**SECURITIES
      AND EXCHANGE COMMISSION**




**** **WASHINGTON,
      D.C. 20549**




**FORM
      10-QSB**









(Mark
      one)




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




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




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




For
      the transition
      period from _________ to ___________




Commission file number 000-51430








**INDEX
      OIL AND GAS, INC.**


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





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


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





**(713)
      683-0800**


(Issuer’s
      telephone Number)







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




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




As
      of August
      3 ,
      2006,
      there were outstanding 54,544,345 shares of Common Stock.







1


**TABLE
      OF CONTENTS**




PART
                  I. FINANCIAL INFORMATIONITEM
                  1.
              Condensed
                  Consolidated financial statements (unaudited)Condensed
                  Consolidated balance sheets at June 30, 2006 and March 31,
                  2006
              3Condensed
                  Consolidated statements of losses for the three months ended June
                  30, 2006
                  and 2005
              4Condensed
                  Consolidated statement of cash flows for the three months ended
                  June 30,
                  2006 and 2005
              5Notes
                  to Condensed Consolidated financial statements
              6ITEM
                  2
              Management’s
                  discussion and analysis of financial condition and results of
                  operations
              20ITEM
                  3
              Quantitative
                  and qualitative disclosures about market risk
              24ITEM
                  4
              Controls
                  and procedures
              25PART
                  II. OTHER INFORMATIONITEM
                  1
              Legal
                  proceedings
              25ITEM
                  1A.
              Risk
                  factors
              25ITEM
                  2.
              Unregistered
                  sales of equity securities and use of proceeds
              25ITEM
                  3.
              Defaults
                  upon senior securities
              26ITEM
                  4.
              Submission
                  of matters to a vote of security holders.
              26ITEM
                  5.
              Other
                  information
              26ITEM
                  6
              Exhibits
              26











2


**Item
      1. Financial Statements:**


**INDEX
      OIL AND GAS, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**





**June
                30,**
              **2006**
              **(unaudited)**
            
            **March
                31,**
              **2006****ASSETS**Current
                Assets:Cash
                and cash equivalents
            
            $
            4,913,828
            
            $
            5,536,006Trade
                receivables,net
                of allowance for doubtful accounts of $0
            
            
            37,375
            
            
            12,501Other
                receivables
            
            
            56
            
            
            6,254Other
                current assets
            
            
            17,500
            
            
            8,600Total
                Current Assets
            
            
            4,968,759
            
            
            5,563,361Oil
                & Gas Properties, full cost, net of accumulated depletion (Notes 2,
                3,
                6 and 13)
            
            
            1,099,969
            
            
            951,199Property
                and Equipment, net of accumulated depreciation (Notes 2 and
                3)
            
            
            1,564
            
            
            1,727Total
                Oil & Properties and Property and Equipment
            
            
            1,101,533
            
            
            952,926Total
                Assets
            
            **$**
            **6,070,292**
            
            **$**
            **6,516,287****LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                Liabilities:Accounts
                payable and accrued expenses
            
            $
            306,228
            
            $
            555,452Bank
                loan (Notes 5 and 11)
            
            
            -
            
            
            48,569Other
                current liability (Note 11)
            
            
            -
            
            
            1,007Total
                Current Liabilities
            
            
            306,228
            
            
            605,028Long-Term
                Liabilities:Asset
                Retirement Obligation (Notes 2 and 6)
            
            
            25,300
            
            
            25,300Total
                Liabilities
            
            
            331,528
            
            
            630,328Commitments
                and Contingencies (Note 7)
            
            
            -
            
            
            -Stockholders
                Equity: (Notes 5, 7, 8, 9 and 13)Common
                stock, par value $0.001, 75 million shares authorized , 54,544,345
                issued
                and outstanding at June 30, 2006 and March 31, 2006, respectively
                (see
                Note 7)
            
            
            54,544
            
            
            54,544Additional
                paid in capital
            
            
            8,557,637
            
            
            8,387,306Accumulated
                deficit
            
            
            (2,894,982
            )
            
            (2,575,581
            )Other
                comprehensive income (Notes 2 and 4)
            
            
            21,566
            
            
            19,690Total
                Stockholders' Equity
            
            
            5,738,764
            
            
            5,885,959Total
                Liabilities and Stockholders' Equity
            
            **$**
            **6,070,292**
            
            **$**
            **6,516,287**








See
      accompanying notes to unaudited condensed consolidated financial
      statements





3





**INDEX
      OIL AND GAS, INC.**


**CONDENSED
      CONSOLIDATED STATEMENT OF LOSSES**


**(unaudited)**





**For
                the Three Months Ended****June
                30,**
              **2006**
            
            **June
                30,**
              **2005**Revenue:
                (Note 12)Oil
                sales
            
            $
            70,457
            
            $
            47,397Operating
                Expenses:Operating
                costs
            
            
            23,916
            
            
            7,479Depreciation
                and amortization (Note 3)
            
            
            21,548
            
            
            23,882General
                and administrative expenses (Note 2)
            
            
            387,999
            
            
            96,568Total
                Operating Expenses
            
            
            433,463
            
            
            127,929Loss
                from Operations
            
            
            (363,006
            )
            
            (80,532
            )Other
                Income (Expense):Interest
                income
            
            
            43,605
            
            
            257Total
                Other Income (Expense)
            
            
            43,605
            
            
            257Loss
                before Income Taxes
            
            
            (319,401
            )
            
            (80,275
            )Income
                Taxes Benefit
            
            
            -
            
            
            -Net
                Loss
            
            $
            (319,401
            )
            $
            (80,275
            )Loss
                per share (Note 10):Basic
                and assuming dilution
            
            $
            (0.01
            )
            $
            (0.01
            )Weighted
                average shares outstanding (Note 7):Basic
                and assuming dilution
            
