##### Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)

|x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ending March 31, 2008

OR



| ̈ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from
 to

Commission File Number 000-29323

Star Energy Corporation

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Nevada                                                         |  | 87-0643634                          
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)
|                                                               | 
|317 Madison Avenue, New York, New York                         |  | 10017                               
|(Address of principal executive offices)                       |  | (Zip code)                          

(212) 500-5006

(Registrants telephone number, including area code)

Not Applicable

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

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

Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of
the Exchange Act.

Large accelerated filer   ̈                            Accelerated filer   ̈

Non-accelerated filer     ̈                            Smaller reporting company  x

(Do not check if a smaller reporting company)

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

At May 12, 2008, the number of shares
outstanding of the issuers common stock was 33,865,500 shares.



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##### Table of Contents

TABLE OF CONTENTS



|                  |  |                                                                                                                                                                                                                          |  |      
|----------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----
|                  |  |                                                                                                                                                                                                                          |  | Page 
|                  |  | PART I                                                                                                                                                                                                                   |  |      
|                  |  |                                                                                                                                                                                                                         
|ITEM 1.           |  | CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                        |  |      
|                  |  |                                                                                                                                                                                                                         
|                  |  | Unaudited Consolidated Balance Sheets as of March 31, 2008                                                                                                                                                               |  | 3    
|                  |  |                                                                                                                                                                                                                         
|                  |  | Unaudited Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2008 and 2007 and the period from re-entering the Development Stage (October 6, 2006) through March 31, 2008 |  | 4    
|                  |  |                                                                                                                                                                                                                         
|                  |  | Unaudited Consolidated Statements of Stockholders Deficit for the three months ended March 31, 2008 and the period from re-entering the Development Stage (October 6, 2006) through March 31, 2008                      |  | 5    
|                  |  |                                                                                                                                                                                                                         
|                  |  | Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 and the period from re-entering the Development Stage (October 6, 2006) through March 31, 2008                        |  | 6    
|                  |  |                                                                                                                                                                                                                         
|                  |  | Notes to the Unaudited Consolidated Financial Statements                                                                                                                                                                 |  | 7-28 
|                  |  |                                                                                                                                                                                                                         
|ITEM 2.           |  | MANAGEMENTS DISCUSSION AND ANALYSIS                                                                                                                                                                                     |  | 29-34
|                  |  |                                                                                                                                                                                                                         
|ITEM 3.           |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                                                                                               |  | 34   
|                  |  |                                                                                                                                                                                                                         
|ITEM 4.           |  | CONTROLS AND PROCEDURES                                                                                                                                                                                                  |  | 34-35
|                  |  |                                                                                                                                                                                                                         
|                  |  | PART II                                                                                                                                                                                                                  |  |      
|                  |  |                                                                                                                                                                                                                         
|ITEM 6.           |  | EXHIBITS                                                                                                                                                                                                                 |  | 36   
|                  |  |                                                                                                                                                                                                                         
|SIGNATURES        |  |                                                                                                                                                                                                                          |  | 37   
|                  |  |                                                                                                                                                                                                                         
|INDEX TO EXHIBITS |  |                                                                                                                                                                                                                          |  | 38   



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##### Table of Contents

PART I  FINANCIAL INFORMATION



|ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS
|------- | ---------------------------------

