SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





(Mark
one)





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





For the
quarterly period ended: December 31, 2008





OR





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





For the
transition period from _________ to ___________





Commission
File Number: 000-51430








INDEX
OIL AND GAS INC.


(Exact
name of registrant as specified in its charter)








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





10000
Memorial Drive, Suite 440


Houston,
Texas 77024


(Address
of principal executive offices)





(713)
683-0800


(Registrant’s
Telephone number, including area code)





__________________________________


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








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





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





Large
accelerated
filer  [    ]                                                                                                Accelerated
filer  [    ]





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


(Do not
check if smaller reporting company)





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





The
number of shares of the registrant's Common Stock, $0.001 par value per share,
outstanding as of February 13, 2009 was 71,577,056.





Table
of Contents




PART
      I FINANCIAL INFORMATION
                                3Item
      1. Financial Statements.
                                3Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations.
                                18Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk.
                                26Item
      4T. Controls and Procedures.
                                27PART
      II OTHER INFORMATION
                                28Item
      1. Legal Proceedings.
                                28Item
      1A. Risk Factors.
                                28Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.
                                28Item
      3. Defaults Upon Senior Securities.
                                28Item
      4. Submission of Matters to a Vote of Security Holders.
                                28Item
      5. Other Information.
                                29Item
      6. Exhibits.
                                30SIGNATURES
                                31Exhibit
      Index
                                32Rule
      13a-14(a) Certification executed by Lyndon WestRule
      13a-14(a) Certification executed by Andrew BoetiusSection
      1350 Certification executed by Lyndon WestSection
      1350 Certification executed by Andrew Boetius
















2


PART
I


FINANCIAL
INFORMATION





Item
1. Financial Statements:








INDEX
OIL AND GAS INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS





December
      31, 2008
                                    
                                    
                                    March
      31, 2008(unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
                                    
                                    $
                                    704,906
                                    
                                    
                                    $
                                    2,537,302Accounts
      receivable, net of allowance for doubtful accounts of $49,320 and $0 at
      December 31, 2008 and March 31, 2008,
                                      respectively
      (Note 2)
                                    
                                    
                                    291,987
                                    
                                    
                                    
                                    970,794Other
      receivables (Note 2)
                                    
                                    
                                    934
                                    
                                    
                                    
                                    5,402Other
      current assets (Note 2)
                                    
                                    
                                    57,117
                                    
                                    
                                    
                                    43,460Total
      current assets
                                    
                                    
                                    1,054,944
                                    
                                    
                                    
                                    3,556,958Oil
      and natural gas properties, full cost method, net of accumulated depletion
      (Notes 2, 3 and 10)
                                    
                                    
                                    6,413,828
                                    
                                    
                                    
                                    12,595,091Property
      and equipment, net of accumulated depreciation (Note 3)
                                    
                                    
                                    23,701
                                    
                                    
                                    
                                    26,031Total
      oil and natural gas properties and property and equipment,
    net
                                    
                                    
                                    6,437,529
                                    
                                    
                                    
                                    12,621,122Total
      assets
                                    
                                    $
                                    7,492,473
                                    
                                    
                                    $
                                    16,178,080Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts
      payable
                                    
                                    $
                                    230,983
                                    
                                    
                                    $
                                    667,133Accrued
      liabilities
                                    
                                    
                                    102,251
                                    
                                    
                                    
                                    358,761Total
      current liabilities
                                    
                                    
                                    333,234
                                    
                                    
                                    
                                    1,025,894Long-term
      liabilities:Asset
      retirement obligation (Note 5)
                                    
                                    
                                    83,733
                                    
                                    
                                    
                                    88,209Total
      liabilities
                                    
                                    
                                    416,967
                                    
                                    
                                    
                                    1,114,103Commitments
      and contingencies (Note 6)
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Stockholders'
      equity: (Notes 4, 6, 7, 8 and 9)Common
      stock, $0.001 par value; authorized 500 million shares; issued 71,510,889
      shares and 71,369,880 shares at December 31, 2008 and March 31, 2008,
      respectively (Note 7)
                                    
                                    
                                    71,511
                                    
                                    
                                    
                                    71,370Additional
      paid-in capital
                                    
                                    
                                    21,900,716
                                    
                                    
                                    
                                    21,738,764Other
      comprehensive (loss) income (Notes 2 and 4)
                                    
                                    
                                    (20,010
                                    )
                                    
                                    
                                    1,510Accumulated
      deficit
                                    
                                    
                                    (14,876,711
                                    )
                                    
                                    
                                    (6,747,667
                                    )Total
      stockholders' equity
                                    
                                    
                                    7,075,506
                                    
                                    
                                    
                                    15,063,977Total
      liabilities and stockholders' equity
                                    
                                    $
                                    7,492,473
                                    
                                    
                                    $
                                    16,178,080


See
accompanying notes to unaudited condensed consolidated financial
statements


3


INDEX
OIL AND GAS INC.


CONDENSED
CONSOLIDATED STATEMENT OF LOSSES


(unaudited)





Three
      Months Ended
                                December
      31,
                              
                              
                              Nine
      Months Ended
                                December
      31,2008
                              
                              
                              2007
                              
                              
                              2008
                              
                              
                              2007Revenues:Natural
      gas sales
                              
                              $
                              341,478
                              
                              
                              $
                              134,169
                              
                              
                              $
                              1,888,060
                              
                              
                              $
                              263,334Oil
      sales
                              
                              
                              99,427
                              
                              
                              
                              51,145
                              
                              
                              
                              679,692
                              
                              
                              
                              210,929Total
      revenues (Note 10)
                              
                              
                              440,905
                              
                              
                              
                              185,314
                              
                              
                              
                              2,567,752
                              
                              
                              
                              474,263Operating
      Costs and Expenses:Lease
      operating expense
                              
                              
                              164,924
                              
                              
                              
                              46,799
                              
                              
                              
                              467,543
                              
                              
                              
                              106,293Depreciation,
      depletion, amortization and impairment (Note 3)
                              
                              
                              4,086,082
                              
                              
                              
                              108,036
                              
                              
                              
                              8,030,132
                              
                              
                              
                              255,997Production
      taxes
                              
                              
                              34,648
                              
                              
                              
                              12,575
                              
                              
                              
                              162,743
                              
                              
                              
                              35,503General
      and administrative costs
                              
                              
                              515,808
                              
                              
                              
                              581,668
                              
                              
                              
                              2,059,893
                              
                              
                              
                              1,700,965Total
      operating costs and expenses
                              
                              
                              4,801,462
                              
                              
                              
                              749,077
                              
                              
                              
                              10,720,311
                              
                              
                              
                              2,098,758Operating
      loss
                              
                              
                              (4,360,557
                              )
                              
                              
                              (563,763
                              )
                              
                              
                              (8,152,559
                              )
                              
                              
                              (1,624,495
                              )Other
      (income) :Interest
      income
                              
                              
                              (7,625
                              )
                              
                              
                              (37,503
                              )
                              
                              
                              (23,515
                              )
                              
                              
                              (186,756
                              )Total
      other expense
                              
                              
                              (7,625
                              )
                              
                              
                              (37,503
                              )
                              
                              
                              (23,515
                              )
                              
                              
                              (186,756
                              )Loss
      before income taxes
                              
                              
                              (4,352,932
                              )
                              
                              
                              (526,260
                              )
                              
                              
                              (8,129,044
                              )
                              
                              
                              (1,437,739
                              )Income
      taxes benefit
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Net
      loss
                              
                              $
                              (4,352,932
                              )
                              
                              $
                              (526,260
                              )
                              
                              $
                              (8,129,044
                              )
                              
                              $
                              (1,437,739
                              )Earnings
      per share:Basic
      and diluted
                              
                              $
                              (0.06
                              )
                              
                              $
                              (0.01
                              )
                              
                              $
                              (0.11
                              )
                              
                              $
                              (0.02
                              )Weighted
      average shares outstanding:Basic
      and diluted (Note 9)
                              
                              
                              71,510,889
                              
                              
                              
                              65,803,698
                              
                              
                              
                              71,466,590
                              
                              
                              
                              65,782,366


See
accompanying notes to unaudited condensed consolidated financial
statements






4


INDEX
OIL AND GAS INC.


CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS


(unaudited)








Nine
      Months Ended
                          December
      31,2008
                        
                        
                        2007Cash
      flows from operating activitiesNet
      loss
                        
                        $
                        (8,129,044
                        )
                        
                        $
                        (1,437,739
                        )Adjustments
      to reconcile net loss to net cash from operating
activitiesDepreciation,
      depletion, amortization and impairment
                        
                        
                        8,030,132
                        
                        
                        
                        255,997Stock
      compensation expense
                        
                        
                        162,093
                        
                        
                        
                        205,165Allowance
      for doubtful accounts
                        
                        
                        49,320
                        
                        
                        
                        -Change
      in operating assets and liabilities:Decrease
      (increase) in receivables and other current assets
                        
                        
                        619,884
                        
                        
                        
                        (56,760
                        )(Decrease)
      increase in accounts payable and accrued expenses
                        
                        
                        (686,074
                        )
                        
                        
                        115,673Net
      cash provided by (used in) operating activities
                        
                        
                        46,311
                        
                        
                        
                        (917,664
                        )Cash
      flows from investing activitiesAcquisition
      of oil and gas properties and property and equipment
                        
                        
                        (1,851,015
                        )
                        
                        
                        (6,430,344
                        )Net
      cash (used in) investing activities
                        
                        
                        (1,851,015
                        )
                        
                        
                        (6,430,344
                        )Cash
      flows from financing activitiesProceeds
      from issuances of common stock
                        
                        
                        -
                        
                        
                        
                        9,333Payment
      for share issue costs
                        
                        
                        -
                        
                        
                        
                        (15,000
                        )Net
      cash provided by (used in) financing activities
                        
