
      par value common stock of the Company at a price of $1.00 per share for
      aggregate gross proceeds of approximately $7.1 million. The
      net
      proceeds of this placement will be applied to the expansion of Index's
      operations in the U.S. as the Company hopes to enter a busy drilling period
      over
      the coming 12 months.  The
      proposed application of the proceeds is in line with Index's strategy to develop
      its activities to include higher upside, carefully risked opportunities
      appropriate to its financial resources and spread across a balanced and managed
      portfolio. Total fees paid on the first closing of the private placement were
      approximately $730,000.




Furthermore
      on October 4, 2006, the Company completed a second closing of the private
      placement offering in which the Company sold an additional 693.54 units of
      its
      securities at a price of $5,000 per unit to certain accredited investors, each
      unit consisting of 5000 shares of common stock of the Company for gross proceeds
      of approximately $3.5 million and it subsequently sold another 80 units on
      October 5, 2006, for a total of 3,867,700 shares of common stock of the Company
      at a price of $1.00 per share for overall aggregate proceeds of approximately
      $3.9 million. Index
      has
      entered a 12-14 well drilling program. At September 30, 2006, a total of
      approximately $3.1 million in gross proceeds were held in escrow under the
      terms
      of the private placement and have been recorded as restricted cash in current
      assets and subscriptions received, net in the equity section of the condensed
      consolidated balance sheet. Total accrued fees payable relating to the escrow
      funds were approximately $316,000.






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






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




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





The
      Board
      of Directors of the Company agreed to the adoption of the 2006 Incentive Stock
      Option Plan (the “Stock Option Plan”) and approved it on March 14, 2006
      effective as of January 20, 2006, providing for the issuance of up to 5,225,000
      shares of Common Stock of Index Inc. to officers, directors, employees and
      consultants of Index Inc. and/or its subsidiaries. The plan was ratified by
      the
      current stockholders in September 2006. Pursuant to the Stock Option Plan,
      Index
      Inc. allowed for the issuance of options to purchase 4,577,526 shares of Common
      Stock at $0.35 per share to newly appointed directors and officers of Index
      Inc.
      that had held options to purchase ordinary shares of Index Ltd. prior to the
      completion of the acquisition. Total compensation expense recorded for the
      issuance of these options in the first quarter of fiscal 2007 was
      $172,203.





The
      principal terms and conditions of the share options granted under the Stock
      Option Plan are that vesting of the options granted occurs in three stages:
      (1)
      50% on January 20, 2006; (2) 25% on January 20, 2007; and (3) 25% on January
      20,
      2008. The options granted are exercisable at $0.35 per share. Furthermore,
      the
      share options granted under the Share Option Plan are generally non-transferable
      other than to a legal or beneficial holder of the options upon the option
      holder’s death. The rights to vested but unexercised options cease to be
      effective: (1) 18 months after death of the stock options holder; (2) 6 months
      after Change of Control of Index Inc.; (3) 12 months after loss of **** office
      due to health related incapacity or redundancy; or (4) 12 months after the
      retirement of the options holder from a position with Index Inc. All options
      have a 5 year expiring term.







On
      August
      29, 2006, the Board of Directors appointed John Williams as Executive Vice
      President of Exploration and Production and a director of the Company effective
      August 1, 2006. In addition to Mr. Williams’ salary of $150,000 per year, he was
      awarded a restricted bonus stock award of 50,000 shares of the Company’s common
      stock contingent on 183 days of continuous service to the Company. Compensation
      expense of $12,467 was recorded on the award at the market price of $1.20 per
      share, the market price at the date of the grant, for the three months ended
      September 30, 2006. Upon satisfaction of the terms of the award, Mr. Williams
      will be issued 50,000 shares of restricted common stock of the
      Company.




Adoption
      of SFAS-123R





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




15





**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**








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





Effective
      January 1, 2006, the Company began accounting for stock-based compensation
      under SFAS-123R, whereby the Company records compensation expense based on
      the
      fair value of awards described below. The Company did not issue any stock
      options during the three months ended September 30, 2005 and therefore had
      no
      compensation expense.





The
      remaining compensation expense associated with total unvested awards as of
      September 30, 2006 was $435,498 and will be recognized over a remaining weighted
      average period of approximately 1 year. $172,203 was recorded as compensation
      expense for the three months ended September 30, 2006. Since there was no public
      market for the Company’s stock and operations were not comparable to a peer
      group prior to the acquisition, the stock issuance price for the private equity
      raising at the date of acquisition of $0.60 was used as the share market price
      and an exercise price of $0.35. The weighted-average fair value of options
      granted under the fair valued based method or $0.398, using the Black Scholes
      model, was determined using the following assumptions: (1) a risk free rate
      of
      4.38%; (2) a volatility rate of 100%; (3) a zero dividend rate; (4) a zero
      percent forfeiture rate; (5) the latest stock issuance price used as the share
      market price; and (6) 2 year life.


Stock
      Options





The
      following tables summarize the changes in options outstanding and exercised
      and
      the related exercise prices for the shares of the Company's common stock issued
      to certain directors and stockholders at September 30, 2006 and 2005 restated
      for the recapitalization which occurred on January 20, 2006 at an exchange
      rate
      of one Index Ltd. share or warrant for approximately 2.857 shares or warrants
      of
      the Company’s.





**Number
                of Shares**
            
            **Weighted
                Average Exercise Price Per Share**Outstanding
                at March 31, 2005
            
            
            -
            
            $
            -Granted
            
            
            4,577,526
            
            
            0.35Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                at March 31, 2006
            
            
            4,577,526
            
            $
            0.35GrantedExercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                at September 30, 2006
            
            
            4,577,526
            
            $
            0.35





The
      Company has assumed an annual forfeiture rate of 0 % for the awards granted
      in 2006 based on the Company’s history for this type of award to various
      employee groups. Compensation expense is recognized ratably over the requisite
      service period and immediately for retirement-eligible employees.