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Consolidated Balance Sheets

March 31, 2008 and December 31, 2007

Unaudited



|                                                                                                                                                                              |  |                |             |   |                            |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | -------------------------- | - | ----------- | -
|                                                                                                                                                                              |  | March 31, 2008 |             |   | December 31,2007 (Audited) |  
|                                                                                                                                                                              |  |                |             |  
|                                                                                                                                                                              |  |               
|ASSETS                                                                                                                                                                        |  |                |             |   |                            |   |             |  
|                                                                                                                                                                              |  |               
|Current                                                                                                                                                                       |  |                |             |   |                            |   |             |  
|Cash                                                                                                                                                                          |  | $              | 308,173     |   |                            | $ | 1,048,720   |  
|Prepaid expenses and other current assets                                                                                                                                     |  |                | 31,597      |   |                            |   | 34,556      |  
|                                                                                                                                                                              |  |                |             |  
|                                                                                                                                                                              |  |               
|Total Current Assets                                                                                                                                                          |  |                | 339,770     |   |                            |   | 1,083,276   |  
|                                                                                                                                                                              |  |               
|Equipment(note 8)                                                                                                                                                             |  |                | 28,883      |   |                            |   | 31,337      |  
|                                                                                                                                                                              |  |               
|Debt Issuance Costs(note 9)                                                                                                                                                   |  |                | 376,616     |   |                            |   | 427,358     |  
|                                                                                                                                                                              |  |                |             |  
|                                                                                                                                                                              |  |               
|Total Assets                                                                                                                                                                  |  | $              | 745,269     |   |                            | $ | 1,541,971   |  
|                                                                                                                                                                              |  |                |             |  
|                                                                                                                                                                              |  |               
|LIABILITIES                                                                                                                                                                   |  |                |             |   |                            |   |             |  
|                                                                                                                                                                              |  |               
|Current                                                                                                                                                                       |  |                |             |   |                            |   |             |  
|Accounts payable                                                                                                                                                              |  | $              | 405,426     |   |                            | $ | 60,859      |  
|Accrued liabilities                                                                                                                                                           |  |                | 508,931     |   |                            |   | 389,297     |  
|                                                                                                                                                                              |  |                |             |  
|                                                                                                                                                                              |  |               
|Total Current Liabilities                                                                                                                                                     |  |                | 914,357     |   |                            |   | 450,156     |  
|                                                                                                                                                                              |  |               
|Convertible Debentures, Net of Discount(note 10)                                                                                                                              |  |                | 7,374,864   |   |                            |   | 7,358,179   |  
|                                                                                                                                                                              |  |                |             |  
|                                                                                                                                                                              |  |               
|Total Liabilities                                                                                                                                                             |  |                | 8,289,221   |   |                            |   | 7,808,335   |  
|                                                                                                                                                                              |  |                |             |  
|                                                                                                                                                                              |  |               
|Commitments and Contingencies(note 13)                                                                                                                                        |  |                |             |   |                            |   |             |  
|                                                                                                                                                                              |  |               
|STOCKHOLDERS DEFICIT                                                                                                                                                         |  |                |             |   |                            |   |             |  
|                                                                                                                                                                              |  |               
|Capital Stock(note 11)                                                                                                                                                        |  |                |             |   |                            |   |             |  
|                                                                                                                                                                              |  |               
|Authorized                                                                                                                                                                    |  |                |             |   |                            |   |             |  
|5,000,000 preferred stock, par value $0.001 per share 225,000,000 common stock, par value $0.001 per share Issued and outstanding 33,865,500 common stock (2007 - 33,865,500) |  |                | 33,866      |   |                            |   | 33,866      |  
|                                                                                                                                                                              |  |               
|Additional Paid-in Capital                                                                                                                                                    |  |                | 3,903,865   |   |                            |   | 3,794,690   |  
|                                                                                                                                                                              |  |               
|Accumulated Deficit and Deficit Accumulated During the Development Stage                                                                                                      |  |                | (11,481,683 | ) |                            |   | (10,094,920 | )
|                                                                                                                                                                              |  |                |             |  
|                                                                                                                                                                              |  |               
|Total Stockholders Deficit                                                                                                                                                   |  |                | (7,543,952  | ) |                            |   | (6,266,364  | )
|                                                                                                                                                                              |  |                |             |  
|                                                                                                                                                                              |  |               
|Total Liabilities and Stockholders Deficit                                                                                                                                   |  | $              | 745,269     |   |                            | $ | 1,541,971   |  
|                                                                                                                                                                              |  |                |             |  

(The accompanying notes are an integral part of these unaudited consolidated financial
statements.)



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STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Consolidated Statements of Operations and Comprehensive Loss