                        
                        -
                        
                        
                        
                        (5,667
                        )Effect
      of exchange rate changes on cash and cash equivalents
                        
                        
                        (27,691
                        )
                        
                        
                        (14,542
                        )Net
      (decrease) in cash and cash equivalents
                        
                        
                        (1,832,395
                        )
                        
                        
                        (7,368,217
                        )Cash
      and cash equivalents, beginning of period
                        
                        
                        2,537,301
                        
                        
                        
                        10,141,125Cash
      and cash equivalents, end of period
                        
                        $
                        704,906
                        
                        
                        $
                        2,772,908Supplemental
      non-cash disclosures:Cash
      received during the period for interest
                        
                        $
                        23,515
                        
                        
                        $
                        186,756Non-cash
      financing and investing transactions:Non-cash
      stock based compensation cost
                        
                        $
                        162,093
                        
                        
                        $
                        205,165








See
accompanying notes to unaudited condensed consolidated financial
statements


5


INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


DECEMBER
31, 2008








NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY





Organization





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





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





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





These
unaudited condensed consolidated statements have been prepared assuming
that the Company will continue as a going concern. We have suffered recurring
losses from operations. The continuation of our company as a going concern is
dependent upon our company attaining and maintaining profitable operations and
raising additional capital. We are actively seeking additional funding through
various methods, but due to current market conditions funding is not readily
available. These conditions indicate the existence of a material uncertainty
which may cast significant doubt about our ability to continue as a going
concern. These financial statements do not include the adjustments that would
result if the Company was unable to continue as a going concern.





Overview





All
references to production quantities are for the Company’s net share to its
interest in properties, unless stated otherwise.





Production
rose approximately 133% from 24.0 MMcfe for the three months ended December 31,
2007 to 55.8 MMcfe for the three months ended December 31, 2008.
Correspondingly, revenues increased approximately 138% from $185,314 for the
three months ended December 31, 2007 to $440,905 for the three months ended
December 31, 2008. The average price for natural gas rose from $7.10 per Mcf to
$7.46 per Mcf or 5%. The average price for oil fell 2% from $60.67 per Bbl to
$59.57 per Bbl. Overall, the average price per Mcfe rose 2% from $7.73 per Mcfe
to $7.90 per Mcfe. In the three months and nine months to December 31, 2008, the
Company recorded a full cost ceiling test impairment write down to its oil and
gas properties of approximately $3.6 million and $6.2 million respectively, due
to a downward adjustment to oil and gas reserves and lower oil and natural gas
market prices at end of quarter periods. See Note 3.





Operations





The
Company’s initial exploration project is located in Kansas, and is a low-risk,
low-cost, low-working interest, and limited upside project and which is not
expected to be a significant contributor to future growth.  Our
working interest (“WI”) in the Kansas Area of Mutual Interest (“AMI”) wells is
either 5% for wells drilled in Stafford County or 3.25% for wells drilled in
Barton County and the net revenue interest (“NRI”) is either approximately
4.155% or 2.64%, respectively. The Company has committed to an ongoing program
of 14 wells for low-risk prospects in Stafford and Barton Counties. The program
has been partially conducted to date, with certain completion operations in
progress at December 31, 2008.


Further
activity is dependent on commodity pricing and evaluation of the program to
date.  Total net production for the three months ended December 31,
2008 for all Kansas wells was 3.1 MMcfe (thousand Mcf of natural gas
equivalent).





The
Company’s onshore drilling program in Louisiana includes its interest in the
Walker 1 discovery well (WI 12.5%, approximate NRI 9.36%). Following
recompletion attempts between March and June 2008, production from the Walker
well is expected to remain marginally economic. The Walker 1 well had net
production of 0.2 MMcfe for the three months ended December 31, 2008. In April
2007, the Company signed agreements to participate in the Shadyside prospect,
located in St. Mary Parish, Louisiana. Index had an initial 15% WI in the
prospect, reducing to 13.5% after prospect payout. The Shadyside 1 well was
drilled to a total depth of approximately 16,294 feet and due to
non-participation by the former operator, Index increased to a 30% working
interest in the well. The well has experienced production issues and had
workover operations performed which were unsuccessful in restoring production.
The Company has now fully written off its proved reserves on the well and is
awaiting a recommendation from the operator.






6




INDEX
OIL AND GAS INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
 DECEMBER
31, 2008
  NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY (continued)


The
Company’s onshore drilling program in Texas includes its interest in Vieman 1
(19.5% WI, approximate NRI 14.56%) in Brazoria County Texas which began
production in February 2007 and has been recompleted.. The well failed to
produce at economic rates and is currently shut-in awaiting operator’s
recommendations. Index has written off all its proved reserves on the well. The
Hawkins 1 well (WI 12.5%, approximate NRI 10.01%), also in Texas, in Matagorda
County, began production into the local pipeline grid in January 2008 and had
net production of 7.6 MMcfe for the three months ended December 31,
2008.  The Friedrich Gas Unit 1 (WI 37.5%, approximate NRI 28.125%),
in Victoria County, had net production of approximately 7.2 MMcfe for the three
months ended December 31, 2008, while the Schroeder Gas Unit 1 (WI 37.5%,
approximate NRI 28.125%), in Goliad County, had net production of 0.3 MMcfe
during the same period, which was lower than expected following remediation
work.





The
George Cason 1 well, the Cason 2 well and the Cason 3 well, drilled on the Fern
Lake prospect in Nacogdoches County, Texas had net production of approximately
3.8 MMcfe combined for the three months ended December 31, 2008. Index currently
has a 25.0% WI and an approximate 18.7% NRI in all three Cason wells. The
Company is currently participating, with other partners, in geological analyses
on other formations encountered in the wells.  The Cason wells are
proving to be challenging in terms of volumes and maintaining
production.





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





The
Ducroz 1 (WI 7.5%, approximate NRI 5.25%), which targets gas in stacked Miocene
objectives, had net production of 7.7 MMcfe for the three months ended December
31, 2008. Ducroz 1 is considered by the Company to be a single well
project.





The
Outlar 1 (approximate NRI 8.2% before payout, 7.0% after payout) had net
production of 24.0 MMcfe net for the three months ended December 31, 2008. The
Company views the West Wharton project as potentially significant for the
Company as it has existing leases on up to five well-defined prospects. The
second well in this prospect, Stewart 1 was spudded in May 2008 and reached
total depth at 11,922 feet in June 2008.  The targeted reservoir
section was penetrated and contained gas-bearing intervals which were deemed to
be sub-commercial. The operator has submitted a proposal to sidetrack the
Stewart 1 well, in which Index has chosen not participate following technical
review. After the drilling of the Stewart 1 sidetrack, the Company will review
the potential of the West Wharton project, on which it has existing leases on up
to five defined prospects.





In July
2007, the Company announced that it signed a Purchase and Sale Agreement to
acquire a 5.0% WI and approximate 3.5% NRI in the Alligator Bayou exploration
prospect located beneath onshore portions of Brazoria and Matagorda Counties,
Texas. The prospect covers up to several thousand acres. The first well,
Armour-Runnells 1, which targets gas in the deep, high pressure, high
temperature Wilcox formation, was spudded in April 2008 and drilled, as
Armour-Runnells #1 ST (“Armour-Runnells well”), to a total measured depth of
23,830 feet after encountering multiple zones of potential natural gas pay.
Production test operations are currently being performed. The Company
anticipates this well to have the highest potential impact and to be the highest
risk well in its portfolio.





In
December 2008 the Company announced participation in drilling the Cochran #1
exploratory well in the Garwood prospect located in Colorado County, Texas. The
well was drilled to a total measured depth of 16,870 feet after encountering
multiple zones of potential natural gas pay and commenced production late in
December 2008, at an initial daily rate of more than 6.1 million cubic feet of
gas and 100 barrels of oil plus approximately 300 barrels of water, gross. The
Company holds a five percent working interest in the well and prospect
leases.


7


INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


DECEMBER
31, 2008








NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





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





Principles
of Consolidation/Basis of Presentation





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





Fair Value Measurements. In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements”, which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”), and expands disclosures about
fair value measurements (“SFAS 157”). Prior to this SFAS 157, there were
different definitions of fair value and limited guidance for applying those
definitions in GAAP. SFAS 157 provides the definition to increase consistency
and comparability in fair value measurements and for expanded disclosures about
fair value measurements. SFAS 157 emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. SFAS 157 clarifies that market
participant assumptions include assumptions about risk, i.e. the risk inherent
in a particular valuation technique used to measure fair value and/or the risk
inherent in the inputs to the valuation technique. SFAS 157 expands disclosures
about the use of fair vale to measure assets and liabilities in interim and
annual periods subsequent to initial recognition. The disclosures focus on the
inputs used to measure fair value and for recurring fair value measurements
using significant unobservable inputs, the effect of the measurements on
earnings for the period. SFAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. Earlier application is encouraged, provided that the
reporting entity has not yet issued financial statements for that fiscal year,
including the financial statements for an interim period within that fiscal
year. In November 2007, the FASB deferred the implementation of SFAS 157 for
non-financial assets and liabilities until October 2008.  The Company
partially adopted this standard on April 1, 2008, as to financial assets and
liabilities and has chosen to defer the implementation of nonfinancial assets
and liabilities in accordance with the FASB deferral in Staff Position FAS
157-2. The adoption of this standard did not have an impact on its consolidated
financial position results of operations or cash flows as the Company has not
engaged in any financial activities to which this standard would
apply.  In October 2008, the FASB issued Staff Position FAS 157-3,
Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active, to clarify the application of FASB Statement No. 157, Fair Value
Measurements, in a market that is not active and to provide an example to
illustrate key considerations in determining the fair value of a financial asset
when the market for that financial asset is not active.  The adoption
of this standard and related staff positions do not have an impact on its
consolidated financial position results of operations or cash flows as the
Company has not engaged in any financial activities to which this standard would
apply.