            
            54,544,345
            
            
            12,303,674








See
      accompanying notes to unaudited condensed consolidated financial
      statements





4


**INDEX
      OIL AND GAS, INC.**


**CONDENSED
      CONSOLIDATED STATEMENT OF CASH FLOWS**


**(unaudited)**





**For
                the Three Months Ended****June
                30,**
              **2006**
            
            **June
                30,**
              **2005**Cash
                Flows From Operating Activities:Net
                loss
            
            $
            (319,401
            )
            $
            (80,275
            )Adjustments
                to reconcile net loss to net cash provided by (Used In) operating
                activities:Non
                cash stock based compensation cost
            
            
            170,331
            
            
            -Depreciation
                and amortization
            
            
            21,548
            
            
            23,882(Increase)
                decrease in receivables
            
            
            (27,160
            )
            
            5,509Increase
                (decrease) in accounts payable and accrued expenses
            
            
            (254,083
            )
            
            59,593Net
                Cash Provided By (Used In) Operating Activities
            
            
            (408,765
            )
            
            8,709Cash
                Flows From Investing Activities:Payments
                for oil and gas properties and property and equipment
            
            
            (170,155
            )
            
            (8,576
            )Net
                Cash (Used In) Investing Activities
            
            
            (170,155
            )
            
            (8,576
            )Cash
                Flows From Financing Activities:Proceeds
                from convertible notes payable
            
            
            -
            
            
            676,664Proceeds
                from bank term debt
            
            
            
            
            
            51,374Repayment
                of bank term debt
            
            
            (51,797
            )
            
            -Payment
                of debt issue costs
            
            
            -
            
            
            (22,813
            )Net
                Cash Provided by (Used In) Financing Activities
            
            
            (51,797
            )
            
            705,226Effect of exchange rate
                changes on cash and cash equivalents
            
            
            8,539
            
            
            (9,763
            )Net
                Increase/(Decrease) in Cash and Cash Equivalents
            
            
            (622,178
            )
            
            695,596Cash
                and cash equivalents at beginning of period
            
            $
            5,536,006
            
            $
            8,673Cash
                and cash equivalents at the end of period
            
            $
            4,913,828
            
            $
            704,269Supplemental
                Disclosures of Cash Flow Information:Cash
                (received) during the period for interest
            
            $
            (43,605
            )
            $
            (257
            )Cash
                paid during the period for taxes
            
            $
            -
            
            $
            -Non-cash
                Financing and Investing Transactions:Non
                cash stock based compensation cost
            
            $
            170,331
            
            $
            -














See
      accompanying notes to unaudited condensed consolidated financial
      statements





5


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


**(unaudited)**





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





Index
      Oil
& Gas Limited (“Index Ltd.”) was incorporated on February 21, 2003 in the
      United Kingdom. Index Ltd. invested in a 5% working interest in oil and gas
      leases covering approximately 8,500 acres located in Stafford County, Kansas
      (“Kansas properties”) in July 2003. In August 2003, Index Oil & Gas USA, LLC
      (“Index USA”) was formed and the Kansas properties were transferred into this
      wholly owned subsidiary. Index Ltd. is participating in an ongoing drilling
      program on these properties. Additionally, Index Investments North America
      Inc.
      (“Index Investments”) and Index Offshore LLC (“Index Offshore”), a wholly owned
      subsidiary of Index Investments, were both formed in fiscal year 2005 for future
      potential investments in the United States. Index Ltd. comprises a United
      Kingdom holding company, which provides management services and United States
      operating subsidiaries, which are engaged in the exploration for, development,
      production and sale of oil and natural gas. Index Ltd. does not currently
      operate any of its properties and sells its oil production to domestic crude
      oil
      purchasers.





In
      August
      2005, Index Ltd.’s U.S. subsidiaries entered into agreements to participate in
      the drilling of four wells in Texas and Louisiana. The first of these commenced
      drilling in December 2005 and is awaiting completion and pipeline installation.
      A subsidiary of Index Ltd. has been participating in an ongoing drilling program
      on the Stafford County, Kansas properties. Subsequent to the three months ended
      June 30, 2006, the Company agreed with operator Crawford Energy to increase
      its
      WI (working interest) in wells Vieman #1 from 12.5% to 17% and Taffy #2 from
      7.5% to 20%.





In
      March
      2004, a company named Thai One On, Inc. (“Thai”) was incorporated under the laws
      of the State of Nevada. Thai then acquired a wholly-owned subsidiary, Thai
      Pasta
      Enterprise Sdn. Bhd., a privately-held Malaysian company (“Thai Pasta”), from an
      officer and director of Thai. Thai Pasta commenced operations as a restaurant
      operator in June 2004, but subsequently ceased operations in the fourth quarter
      of 2005. In November 2005, a Letter of Intent agreement was entered into for
      the
      proposed acquisition (“the Letter of Intent”) of all outstanding shares of Index
      Ltd.’s common stock by Thai. Subsequently, Thai changed its name from Thai One
      On Inc. to Index Oil and Gas, Inc (the “Company” or “Index Inc.”). At December
      31, 2005, Thai had 33,220,000 shares of common stock, $0.001 par value per
      share
      (the “Common Stock”), issued and outstanding.





On
      January 20, 2006, the stockholders of Index Ltd. entered into Acquisition and
      Share Exchange Agreements (“Acquisition Agreements”, the “Transaction”, or
“Merger”) with the Company.