Three Months
Ended March 31, 2008 and 2007, and the Period from Re-entering

the Development Stage (October 6, 2006) through March 31, 2008

Unaudited



|                                                                                       |  |                                 |            |   |                                                    |   |            |                                                                            |  |   |             |  
|-------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | -------------------------------------------------- | - | ---------- | -------------------------------------------------------------------------- |  | - | ----------- | -
|                                                                                       |  | Three MonthsEnded March 31,2008 |            |   | Restated (note 15)Three MonthsEnded March 31, 2007 |   |            | (note 1) Period from Re-entering theDevelopmentStage throughMarch 31, 2008 | 
|                                                                                       |  |                                 |            |  
|                                                                                       |  |                                 |           
|Oil and Gas Revenues                                                                   |  | $                               |           |   |                                                    | $ |           |                                                                            |  | $ |            |  
|                                                                                       |  |                                 |           
|Operating Expenses                                                                     |  |                                 |            |   |                                                    |   |            |                                                                            |  |   |             |  
|Professional fees                                                                      |  |                                 | 540,321    |   |                                                    |   | 135,607    |                                                                            |  |   | 1,845,542   |  
|Salary and benefits                                                                    |  |                                 | 271,707    |   |                                                    |   | 369,717    |                                                                            |  |   | 1,955,718   |  
|Due diligence                                                                          |  |                                 | 183,667    |   |                                                    |   |           |                                                                            |  |   | 1,747,801   |  
|Office and general                                                                     |  |                                 | 111,179    |   |                                                    |   | 35,072     |                                                                            |  |   | 854,364     |  
|Consulting                                                                             |  |                                 | 19,655     |   |                                                    |   | 905,000    |                                                                            |  |   | 1,091,944   |  
|Advertising and promotion                                                              |  |                                 | 17,570     |   |                                                    |   | 181,968    |                                                                            |  |   | 402,181     |  
|Travel                                                                                 |  |                                 | 13,714     |   |                                                    |   | 26,604     |                                                                            |  |   | 153,201     |  
|Depreciation - equipment                                                               |  |                                 | 2,454      |   |                                                    |   |           |                                                                            |  |   | 4,838       |  
|Expiration of rights to contract to acquire oil and gas properties (note 7)            |  |                                 |           |   |                                                    |   |           |                                                                            |  |   | 1,392,500   |  
|                                                                                       |  |                                 |            |  
|                                                                                       |  |                                 |           
|Total Operating Expenses                                                               |  |                                 | 1,160,267  |   |                                                    |   | 1,653,968  |                                                                            |  |   | 9,448,089   |  
|                                                                                       |  |                                 |            |  
|                                                                                       |  |                                 |           
|Loss from Continuing Operations                                                        |  |                                 | (1,160,267 | ) |                                                    |   | (1,653,968 | )                                                                          |  |   | (9,448,089  | )
|                                                                                       |  |                                 |            |  
|                                                                                       |  |                                 |           
|Other Income (Expense)                                                                 |  |                                 |            |   |                                                    |   |            |                                                                            |  |   |             |  
|Interest income                                                                        |  |                                 | 2,983      |   |                                                    |   | 6,108      |                                                                            |  |   | 25,253      |  
|Loss on sale of marketable securities                                                  |  |                                 |           |   |                                                    |   | (1,932     | )                                                                          |  |   | 9,678       |  
|Costs associated with the rescission of the stock purchase agreement                   |  |                                 |           |   |                                                    |   |           |                                                                            |  |   | (650,000    | )
|Debt forgiven                                                                          |  |                                 |           |   |                                                    |   |           |                                                                            |  |   | 30,000      |  
|Foreign exchange loss                                                                  |  |                                 |           |   |                                                    |   |           |                                                                            |  |   | (1,369      | )
|Debenture interest                                                                     |  |                                 | (229,427   | ) |                                                    |   | (145,833   | )                                                                          |  |   | (1,350,355  | )
|                                                                                       |  |                                 |            |  
|                                                                                       |  |                                 |           
|Total Other Income (Expense)                                                           |  |                                 | (226,444   | ) |                                                    |   | (141,657   | )                                                                          |  |   | (1,936,793  | )
|                                                                                       |  |                                 |            |  
|                                                                                       |  |                                 |           
|Loss Before Income Taxes                                                               |  |                                 | (1,386,711 | ) |                                                    |   | (1,795,625 | )                                                                          |  |   | (11,384,882 | )
|                                                                                       |  |                                 |           
|Provision for income taxes (note 12)                                                   |  |                                 | 52         |   |                                                    |   | 600        |                                                                            |  |   | 1,352       |  
|                                                                                       |  |                                 |            |  
|                                                                                       |  |                                 |           
|Net Loss and Comprehensive Loss                                                        |  | $                               | (1,386,763 | ) |                                                    | $ | (1,796,225 | )                                                                          |  | $ | (11,386,234 | )
|                                                                                       |  |                                 |            |  
|                                                                                       |  |                                 |           
|Net Loss Per Common Share - Basic and Diluted                                          |  | $                               | (0.041     | ) |                                                    | $ | (0.046     | )                                                                          |  |   |             |  
|                                                                                       |  |                                 |            |   |                                                    |   |            |                                                                           
|                                                                                       |  |                                 |           
|Basic and Diluted Weighted Average Number of Common Shares Outstanding During the Year |  |                                 | 33,865,500 |   |                                                    |   | 38,904,167 |                                                                            |  |   |             |  
|                                                                                       |  |                                 |            |   |                                                    |   |            |                                                                           

(The accompanying notes are an integral part of these unaudited consolidated financial statements.)