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





Accounting
for Bad Debts and Allowances





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





Other Current
Assets





Other
receivables at December 31, 2008 and March 31, 2008, of $934 and $5,402,
respectively, consisting of value added tax recoverable in the United Kingdom
and an income tax receivable at December 31, 2008 by the Company. Other current
assets of $57,117 and $43,460 at December 31, 2008 and March 31, 2008,
respectively, consist of prepaid expenses.


8


INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


DECEMBER
31, 2008








NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





Foreign Currency
Translation





The
Company translates the foreign currency financial statements in accordance with
the requirements of Statement of Financial Accounting Standards No. 52, “Foreign
Currency Translation.” Assets and liabilities of non-U.S. subsidiaries whose
functional currency is not the U.S. dollar are translated into U.S. dollars at
fiscal year-end exchange rates. Revenue and expense items are translated at
average exchange rates prevailing during the fiscal year. Translation
adjustments are included in “Accumulated other comprehensive (loss)/gain” in the
equity section of the Consolidated Balance Sheet and totaled $(20,010) and $575
as of December 31, 2008 and 2007, respectively, and foreign currency transaction
(losses)/gains are included in the Consolidated Statement of
Operations.





New Accounting
Pronouncements Not Yet Adopted





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





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





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





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


9


INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


DECEMBER
31, 2008








NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





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





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





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





Oil and Gas
Properties





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





December
      31,
                      2008
                    
                    
                    March
      31,
                      2008(unaudited)Proved
      properties
                    
                    $
                    5,510,142
                    
                    
                    $
                    11,181,430Unevaluated
      and unproved properties
                    
                    
                    4,125,213
                    
                    
                    
                    2,821,271Total
      oil and natural gas properties-onshore
                    
                    
                    9,635,355
                    
                    
                    
                    14,002,701Less:
      Accumulated depletion
                    
                    
                    (3,221,527
                    )
                    
                    
                    (1,407,610
                    )Net
      oil and natural gas properties-onshore
                    
                    $
                    6,413,828
                    
                    
                    $
                    12,595,091





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





At
December 31, 2008, the excess of unamortized capitalized costs over the related
cost ceiling limitation was $3,622,541 and the Company recorded a full cost
ceiling test impairment write down of this amount to its oil and gas properties.
This impairment was due primarily to a full write-down of remaining reserves on
Shadyside of approximately 354.9 MMcfe and the effect of this write-down in the
ceiling test computation. The write-down on the Shadyside well is due to an
unsuccessful workover operation, as a result of which the well is currently
shut-in. In addition, the projected average prices per MMcfe used in the ceiling
tests for its oil and natural gas reserves was reduced from $11.93 at March 31,
2008 to $5.91 at December 31, 2008. Natural gas prices, in particular, have
reduced further subsequent to the balance sheet date, and in the lead up to the
date of filing these condensed financial statements, but this change is not
required to be and has not been used in the ceiling test calculation. Prices of
the Nymex natural gas futures contract for the prompt month were $5.62 per Mcf
on December 31, 2008 and $4.81 per Mcf on February 9, 2009.





Proved
properties are reported net of cumulative impairment charges of $6,297,363 at
December 31, 2008, inclusive of the current period impairment charge, and
$87,548 at March 31, 2008, respectively. The Consolidated Statement of Losses
for the three and nine months to December 31, 2008 are stated inclusive of
impairment expense of $3,622,541 and $6,209,815, respectively, and which are
reported within the expense category “Depreciation, depletion, amortization and
impairment”.





Included
in the Company's oil and natural gas properties are asset retirement obligations
of $83,733 and $88,209 as of December 31, 2008 and March 31, 2008,
respectively.






10




INDEX
OIL AND GAS INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
 DECEMBER
31, 2008


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




Depletion
expense was $461,337 and $106,678 or $8.27 and $4.45 per Mcfe of production for
the three mon ths ended
December 31, 2008 and 2007, respectively.





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





December
      31,
                            2008
                          
                          
                          March
      31,
                            2008Not
      subject to depletion-onshore:
                          
                          (unaudited)Exploration
      costs
                          
                          $
                          3,210,208
                          
                          
                          $
                          1,960,886Cost
      of undeveloped acreage
                          
                          
                          915,005
                          
                          
                          
                          860,386Total
      not subject to depletion
                          
                          $
                          4,125,213
                          
                          
                          $
                          2,821,272





It is
anticipated that the cost of undeveloped acreage of $1.0 million and exploration
costs of $3.2 million will be included in depreciation, depletion and
amortization when the related projects are planned and drilled and completed, as
appropriate. Included in exploration costs and undeveloped acreage are costs of
approximately $1.7 million related to exploration costs for the HNH Gas Unit 1,
approximately $0.4 million in undeveloped acreage for the Supple Jack Creek
prospect, approximately $0.1 million in undeveloped acreage for the West Wharton
prospect, exploration costs and undeveloped acreage of approximately $1.5
million and $0.1 million, respectively, for the Armour-Runnells 1 and
approximately $0.3 million in undeveloped acreage for the Alligator Bayou
prospect.





Other
Property and Equipment





Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets. Maintenance, repairs, and minor renewals
are charged against earnings when incurred. Additions and major renewals are
capitalized. Major assets at December 31, 2008 and March 31, 2008 were as
follows:





December
      31,
                          2008
                        
                        
                        March
      31,
                          2008(unaudited)Computer
      costs, including foreign translation adjustment
                        
                        $
                        43,667
                        
                        
                        $
                        42,069Less:
      accumulated depreciation
                        
                        
                        (19,967
                        )
                        
                        
                        (16,038
                        )Total
      property and equipment, net
                        
                        $
                        23,701
                        
                        
                        $
                        26,031




Depreciation
expenses from continuing operations amounted to $2,204 and $2,268 for the three
months ended December 31, 2008 and 2007, respectively. There was no interest
capitalized in property, plant and equipment at December 31, 2008 and
2007.








NOTE
4 - COMPREHESIVE LOSS





For the
three months and nine months ended December 31, 2008 and 2007, comprehensive
income consisted of the amounts listed below.


Three
      Months Ended December 31,
                            
                            
                            
                            
                            
                            Nine
      Months Ended December 31,2008
                            
                            
                            
                            
                            
                            2007
                            
                            
                            
                            
                            
                            2008
                            
                            
                            
                            
                            
                            2007(unaudited)
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (unaudited)Accumulated
      other comprehensive income
                              (loss)
      beginning of period
                            
                            
                            $
                            (9,036
                            )
                            
                            
                            
                            
                            $
                            8,791
                            
                            
                            
                            
                            
                            $
                            1,510
                            
                            
                            
                            
                            
                            $
                            15,399Net
      (loss)
                            
                            $
                            (4,352,932
                            )
                            
                            
                            
                            
                            
                            $
                            (526,260
                            )
                            
                            
                            
                            
                            
                            $
                            (8,129,044
                            )
                            
                            
                            
                            
                            
                            $
                            (1,437,739
                            )Foreign
      currency translation
                            
                            
                            (10,974
                            )
                            
                            
                            
                            
                            
                            
                            (8,216
                            )
                            
                            
                            
                            
                            
                            
                            (21,520
                            )
                            
                            
                            
                            
                            
                            
                            (14,824
                            )Total
      other comprehensive income (loss)
                            
                            
                            (10,974
                            )
                            
                            
                            (10,974
                            )
                            
                            
                            (8,216
                            )
                            
                            
                            (8,216
                            )
                            
                            
                            (21,520
                            )
                            
                            
                            (21,520
                            )
                            
                            
                            (14,824
                            )
                            
                            
                            (14,824
                            )Comprehensive
      income (loss)
                            
                            $
                            (4,363,906
                            )
                            
                            
                            
                            
                            
                            $
                            (534,476
                            )
                            
                            
                            
                            
                            
                            $
                            (8,150,564
                            )
                            
                            
                            
                            
                            
                            $
                            (1,452,563
                            )Accumulated
      other comprehensiveincome
      (loss)
                            
                            
                            $
                            (20,010
                            )
                            
                            
                            
                            
                            
                            $
                            575
                            
                            
                            
                            
                            
                            
                            $
                            (20,010
                            )
                            
                            
                            
                            
                            
                            $
                            575





Comprehensive
loss for the three and nine months to December 31, 2008 is stated inclusive of
impairment expense of $3,622,541 and $6,209,815, respectively, and which is a
component of net loss within the measure of comprehensive loss.




11




INDEX
OIL AND GAS INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
 DECEMBER
31, 2008





NOTE
5 - ASSET RETIREMENT OBLIGATION





Activity
related to the Company’s ARO during the three months ended December 31, 2008 is
as follows:





Three Months
      Ended December 31, 2008(unaudited)ARO
      as of September 30, 2008
                      
                      $
                      64,098Revision
      of previous estimates
                      
                      
                      19,635Liabilities
      incurred during period
                      
                      
                      -Accretion
      expense
                      
                      
                      -ARO
      as of December 31, 2008
                      
                      $
                      83,733





Of the
total ARO, $83,733 and $88,209 is classified as a long-term liability at
December 31, 2008 and March 31, 2008, respectively. For each of the three months
ended December 31, 2008 and 2007, the Company recognized no accretion expense
related to its ARO, due to the assumption of a full offset of salvage values to
future costs.








NOTE
6 - COMMITMENTS AND CONTINGENCIES





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





Lease
Commitments





The
Company does not have any capital lease commitments. The Company rents its main
operating office in Houston on a month-to-month basis for which payments began
in November 2005. The Company also has two leases related to corporate housing
in Houston for UK based officers while periodically working at the corporate
office, on a month-to-month basis and a remaining 7-month lease
respectively.





Consulting
Agreements





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





Stockholder
Matters





There
were no stockholder matters voted on during the quarter ended December 31,
2008.