**Options
                Outstanding**
            
            **Options
                Exercisable**Exercise
                Price
            
            Number
              Outstanding
            
            Weighted
                Average Remaining Contractual Life (Years)
            
            Weighed
                Average Exercise Price
            
            Number
              Exercisable
            
            Weighted
                Average Exercise Price$
                0.35
            
            4,577,526
            
            4.31
            
            $
                0.35
            
            2,288,763
            
            $
                0.35








16







**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**





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





Aggregate
      intrinsic value of options outstanding and options exercisable at September
      30,
      2006 was $4,531,750 and $2,265,875, respectively. Aggregate intrinsic value
      represents the difference between the Company's closing stock price on the
      last
      trading day of the fiscal period, which was $1.34 as of September 30, 2006,
      and
      the exercise price multiplied by the number of options outstanding. As of
      September 30, 2006, total unrecognized stock-based compensation expense related
      to non-vested stock options was approximately $435,498, which is expected to
      be
      recognized over a weighted average period of approximately 12 months. No
      options vested during  the six-month periods ended September 30, 2006 and
      2005, respectively.








Warrants





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





**Number
                of Shares**
            
            **Weighted
                Average Exercise Price Per Share**Outstanding
                and Exercisable March 31, 2005
            
            
            138,655
            
            $
            0.07Granted
            
            
            954,021
            
            
            0.14Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                and Exercisable March 31, 2006
            
            
            1,092,676
            
            $
            0.13Granted
            
            
            -
            
            
            -Exchanged
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                and Exercisable at September 30, 2006
            
            
            1,092,676
            
            $
            0.13










**Warrants
                Outstanding**
            
            
            **Warrants
                Exercisable**Exercise
                Prices
            
            
            Number
                Outstanding
            
            
            Weighted
                Average Remaining Contractual Life (Years)
            
            
            Weighted
                Average Exercise Price
            
            
            Number
                Exercisable
            
            
            Weighted
                Average Exercise Price$0.07
            
            
            138,655
            
            
            4.00
            
            
            $0.07
            
            
            138,655
            
            
            $0.07$0.14
            
            
            143,037
            
            
            4.00
            
            
            $0.14
            
            
            143,037
            
            
            $0.14$0.14
            
            
            392,839
            
            
            4.00
            
            
            $0.14
            
            
            392,839
            
            
            $0.14$0.14
            
            
            391,410
            
            
            4.00
            
            
            $0.14
            
            
            391,410
            
            
            $0.14$0.14
            
            
            26,735
            
            
            4.00
            
            
            $0.14
            
            
            26,735
            
            
            $0.141,092,676
            
            
            4.00
            
            
            $0.13
            
            
            1,092,676
            
            
            $0.13










17










**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**





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





In
      February 2003, Index Ltd. was capitalized with 100 million shares of common
      stock authorized. On January 20, 2006, in a reverse merger between the Company
      and Index Ltd., 22,615,552 of the Company’s Common Stock were exchanged for
      7,916,232 shares of Index Ltd. and 8,533,333 shares were sold to private
      investors in connection with the Transaction. In addition, as of January 20,
      2006, the Company had 23,091,667 shares of Common Stock issued and outstanding.
      The Company also issued 303,793 shares of common stock to management as
      compensation expense, which had been reserved for issue as part of the share
      exchange transaction. 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,
      2006, shares totaling 50,000 issued to an officer were excluded from basic
      and
      diluted earnings per share as they are based on a contingency condition that
      has
      not been met. In addition, for the three months ended September 30, 2006 and
      2005, excluded from diluted earnings per share are 5,670,202 and 138,658,
      respectively of warrants, options and/or subscriptions received to acquire
      common stock.





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





**For
                the Three Months Ended**
            
            **For
                the Six Months Ended****September
                30,**
            
            **September
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Shares—basic
            
            57,013,179
            
            14,925,008
            
            57,013,179
            
            14,925,008Dilution
                effect of stock option and awards at end of period
            
            -
            
            -
            
            -
            
            -Shares—diluted
            
            57,013,179
            
            14,925,008
            
            57,013,179
            
            14,925,008Stock
                awards and shares excluded from diluted earnings per share due to
                anti-dilutive effect
            
            5,670,202
            
            138,658
            
            5,670,202
            
            138,658








**NOTE
      11 - RELATED PARTY TRANSACTIONS**





Lyndon
      West and Michael Scrutton, jointly and severally, guaranteed the bank loan.
      During the three months ended September 30, 2006, the Company repaid the bank
      loan.







On
      August
      29, 2006, the Board of Directors appointed John Williams as Executive Vice
      President of Exploration and Production and a director of the Company effective
      August 1, 2006. In addition to Mr. Williams’ salary of $150,000 per year, he was
      awarded a restricted bonus stock award of 50,000 shares of the Company’s common
      stock contingent on 183 days of continuous service to the Company. Compensation
      expense of $12,467 was recorded on the award at the market price of $1.20 per
      share, the market price at the date of the grant, for the three months ended
      September 30, 2006. Upon satisfaction of the terms of the award, Mr. Williams
      will be issued 50,000 shares of restricted common stock of the Company. In
      addition, Mr. Williams entered into a consulting agreement during the period
      of
      May-July 2006 by and between the Company at a fee of $1,000 per day for a total
      fee of $25,000 prior to acceptance of employment with the Company.







**NOTE
      12 - OPERATING SEGMENTS**





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




*Geographic
      Area Information*





During
      the three months ended September 30, 2006 and as of September 30, 2005, 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.









**September
                30, 2006****Total Oil & Gas**
              **Revenue**
            
            **Total Assets****(1)**Kansas
            
            $
            55,235
            
            $
            744,134Louisiana
            
            
            48,119
            
            
            277,767Texas-
            
            
            
            
            
            804,464Other
            
            
            -
            
            
            337,343Total
            
            $
            103,354
            
            $
            2,163,708





(1)
            Total
                assets at September 30, 2006 are reported gross. Under the full cost
                method of accounting for oil and gas properties, depreciation, depletion
                and amortization is not allocated to
                properties.