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STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Consolidated Statements of Stockholders (Deficit) Equity

Three Months
Ended March 31, 2008 and the Period from Re-entering the Development Stage

(October 6, 2006) through March 31, 2008

Unaudited



|                                                                                                 |  |                                        |   |  |                               |         |   |                                             |   |             |                                                                     |  |   |                                                |   |  |   |             |  
|------------------------------------------------------------------------------------------------ |  | -------------------------------------- | - |  | ----------------------------- | ------- | - | ------------------------------------------- | - | ----------- | ------------------------------------------------------------------- |  | - | ---------------------------------------------- | - |  | - | ----------- | -
|                                                                                                 |  | Restated(note 16)Number ofCommonShares |   |  | Restated(note 16)CapitalStock |         |   | Restated (note 16)AdditionalPaid-in Capital |   |             | AccumulatedDeficit and DeficitAccumulatedDuring theDevelopmentStage |  |   | Restated (note 16)Stockholders(Deficit)Equity |  
|                                                                                                 |  |                                        |  
|                                                                                                 |  |                                        |   |  |                              
|Balance, October 6, 2006, date of re-entering the development stage                              |  | 31,562,500                             |   |  | $                             | 31,563  |   |                                             | $ | 77,363      |                                                                     |  | $ | (96,465                                        | ) |  | $ | 12,461      |  
|                                                                                                 |  |                                        |   |  |                              
|Common shares cancelled (note 11)                                                                |  | (3,250,000                             | ) |  |                               | (3,250  | ) |                                             |   | (41,123     | )                                                                   |  |   |                                               |   |  |   | (44,373     | )
|                                                                                                 |  |                                        |   |  |                              
|Common shares issued to purchase Volga-Neft (notes 6 and 11)                                     |  | 10,000,000                             |   |  |                               | 10,000  |   |                                             |   | 11,690,000  |                                                                     |  |   |                                               |   |  |   | 11,700,000  |  
|                                                                                                 |  |                                        |   |  |                              
|Common shares issued for services (note 11)                                                      |  | 425,000                                |   |  |                               | 425     |   |                                             |   | 1,183,825   |                                                                     |  |   |                                               |   |  |   | 1,184,250   |  
|                                                                                                 |  |                                        |   |  |                              
|Net loss for the period                                                                          |  |                                       |   |  |                               |        |   |                                             |   |            |                                                                     |  |   | (1,112,857                                     | ) |  |   | (1,112,857  | )
|                                                                                                 |  |                                        |  
|                                                                                                 |  |                                        |   |  |                              
|Balance, December 31, 2006                                                                       |  | 38,737,500                             |   |  |                               | 38,738  |   |                                             |   | 12,910,065  |                                                                     |  |   | (1,209,322                                     | ) |  |   | 11,739,481  |  
|                                                                                                 |  |                                        |   |  |                              
|Common shares issued for services (note 11)                                                      |  | 250,000                                |   |  |                               | 250     |   |                                             |   | 869,750     |                                                                     |  |   |                                               |   |  |   | 870,000     |  
|                                                                                                 |  |                                        |   |  |                              
|Common shares issued for services (note 11)                                                      |  | 20,000                                 |   |  |                               | 20      |   |                                             |   | 75,980      |                                                                     |  |   |                                               |   |  |   | 76,000      |  
|                                                                                                 |  |                                        |   |  |                              
|Common shares cancelled (notes 6 and 11)                                                         |  | (10,000,000                            | ) |  |                               | (10,000 | ) |                                             |   | (11,690,000 | )                                                                   |  |   |                                               |   |  |   | (11,700,000 | )
|                                                                                                 |  |                                        |   |  |                              
|Common shares issued for services (note 11)                                                      |  | 8,000                                  |   |  |                               | 8       |   |                                             |   | 2,552       |                                                                     |  |   |                                               |   |  |   | 2,560       |  
|                                                                                                 |  |                                        |   |  |                              
|Common shares issued for the purchase of the options to acquire oil and gas properties (note 11) |  | 4,750,000                              |   |  |                               | 4,750   |   |                                             |   | 1,277,750   |                                                                     |  |   |                                               |   |  |   | 1,282,500   |  
|                                                                                                 |  |                                        |   |  |                              
|Common shares issued for the payment of late interest on convertible debentures (note 11)        |  | 100,000                                |   |  |                               | 100     |   |                                             |   | 41,900      |                                                                     |  |   |                                               |   |  |   | 42,000      |  
|                                                                                                 |  |                                        |   |  |                              
|Options vested for employee services (note 11)                                                   |  |                                       |   |  |                               |        |   |                                             |   | 106,475     |                                                                     |  |   |                                               |   |  |   | 106,475     |  
|                                                                                                 |  |                                        |   |  |                              
|Relative value of warrants attached to convertible debentures (note 10)                          |  |                                       |   |  |                               |        |   |                                             |   | 200,218     |                                                                     |  |   |                                               |   |  |   | 200,218     |  
|Net loss for the year                                                                            |  |                                       |   |  |                               |        |   |                                             |   |            |                                                                     |  |   | (8,885,598                                     | ) |  |   | (8,885,598  | )
|                                                                                                 |  |                                        |  
|                                                                                                 |  |                                        |   |  |                              
|Balance, December 31, 2007                                                                       |  | 33,865,500                             |   |  |                               | 33,866  |   |                                             |   | 3,794,690   |                                                                     |  |   | (10,094,920                                    | ) |  |   | (6,266,364  | )
|                                                                                                 |  |                                        |   |  |                              
|Options vested for employee services (note 11)                                                   |  |                                       |   |  |                               |        |   |                                             |   | 109,175     |                                                                     |  |   |                                               |   |  |   | 109,175     |  
|                                                                                                 |  |                                        |   |  |                              
|Net loss for the period                                                                          |  |                                       |   |  |                               |        |   |                                             |   |            |                                                                     |  |   | (1,386,763                                     | ) |  |   | (1,386,763  | )
|                                                                                                 |  |                                        |  
|                                                                                                 |  |                                        |   |  |                              
|Balance, March 31, 2008                                                                          |  | 33,865,500                             |   |  | $                             | 33,866  |   |                                             | $ | 3,903,865   |                                                                     |  | $ | (11,481,683                                    | ) |  | $ | (7,543,952  | )
|                                                                                                 |  |                                        |  