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





Effective
      with the Acquisition Agreements, all previously outstanding equity stock owned
      by Index Ltd.’s stockholders were exchanged for an aggregate of 22,615,552
      shares of the Company’s Common Stock and all issued warrants to purchase shares
      of equity stock in Index Ltd. were exchanged for 1,092,676 warrants to purchase
      shares of Common Stock of the Company. As part of the Transaction it was agreed
      that, subsequent to the Transaction 10,128,333 shares of common stock held
      by
      the former directors and officers of the Company would be retired and
      subsequently canceled by the transfer agent for the Company. In January 2006,
      the Company retired 10,128,333 shares of Common Stock leaving 23,091,667 shares
      of Common Stock issued and outstanding.




The
      value
      of the Common Stock issued pursuant to the Transaction was the historical cost
      of the Company's net tangible assets of $1,578, which did not differ materially
      from their fair value. The total consideration paid of $1,578 is summarized
      further below.





**January
                20, 2006**Common
                stock retained by Index, $0.001 par value per share
            
            $
            23,092Assets
                acquired
            
            
            (23,500
            )Liabilities
                assumed
            
            
            1,986Total
                consideration paid
            
            $
            1,578





In
      accordance with Statement of Position 98-5 (“SOP 98-5”), the Company expensed
      $1,578 as organization costs.





In
      addition, the Company also completed a private placement on January 20, 2006
      for
      8,533,333 shares of $0.001 par value common stock of the Company at a price
      of
      $0.60 per share for the aggregate sum of $5,120,000.





6


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





7


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


**(unaudited)**





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





*Principles
      of Consolidation/Basis of Presentation*





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





*Use
      of Estimates*





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








8


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


**(unaudited)**





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





*Interim
      Financial Statements*





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





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





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





*Oil
      and Gas Properties*





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





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





*Other
      Property, Plant and Equipment*





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





9


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


**(unaudited)**





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





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





*Segment
      Information*





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





*Foreign
      Currency Translation*





The
      Company translates the foreign currency financial statements in accordance
      with
      the requirements of Statement of Financial Accounting Standards No. 52, “Foreign
      Currency Translation.” Assets and liabilities of non-U.S. subsidiaries whose
      functional currency is not the U.S. dollar are translated into U.S. dollars
      at
      fiscal period-end exchange rates. Revenue and expense items are translated
      at
      average exchange rates prevailing during the fiscal quarter. Translation
      adjustments are included in Accumulated other comprehensive loss in the equity
      section of the balance sheet with the corresponding foreign currency transaction
      (losses)/gains included in - other comprehensive loss - foreign currency
      translation in the statement of operations and totaled $21,566 and $26,382
      at
      June 30, 2006 and 2005, respectively.





*Stock
      Based Compensation*





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





On
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004)
“Share-Based Payments” (“SFAS-123R”). This statement applies to all awards
      granted, modified, repurchased or cancelled after January 1, 2006 and to
      the unvested portion of all awards granted prior to that date. The Company
      adopted this statement using the modified version of the prospective application
      (modified prospective application). Under the modified prospective application,
      compensation cost for the portion of awards for which the employee’s requisite
      service has not been rendered that are outstanding as of January 1, 2006
      must be recognized as the requisite service is rendered on or after that date.
      The compensation cost for that portion of awards shall be based on the original
      fair market value of those awards on the date of grant as calculated for
      recognition under SFAS 123. The compensation cost for these earlier awards
      shall
      be attributed to periods beginning on or after January 1, 2006 using the
      attribution method that was used under SFAS 123. The impact of adoption of
      SFAS-123R decreased income from operations and income before income taxes and
      net income by $170,331 for the three months ended June 30, 2006 and there was
      no
      impact on the Condensed Consolidated Statement of Cash Flows. The effect on
      net
      income per share for basic and diluted is $0.01. See Note 10 of the notes to
      the
      Condensed Consolidated Financial Statements for additional
      disclosure.





*Accounting
      Changes and Error Corrections*





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





10


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


**(unaudited)**





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





*New
      Accounting Pronouncements Not Yet Adopted*





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





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





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





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





*Oil
      and Gas Properties*





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




**June
                30, 2006**
            
            **March
                31, 2006**Subject
                to depletion-onshore
            
            $
            749,485
            
            $
            722,056Not
                subject to depletion-onshore:Exploration
                costs
            
            
            379,532
            
            
            236,806Cost
                of undeveloped acreage
            
            
            119,923
            
            
            119,923Total
                not subject to depletion
            
            
            499,455
            
            
            356,729Gross
                oil and gas properties-onshore
            
            
            1,248,940
            
            
            1,078,785Less:
                accumulated depletion
            
            
            (148,971
            )
            
            (127,586
            )Net
                oil and gas properties-onshore
            
            $
            1,099,969
            
            $
            951,199




Depletion
      expense was $21,385 and $18,215 or $19.04 and $19.09 per barrel of production
      for the three months ended June 30, 2006 and 2005, respectively.





It
      is
      anticipated that the cost of undeveloped acreage of $119,923 and exploration
      costs of $379,532 will be included in depreciation, depletion and amortization
      when the related projects are planned and drilled.


11


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


**(unaudited)**





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





*Acquisitions
      and Dispositions*





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





In
      fiscal
      year 2006, the Company acquired its interest in the Barton County Kansas
      exploration project.





During
      the three months ended June 30, 2006, the Company committed to exercise of
      its
      option for Phase 2, at a cost of $142,726, including data processing charges,
      and its 18% participation in the first well with ADC in Nacogdoches County
      in
      East Texas, which is expected to be drilled during fiscal year ended
      2007.





Subsequent
      to June 30, 2006, the Company agreed with operator Crawford Energy to increase
      its WI (working interest) in wells Vieman #1 from 12.5% to 17% and Taffy #2
      from
      7.5% to 20%.