18





**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**





**NOTE
      13 - SUBSEQUENT EVENTS**





Subsequent
      to the three months ended September 30, 2006, the Company agreed with operator
      Crawford Energy to increase its working interest (“WI”) in wells Vieman 1 from
      12.5% to 17% and Taffy 2 from 7.5% to 20%. Prior to commencing operations on
      15 th October
      2006, the Company further increased its WI in the Vieman 1 well to
      19.5%.




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






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






The
      Barton wells formed part of a planned 8 well drilling program which includes
      4
      additional wells in the adjacent and similar Seward area already in production,
      in which Index has a 5% working interest. Drilling operations in Seward
      commenced on September 20, 2006 and 1 well was drilled at September 30, 2006
      with two wells drilled subsequent to quarter end (the 4 th being
      delayed to the next drilling program), and of these three wells two have been
      completed as producers and one is non-commercial.




On
      October 4, 2006, the Company completed a second closing of the private placement
      offering, which initially closed in September 2006, in which the Company sold
      an
      additional 693.54 units of its securities at a price of $5,000 per unit to
      certain accredited investors, each unit consisting of 5000 shares of common
      stock of the Company for gross proceeds of approximately $3.5 million and it
      subsequently sold another 80 units on October 5, 2006, for a total of 3,867,700
      shares of $0.001 par value common stock of the Company at a price of $1.00
      per
      share for overall aggregate proceeds of approximately $3.9 million. Index
      has entered a 12-14 well drilling program. At September 30, 2006, a total of
      approximately $3.1 million in gross proceeds were held in escrow for this
      placement and has been recorded in restricted cash in current assets and
      subscriptions received, net in the equity section of the condensed consolidated
      balance sheet. Total fees paid on the second closing transaction were
      approximately $397,000.




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






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




19





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





CAUTIONARY
      NOTE REGARDING FORWARD LOOKING STATEMENTS





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





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





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





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





20





**Overview**





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




During
      the year ended March 31, 2006, the Company entered into two agreements: 1)
      a
      Seismic Reprocessing and Exploration Agreement (“Seismic Reprocessing
      Agreement”) with Advanced Drilling Concepts (“ADC”) covering prospective areas
      in the U.S. Gulf Coast; and (2) an agreement to acquire a 5% working interest
      in
      an exploration project in Barton County, Kansas. The Seismic Reprocessing
      Agreement provides for two phases: Phase 1: participation in the reprocessing
      of
      105 square miles of existing data in conjunction with two other experienced
      industry partners already working with ADC, in addition to, the right (but
      not
      the obligation) to participate in any prospects generated from this
      reprocessing, up to an 18% working interest; and Phase 2: within 90 days of
      the
      date of the Seismic Reprocessing Agreement, the option to participate in a
      further 121 square miles of reprocessing on the same as is and to take up to
      a
      12.5% working interest in any prospects generated, again at Index's option.
      During the three months ended June 30, 2006, we committed to exercise of its
      option for Phase 2, at a cost of $142,726, including data processing charges,
      and its 18% participation in the first well with ADC in Nacogdoches County
      in
      East Texas, which is expected to be drilled during fiscal year ended
      2007.




We
      announced on August 19, 2006 that the Walker 1 well is now on production.
      Initial gross production of the Walker 1 well in Louisiana in which Index has
      a
      12.5% working interest, is around 200 barrels of oil production per day.
      Associated gross gas production is around 0.175 million cubic feet per day.
      Walker 1 is the first productive well from our initial Phase 2 "Four Well
      Portfolio," which now forms just part of our expanding operations going forward.
      The remaining 3 wells in this program, Vieman 1, Taffy 1 and Taffy 2, are being
      drilled under a joint operating agreement with a partner with increased working
      interests in Vieman 1 (17%) and Taffy 2 (20%). The commercial success of any
      of
      the remaining Phase 2 wells will also significantly add to our production and
      cash flow. This is in line with our strategy to rapidly build a balanced
      portfolio of producing assets without exposing investors to single critical
      events.






In
      the
      second quarter of our 2007 fiscal year, we began drilling the first of 4 wells
      in the Barton County exploration project in Kansas ("Barton"). Although the
      first well proved non-commercial, two other wells in the Barton project are
      in
      various stages of completion in the third quarter of 2007 and we anticipate
      that
      these wells will prove to be successful. We anticipate that the last Barton
      well
      will be drilled in fourth quarter 2007. These new wells are located on prospects
      interpreted from a newly acquired 17.25 square mile 3-D seismic survey (of
      which
      approximately 9.45 square miles cover Index leases). We believe several other
      leads have been identified from the Barton data, and that additional drilling
      opportunities may exist in the area.






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






The
      first
      4 Barton wells form part of a planned 8 well drilling program which includes
      4
      additional wells in the adjacent and similar Seward area already in production,
      in which Index has a 5% working interest. Barton and Seward are located on
      a
      geological structure known as the Central Kansas Uplift. Since the early 1900s,
      several billion barrels of oil have been produced from the Central Kansas
      Uplift, primarily from carbonate reservoirs of the Pennsylvanian, Lansing Group
      through to the Arbuckle Group of Cambro-Ordovician age. The first Seward well
      is
      in the early stages of drilling in the third quarter of our 2007 fiscal
      year.






On
      August
      29, 2006, we completed a private placement for 7,097,898 shares of common stock,
      $0.001 par value per share (the “Common Stock”) of the Company at a price of
      $1.00 per share for aggregate gross proceeds of approximately $7.1 million. The
      net
      proceeds of this placement will be applied to the expansion of Index's
      operations in the U.S. as the company enters a busy drilling period over the
      coming 12 months.  The
      proposed application of the Funds is in line with our strategy to develop its
      activities to include higher upside, carefully risked opportunities appropriate
      to its financial resources and spread across a balanced and managed portfolio.






On
      September 19, 2006, we signed an agreement to participate in the New Taiton
      exploration project in South Texas. The first well, Ilse No. 1, in the New
      Taiton project will target stacked Wilcox sands, on trend with nearby gas fields
      with cumulative production in the 30 BCF range from the same reservoirs. The
      prospect is clearly identified by 3D seismic data and shows strong seismic
      attributes corresponding with the mapped structural closure. If Ilse No. 1
      proves successful, we expect to participate in further wells to develop the
      potential of the New Taiton area. As such, Ilse No. 1 could, in a success case,
      lead to our participation in what will be a significant field development for
      us. We expect that Ilse No. 1 will spud in the fourth calendar quarter of 2006
      with a proposed Total Depth (TD) of around 17,000 feet. We have taken a 10%
      Working Interest ("WI") in the New Taiton project and a 10% WI in Ilse No.
      1.