(The accompanying notes are an integral part of these unaudited consolidated financial statements.)



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STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Consolidated Statements of Cash Flows

Three Months Ended March 31, 2008
and 2007, and the Period from Re-entering

the Development Stage (October 6, 2006) through March 31, 2008

Unaudited



|                                                                                    |  |                                 |            |   |                                 |   |            |                                                                                              |  |   |             |  
|----------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------- | - | ---------- | -------------------------------------------------------------------------------------------- |  | - | ----------- | -
|                                                                                    |  | Three MonthsEnded March 31,2008 |            |   | Three MonthsEnded March 31,2007 |   |            | Restated (note 16)(note 1) Period from Re-entering theDevelopmentStage throughMarch 31, 2008 | 
|                                                                                    |  |                                 |            |  
|Cash Flows from Operating Activities                                                |  |                                 |            |   |                                 |   |            |                                                                                              |  |   |             |  
|Net loss                                                                            |  | $                               | (1,386,763 | ) |                                 | $ | (1,796,225 | )                                                                                            |  | $ | (11,386,234 | )
|Adjustments to reconcile non-cash items:                                            |  |                                 |            |   |                                 |   |            |                                                                                              |  |   |             |  
|Depreciation - equipment                                                            |  |                                 | 2,454      |   |                                 |   |           |                                                                                              |  |   | 4,808       |  
|Amortization - debt issuance costs                                                  |  |                                 | 50,742     |   |                                 |   | 45,833     |                                                                                              |  |   | 232,284     |  
|Stock based compensation expense                                                    |  |                                 | 109,175    |   |                                 |   | 291,812    |                                                                                              |  |   | 1,399,900   |  
|Amortization - debt discount                                                        |  |                                 | 16,685     |   |                                 |   |           |                                                                                              |  |   | 75,082      |  
|Issuance of common stock for services                                               |  |                                 |           |   |                                 |   | 870,000    |                                                                                              |  |   | 889,660     |  
|Expiration of rights to contract to acquire oil and gas properties                  |  |                                 |           |   |                                 |   |           |                                                                                              |  |   | 1,392,500   |  
|Issuance of common stock for the payment of late interest on convertible debentures |  |                                 |           |   |                                 |   |           |                                                                                              |  |   | 42,000      |  
|Changes in working capital:                                                         |  |                                 |            |   |                                 |   |            |                                                                                              |  |   |             |  
|Prepaid expenses and other current assets                                           |  |                                 | 2,959      |   |                                 |   | (44,137    | )                                                                                            |  |   | (31,597     | )
|Accounts payable                                                                    |  |                                 | 344,567    |   |                                 |   | (369,667   | )                                                                                            |  |   | 399,079     |  
|Accrued liabilities                                                                 |  |                                 | 119,634    |   |                                 |   | 90,010     |                                                                                              |  |   | 508,931     |  
|                                                                                    |  |                                 |            |  
|Net Cash Used in Operating Activities from Continuing Operations                    |  |                                 | (740,547   | ) |                                 |   | (912,374   | )                                                                                            |  |   | (6,473,587  | )
|                                                                                    |  |                                 |            |  
|Cash Flows from Investing Activities                                                |  |                                 |            |   |                                 |   |            |                                                                                              |  |   |             |  
|Purchase of marketable securities                                                   |  |                                 |           |   |                                 |   | (592,500   | )                                                                                            |  |   |            |  