Litigation





The
Company is subject to various legal proceedings and claims, including currently
legal proceedings relating to the Ilse 1 well, which arise in the ordinary
course of its business. Although occasional adverse decisions or settlements may
occur, the Company believes that the final disposition of this and other matters
will not have material adverse effect on its financial position, results of
operations or liquidity. Consequently, the Company has not recorded any reserve
for legal matters.


12


INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


DECEMBER
31, 2008





NOTE
7 - CAPITAL STOCK





During
the quarter ended December 31, 2008:


Three
      Months Ended December 31, 2008(unaudited)Balance
      as of September 30, 2008
                        
                        
                        71,510,889Issuance
      of common stock awards
                        
                        
                        0Balance
      as of December 31, 2008
                        
                        
                        71,510,889


In
December 2008, the Company further revised its agreement with a consulting firm,
whereby the contractor will receive certain bonuses related to services
provided, and which are to be discharged by the issuance of common stock in the
company under the agreement. The stock is awarded and issued at the point of
approval of the bonus by the Board of Directors of the Company, following the
end of a quarter and based on the closing stock price on approval date. For
services provided in the three months to December 31, 2008, the contractor was
awarded 66,167 shares of common stock, at a price of $0.15 per share, subsequent
to December 31, 2008, and to be recognized as issued stock in the quarter of
award.





NOTE
8 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION





The Board
of Directors of Index Inc. agreed to the adoption of the 2006 Incentive Stock
Option Plan (the “Stock Option Plan”) and approved it on March 14, 2006
effective as of January 20, 2006, providing for the issuance of up to 5,225,000
shares of Common Stock of Index Inc. to officers, directors, employees and
consultants of Index Inc. and/or its subsidiaries. Pursuant to the Stock Option
Plan, Index Inc. allowed for the issuance of options to purchase 4,577,526
shares of Common Stock at $0.35 per share to newly appointed directors and
officers of Index Inc. who had held options to purchase ordinary shares of Index
Ltd prior to the completion of the acquisition.  These options to
purchase shares are fully vested, and therefore, no compensation expense was
recorded for these options during the three months ended December 31,
2008.





The
principal terms and conditions of the share options granted under the Stock
Option Plan are that vesting of the options granted occurs in three stages: (1)
50% on January 20, 2006; (2) 25% on January 20, 2007; and (3) 25% on January 20,
2008. The options granted are exercisable at $0.35 per share. Furthermore, the
share options granted under the Share Option Plan are generally non-transferable
other than to a legal or beneficial holder of the options upon the option
holder’s death. The rights to vested but unexercised options cease to be
effective: (1) 18 months after death of the stock options holder; (2) 6 months
after a change of control of Index Inc.; (3) 12 months after loss 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.





The
remaining compensation expense associated with total unvested awards as of
December 31, 2008 was $13,844 and will be recognized during this fiscal year.
Total compensation expense for the three months ended December 31, 2008 and 2007
was $27,738 and $63,425, respectively.


13


INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


DECEMBER
31, 2008





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





Stock
Options





The
following tables summarize the changes in options outstanding and exercised and
the related exercise prices for the shares of the Company’s common stock issued
to certain directors, stockholders and others at December 31, 2008:





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




The
Company has assumed an annual forfeiture rate of 5 % for the awards granted in
2008 based on the Company’s history for this type of award to various employee
groups. Compensation expense is recognized ratably over the requisite service
period and immediately for retirement-eligible employees.


Options
      Outstanding
                                      
                                      
                                      Options
      ExercisableWeighted
      AverageNumber
                                      
                                      
                                      Remaining
      Contractual
                                      
                                      
                                      Weighted
      Average
                                      
                                      
                                      Number
                                      
                                      
                                      Weighted
      AverageExercise
      Price
                                      
                                      
                                      Outstanding
                                      
                                      
                                      Life
    (Years)
                                      
                                      
                                      Exercise
      Price
                                      
                                      
                                      Exercisable
                                      
                                      
                                      Exercise
      Price$
                                      0.35
                                      
                                      
                                      
                                      4,577,526
                                      
                                      
                                      
                                      2.06
                                      
                                      
                                      $
                                      0.35
                                      
                                      
                                      
                                      4,577,526
                                      
                                      
                                      $
                                      0.35$
                                      0.83
                                      
                                      
                                      
                                      125,000
                                      
                                      
                                      
                                      3.72
                                      
                                      
                                      $
                                      0.83
                                      
                                      
                                      
                                      93,750
                                      
                                      
                                      $
                                      0.83$
                                      0.60
                                      
                                      
                                      
                                      100,000
                                      
                                      
                                      
                                      4.01
                                      
                                      
                                      $
                                      0.60
                                      
                                      
                                      
                                      50,000
                                      
                                      
                                      $
                                      0.60$
                                      0.51
                                      
                                      
                                      
                                      150,000
                                      
                                      
                                      
                                      4.07
                                      
                                      
                                      $
                                      0.51
                                      
                                      
                                      
                                      75,000
                                      
                                      
                                      $
                                      0.51$
                                      0.37
                                      
                                      
                                      
                                      4,952,526
                                      
                                      
                                      
                                      2.20
                                      
                                      
                                      $
                                      0.36
                                      
                                      
                                      
                                      4,796,276
                                      
                                      
                                      $
                                      0.36




14


INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


DECEMBER
31, 2008





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





Warrants





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


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


Warrants
      Outstanding
                                                  
                                                  
                                                  Warrants
      ExercisableWeighted
      AverageNumber
                                                  
                                                  
                                                  Remaining
      Contractual
                                                  
                                                  
                                                  Exercise
      Price
                                                  
                                                  
                                                  Number
                                                  
                                                  
                                                  Weighted
      AverageExercise
      Price
                                                  
                                                  
                                                  Outstanding
                                                  
                                                  
                                                  Life (Years)
                                                  
                                                  
                                                  Weighted
      Average
                                                  
                                                  
                                                  Exercisable
                                                  
                                                  
                                                  Exercise
      Price$
                                                  0.07
                                                  
                                                  
                                                  
                                                  138,655
                                                  
                                                  
                                                  
                                                  1.75
                                                  
                                                  
                                                  $
                                                  0.07
                                                  
                                                  
                                                  
                                                  138,655
                                                  
                                                  
                                                  $
                                                  0.07$
                                                  0.14
                                                  
                                                  
                                                  
                                                  143,037
                                                  
                                                  
                                                  
                                                  1.75
                                                  
                                                  
                                                  $
                                                  0.14
                                                  
                                                  
                                                  
                                                  143,037
                                                  
                                                  
                                                  $
                                                  0.14$
                                                  0.14
                                                  
                                                  
                                                  
                                                  253,961
                                                  
                                                  
                                                  
                                                  1.75
                                                  
                                                  
                                                  $
                                                  0.14
                                                  
                                                  
                                                  
                                                  253,961
                                                  
                                                  
                                                  $
                                                  0.14$
                                                  0.14
                                                  
                                                  
                                                  
                                                  339,033
                                                  
                                                  
                                                  
                                                  1.75
                                                  
                                                  
                                                  $
                                                  0.14
                                                  
                                                  
                                                  
                                                  339,033
                                                  
                                                  
                                                  $
                                                  0.14$
                                                  0.14
                                                  
                                                  
                                                  
                                                  26,735
                                                  
                                                  
                                                  
                                                  1.75
                                                  
                                                  
                                                  $
                                                  0.14
                                                  
                                                  
                                                  
                                                  26,735
                                                  
                                                  
                                                  $
                                                  0.14$
                                                  0.13
                                                  
                                                  
                                                  
                                                  901,421
                                                  
                                                  
                                                  
                                                  1.75
                                                  
                                                  
                                                  $
                                                  0.13
                                                  
                                                  
                                                  
                                                  901,421
                                                  
                                                  
                                                  $
                                                  0.13


15


INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


DECEMBER
31, 2008





NOTE
9 - EARNINGS PER SHARE





Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
contracts to issue common stock and related stock options were exercised at the
end of the period. For the three months ended December 31, 2008 and 2007,
excluded from diluted earnings per share are 901,421 and 5,478,947, respectively
of “in-the-money” warrants and/or options to acquire common stock.  At
December 31, 2008, all options were “out-of-the-money”.





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





Three
      Months Ended
                          December
      31,
                        
                        
                        Nine
      Months Ended
                          December
      31,2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007Basic
      weighted average number of shares outstanding
                        
                        
                        71,510,889
                        
                        
                        
                        65,803,698
                        
                        
                        
                        71,466,590
                        
                        
                        
                        65,782,366Dilution
      effect of stock option and awards at the end of the period
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Diluted
      weighted average number of shares outstanding
                        
                        
                        71,510,889
                        
                        
                        
                        65,803,698
                        
                        
                        
                        71,466,590
                        
                        
                        
                        65,782,366Anti-dilutive
      stock awards and shares
                        
                        
                        901,421
                        
                        
                        
                        5,478,947
                        
                        
                        
                        901,421
                        
                        
                        
                        5,478,947




NOTE
10 - OPERATING SEGMENTS





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





Geographic
Area Information





During
the three months ended December 31, 2008 and as of December 31, 2008, the
Company owned oil and natural gas interests in three main geographic areas in
the United States. Geographic revenue and property, plant and equipment
information below is based on physical location of the assets at the end of each
period.