Furthermore
      on October 4, 2006, we completed the second closing of the private placement
      for
      3,867,700 shares of Common Stock of the Company at a price of $1.00 per share
      for aggregate gross proceeds from the second closing of the private placement
      of
      approximately $3.9 million .
      We have
      entered a 12-14 well drilling program. At September 30, 2006, a total of
      approximately $3.1 million in net proceeds were held in escrow for this
      placement and have been recorded as restricted cash in current assets and
      subscriptions received, net in the equity section of the consolidated balance
      sheet.


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





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





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







21












**RESULTS
      OF OPERATIONS**





***Three
      Months Ended September 30, 2006 Compared to Three Months Ended September 30,
      2005***





We
      had a
      net loss of $540,928 for the three months ended September 30, 2006 compared
      to a
      net loss of $123,999 for the three months ended September 30, 2005, primarily
      resulting from $184,670 of stock compensation expense primarily related to
      the
      issuance of options under the Stock Option Plan at fair market value, as per
      SFAS 123-R, and an increase in other general and administrative costs for
      establishing corporate offices and costs of becoming a public company related
      to
      international and domestic travel expenses, first time director fees,
      preparation of multiple SEC filings requiring legal and professional fees,
      contract labor and other public company costs related to investor/public
      relation costs. The following table summarizes key items of comparison and
      their
      related increase (decrease) for the fiscal three months ended September 30,
      2006 and 2005.




**Three
                Months Ended September 30,**
            
            **Increase/****2006**
            
            **2005**
            
            **(Decrease)**Oil
                sales
            
            $
            100,467
            
            $
            49,454
            
            $
            51,013Gas
                sales
            
            
            2,887
            
            
            -
            
            
            2,887Total
                Revenue
            
            
            103,354
            
            
            49,454
            
            
            53,900Production
                expenses:Lease
                operating
            
            
            16,368
            
            
            7,863
            
            
            8,505Taxes
                other than income
            
            
            6,955
            
            
            2,029
            
            
            4,926General
                and administrative:General
                and administrative
            
            
            467,295
            
            
            107,101
            
            
            360,194Stock-based
                compensation
            
            
            184,670
            
            
            -
            
            
            184,670Depletion
                — Full cost
            
            
            31,060
            
            
            15,858
            
            
            15,202Depreciation
                — Other
            
            
            163
            
            
            114
            
            
            50Impairment
            
            
            -
            
            
            -
            
            
            -Interest
                expense (income) and other*(1)*
            
            
            (62,229
            )
            
            40,489
            
            
            (102,718
            )Income
                tax benefit (provision)
            
            
            -
            
            
            -
            
            
            -Net
                (loss) income
            
            $
            (540,928
            )
            $
            (123,999
            )
            $
            416,929Production:Natural
                Gas — Mcf
            
            
            594
            
            
            -
            
            
            594Crude
                Oil — Mbbl
            
            
            1.511
            
            
            .830
            
            
            .681Equivalent
                — Mboe
            
            
            1.610
            
            
            .830
            
            
            .780Average
                price per unit*(2)*:Gas
                price per Mcf
            
            $
            4.86
            
            $
            -
            
            $
            4.86Oil
                price per Bbl
            
            $
            66.49
            
            $
            59.58
            
            $
            6.91Equivalent
                per Boe
            
            $
            64.20
            
            $
            59.58
            
            $
            4.62----Average
                cost per Boe:Production
                expenses:Lease
                operating
            
            $
            10.17
            
            $
            9.47
            
            $
            0.70Taxes
                other than income
            
            $
            4.32
            
            $
            2.44
            
            $
            1.88General
                and administrative expense:General
                and administrative
            
            $
            290.25
            
            $
            129.04
            
            $
            161.21Stock-based
                compensation
            
            $
            114.70
            
            $
            -
            
            $
            114.70Depletion
                expense
            
            $
            19.29
            
            $
            19.11
            
            $
            0.18







For
      the
      three months ended September 30, 2006, oil and gas sales increased $53,900,
      from
      the same period in 2005, to $103,354. The increase for the three months ended
      September 30, 2006 was primarily due to the increase in volumes of 0.8MBbls
      from
      0.8 MBbls to 1.6 MBbls or $50,000. Additionally, revenue increased approximately
      $4,000 due to higher commodity prices as our average price per BOE increased
      $4.62, or 8.0%, in 2006 to $64.20 per BOE from $59.58 per BOE in 2005. Continued
      lower natural gas storage levels, supply uncertainty due to global events and
      a
      weaker U.S. dollar favorably impacted crude oil prices again in
      2006.





Lease
      operating expenses increased $8,505 for the three months ended September 30,
      2006 as compared to the same period in 2005. The increase was primarily due
      to
      production costs for the Walker 1 well which came on production in the current
      quarter and accounted for 52% of the production or 832 BOE. On a per unit basis,
      lease operating expenses increased 7% from $9.47 per Bbl in 2005 to $10.17
      per
      Bbl in 2006 due to an increase in production volumes, primarily from the Walker
      1 well, offset by an increase in industry-wide service costs associated with
      the
      overall increase in commodity prices.





22





Taxes
      other than income taxes increased $4, 926 for the three months ended September
      30, 2006 as compared to the same period in 2005 due to higher oil and gas
      revenues and on a per unit basis increased by $1.88 per Bbl to $4.32 per Bbl.
      Production taxes are generally assessed as a percentage of gross oil and/or
      natural gas sales. This increase is primarily due to the production attributed
      to the higher rate of taxes on the Walker 1 well in the State of Louisiana
      which
      averaged 12.6%.