*Other
      Property and Equipment*





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





**June
                30, 2006**
            
            **March
                31, 2006**Computer
                costs, including foreign translation adjustment
            
            $
            11,217
            
            $
            11,217Less:
                accumulated depreciation
            
            
            (9,653
            )
            
            (9,490
            )Total
                other property and equipment
            
            $
            1,564
            
            $
            1,727





Depreciation
      expenses from continuing operations amounted to $163 and $5,667 for the three
      months ended June 30, 2006 and 2005, respectively. There was no interest
      capitalized in property, plant and equipment at June 30, 2006 and 2005. Of
      the
      $5,667 in depreciation expense, $5,547 related to the write-off of computer
      software.





**NOTE
      4 - COMPREHESIVE LOSS**





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






**For
                the Three Months Ended June 30,****2006**
            
            **2005**Net
                loss
            
            $
            (319,401
            )
            $
            (80,275
            )Foreign
                currency translation
            
            
            1,876
            
            
            22,810Comprehensive
                Loss
            
            $
            (317,525
            )
            $
            (57,465
            )










12


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


**(unaudited)**





**NOTE
      5 - NOTES PAYABLE**





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





The
      fund
      raising activity of Index Ltd during the three months ended June 30, 2005 was
      offered to investors with a minimum and maximum capital achievement and
      structured as convertible debt payable to investors, the capital requirements
      of
      which were achieved. Total convertible shareholder loans to Index Ltd. at March
      31, 2005 totaled $676,664 ($657,890 at the closing foreign currency rate) and
      were converted into 1,835,117 shares of stock later in the fiscal year (and
      subsequently converted to 5,242,929 shares of Company stock). Of this amount,
      50,000 shares of common stock related to directors of Index Ltd. with the
      remaining for outside investors.





Other
      affiliate loans to Index Ltd at March 31, 2005 totaled $94,603 ($89,741 at
      the
      closing foreign currency rate), which were converted to 250,325 shares of common
      stock later in the fiscal year (and subsequently converted to 715,143 shares
      of
      Company stock).





Convertible
      notes payable at June 30, 2005, bore no interest, were unsecured and represent
      amounts loaned to the Company by certain stockholders.





There
      was
      no debt issue cost incurred during the three months ended June 30, 2006 and
      $22,813 in debt issue costs incurred during the three months ended June 30,
      2005. There was no debt issue amortization expense in the three months ended
      June 30, 2006 and June 30, 2005. The debt issue costs were capitalized and
      were
      amortized up to the point of conversion to common stock. There was no
      unamortized debt issue cost at June 30, 2006 and $22,478 at June 30, 2005,
      based
      on the closing exchange rate.





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





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





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





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





Of
      the
      total ARO, $25,300 is classified as a long-term liability at June 30, 2006.
      For
      each of the three months ended June 30, 2006 and 2005, the Company recognized
      no
      accretion expense related to its ARO, due to the assumption of a full offset
      of
      salvage values.






13


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


**(unaudited)**





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





The
      Company has no commitments to oil and gas exploration and production capital
      expenditure other than ongoing planned expenditures on the Kansas properties,
      and the commitments relating to four new wells in Texas and Louisiana.
      Subsequent to June 30, 2006, the Company agreed with operator Crawford Energy
      to
      increase its WI (working interest) in wells Vieman #1 from 12.5% to 17% and
      Taffy #2 from 7.5% to 20%.





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





Lease
      Commitments





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





Consulting
      Agreements





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





Stockholder
      Matters





As
      our
      Common Stock is a security registered pursuant to Section 12 of the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”), we must solicit proxies
      or obtain consent or authorizations by or on behalf of our management from
      the
      holders of record of our common stock in accordance with the rules and
      regulations of the Exchange Act, including those prescribed in Section 14 of
      the
      Act. On November 25, 2005, prior management of the Company obtained the approval
      of the majority of stockholders of the Company authorizing it to increase the
      authorized common stock of the Company from 25,000,000 to 75,000,000 (the
“Increase”). In doing so, the Company complied with Sections 78.207 and 78.209
      of the Revised Statutes of the State of Nevada; however, in obtaining said
      shareholder approval, the prior management of the Company failed to comply
      with
      applicable Federal securities laws, as set forth above.





In
      addition, the Company plans to amend the Articles of Incorporation to increase
      the authorized number of common stock from 75,000,000 shares to 500,000,000
      shares. The Company also plans to amend the Articles of Incorporation to create
      a class of preferred stock, authorizing the issuance of 10,000,000 shares,
      $0.001 par value per share, of preferred stock. For more information please
      see
      the amended preliminary Proxy Statement filed by the Company on Schedule 14(a)
      with the SEC on August 3, 2006, the terms of which are incorporated by reference
      herein and Item 4 “Submission of Matters to a Vote of Security
      Holders.”





The
      Company is also asking the current stock holders to adopt the 2006 Incentive
      Stock Option Plan and to ratify the selection of Russell Bedford Stefanou
      Mirchandani LLP (“RBSM”) as the Company’s independent auditors for the fiscal
      years ending March 31, 2006 and 2007. For more information please see the
      amended preliminary Proxy Statement filed by the Company on Schedule 14(a)
      (the
“Proxy Statement”) with the SEC on August 3, 2006, the terms of which are
      incorporated by reference herein and Item 4 “Submission of Matters to a Vote of
      Security Holders.”





As
      set
      forth above and as disclosed in the Proxy Statement, the Company in order to
      obtain a ratification of the increase and approval of other items noted above
      from our current stockholders via obtaining the consent of the majority of
      our
      current stockholders as of a certain record date, filed a proxy statement on
      Schedule 14(a). As has been previously disclosed in the Company’s Current Report
      filed on Form 8-K with the SEC on March 15, 2006, on January 20, 2006, an
      agreement was signed with certain stockholders of the Company, pursuant to
      which
      said stockholders granted to a majority of the directors of the Company then
      in
      place, for a duration of one year from the date of the transaction or to January
      20, 2007, the authority to direct the exercise of their voting rights attached
      to 5,047,130 shares of common stock of the Company.