Three
      Months Ended and As Of December 31, 2008Total
      Oil and Gas Revenue
                            
                            
                            Total
      Oil and Gas Assets (1)Kansas
                            
                            $
                            30,475
                            
                            
                            $
                            917,500Louisiana
                            
                            
                            173,647
                            
                            
                            
                            2,943,652Texas
                            
                            
                            236,783
                            
                            
                            
                            12,071,566$
                            440,905
                            
                            
                            $
                            15,932,718Less
      : Impairment
                            
                            
                            
                            
                            
                            
                            (6,297,363
                            )Accumulated
      depletion
                            
                            
                            
                            
                            
                            
                            (3,221,527
                            )Net
      oil and natural gas properties
                            
                            
                            
                            
                            
                            $
                            6,413,828






(1)           Total
assets at December 31, 2008 are reported gross, and are not presented net of
depreciation, depletion and amortization and impairments. Under the full cost
method of accounting for oil and gas properties, depreciation, depletion and
amortization and impairments are not allocated to properties.





16


INDEX
OIL AND GAS INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


DECEMBER
31, 2008





NOTE
11 - SUBSEQUENT EVENTS





A quorum
of stockholders present in person or by proxy approved the 2008 Stock Incentive
Plan at the reconvened Annual General Meeting of Stockholders on January 27,
2009. The meeting was reconvened having not reached a quorum at the original
meeting in December 2008.





In
January 2009 the Company issued 66,167 shares of common stock under a services
agreement to a consulting firm, for services provided in the preceding quarter.
See also note 7.





17


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





CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS





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







•
              our
      ability to attract and retain management;•
              our
      growth strategies;•
              anticipated
      trends in our business;•
              our
      future results of operations;•
              our
      ability to make or integrate acquisitions;•
              our
      liquidity and ability to finance our exploration, acquisition and
      development activities;•
              our
      ability to successfully and economically explore for and develop or
      participate in the exploration and development of oil and natural 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 natural gas production;•
              the
      number of wells we anticipate drilling, or participating in the drilling
      of, 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 natural gas;•
              the
      accuracy of internally estimated proved reserves;•
              the
      presence or recoverability of estimated oil and natural gas
      reserves;•
              the
      ability to replace oil and natural gas reserves;•
              the
      availability and costs of drilling rigs and other oilfield
    services;•
              environmental
      risks;•
              exploration
      and development risks;





18








•
              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, including the possibility that the
      current economic recession in the United States will be severe and
      prolonged, which could adversely affect the demand for oil and natural gas
      and make it difficult, if not impossible, to access financial markets;
      and




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





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





Overview





Organization





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





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





Overview





All
references to production quantities are for the Company’s net share to its
interest in properties, unless stated otherwise.





Production
rose approximately 133% from 24.0 MMcfe for the three months ended December 31,
2007 to 55.8 MMcfe for the three months ended December 31, 2008.
Correspondingly, revenues increased approximately 138% from $185,314 for the
three months ended December 31, 2007 to $440,905 for the three months ended
December 31, 2008. The average price for natural gas rose from $7.10 per Mcf to
$7.46 per Mcf or 5%.  The average price for oil fell 2% from $60.67
per Bbl to $59.57 per Bbl. Overall, the average price per Mcfe rose 2% from
$7.73 per Mcfe to $7.90 per Mcfe.





In the
three months to December 31, 2008 the Company recorded a full cost ceiling test
impairment write down to its oil and gas properties of approximately $3.6
million, due to a downward adjustment to oil and gas reserves and lower oil and
gas market prices at the end of the period.  The impact of this
impairment charge is that our net loss for the three months to December 31, 2008
is substantially higher than any prior equivalent period, including the
immediately preceding quarter where a $2.6 million ceiling test impairment
charge was taken. In addition the carrying amounts in our balance sheet at
December 31, 2008 of oil and natural gas properties, total assets and total
stockholders equity are all significantly reduced as a result of this $3.6
million charge.





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





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


19


RESULTS
OF OPERATIONS








Three
Months Ended December 31, 2008 Compared to Three Months Ended December 31,
2007





We had a
net loss of $4.4 million for the three months ended December 31, 2008 compared
to a net loss of $0.5 million for the three months ended December 31, 2007. The
increase in the net loss was primarily due to our ceiling test limitation
write-down of approximately $3.6 million, due to the reduction in estimated
reserves and oil and natural gas prices, discussed further below. Revenue
increased by $0.3 million, but was offset by general and administrative costs of
$0.5 million, increased depletion of $0.4 million to $0.5 million, and lower
interest income on capital previously raised and used in our operations. The
following table summarizes key items of revenue and their related increase
(decrease) for the fiscal three months ended December 31, 2008 and
2007.




Three
      Months Ended
                                                                  December
      31,2008
                                                                
                                                                
                                                                
                                                                2007
                                                                
                                                                
                                                                
                                                                %
      Change
                                                                  Increase/
                                                                  (Decrease)Total
      revenues
                                                                
                                                                $
                                                                440,905
                                                                
                                                                
                                                                $
                                                                185,314
                                                                
                                                                
                                                                
                                                                138
                                                                %Production:Gas
      (MMcf)
                                                                
                                                                
                                                                45.774
                                                                
                                                                
                                                                
                                                                18.907
                                                                
                                                                
                                                                
                                                                142
                                                                %Oil
      (MBbls)
                                                                
                                                                
                                                                1.669
                                                                
                                                                
                                                                
                                                                0.843
                                                                
                                                                
                                                                
                                                                98
                                                                %Total
      Equivalents (MBoe)
                                                                
                                                                
                                                                9.298
                                                                
                                                                
                                                                
                                                                3.994
                                                                
                                                                
                                                                
                                                                133
                                                                %Total
      Equivalents (MMcfe)
                                                                
                                                                
                                                                55.788
                                                                
                                                                
                                                                
                                                                23.965
                                                                
                                                                
                                                                
                                                                133
                                                                %$
      per unit:Avg.
      Gas Price per Mcf
                                                                
                                                                $
                                                                7.46
                                                                
                                                                
                                                                $
                                                                7.10
                                                                
                                                                
                                                                
                                                                5
                                                                %Avg.
      Oil Price per Bbl
                                                                
                                                                $
                                                                59.57
                                                                
                                                                
                                                                $
                                                                60.67
                                                                
                                                                
                                                                
                                                                (2
                                                                %)Avg.
      Price per Boe
                                                                
                                                                $
                                                                47.42
                                                                
                                                                
                                                                $
                                                                46.40
                                                                
                                                                
                                                                
                                                                2
                                                                %Avg.
      Price per Mcfe
                                                                
                                                                $
                                                                7.90
                                                                
                                                                
                                                                $
                                                                7.73
                                                                
                                                                
                                                                
                                                                2
                                                                %













For the
three months ended December 31, 2008, oil and natural gas sales increased $0.3
million, from the same period in 2007, to $0.4 million. The increase for the
quarter was primarily due to the increase in production volumes of 31.8 MMcfe
from 24.0 MMcfe to 55.8 MMcfe or approximately $0.3 million of the $0.3 million
increase. The increase in volumes of 31.8 MMcfe was primarily due to new volumes
from Outlar of 18.3 MMcfe, Ducroz of 7.7 MMcfe, Hawkins of 7.6 MMcfe, the three
Cason wells of 2.8 MMcfe and Cochran of 1.7 MMcfe.  This increased
production was offset by decreases in production from Schroeder of 4.8 MMcfe,
Kansas wells of 0.1 MMcfe, Vieman of 0.1 MMcfe, Friedrich of 0.7 MMcfe and
Shadyside of 4.8 MMcfe. Total oil production was 1.7 MBbls and total natural gas
production was 45.8 MMcf.





Additionally,
our revenues increased due to year on year price changes, with our average price
per Mcfe increasing by $0.17, or 2%, to $7.90 per Mcfe in fiscal 2008 from $7.73
per Mcfe in fiscal 2007. Our revenues also reflected an increased proportion of
natural gas volumes, which had a lower energy equivalent value. Weighted average
gas volumes increased in price by $0.36 per Mcf and weighted average oil volumes
decreased in price per barrel by $1.10. We benefited from increased product
prices in the quarter ended December 31, 2008, both for oil and natural
gas.  However, our production and sales mix has switched to become
predominantly natural gas comprised and the year on year price increase on a Boe
basis is less significant than the absolute price changes for each product, due
to natural gas realizing a lower energy equivalent price compared to crude
oil.








20







Three
      Months Ended
                    December
      31,2008
                  
                  
                  2007
                  
                  
                  %
      Change
                    Increase/
                    (Decrease)Lease
      operating expense
                  
                  $
                  164,924
                  
                  
                  $
                  46,799
                  
                  
                  
                  252
                  %Production
      taxes
                  
                  
                  34,648
                  
                  
                  
                  12,575
                  
                  
                  
                  176
                  %Depreciation,
      depletion and amortization
                  
                  
                  463,541
                  
                  
                  
                  108,036
                  
                  
                  
                  329
                  %Ceiling
      test impairment expense
                  
                  
                  3,622,541
                  
                  
                  
                  -
                  
                  
                  
                  -General
      and administrative costs:General
      and administrative costs
                  
                  
                  488,070
                  
                  
                  
                  518,243
                  
                  
                  
                  (6
                  %)Stock-based
      compensation
                  
                  
                  27,738
                  
                  
                  
                  63,425
                  
                  
                  
                  (56
                  %)$
      per unit:Avg.
      lease operating expense per Mcfe
                  
                  $
                  2.96
                  
                  
                  $
                  1.95
                  
                  
                  
                  51
                  %Avg.
      production taxes per Mcfe
                  
                  $
                  0.62
                  
                  
                  $
                  0.52
                  
                  
                  
                  18
                  %Avg.
      DD&A per Mcfe
                  
                  $
                  8.31
                  
                  
                  $
                  4.51
                  
                  
                  
                  84
                  %Avg.
      ceiling test impairment expense
                  
                  $
                  64.93
                  
                  
                  $
                  -
                  
                  
                  
                  -Avg.
      G&A per Mcfe:Avg.
      G&A per Mcfe
                  
                  $
                  8.75
                  
                  
                  $
                  21.62
                  
                  
                  
                  (60
                  %)Avg.
      Stock-based compensation per Mcfe
                  
                  $
                  0.50
                  
                  
                  $
                  2.65
                  
                  
                  
                  (81
                  %)


Lease
operating expenses increased $0.1 million for the three months ended December
31, 2008 as compared to the same period in 2007. The increase was primarily due
to production from new wells that came on production after the first quarter of
2007, principally the three Cason wells, Ducroz, Shadyside, Hawkins, and Outlar
1.  On a per unit basis, lease operating expenses increased 51% from
$1.95 per Mcfe in 2007 to $2.96 per Mcfe in 2007 due to an increase in
production volumes.