General
      and administrative expense for the three months ended September 30, 2006
      increased $360,194 to $467,295 compared to the same period in 2005 primarily
      due
      to costs related to becoming a public company such as international and domestic
      travel, first time director fees, preparation of SEC filings requiring legal
      and
      professional services and contract labor of approximately $200,000. Other public
      company costs incurred related investor /public relations costs of approximately
      $100,000, as well as, increased in office costs entered into subsequent to
      September 30, 2005, in setting up corporate offices, additional accounting
      assistance and general office and supply expenses that have increased
      approximately $60,000.





Stock-based
      compensation expense was $184,670 for the three months ended September 30,
      2006,
      primarily due to for stock option grants made in the fourth fiscal quarter
      of
      2006 and being ratable expensed over the service period of approximately
      $172,000, with no stock-based compensation in 2005. The exercise price and
      the
      fair market value of the stock options granted were $0.35 and $0.60,
      respectively. All options vested 50% on the date of the grant with the remaining
      amounts to vest in 25% increments in each of the next two years. The expense
      was
      calculated based on the fair market value at the date of the grant in accordance
      with SFAS 123(R). During the three months ended September 30, 2006, we also
      granted a restricted stock award to a new officer of 50,000 shares of the
      Company’s common stock at a price of $1.20 per share and are amortizing it over
      the period of required service or 183 days. Total compensation expense for
      the
      three months ended September 30, 2006 for this award totaled approximately
      $12,000.





Depletion
      expense increased $15,202 from the same period in 2005 to $31,060 for the three
      months ended September 30, 2006. This relates to the increase in production
      of
      780 BOE over the prior year quarter. Depletion for oil and gas properties is
      calculated using the unit of production method, which essentially depletes
      the
      capital costs associated with the proven properties based on the ratio of
      production volume for the current period to total remaining reserve volume
      for
      the proven properties. On a per unit basis, depletion expense increased from
      $19.11 to $19.29 per BOE.





Interest
      income and other income increased $102,718 for the three months ended September
      30, 2006 compared to the same period 2005. This increase is due to interest
      income earned on a $5.12 million equity fund raising in the fourth quarter
      of
      fiscal 2006 and the $7.1 million private placement offering in August 2006
      generating approximately $62,000 offset by debt issue costs that were expensed
      upon conversion of stockholder loans of approximately $43,000.





There
      was
      no provision for income taxes for the fiscal three months ended 2006 and 2005
      due to a 100% valuation allowance recorded for the three months ended September
      30, 2006 and 2005, respectively on the total tax provision as we believe that
      it
      is more likely than not that the asset will not be utilized during the next
      year.





***Six
      Months Ended September 30, 2006 Compared to Six Months Ended September 30,
      2005***





We
      had a
      net loss of $860,328 for the six months ended September 30, 2006 compared to
      a
      net loss of $204,274 for the six months ended September 30, 2005, primarily
      resulting from $355,001 of compensation expense related to the issuance of
      options under the Stock Option Plan at fair market value, as per SFAS 123-R,
      and
      an increase in other general and administrative costs for establishing corporate
      offices and costs of becoming a public company related to international and
      domestic travel expenses, first time director fees, preparation of multiple
      SEC
      filings requiring legal and professional fees, contract labor and other public
      company costs related to investor/public relation costs. The following table
      summarizes key items of comparison and their related increase
      (decrease) for the fiscal six months ended September 30, 2006 and
      2005.





**Six
                Months Ended September 30,**
            
            **Increase/****2006**
            
            **2005**
            
            **(Decrease)**Oil
                sales
            
            $
            170,924
            
            $
            96,851
            
            $
            74,073Gas
                sales
            
            
            2,887
            
            
            -
            
            
            2,887Total
                Revenue
            
            
            173,811
            
            
            96,851
            
            
            76,960Production
                expenses:Lease
                operating
            
            
            37,604
            
            
            13,272
            
            
            24,332Taxes
                other than income
            
            
            9,635
            
            
            4,098
            
            
            5,537General
                and administrative:General
                and administrative
            
            
            684,962
            
            
            203,670
            
            
            481,292Stock-based
                compensation
            
            
            355,001
            
            
            -
            
            
            355,001Depletion
                — Full cost
            
            
            52,445
            
            
            34,073
            
            
            18,372Depreciation
                — Other
            
            
            326
            
            
            5,781
            
            
            (5,455
            )Impairment
            
            
            -
            
            
            -
            
            
            -Interest
                expense (income) and other*(1)*
            
            
            (105,834
            )
            
            40,231
            
            
            (146,065
            )Income
                tax benefit (provision)
            
            
            -
            
            
            -
            
            
            -Net
                (loss) income
            
            $
            (860,328
            )
            $
            (204,274
            )
            $
            656,054Production:Natural
                Gas — Mcf
            
            
            594
            
            
            -
            
            
            594Crude
                Oil — Mbbl
            
            
            2.634
            
            
            1.784
            
            
            .850Equivalent
                — Mboe
            
            
            2.733
            
            
            1.784
            
            
            .949Average
                price per unit*(2)*:Gas
                price per Mcf
            
            $
            4.86
            
            $
            -
            
            $
            4.86Oil
                price per Bbl
            
            $
            64.89
            
            $
            54.29
            
            $
            10.60Equivalent
                per Boe
            
            $
            63.60
            
            $
            54.29
            
            $
            9.31Average
                cost per Boe:Production
                expenses:Lease
                operating
            
            $
            13.76
            
            $
            7.44
            
            $
            6.32Taxes
                other than income
            
            $
            3.53
            
            $
            2.30
            
            $
            1.23General
                and administrative expense:General
                and administrative
            
            $
            250.62
            
            $
            114.16
            
            $
            136.46Stock-based
                compensation
            
            $
            129.89
            
            $
            -
            
            $
            129.89Depletion
                expense
            
            $
            19.19
            
            $
            19.10
            
            $
            0.09







For
      the
      six months ended September 30, 2006, oil and gas sales increased $76,960, from
      the same period in 2005, to $173,811. The increase for the six months ended
      September 30, 2006 was primarily due to the increase in volumes of 0.9MBbls
      from
      1.8 MBbls to 2.7 MBbls or $60,000. Additionally, revenue increased approximately
      $17,000 due to higher commodity prices as our average price per barrel increased
      $9.31, or 17.0%, in 2006 to $63.60 per BOE from $54.29 per BOE in 2005.
      Continued lower natural gas storage levels, supply uncertainty due to global
      events and a weaker U.S. dollar favorably impacted crude oil prices again in
      2006.