14


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


**(unaudited)**





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





Litigation





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





**NOTE
      8 - CAPITAL STOCK**





As
      our
      Common Stock is a security registered pursuant to Section 12 of the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”), we must solicit proxies
      or obtain consent or authorizations by or on behalf of our management from
      the
      holders of record of our common stock in accordance with the rules and
      regulations of the Exchange Act, including those prescribed in Section 14.
      On
      November 25, 2005, prior management of the Company obtained the approval of
      the
      majority of stockholders of the Company authorizing it to increase the
      authorized common stock of the Company from 25,000,000 to 75,000,000 (the
“Increase”). In doing so, the Company complied with Sections 78.207 and 78.209
      of the Revised Statutes of the State of Nevada; however, the management failed
      to comply with applicable Federal securities laws set forth above.





In
      addition, the Company plans to amend the Articles of Incorporation to increase
      the authorized number of common stock from 75,000,000 shares to 500,000,000
      shares. The Company also plans to amend the Articles of Incorporation to create
      a class of preferred stock, authorizing the issuance of 10,000,000 shares,
      $0.001 par value per share, of preferred stock. For more information please
      see
      the amended preliminary Proxy Statement filed by the Company on Schedule 14(a)
      (the “Proxy Statement”) with the SEC on August 3, 2006, the terms of which are
      incorporated by reference herein and Item 4 “Submission of Matters to a Vote of
      Security Holders.”





As
      set
      forth above and as disclosed in the Proxy Statement, the Company in order to
      obtain a ratification of the increase and approval of other items noted above
      from our current stockholders via obtaining the consent of the majority of
      our
      current stockholders as of a certain record date, filed a proxy statement on
      Schedule 14(a). As has been previously disclosed in the Company’s Current Report
      filed on Form 8-K with the SEC on March 15, 2006, on January 20, 2006, an
      agreement was signed with certain stockholders of the Company, pursuant to
      which
      said stockholders granted to a majority of the directors of the Company then
      in
      place, for a duration of one year from the date of the transaction or to January
      20, 2007, the authority to direct the exercise of their voting rights attached
      to 5,047,130 shares of common stock of the Company.





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





The
      Board
      of Directors of Index Inc. agreed to the adoption of the 2006 Incentive Stock
      Option Plan (the “Stock Option Plan”) and approved it on March 14, 2006
      effective as of January 20, 2006, providing for the issuance of up to 5,225,000
      shares of Common Stock of Index Inc. to officers, directors, employees and
      consultants of Index Inc. and/or its subsidiaries. Pursuant to the Stock Option
      Plan, Index Inc. allowed for the issuance of options to purchase 4,577,526
      shares of Common Stock at $0.35 per share to newly appointed directors and
      officers of Index Inc. that had held options to purchase ordinary shares of
      Index Ltd. prior to the completion of the acquisition. Total compensation
      expense recorded for the issuance of these options in the first quarter of
      fiscal 2007 was $170,331.





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





Adoption
      of SFAS-123R





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






15




**INDEX
      OIL AND GAS, INC.**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


**(unaudited)**





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





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





The
      remaining compensation expense associated with total unvested awards as of
      June
      30, 2006 was $607,702 and will be recognized over a remaining weighted average
      period of approximately 1 year. Of this amount, $170,331 was recorded as
      compensation expense for the three months ended June 30, 2006. Since there
      was
      no public market for the Company’s stock and operations were not comparable to a
      peer group prior to the acquisition, the stock issuance price for the private
      equity raising at the date of acquisition of $0.60 was used as the share market
      price and an exercise price of $0.35. The weighted-average fair value of options
      granted under the fair valued based method or $0.398, using the Black Scholes
      model, was determined using the following assumptions: (1) a risk free rate
      of
      4.38%; (2) a volatility rate of 100%; (3) a zero dividend rate; (4) a zero
      percent forfeiture rate; (5) the latest stock issuance price used as the share
      market price; and (6) 2 year life.





Stock
      Options





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





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





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








**Options
                Outstanding**
            
            **Options
                Exercisable**Exercise
                Price
            
            Number
              Outstanding
            
            Weighted
                Average Remaining ContractualLife (Years)
            
            Weighed
                AverageExercise Price
            
            Number
              Exercisable
            
            Weighted
                AverageExercise Price$
                0.35
            
            4,577,526
            
            4.56
            
            $
                0.35
            
            2,288,763
            
            $
                0.35





16


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS\**


**JUNE
      30, 2006**


**unaudited)**





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





Warrants





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





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







**Warrants
                      Outstanding**
                  
                  
                  **Warrants
                      Exercisable**Exercise
                      Prices
                  
                  
                  Number
                      Outstanding
                  
                  
                  Weighted
                      Average Remaining Contractual Life (Years)
                  