Taxes
other than income increased $22,000 for the three months ended December 31, 2008
as compared to the same period in 2007 due to higher oil and gas revenues, on a
per unit basis increased $0.10 per Mcfe to $0.62 per Mcfe.  Production
taxes are generally assessed as a percentage of gross oil and/or natural gas
sales.





General
and administrative expense, excluding stock-based compensation, for the three
months ended December 31, 2008 was relatively flat at $0.5 million compared to
the same period in 2007, although on a per unit basis, decreased $12.88 per Mcfe
to $8.75 per Mcfe.





Stock-based
compensation expense decreased for the three months ended December 31, 2008 to
approximately $28,000 compared to approximately $63,000 for stock-based
compensation in the same period of 2007. This is primarily due to the timing of
vesting on larger stock-based awards granted in previous years to officers and
directors, including those at the effective date of the reverse merger with
Index Ltd, offset by a smaller awards of stock to officers and consultants in
fiscal year 2007 and 2008. During the three months ended December 31, 2008 and
2007, the Company did not grant any stock options or warrants. During the three
months to December 31, 2008 the Company operated an ongoing agreement with a
consulting firm under which a stock award was made subsequent to the end of
period. On a per unit basis, stock-based compensation decreased $2.15 per Mcfe
to $0.50 per Mcfe.





Depletion,
depreciation and amortization (“DD&A”) expense increased $0.4 million from
the same period in 2007 to $0.5 million for the three months ended December 31,
2008. The increase is primarily due to increased production from new wells that
came on production after the first quarter of 2007, principally the three Cason
wells, Ducroz, Shadyside, Hawkins, and Outlar 1, and an increase in the unit
depletion cost rate. Depletion for oil and gas properties is calculated using
the unit of production method, which essentially depletes the capitalized costs
associated with the proved properties based on the ratio of production volume
for the current period to total remaining reserve volume for the evaluated
properties.  On a per unit basis, DD&A expense increased from
$4.51 per Mcfe to $8.31 per Mcfe.





Ceiling
test impairment expense was recorded in the three months ended December 31, 2008
in the amount of $3.6 million. Quarterly, the Company assesses the value of
unamortized capitalized costs within its cost center over the discounted present
value of cash flows associated with its reserves.  Any excess requires
an immediate write-down of its capital costs by this amount. During the three
months ended December 31, 2008, the excess of unamortized capitalized costs over
the related cost ceiling limitation was $3.6 million due primarily to a full
write-down of remaining reserves on Shadyside of approximately 354.9 MMcfe and
the effect of this write-down on the present value ceiling in the ceiling test
computation. Reserve reductions were partially offset by additions related to
the Cochran well. In addition, adjustments to the projected average prices for
the purposes of the ceiling test for our oil and natural gas reserves lead to a
reduction from $11.93/Mcfe at March 31, 2008 to $5.91/Mcfe at December 31, 2008.
The impact of this impairment charge is that our net loss for the three months
to December 31, 2008 is substantially higher than any prior equivalent period.
In addition the carrying amounts in our balance sheet at December 31, 2008 of
oil and natural gas properties, total assets and total stockholders equity are
all significantly reduced as a result of this $3.6 million charge.






21







Interest
income and other decreased $30,000 for the three months ended December 31, 2008
compared to the same period 2007. This decrease relates to interest income
earned on equity fund raising in prior fiscal years.





There was
no provision for income taxes for the fiscal three months ended 2008 and 2007
due to a 100% valuation allowance recorded for the three months ended December
31, 2008 and 2007, respectively on the total tax provision as the Company
believed that it is more likely than not that the asset will not be utilized
during the next year.





Nine
Months Ended December 31, 2008 Compared to Nine Months Ended December 31,
2007





We had a
net loss of $8.1 million for the nine months ended December 31, 2008 compared to
a net loss of $1.4 million for the nine months ended December 31, 2007. The
increase in the net loss was primarily due to our ceiling test limitation
write-down of approximately $6.2 million, due to the reduction in estimated
reserves and oil and natural gas prices. Revenue increased by $2.1 million
during 2008, but was offset by operating costs of $0.5 million, which increased
$0.4 million due to increased production, general and administrative costs of
$2.1 million, which increased by $0.4 million, increased depletion of $1.6
million to $1.8 million, the ceiling test impairment expense of $6.2 million,
and lower interest income on capital previously raised and used in our
operations.  The following table summarizes key items of revenue and
their related increase (decrease) for the fiscal six months ended December 31,
2008 and 2007.





Nine
      Months Ended
                    December
      31,2008
                  
                  
                  2007
                  
                  
                  %
      Change
                    Increase/
                    (Decrease)Total
      revenues
                  
                  $
                  2,567,752
                  
                  
                  $
                  474,263
                  
                  
                  
                  441
                  %Production:Gas
      (MMcf)
                  
                  
                  189.126
                  
                  
                  
                  40.035
                  
                  
                  
                  372
                  %Oil
      (MBbls)
                  
                  
                  6.496
                  
                  
                  
                  3.150
                  
                  
                  
                  106
                  %Total
      Equivalents (MBoe)
                  
                  
                  38.017
                  
                  
                  
                  9.822
                  
                  
                  
                  287
                  %Total
      Equivalents (MMcfe)
                  
                  
                  228.102
                  
                  
                  
                  58.935
                  
                  
                  
                  287
                  %$
      per unit:Avg.
      Gas Price per Mcf
                  
                  $
                  9.98
                  
                  
                  $
                  6.58
                  
                  
                  
                  52
                  %Avg.
      Oil Price per Bbl
                  
                  $
                  104.63
                  
                  
                  $
                  66.96
                  
                  
                  
                  56
                  %Avg.
      Price per Boe
                  
                  $
                  67.54
                  
                  
                  $
                  48.29
                  
                  
                  
                  40
                  %Avg.
      Price per Mcfe
                  
                  $
                  11.26
                  
                  
                  $
                  8.05
                  
                  
                  
                  40
                  %


For the
nine months ended December 31, 2008, oil and natural gas sales increased $2.1
million, from the same period in 2007, to $2.6 million. The increase for the
nine months was primarily due to the increase in production volumes of 169.2
MMcfe from 58.9 MMcfe to 228.1 MMcfe, or approximately $1.9 million of the $2.1
million increase. The increase in volumes of 169.2 MMcfe was primarily due to
new volumes from Outlar of 69.8 MMcfe, Ducroz of 31.1 MMcfe, Shadyside of 46.8
MMcfe, Friedrich of 3.4 Mmcfe and our Kansas wells which increased, in total, by
1.0 MMcfe, offset by Walker which decreased 9.8 MMcfe and Schroeder which
decreased by 6.1 MMcfe. The Cason wells also contributed 11.9 MMcfe along with
Hawkins which contributed 20.1 MMcfe.  Total oil production was 6.5
MBbls and total natural gas production was 189.1 MMcf.





Additionally,
our revenues increased due to year on year price changes, with an increase in
our average price per MMcfe of $3.21, or 49.0%, to $11.26 per Mcfe in fiscal
2008 from $8.05 per Mcfe in fiscal 2007. Our revenues also reflected an
increased proportion of natural gas volumes, which had a lower energy equivalent
value. Our weighted average gas volumes increased in price by $3.40 per Mcf and
weighted average oil volumes increased in price by $37.73 per barrel. We
benefited from increased product prices in the nine months ended December 31,
2008, both for oil and natural gas.  However, our production and sales
mix has switched to become predominantly natural gas comprised, and the year on
year price increase on a Boe basis is less significant than the absolute price
changes for each product, due to natural gas realizing a lower energy equivalent
price compared to crude oil.






22







Nine
      Months Ended
                    December
      31,2008
                  
                  
                  2007
                  
                  
                  %
      Change
                    Increase/
                    (Decrease)Lease
      operating expense
                  
                  $
                  467,543
                  
                  
                  $
                  106,293
                  
                  
                  
                  409
                  %Production
      taxes
                  
                  
                  162,743
                  
                  
                  
                  35,503
                  
                  
                  
                  459
                  %Depreciation,
      depletion and amortization
                  
                  
                  1,820,317
                  
                  
                  
                  255,997
                  
                  
                  
                  2566
                  %Ceiling
      test impairment expense
                  
                  
                  6,209,815
                  
                  
                  
                  -
                  
                  
                  
                  -General
      and administrative costs:General
      and administrative costs
                  
                  
                  1,925,539
                  
                  
                  
                  1,559,226
                  
                  
                  
                  44
                  %Stock-based
      compensation
                  
                  
                  134,354
                  
                  
                  
                  141,739
                  
                  
                  
                  (5
                  %)$
      per unit:Avg.
      lease operating expense per Mcfe
                  
                  $
                  2.05
                  
                  
                  $
                  1.80
                  
                  
                  
                  4
                  %Avg.
      production taxes per Mcfe
                  
                  $
                  0.71
                  
                  
                  $
                  0.60
                  
                  
                  
                  12
                  %Avg.
      DD&A per Mcfe
                  
                  $
                  7.98
                  
                  
                  $
                  4.34
                  
                  
                  
                  441
                  %Avg.
      ceiling test impairment expense
                  
                  $
                  27.22
                  
                  
                  $
                  -
                  
                  
                  
                  -Avg.
      G&A per McfeAvg.
      G&A per Mcfe
                  
                  $
                  8.44
                  
                  
                  $
                  26.46
                  
                  
                  
                  (71
                  %)Avg.
      Stock-based compensation per Mcfe
                  
                  $
                  0.59
                  
                  
                  $
                  2.41
                  
                  
                  
                  (81
                  %)








Lease
operating expenses increased $0.4 million for the nine months ended December 31,
2008 as compared to the same period in 2007. The increase was primarily due to
new volumes from our three Cason wells, Outlar, Ducroz, Hawkins, Shadyside,
Friedrich and our Kansas wells.    On a per unit basis,
lease operating expenses increased from $1.80 per Mcfe in 2007 to $2.05 per Mcfe
in 2008, due to the increase in production volumes.