Lease
      operating expenses increased $24,332 for the six months ended September 30,
      2006
      as compared to the same period in 2005. The increase was primarily due to
      production costs of approximately $21,000 for the Walker 1 well which came
      on
      production in the current quarter and accounted for 30% of the production or
      832
      BOE. On a per unit basis, lease operating expenses increased 85% from $7.44
      per
      Bbl in 2006 to $13.76 per Bbl in 2005 due to an increase in production volumes,
      primarily from the Walker 1 well, offset by an increase in industry-wide service
      costs associated with the overall increase in commodity prices.








23





Taxes
      other than income taxes increased $5,537 for the six months ended September
      30,
      2006 as compared to the same period in 2005 due to higher oil and gas revenues
      and on a per unit basis increase of $1.23 per Bbl to $3.53 per Bbl. Production
      taxes are generally assessed as a percentage of gross oil and/or natural gas
      sales. Most of this increase is due to the production attributed to the higher
      rate of taxes on the Walker 1 well in the State of Louisiana which averaged
      12.6%.





General
      and administrative expense for the six months ended September 30, 2006 increased
      $481,292 to $684,962 compared to the same period in 2005 primarily due to costs
      related to the Company becoming a public company such as international and
      domestic travel, preparation of SEC filings requiring legal and professional
      services and contract labor of approximately $300,000. Other public company
      costs incurred related to investor /public relations costs of approximately
      $110,000, as well as, increased in office costs entered into subsequent to
      September 30, 2005, in setting up corporate offices, additional accounting
      assistance and general office and supply expenses that have increased
      approximately $70,000.





Stock-based
      compensation expense was $355,001 for the six months ended September 30, 2006,
      primarily for stock option grants made in the fourth fiscal quarter of 2006
      and
      being ratable expensed over the service period of approximately $343,000 with
      no
      stock-based compensation in 2005. The exercise price and this fair market value
      of the stock options granted were $0.35 and $0.60, respectively. All options
      vested 50% on the date of the grant with the remaining amounts to vest in 25%
      increments in each of the next two years. The expense was calculated based
      on
      fair market value at the date of the grant in accordance with SFAS 123(R).
      During the six months ended September 30, 2006, we also granted a restricted
      stock award to a new officer of 50,000 shares of the Company’s common stock at a
      price of $1.20 per share and are amortizing it over the period of required
      service or 183 days. Total compensation expense for the six months ended
      September 30, 2006 for this award totaled approximately $12,000.





Depletion
      expense increased $18,372 from the same period in 2005 to $52,445 for the six
      months ended September 30, 2006. This relates to the increase in production
      of
      949 BOE over the prior year quarter. Depletion for oil and gas properties is
      calculated using the unit of production method, which essentially depletes
      the
      capitalized costs associated with the proven properties based on the ratio
      of
      production volume for the current period to total remaining reserve volume
      for
      the proven properties. On a per unit basis, depletion expense increased from
      $19.10 to $19.19 per Bbl.





Interest
      income and other increased $146,065 for the six months ended September 30,
      2006
      compared to the same period 2005. This increase is due to interest income earned
      on a $5.12 million equity fund raising in the fourth quarter of fiscal 2006
      and
      the $7.1 million private placement offering in August 2006 generating
      approximately $107,000 offset by debt issue costs that were expensed upon
      conversion of stockholder loans or approximately $43,000.





There
      was
      no provision for income taxes for the fiscal six months ended 2006 and 2005
      due
      to a 100% valuation allowance recorded for the six months ended September 30,
      2006 and 2005, respectively on the total tax provision as we believe that it
      is
      more likely than not that the asset will not be utilized during the next
      year.





**LIQUIDITY
      AND CAPITAL RESOURCES**





Our
      primary sources of cash for the six months ended September 30, 2006 and 2005
      were from a $5.12 million equity fund raising in the fourth quarter of fiscal
      2006 and a $7.1 million private placement offering in September 2006, as well
      as, funds received and held in escrow as a result of the second closing of
      the
      private placement in an additional amount of approximately $3.1 million out
      of a
      total of approximately $3.9 million gross which was consummated in October
      2006.
      These financing activities were used in our business operations and to fund
      exploration and development expenditures. Operating cash flow fluctuations
      were
      substantially driven by commodity prices and changes in our production volumes.
      Prices for oil and gas have historically been subject to seasonal influences
      characterized by peak demand and higher prices in the winter heating season
      for
      natural gas and summer travel for oil; however, the impact of other risks and
      uncertainties have influenced prices throughout the recent years. Working
      capital was substantially influenced by these variables. Fluctuation in cash
      flow may result in an increase or decrease in our capital and exploration
      expenditures. See Results of Operations for a review of the impact of prices
      and
      volumes on sales. See below for additional discussion and analysis of cash
      flow.




**Six
                Months Ended September 30,****2006**
            
            
            **2005**Cash
                flows (used in) provided by operating activities
            
            $
            (546,221
            )
            $
            (35,988
            )Cash
                flows used in investing activities
            
            
            (995,540
            )
            
            (220,434
            )Cash
                flows provided by (used in) financing activities
            
            
            9,063,866
            
            
            684,804Effect
                of exchange rate changes
            
            
            9,795
            
            
            (15,251
            )Net
                increase (decrease) in cash and cash equivalents
            
            $
            7,531,900
            
            $
            413,131





**Operating
      Activities**





Net
      cash
      outflow from operating activities during the six months ended September 30,
      2006
      was $(546,221) which was an increased outflow of $(510,233) from $(35,988)
      net
      cash outflow during the six months ended September 30, 2005. This increase
      was
      primarily due to a 10% increase in operating expenses and taxes on our Kansas
      and Louisiana properties of approximately $30,000, as well as significantly
      higher general and administrative expenses of approximately $480,061 due to
      costs related to the Company becoming a public company, such as international
      and domestic travel, preparation of SEC filings requiring legal and professional
      services and contract labor of approximately $300,000. Other public company
      costs incurred related to investor /public relations costs of approximately
      $110,000, as well as an increase in office costs entered into subsequent to
      September 30, 2005, in setting up corporate offices, additional accounting
      assistance and general office and supply expenses that have increased
      approximately $70,000. These higher costs were offset by higher commodity
      prices, which increased by 17% or $9.31 per BOE, and increased sales volumes
      which also increased by 53% or .949 MBOE for a total increase in revenue of
      approximately $77,000 and an overall increase of 79% over the same period in
      2005.