                  
                  Weighted
                      Average Exercise Price
                  
                  
                  Number
                      Exercisable
                  
                  
                  Weighted
                      Average Exercise Price$0.07
                  
                  
                  138,655
                  
                  
                  4.25
                  
                  
                  $0.07
                  
                  
                  138,655
                  
                  
                  $0.07$0.14
                  
                  
                  143,037
                  
                  
                  4.25
                  
                  
                  $0.14
                  
                  
                  143,037
                  
                  
                  $0.14$0.14
                  
                  
                  392,839
                  
                  
                  4.25
                  
                  
                  $0.14
                  
                  
                  392,839
                  
                  
                  $0.14$0.14
                  
                  
                  391,410
                  
                  
                  4.25
                  
                  
                  $0.14
                  
                  
                  391,410
                  
                  
                  $0.14$0.14
                  
                  
                  26,735
                  
                  
                  4.25
                  
                  
                  $0.14
                  
                  
                  26,735
                  
                  
                  $0.141,092,676
                  
                  
                  4.25
                  
                  
                  $0.13
                  
                  
                  1,092,676
                  
                  
                  $0.13


17


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


**(unaudited)**





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





In
      February 2003, Index Ltd. was capitalized with 100 million shares of common
      stock authorized. On January 20, 2006, in a reverse merger between the Company
      and Index Ltd., 22,615,552 of the Company’s Common Stock were exchanged for
      7,916,232 shares of Index Ltd. and 8,533,333 shares were sold to private
      investors in connection with the Transaction. In addition, as of January 20,
      2006, the Company had 23,091,667 shares of Common Stock issued and outstanding.
      The Company also issued 303,793 shares of common stock to management as
      compensation expense, which had been reserved for issue as part of the share
      exchange transaction. Basic earnings per share is computed by dividing income
      available to common stockholders by the weighted average number of shares
      outstanding for the period. Diluted EPS reflects the potential dilution that
      could occur if contracts to issue common stock and related stock options were
      exercised at the end of the period. For the three months ended June 30, 2006
      and
      2005, excluded from diluted earnings per share are 5,670,202 and 138,658,
      respectively of warrants and/or options to acquire common stock.





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





**For
                The Three Months Ended June 30,****2006**
            
            **2005**Shares—basic
            
            54,544,345
            
            12,303,674Dilution
                effect of stock option and awards at end of period
            
            
            -
            
            
            -Shares—diluted
            
            
            54,544,345
            
            
            12,303,674Stock
                awards and shares excluded from diluted earnings per share due to
                anti-dilutive effect
            
            
            5,670,202
            
            
            138,658








**NOTE
      11 - RELATED PARTY TRANSACTIONS**





During
      the three months ended June 30, 2006, the Company repaid various directors
      $1,007 for the refund of payroll taxes.





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





**NOTE
      12 - OPERATING SEGMENTS**





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





*Geographic
      Area Information*





During
      the three months ended June 30, 2006 and as of June 30, 2006, the Company owned
      oil and natural gas interests in three main geographic areas in the United
      States. Geographic revenue and property, plant and equipment information below
      is based on physical location of the assets at the end of each
      period.









**June
                30, 2006****Total Oil & Gas**
              **Revenue**
            
            
            **Total Assets****(1)**Kansas
            
            $
            70,457
            
            $
            932,241Louisiana
            
            
            -
            
            
            220,537Texas
            
            
            -
            
            
            96,162Total
            
            $
            70,457
            
            $
            1,248,940





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




18


**INDEX
      OIL AND GAS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


**(unaudited)**




**NOTE
      13 - SUBSEQUENT EVENTS**







Subsequent
      to the three months ended June 30, 2006, the Company agreed with operator
      Crawford Energy to increase its WI (working interest) in wells Vieman #1 from
      12.5% to 17% and Taffy #2 from 7.5% to 20%.





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





On
      August
      3, 2006, the Company filed an amended preliminary Proxy Statement on Schedule
      14(a) with the SEC pursuant to which the Company is seeking stockholder approval
      and/or ratification of certain proposals as set forth in the Proxy Statement,
      the terms of which are incorporated by reference herein. For more information,
      please see Item 4 “Submission of Matters to a Vote of Security
      Holders.”







19


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





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





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





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







20


**Overview**





Index
      Oil
& Gas, Inc. (“Index” or “the Company”) is an independent oil and gas company
      engaged in the acquisition, development, production and exploration of oil
      and
      gas properties located in North America. The Company included a United Kingdom
      company, which provides management services and United States operating
      subsidiaries, which are engaged in the exploration for, development, production
      and sale of oil and natural gas, primarily in Kansas and the Gulf Coast of
      Texas
      and Louisiana. We have increased our proved reserves and production principally
      through acquisitions in conjunction with an active drilling program. The Company
      does not currently operate any of its properties and sells its current oil
      production to domestic crude oil purchasers. The Company is also participating
      with ADC Petroleum, L.P. (“ADC”) in
      the
      reprocessing of an area of up to 226 square miles of existing 3D land seismic
      data already available to ADC as a result of its participation in an agreement
      signed between ADC and two of its other industry partners (the "ADC Agreement") covering
      prospective areas in the US Gulf Coast. This
      seismic data covers prospective areas in the Gulf Coast U.S., throughout Texas,
      Louisiana and Mississippi. The Company will jointly participate in the
      generation of drilling prospects from such reprocessed data and will jointly
      exploit the prospects generated.





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





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





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







21




**RESULTS
      OF OPERATIONS**







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





We
      had a
      net loss of $319,401 for the three months ended June 30, 2006 compared to a
      net
      loss of $80,275 for the three months


ended
      June 30, 2005, primarily resulting from $170,331 of compensation expense related
      to the issuance of options under the Stock Option Plan at fair market value,
      as
      per SFAS 123-R, and an increase in other general and administrative costs for
      salaries and other operating expenses. The following table summarizes key items
      of comparison and their related increase (decrease) for the fiscal three
      months ended June 30, 2006 and 2005.