Taxes
other than income increased $0.1 million for the nine months ended December 31,
2008 as compared to the same period in 2007 due to higher oil and gas revenues
and on a per unit basis increased $0.11 per Mcfe to $0.71 per
Mcfe.   Production taxes are generally assessed as a percentage
of gross oil and/or natural gas sales.





General
and administrative expense, excluding stock-based compensation, for the nine
months ended December 31, 2008 increased 44% or $0.4 million to $1.9 million
compared to the same period in 2007, although on a per unit basis, decreased
$18.02 per Mcfe to $8.44 per Mcfe.  The primary reason for the
increase was legal and professional fees incurred for SEC filings and other
professional and legal consultation as the Company pursues growth
strategies.





Stock-based
compensation expense was flat or approximately $0.1 million for the nine months
ended December 31, 2008, compared to approximately $0.1 million for stock-based
compensation in the same period of 2007. This is primarily due to the timing of
vesting on larger stock-based awards granted in previous years to officers and
directors, including those at the effective date of the reverse merger with
Index Ltd., offset by a smaller awards of stock to officers and consultants in
fiscal year 2007 and 2008.  During the nine months ended December 31,
2008 and 2007, the Company did not grant any stock options or
warrants.  On a per unit basis, stock-based compensation decreased
$1.82 per Mcfe to $0.59 per Mcfe.





Depletion,
depreciation and amortization (“DD&A”) expense increased $1.6 million from
the same period in 2007 to $1.8 million for the nine months ended December 31,
2008. The increase is primarily due to increased production from new wells that
came on production after the first quarter of 2007, principally the three Cason
wells, Ducroz, Shadyside, Hawkins, and Outlar 1. Depletion for oil and gas
properties is calculated using the unit of production method, which essentially
depletes the capitalized costs associated with the proved properties based on
the ratio of production volume for the current period to total remaining reserve
volume for the evaluated properties.  On a per unit basis, DD&A
expense increased from $4.34 per Mcfe to $7.98 per Mcfe.





As
discussed above, a ceiling test impairment expense was recorded in the nine
months ended December 31, 2008 in the amount of $6.2 million. Quarterly, the
Company assesses the value of unamortized capitalized costs within its cost
center over the discounted present value of cash flows associated with its
reserves.  Any excess requires an immediate write-down of its capital
costs by this amount.





Interest
income and other decreased $0.2 million for the nine months ended December 31,
2008 compared to the same period 2007. This decrease is due to interest income
earned on an equity fund raising in prior fiscal years.






23





There was
no provision for income taxes for the fiscal six months ended 2008 and 2007 due
to a 100% valuation allowance recorded for the nine months ended December 31,
2008 and 2007, respectively on the total tax provision as the Company believed
that it is more likely than not that the asset will not be utilized during the
next year.





LIQUIDITY
AND CAPITAL RESOURCES





Operating
cash flow fluctuations were substantially driven by commodity prices and changes
in our production volumes. Prices for oil and natural gas have historically been
subject to seasonal influences characterized by peak demand and higher prices in
the winter heating season for natural gas and summer travel for oil; however,
the impact of other risks and uncertainties have influenced prices throughout
the recent years.





The
recent and ongoing changes in the global economy, including the economic
recession in the United States, are adversely affecting the demand for oil and
natural gas, and commodity prices for both products have fallen significantly.
There is a high probability of continuing low prices for the foreseeable future
and possibly further price declines. Our revenues are based on sales of oil and
natural gas at prevailing market prices. Cash flows provided by operating
activities were negative in the three months to December 31, 2008, and were
based on average prices that were higher than the average from January 1, 2009
to the date of this report.





Working
capital was substantially influenced by these factors. See Results of Operations
for a review of the impact of prices and volumes on sales. In the nine months
ended December 31, 2008, small positive cash flows were generated by operating
activities, inclusive of working capital movements, but these did not contribute
any material funding to exploration and development expenditures. The ceiling
test limitation impairment charge is a non-cash item and had no impact on the
cash flows of the Company and did not affect its liquidity. See below for
additional discussion and analysis of cash flow.





We have
decided to minimize capital expenditures because we do not expect to generate
positive cash flows from operations for the next fiscal quarter, to March 31,
2009, and because we have not secured any new funding. We are currently
forecasting total capital expenditures for the fiscal year to March 31, 2009 to
be less than our original budget, having taken into account cost increases on
the Armour-Runnells well.





Nine
      Months Ended December 31,2008
                      
                      
                      2007Cash
      flows provided by (used in) operating activities
                      
                      $
                      46,311
                      
                      
                      $
                      (917,664
                      )Cash
      flows (used in) investing activities
                      
                      
                      (1,851,015
                      )
                      
                      
                      (6,430,344
                      )Cash
      flows (used in) financing activities
                      
                      
                      -
                      
                      
                      
                      (5,667
                      )Effect
      of exchange rate changes
                      
                      
                      (27,691
                      )
                      
                      
                      (14,542
                      )Net
      (decrease) in cash and cash equivalents
                      
                      $
                      (1,832,395
                      )
                      
                      $
                      (7,368,217
                      )
  Operating
Activities





Net cash
flow from operating activities during the nine months ended December 31, 2008
was $0.1 million which was a positive change in use of cash of $1.0 million from
$0.9 million net cash outflow during the nine months ended December 31, 2007.
The nine months ended December 31, 2008 generated positive cash flow from
operating activities, offset by negative working capital movements, and netted
broadly neutral cash flow at the operating level.





Investing
Activities





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





Cash used
in investing activities during the nine months ended December 31, 2008 was $1.9
million, which was a decrease of $4.5 million from $6.4 million of cash used in
investing activities during the nine months ended December 31, 2007. This
decrease was primarily due to decreased exploration and development activity in
the nine months ended December 31, 2008 versus December 31,
2007.  Current period capital spending was primarily on the
Armour-Runnells 1 well of $0.4 million and on the Cochran 1 well of $0.5
million.  The activity included in prior year capital spending was
primarily for drilling operations on the Cason 1 well of $0.6 million, initial
combined expenditures on the Shadyside and Alligator Bayou prospects of $2.4
million, Outlar 1 of $0.7 million, Ducroz of $0.3 million and an aggregate of
spending on other projects and wells of $0.4 million.





Financing
Activities





There was
no cash used or provided by financing activities during the nine months ended
December 31, 2008, as no proceeds were received for capital transactions and no
financing or debt transactions occurred. During the nine months ended December
31, 2007, a director exercised a total of 66,662 warrants at a price of $0.14
for a total of $9,333 and a total of 66,662 shares of common stock, $0.001 par
value, were issued.






24





As of
December 31, 2008 and 2007, our common stock is the only class of stock
outstanding and we have no outstanding short or long-term debt
financing.





Liquidity
Issues





Management
is of the view that the Company will find it very difficult in the current
market conditions to raise any new funds through debt or equity offerings,
although we continue to seek these opportunities. This has forced us to curtail
and reconsider any planned growth strategies in the immediate future, and could
result in the curtailment of our operations.





The
continuation of our Company as a going concern is dependent upon the Company
attaining and maintaining profitable operations and raising additional capital.
We are actively seeking additional funding through various methods, but due to
current market conditions, funding is not readily available. These conditions
indicate the existence of a material uncertainty which may cast significant
doubt about our ability to continue as a going concern.





Based on
our current cash resources and other current assets, and using assumptions that
by nature are imprecise, management believes we have sufficient liquidity to
fund only limited operations over the immediate future.





We are
endeavoring to reduce general and administrative costs where possible. We are in
the process of concluding arrangements with certain of our management and
Directors under which salaries and fees would be reduced by 30% and certain
benefits would be suspended, and for lost salary and benefits to be replaced by
stock awards of an equivalent value, to be made under our 2008 Stock Incentive
Plan. Such arrangements, if executed, are contemplated to be effective from
December 1, 2008 for a minimum of three and maximum of six months, at which
point prior terms would re-apply. We have also reduced the usage of certain
consulting services and have terminated certain consultant agreements. We have
reduced our expenditures to a minimum on investor and public relations related
activities. We continue to operate month-to-month arrangements for the use of
our Houston office.





We are
subject to continuing cost overruns on operations on the Armour-Runnells well
and are at risk of low and declining product prices for our sales of oil and
natural gas. Our priorities are to continue to be able to participate in and
fund continuing expenditures on the Armour-Runnells well, if we conclude such
expenditures are of potential benefit, and to continue to meet operating cost
and other contractual obligations on our existing wells. We may not be able to
make future undeveloped lease renewal and lease maintenance expenditures that we
may wish to make, and therefore, we may lose rights to certain undeveloped
acreage. We currently are not able to make any new financial commitments to
participate in new projects and will only be able to consider participation in
any discretionary proposed new operations on our existing properties if we
conclude we have funds for the expenditure. During 2009, we may be presented
with proposals for new operations, including new drilling on our Garwood,
Alligator Bayou, Supple Jack Creek and Kansas properties, and possibly others.
We await recommendations from our operator of the Shadyside well.