24





**Investing
      Activities**





The
      primary driver of cash used in investing activities was capital spending. We
      establish the budget for these amounts based on our estimate of future commodity
      prices. Due to the volatility of commodity prices, our budget may be
      periodically adjusted during any given year. Cash used in investing activities
      during the six months ended September 30, 2006 was $995,540, which was an
      increase of $775,106 from $220,434 of cash used in investing activities during
      the six months ended September 30, 2005. The investment in wells during this
      period in 2005 related to drilling of wells in Kansas. We have continued to
      invest in this prospect with the drilling of six new wells in Kansas in the
      Seward North and Katy prospects with these wells still in various stages of
      completion. Only one well has proved to be non-commercial at September 30,
      2006.





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





During
      September 2006, we signed an agreement to participate in the New Taiton
      exploration project in South Texas. The first well, Ilse No. 1, in the New
      Taiton project will target stacked Wilcox sands, on trend with nearby gas fields
      with cumulative production in the 30 BCF range from the same reservoirs. The
      prospect is clearly identified by 3D seismic data and shows strong seismic
      attributes corresponding with the mapped structural closure. If Ilse No. 1
      proves successful, we expect to participate in further wells to develop the
      potential of the New Taiton area. As such, Ilse No. 1 could, in a success case,
      lead to Index's participation in what will be a significant field development
      us. During the three months ended September 30, 2006, we have invested
      approximately $75,000 in the project.





The
      Walker 1 well is now on production. Initial gross production of the Walker
      1
      well in Louisiana in which Index has a 12.5% working interest, is approximately
      200 barrels of oil production per day. Associated gross gas production is
      approximately 0.175 million cubic feet per day. Walker 1 is the first productive
      well from our initial Phase 2 "Four Well Portfolio," which now forms just part
      of our expanding operations going forward. The remaining 3 wells in this
      program, Vieman 1, Taffy 1 and Taffy 2, are being drilled under a joint
      operating agreement with a partner with increased working interests in Vieman
      1
      (17%) and Taffy 2 (20%). Investments
      were made during the current quarter in the drilling of these wells in Texas,
      consisting of two Taffy Prospect wells totaling approximately $134,000 and
      approximately $455,000 for the Vieman 1 well in the Manor Lake Prospect. The
      commercial success of any of the remaining Phase 2 wells will also significantly
      add to our production and cash flow. This is in line with our strategy to
      rapidly build a balanced portfolio of producing assets without exposing
      investors to single critical events.





**Financing
      Activities**





Net
      cash
      generated from financing activities increased $8,379,062 during the six months
      ended September 30, 2006 to $9,063,866 as compared to $684,804 during the six
      months ended September 30, 2005. During the six months ended September 30,
      2006,
      we repaid its bank loan and had no debt outstanding. On August 29, 2006, we
      completed a private placement offering in which we sold 1419.58 units of its
      securities at a price of $5,000 per unit to certain accredited investors, each
      unit consisting of 5,000 shares of common stock of the Company for a total
      of
      7,097,898 shares of $0.001 par value common stock of the Company at a price
      of
      $1.00 per share for aggregate gross proceeds of approximately $7.1 million,
      before fees of approximately $0.8 million. Furthermore
      on October 4, 2006, we completed a second closing of our private placement
      offering in which we sold an additional 693.54 units of its securities at a
      price of $5,000 per unit to certain accredited investors, each unit consisting
      of 5000 shares of common stock of the Company for gross proceeds of
      approximately $3.5 million and it subsequently sold another 80 units on October
      5, 2006, for a total of 3,867,700 shares of $0.001 par value common stock of
      the
      Company at a price of $1.00 per share for an overall aggregate gross proceeds
      of
      approximately $3.9 million before fees of approximately $0.4 million. Although
      the second closing was not consummated until subsequent to the end of the fiscal
      quarter ended September 30, 2006, we held approximately $3.1 in restricted
      escrow funds related to this transaction. Therefore,
      total funds received or attributable to us, before costs, at September 30,
      2006
      for these two transactions amounted to approximately $10.2 million.





Cash
      provided by financing activities in the six months ended September 30, 2005
      was
      due to proceeds from notes payable from affiliates of approximately $677,000,
      less of debt issue costs of approximately $43,000, and the bank loan of
      approximately $51,000 obtained during that period.





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





**Off-Balance
      Sheet Arrangements**




As
      of
      September 30, 2006, we did not have any off-balance sheet
      arrangements.




**Inflation**





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




**Item
      3. Controls and Procedures.**





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





In
      accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
      evaluation, under the supervision and with the participation of management,
      including our Chief Executive Officer and our Chief Financial Officer, of the
      effectiveness of our disclosure controls and procedures as of the end of the
      period covered by this report. Based on that evaluation, our Chief Executive
      Officer and Chief Financial Officer concluded that our disclosure controls
      and
      procedures were effective as of September 30, 2006 to provide reasonable
      assurance that information required to be disclosed in our reports filed or
      submitted under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in the Securities and Exchange Commission’s
      rules and forms. There was no change in our internal controls or in other
      factors that could affect these controls during our last fiscal quarter that
      has
      materially affected, or is reasonably likely to materially affect, our internal
      control over financial reporting.





*(b)
      Changes In Internal Controls.*





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**


**Item
      1. Legal Proceedings.**





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





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





*Issuance
      of Unregistered Securities*




For
      the
      details of the Company’s unregistered sales of its equity securities, see the
      Company’s Current Reports filed with the SEC on Form 8-K on September 11 and
      October 11, 2006.