**Three
                Months Ended June 30,**
            
            **Increase/****2006**
            
            **2005**
            
            **(Decrease)**Oil
                sales
            
            $
            70,457
            
            $
            47,397
            
            $
            23,060Production
                expenses:Lease
                operating
            
            
            21,236
            
            
            5,409
            
            
            15,827Taxes
                other than income
            
            
            2,680
            
            
            2,069
            
            
            611General
                and administrative:General
                and administrative
            
            
            217,668
            
            
            96,568
            
            
            121,100Stock-based
                compensation
            
            
            170,331
            
            
            -
            
            
            170,331Depletion
                — Full cost
            
            
            21,385
            
            
            18,215
            
            
            3,170Depreciation
                — Other
            
            
            163
            
            
            5,667
            
            
            (5,504
            )Impairment
            
            
            -
            
            
            -
            
            
            -Interest
                expense (income) and other*(1)*
            
            
            (43,605
            )
            
            (257
            )
            
            (43,348
            )Income
                tax benefit (provision)
            
            
            -
            
            
            -
            
            
            -Net
                (loss) income
            
            $
            (319,401
            )
            $
            (80,275
            )
            $
            239,126Production:Natural
                Gas — Mcf
            
            
            -
            
            
            -
            
            
            -Crude
                Oil — Mbbl
            
            
            1.123
            
            
            .954
            
            
            .169Equivalent
                — Mboe
            
            
            1.123
            
            
            .954
            
            
            .169Average
                price per unit*(2)*:Gas
                price per Mcf
            
            $
            -
            
            $
            -
            
            $
            -Oil
                price per Bbl
            
            $
            62.74
            
            $
            49.68
            
            $
            13.06Equivalent
                per Boe
            
            $
            62.74
            
            $
            49.68
            
            $
            13.06Average
                cost per Boe:Production
                expenses:Lease
                operating
            
            $
            18.91
            
            $
            5.67
            
            $
            13.24Taxes
                other than income
            
            $
            2.39
            
            $
            2.17
            
            $
            0.22General
                and administrative expense:General
                and administrative
            
            $
            193.83
            
            $
            101.22
            
            $
            92.61Stock-based
                compensation
            
            $
            151.67
            
            $
            -
            
            $
            151.67Depletion
                expense
            
            $
            19.04
            
            $
            19.09
            
            $
            (0.05
            )







For
      the
      three months ended June 30, 2006, oil and gas sales increased $23,060, from
      the
      same period in 2005, to $70,457. The increase for the three months ended June
      30, 2006 was primarily due to the increase in volumes of 0.2 MBbls from 0.9
      MBbls to 1.1 MBbls or approximately $8,000. Additionally, revenue increased
      approximately $15,000 due to higher commodity prices as our average price per
      barrel increased $13.06, or 26.0%, in 2006 to $62.74 per Bbl from $49.68 per
      Bbl
      in 2005. Continued lower natural gas storage levels, supply uncertainty due
      to
      global events and a weaker U.S. dollar favorably impacted crude oil prices
      again
      in 2006.





Lease
      operating expenses increased $15,827 for the three months ended June 30, 2006
      as
      compared to the same period in 2005. The increase was primarily due to increased
      production on our Kansas properties acquired in 2005. On a per unit basis,
      lease
      operating expenses increased 233% from $5.67 per Bbl in 2006 to $18.91 per
      Bbl
      in 2005 due to an increase in production volumes offset by industry-wide service
      costs associated with the overall increase in commodity prices.





22


Taxes
      other than income increased $611 for the three months ended June 30, 2006 as
      compared to the same period in 2005 due to higher oil and gas revenues and
      on a
      per unit basis increased $0.22 per Bbl to $2.39 per Bbl. Production taxes are
      generally assessed as a percentage of gross oil and/or natural gas
      sales.





General
      and administrative expense for the three months ended June 30, 2006 increased
      $121,100 to $217,668 compared to the same period in 2005 primarily due to fund
      raisings and increased costs of consulting, audit and professional fees, as
      well
      as, an increase in salaries for employees/directors.





Stock-based
      compensation expense was $170,331 for the three months ended June 30, 2006,
      for
      stock option grants made in the fourth fiscal quarter of 2006, with no
      stock-based compensation in 2005. The exercise price and this fair market value
      of the stock options granted were $0.35 and $0.60, respectively. All options
      vested 50% on the date of the grant with the remaining amounts to vest in 25%
      increments in each of the next two years. The expense was calculated based
      on
      fair market value at the date of the grant in accordance with SFAS 123(R).
      During the three months ended June 30, 2006 and 2005, the Company did not grant
      any stock options and warrants.





Depletion
      expense increased $3,170 from the same period in 2005 to $21,385 for the three
      months ended June 30, 2006. This relates to the increase in production over
      the
      prior year quarter. Depletion for oil and gas properties is calculated using
      the
      unit of production method, which essentially depletes the capitalized costs
      associated with the evaluated 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, depletion expense decreased from $19.09 to
      $19.04 per Bbl.





Interest
      income and other increased $43,348 for the three months ended June 30, 2006
      compared to the same period 2005. This increase is due to interest income earned
      on an original $5.12 million equity fund raising in the fourth quarter of fiscal
      2006.





There
      was
      no provision for income taxes for the fiscal three months ended 2006 and 2005
      due to a 100% valuation allowance recorded for the three months ended June
      30,
      2006 and 2005, 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**





Our
      primary sources of cash in the three months ended June 30, 2006 and 2005 were
      from operating activities offset by cash used in repayment of our bank loan
      and
      investing activities for our properties. Operating cash flow fluctuations were
      substantially driven by commodity prices and changes in our production volumes.
      Prices for oil and gas have historically been subject to seasonal influences
      characterized by peak demand and higher prices in the winter heating season
      for
      natural gas and summer travel for oil; however, the impact of other risks and
      uncertainties have influenced prices throughout the recent years. Working
      capital was substantially influenced by these variables. Fluctuation in cash
      flow may result in an increase or decrease in our capital and exploration
      expenditures. See Results of Operations for a review of the impact of prices
      and
      volumes on sales. Cash flows provided by operating activities were primarily
      used to fund exploration and development expenditures. See below for additional
      discussion and analysis of cash flow.