In
general we must fund our share of costs of any proposed new operation, described
in an Authorization for Expenditure (AFE) issued by an operator, for any
existing or new well under an operating agreement in place or go
“non-consent”.  If the Company elects to go “non-consent” on an AFE,
we generally will lose our interest in the well for which the operation was
proposed until actual payout of the operation, plus a penalty as a percentage of
payout. In general, under our joint operating agreements we can elect to go
“non-consent” on wells, and we continue to evaluate the appropriate
circumstances in which we choose to make that election.





Index is
generally contractually liable for our share of all operational costs not
covered by an AFE, such as, for example, well repair costs under a certain
amount specified in an operating agreement or the costs of well plugging and
abandonment.  Index is also contractually liable for all costs it has
agreed to under an AFE. Index must fund its share of any lease renewal or lease
maintenance costs on any acreage not held by production, or it will lose its
interest in that acreage.





We are
currently actively considering all potential corporate transactions, which may
include full or partial asset disposals or a business combination with another
entity in a transaction where Index is not the surviving entity.




As part
of our analysis of ways to reduce costs and in light of the high cost of
continuing to be a public reporting company under the Securities Exchange Act of
1934, as amended, and complying with the Sarbanes-Oxley Act of 2002, we are
exploring alternative trading platforms, which may involve trading our common
stock on the "pink sheets", which is an automated quotation system under which
broker-dealers publish quotes for trading in over-the-counter
securities.  We also are evaluating the benefits of continuing to be
traded on the OTC-Bulletin Board and the possibility of becoming listed on a
national securities exchange.  Analysis of a move to the “pink sheets”
involves not only reducing costs, but also our expected sources of future
capital as well as the number of record holders of our outstanding common
stock


We
currently are seeking payment in a bankruptcy proceeding related to the former
purchaser of our Kansas oil production, Eaglwing L.P, for the recovery of
approximately $50,000 in value of oil sales. We dispute that our debt be
classified as unsecured on the basis that, under applicable Kansas law,
producers have liens in product delivered to debtors. Recovery of the debt is
uncertain, and the debt has been fully provided against. In the current economic
environment, there is an increased risk that other of our purchasers could
similarly file for bankruptcy protection and we continue to assess such risk.
See also Part II, Item 1.





Plan
of Operation for Fiscal Year 2009





On an
annual basis, we generally expect to fund most of our capital and exploration
activities, including oil and natural gas property acquisitions, with cash
generated from operations, if any, and from equity financings. For fiscal year
2009 we budgeted for capital expenditures relating to continuing work programs
on certain of our oil and natural gas properties described in the Results of
Operations.





We have
reviewed and revised our original capital expenditure budget and plans, based on
the liquidity issues discussed in this report. We are currently planning to make
continuing capital expenditures on the Armour-Runnells well, with the objective
of achieving definitive test results. Our forward plan includes the potential
drilling of second wells on the Garwood and Alligator Bayou projects, together
with potential 3D seismic acquisition and lease renewals on Alligator Bayou, and
potential additional operations on the HNH Gas Unit well. We do not currently
have sufficient funds to be able to commit to these expenditures, if proposed by
our operators. We may also have some further small expenditure which may be
incurred in Kansas.






25





We are
unlikely to be able to make new discretionary capital expenditure commitments,
and are attempting to manage our levels of general and administrative
costs.





Contractual
Obligations





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





Off-Balance
Sheet Arrangements





As of
December 31, 2008, we did not have any off-balance sheet
arrangements.





Inflation





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





Item
3. Quantitative and Qualitative Disclosures About Market Risk.





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





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





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





•
            The
      domestic and foreign supply of oil and
gas;





•
            The
      level of consumer product demand;





•
            Weather
      conditions;





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





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





•
            The
      price of foreign imports;





•
            Actions
      of governmental authorities;





•
            Domestic
      and foreign governmental
regulations;





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





•
            Overall
      economic conditions.





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






26






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





Fair
Market Value of Financial Instruments





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





Interest
Sensitivity





Because
we do not have any long-term debt subject to variable interest rates, the
Company is not exposed to interest rate sensitivity at December 31,
2008.





Item
4T. Controls and Procedures.





Management’s
Evaluation of Disclosure Controls and Procedures





In
accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of December 31, 2008 to provide reasonable
assurance that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s
rules and forms.





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


27


PART
II


OTHER
INFORMATION





Item
1. Legal Proceedings.





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





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





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





Item
1A. Risk factors





Not
required for smaller reporting companies.





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





Issuance
of Unregistered Securities





None.





Purchases
of Equity Securities by the Issuer and Affiliated Purchasers.





None.





Item
3. Defaults Upon Senior Securities.





None.





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





By proxy
statement approved by the Board of Directors, the Company solicited votes for
three proposals during the period covered by this report. The three proposals
presented by the Company to stockholders were approved during the Company's
reconvened annual general meeting on January 27, 2009. The annual general
meeting was originally held on December 9, 2008, and was adjourned to January
27, 2009 for lack of a quorum.





A quorum
of stockholders present in person or by proxy approved the re-election of four
directors. Board members re-elected are Daniel L. Murphy, chairman, Lyndon West,
Andrew Boetius, and David Jenkins, non-executive director. The Company has no
other Board members. Stockholders also ratified the 2008 Stock Incentive Plan
and the appointment of RBSM LLP as independent auditors for the fiscal year
ending March 31, 2009.






28





The vote
tallies were as follows:





(1)
            Election
      of nominees to the Board of Directors of the
  Company.





For
                  
                  
                  WithheldDaniel
      L. Murphy
                  
                  
                  34,384,413
                  
                  
                  
                  3,533,996Lyndon
      West
                  
                  
                  35,282,239
                  
                  
                  
                  2,636,170Andrew
      Boetius
                  
                  
                  35,282,239
                  
                  
                  
                  2,636,170David
      Jenkins
                  
                  
                  35,282,239
                  
                  
                  
                  2,636,170








(2)
            Ratification
      of appointment of RSBM LLP as the Company’s auditors for the fiscal year
      ending March 31, 2009.





For
                    
                    
                    Against
                    
                    
                    Abstain36,276,720
                    
                    
                    
                    41,589
                    
                    
                    
                    1,600,100








(3)
            Ratification
      of the 2008 Stock Incentive Plan.





For
                    
                    
                    Against
                    
                    
                    Abstain16,912,165
                    
                    
                    
                    3,925,748
                    
                    
                    
                    6,267,393








Item
5. Other Information.





In
connection with the Company’s preparation of the financial statements for the
quarterly and nine month periods ended December 31, 2008, management determined
that write-downs of approximately $3.6 million and $6.2 million, respectively,
were required under our full cost ceiling test limitation, primarily from a
reduction in estimated reserves and estimated oil and gas prices. It is not
expected that the impairments will result in future cash expenditures. The
disclosure set forth in this Item 5 is included in this Quarterly Report on Form
10-Q in accordance with the instructions to Item 2.06 of Form
8-K.


29


Item
6. Exhibits.





Item
                                    
                                    Description3.2
                                    
                                    Bylaws,
      as amended October 7, 2008 (incorporated by reference to the Company’s
      Current Report on Form 8K filed on October 9, 2008)10.1
                                    
                                    Amended
      and Restated Agreement for Exploration, Production and Strategic Services
      between Index Oil and Gas Inc. and ConRon Consulting Inc. dated December
      8, 2008 (incorporated by reference to the Company’s Current Report on Form
      8K filed on December 12, 2008)10.2
                                    
                                    Index
      Oil and Gas Inc. 2008 Stock Incentive Plan31.1
                                    
                                    Certification
      of Periodic Financial Reports by Lyndon West in satisfaction of Section
      302 of the Sarbanes Oxley Act of 200231.2
                                    
                                    Certification
      of Periodic Financial Reports by Andrew Boetius in satisfaction of Section
      302 of the Sarbanes Oxley Act of 200232.1
                                    
                                    Certification
      of Periodic Financial Reports by Lyndon West in satisfaction of Section
      906 of the Sarbanes Oxley Act of 2002 and 18 U.S.C. Section
      135032.2
                                    
                                    Certification
      of Periodic Financial Reports by Andrew Boetius in satisfaction of Section
      906 of the Sarbanes Oxley Act of 2002 and 18 U.S.C. Section
      1350








30


SIGNATURES








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




INDEX
      OIL AND GAS INC.Date:
      February 17, 2009
              By:
              /s/ Lyndon
      WestLyndon
      WestChief
      Executive Officer


Date:
      February 17, 2009
              By:
              /s/ Andrew
      BoetiusAndrew
      BoetiusChief
      Financial Officer



















31


Exhibit
Index





Item
                                      
                                      Description3.2
                                      
                                      Bylaws,
      as amended October 7, 2008 (incorporated by reference to the Company’s
      Current Report on Form 8K filed on October 9, 2008)10.1
                                      
                                      Amended
      and Restated Agreement for Exploration, Production and Strategic Services
      between Index Oil and Gas Inc. and ConRon Consulting Inc. dated December
      8, 2008 (incorporated by reference to the Company’s Current Report on Form
      8K filed on December 12, 2008)10.2
                                      
                                      Index
      Oil and Gas Inc. 2008 Stock Incentive Plan31.1
                                      
                                      Certification
      of Periodic Financial Reports by Lyndon West in satisfaction of Section
      302 of the Sarbanes Oxley Act of 200231.2
                                      
                                      Certification
      of Periodic Financial Reports by Andrew Boetius in satisfaction of Section
      302 of the Sarbanes Oxley Act of 200232.1
                                      
                                      Certification
      of Periodic Financial Reports by Lyndon West in satisfaction of Section
      906 of the Sarbanes Oxley Act of 2002 and 18 U.S.C. Section
      135032.2
                                      
                                      Certification
      of Periodic Financial Reports by Andrew Boetius in satisfaction of Section
      906 of the Sarbanes Oxley Act of 2002 and 18 U.S.C. Section
      1350