*Purchases
      of Equity Securities by the Issuer and Affiliated Purchasers.*





None.


25





**Item
      3. Defaults Upon Senior Securities.**





None.





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




On
      September 15, 2006, the Company held a special shareholders meeting, for the
      Company’s shareholders of record as of August 11, 2006 (the “Record Date”), as
      was previously disclosed by the Company in its definitive Proxy Statement filed
      with the SEC on Schedule 14(a) on August 14, 2006. During the meeting, the
      affirmative vote of the Company’s shareholders holding the majority of the
      Company’s issued and outstanding shares as of the Record Date approved the
      following proposals:





1.   
      To ratify the amendment of the Company's Articles of Incorporation, as amended,
      increasing the number of authorized common stock, par value $.001 per share
      (the
“Common Stock”), of the Company from 25,000,000 to 75,000,000;





2.   
      To amend the Company's Articles of Incorporation to increase the authorized
      number of Common Stock from 75,000,000 shares to 500,000,000
      shares;





3.    
      To amend the Company's Articles of Incorporation to create a class of preferred
      stock, authorizing the issuance of 10,000,000 shares, $0.001 par value per
      share, of preferred stock;




4.   
      To adopt the 2006 Incentive Stock Option Plan; and





5.   
      To ratify the selection of Russell Bedford Stefanou Mirchandani LLP (“RBSM”) as
      our independent auditors for the fiscal years ending March 31, 2006 and
      2007.





The
      following was the number of votes cast for, against or withheld, as well as
      the
      number of abstentions and broker non-votes as to each of the proposals
      above:








Proposal
                #1
            #
                of Votes Cast:
            Proposal
                #2
            #
                of Votes Cast:For
            39,985,796
            For
            39,096,966Against
            2,000
            Against
            882,830Abstain
            0
            Abstain
            8,000Broker
                Non-Votes
            8,332,230
            Broker
                Non-Votes
            8,332,230










Proposal
                #3
            #
                of Votes Cast:
            Proposal
                #4
            #
                of Votes Cast:For
            29,831,185
            For
            39,987,796Against
            1,834,378
            Against
            0Abstain
            3
            Abstain
            0Broker
                Non-Votes
            8,332,230








Proposal
                #5
            #
                of Votes Cast:For
            31,663,266Against
            2,000Abstain
            0





The
      Company filed a Certificate of Amendment with the Secretary of State of the
      State of Nevada on September 21, 2006, effective as of equal date, to amend
      the
      Company's Articles of Incorporation per the proposals #2 and #3.








26


**Item 5.
      Other Information**





None.




**Item 6.
      Exhibits**




3(i)1
            
            Articles
                of Incorporation of Index Oil & Gas, Inc. (1)3(i)(2)
            
            Certificate
                of Amendment to the Articles of Incorporation of Index Oil and Gas
                Inc.
                (the "Company"), filed with the Secretary of the State of Nevada
                on
                November 28, 2005, changing the name of the Company from Thai One
                On Inc.
                to Index Oil & Gas, Inc., and increasing the number of authorized
                shares from 25,000,000 to 75,000,000. (2)3(i)(3)
            
            Certificate
                of Amendment to the Articles of Incorporation of Index Oil and Gas
                Inc.
                (the "Company"), filed with the Secretary of the State of Nevada
                on
                September 21, 2006, increasing the number of authorized shares from
                75,000,000 to 500,000,000, and creating a class of preferred stock,
                authorizing the issuance of 10,000,000 shares, $0.001 par value per
                share,
                of preferred stock. (3)3(ii)
            
            By-laws
                of Index Oil and Gas Inc. (4)10.1+
            
            Employment
                Agreement entered into by and between Index Oil and Gas Inc. and
                John G.
                Williams, dated August 31, 2006. (5)10.2
            
            Form
                of Subscription Agreement dated as of January 20, 2006.
                (2)10.3
            
            Form
                of Subscription Agreement dated as of August 29 and October 4, 2006.
                (6)10.4
            
            Form
                of Registration Rights Agreement dated as of August 29, 2006.
                (6)20.1
            
            Definitive
                Proxy Statement filed with the SEC on Schedule 14(a) on August 14,
                2006.
                (7)31.1
            
            Certification
                of Periodic Financial Reports by Lyndon West in satisfaction of Section
                302 of the Sarbanes-Oxley Act of 2002. *31.2
            
            Certification
                of Periodic
                Financial Reports by Andrew Boetius in satisfaction of Section 302
                of the
                Sarbanes-Oxley Act of 2002. *32.1
            
            Certification
                of Periodic Financial Reports by Lyndon West in satisfaction of Section
                906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350.
                *32.2
            
            Certification
                of Periodic Financial Reports by Andrew Boetius in satisfaction of
                Section
                906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350.
                *





*
      Filed
      Herewith


(1)
                Incorporated by reference to the Company’s Registration Statement filed on
                Form SB-2 with the SEC on May 24, 2004.(2)
                Incorporated by reference to the Company’s Amended Current Report filed on
                Form 8-K/A with the SEC on March 15, 2006.(3)
                Incorporated by reference to the Company’s Current Report filed on Form
                8-K with the SEC on September 28, 2006.(4)
                Incorporated by reference to the Company’s Registration Statement filed on
                Form SB-2 with the SEC on May 24, 2004.(5)
                Incorporated by reference to the Company’s Current Report filed on Form
                8-K with the SEC on September 8, 2006.(6)
                Incorporated by reference to the Company’s Current Report filed on Form
                8-K with the SEC on September 11, 2006.(7)
                Incorporated by reference to the Company’s definitive Proxy Statement
                filed on Schedule 14(a) with the SEC on August 14,
                2006.








27


**SIGNATURES**




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






**INDEX****O****IL
                AND GAS, INC.**Date: November
              14, 2006
            By:
            /s/ Lyndon
              WestLyndon
                WestChief
                Executive Officer




Date: November
              14, 2006
            By:
            /s/ Andrew
              BoetiusAndrew
              BoetiusChief
                Financial Officer








28