**Three
                Months Ended June 30,****2006**
            
            **2005**Cash
                flows (used in) provided by operating activities
            
            $
            (408,765
            )
            $
            8,709Cash
                flows used in investing activities
            
            
            (170,155
            )
            
            (8,576
            )Cash
                flows provided by (used in) financing activities
                activities
            
            
            (51,797
            )
            
            705,226Effect
                of exchange rate changes
            
            
            8,539
            
            
            (9,763
            )Net
                increase (decrease) in cash and cash equivalents
            
            $
            (622,178
            )
            $
            695,596





**Operating
      Activities**





Net
      cash
      outflow from operating activities during the three months ended June 30, 2006
      was $(408,765) which was a decrease of $417,474 from $8,709 net cash inflow
      during the three months ended June 30, 2005. This decrease was primarily due
      to
      higher operating expenses and taxes on our Kansas properties, as well as
      significantly higher general and administrative expenses offset by higher
      commodity prices and increased sales volumes. These general and administrative
      expenses included $170,331 of stock compensation expense on unvested options
      at
      March 31, 2006. Average equivalent prices increased $13.06 from $49.68 per
      Boe
      in the three months ended June 30, 2005 to $62.74 per Boe in the three months
      ended June 30, 2006. Production volumes increased 0.169 Mboe from 0.954 Mboe
      in
      the three months ended June 30, 2005 to 1.123 Mboe in the three months ended
      June 30, 2006. We expect 2007 production to increase, but we are unable to
      predict the future.





23





**Investing
      Activities**





The
      primary driver of cash used in investing activities was capital spending. We
      establish the budget for these amounts based on our estimate of future commodity
      prices. Due to the volatility of commodity prices, our budget may be
      periodically adjusted during any given year. Cash used in investing activities
      during the three months ended June 30, 2006 was $170,155, which was an increase
      of $161,579 from $8,576 of cash used in investing activities during the three
      months ended June 30, 2005. This increase was primarily due to the
      Company’s commitment to the exercise of its option for Phase 2 with ADC at a
      cost of $142,726. We have
      established a capital budget of approximately $515,600 for developing proven
      reserves for fiscal year ending March 31, 2007, to be funded primarily from
      cash
      flows from operations and recent and future equity fund raisings.





We
      believe the properties present a significant, multi-year development opportunity
      primarily in the Lansing and Arbuckle formations at depths of 3,800 to 4,000
      feet. Successful wells in these fields generally produce for more than 25 years
      and have low operating costs. Our 2006-2007 capital budget of $515,600 related
      to proven but not producing reserves includes
      approximately $514,500 for anticipated capital expenditures related to costs
      on
      proved undeveloped properties.We
      believe we have adequate expected cash flows from operations and available
      capital from our equity fund raising to cover our budgeted capital
      expenditures.





**Financing
      Activities**





Net
      cash
      used by financing activities decreased $757,023 during the three months ended
      June 30, 2006 to $(51,797) as compared to $705,226 during the three months
      ended
      June 30, 2005. During the three months ended June 30, 2006, the Company repaid
      its bank loan and had no debt outstanding. Cash provided by financing activities
      in the three months ended June 30, 2005 was due to proceeds from notes payable
      from affiliates and the bank loan obtained during that period. Management
      believes that we may have the ability to finance through new debt or equity
      offerings, if necessary, our capital requirements, including acquisitions.





**Off-Balance
      Sheet Arrangements**




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





**Inflation**





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





24


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





**Fair
      Market Value of Financial Instruments**





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





**Interest
      Sensitivity**





Since
      we
      do not have any long-term debt subject to variable interest rates, the company
      is not exposed to interest rate sensitivity at June 30, 2006.





**Item
      4. 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 June 30, 2006 to provide reasonable assurance
      that information required to be disclosed in our reports filed or submitted
      under the Exchange Act is recorded, processed, summarized and reported within
      the time periods specified in the Securities and Exchange Commission’  s
      rules
      and forms.There
      was no change in our internal controls or in other factors that could affect
      these controls during our last fiscal quarter that has materially affected,
      or
      is reasonably likely to materially affect, our internal control over financial
      reporting.





**PART
      II**





**Item
      1. Legal Proceedings.**





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





**Item
      1A. Risk Factors.**





There
      have been no material changes in our risk factors from those disclosed
      in Item 1A of our Annual Report on Form 10-K for the year ended March 31,
      2006.





**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.





25





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





None.





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





On
      August
      3, 2006, the Company filed with the SEC an amended preliminary Proxy Statement
      on Schedule 14(a), which is incorporated by reference herein.





The
      following is a summary of the proposals that the Company’s Board of Directors
      (the “Board”) intends to submit to the shareholders of the Company as of a
      certain record date. The Board has not yet determined the date, venue or time
      of
      the special meeting of the Company’s shareholders, and therefore, at the time of
      filing of this report each of the following proposals has not been voted
      on.





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





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





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




4.   
      To adopt the 2006 Incentive Stock Option Plan;





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





6.   
      To transact such other business as may properly come before the Meeting and
      any
      adjournment or postponement thereof.








**Item 5.
      Other Information**





None.





**Item 6.
      Exhibits**





31.1
            
            Certification
                of Periodic Financial Reports by Lyndon West in satisfaction of Section
                302 of the Sarbanes-Oxley Act of 200231.2
            
            Certification
                of Periodic
                Financial Reports by Andrew Boetius in satisfaction of Section 302
                of the
                Sarbanes-Oxley Act of 200232.1
            
            Certification
                of Periodic Financial Reports by Lyndon West in satisfaction of Section
                906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section
                135032.2
            
            Certification
                of Periodic Financial Reports by Andrew Boetius in satisfaction of
                Section
                906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section
                1350





26





**SIGNATURES**




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






**INDEX****O****IL
                & GAS, INC.**Date: August
              11, 2006
            By:
            /s/ Lyndon
              WestLyndon
              WestChief
              Executive Officer


Date: August
              11, 2006
            By:
            /s/ Andrew
              BoetiusAndrew
              BoetiusChief
                Financial Officer





















27