|Additions to equipment                                                              |  |                                 |           |   |                                 |   |           |                                                                                              |  |   | (33,721     | )
|Purchase of options to acquire oil and gas properties                               |  |                                 |           |   |                                 |   |           |                                                                                              |  |   | (110,000    | )
|Advances of loan receivable                                                         |  |                                 |           |   |                                 |   | (2,000,000 | )                                                                                            |  |   | (3,000,000  | )
|Proceeds from collection of loan receivable                                         |  |                                 |           |   |                                 |   |           |                                                                                              |  |   | 3,000,000   |  
|                                                                                    |  |                                 |            |  
|                                                                                    |  |                                 |           
|Net Cash Used in Investing Activities from Continuing Operations                    |  |                                 |           |   |                                 |   | (2,592,500 | )                                                                                            |  |   | (143,721    | )
|                                                                                    |  |                                 |            |  
|Cash Flows from Financing Activities                                                |  |                                 |            |   |                                 |   |            |                                                                                              |  |   |             |  
|Proceeds from issuance of note payable                                              |  |                                 |           |   |                                 |   |           |                                                                                              |  |   | (30,000     | )
|Proceeds from issuance of convertible debentures                                    |  |                                 |           |   |                                 |   | 7,500,000  |                                                                                              |  |   | 7,500,000   |  
|Proceeds from loan payable                                                          |  |                                 |           |   |                                 |   |           |                                                                                              |  |   | 1,000,000   |  
|Repayment of loan payable                                                           |  |                                 |           |   |                                 |   | (1,000,000 | )                                                                                            |  |   | (1,000,000  | )
|Debt issuance costs                                                                 |  |                                 |           |   |                                 |   | (550,000   | )                                                                                            |  |   | (550,000    | )
|Advances from related party                                                         |  |                                 |           |   |                                 |   |           |                                                                                              |  |   | (2,785      | )
|                                                                                    |  |                                 |            |  
|Net Cash Provided by Financing Activities from Continuing Operations                |  |                                 |           |   |                                 |   | 5,950,000  |                                                                                              |  |   | 6,917,215   |  
|                                                                                    |  |                                 |            |  
|Cash Flows from Discontinued Operations:                                            |  |                                 |            |   |                                 |   |            |                                                                                              |  |   |             |  
|Operating cash flows                                                                |  |                                 |           |   |                                 |   |           |                                                                                              |  |   | 7,968       |  
|Investing cash flows                                                                |  |                                 |           |   |                                 |   |           |                                                                                              |  |   | 44,403      |  
|Financing cash flows                                                                |  |                                 |           |   |                                 |   |           |                                                                                              |  |   | (44,373     | )
|                                                                                    |  |                                 |            |  
|Net Cash Provided by Discontinued Operations                                        |  |                                 |           |   |                                 |   |           |                                                                                              |  |   | 7,998       |  
|                                                                                    |  |                                 |            |  
|                                                                                    |  |                                 |           
|Net (Decrease) Increase in Cash                                                     |  |                                 | (740,547   | ) |                                 |   | 2,445,126  |                                                                                              |  |   | 307,905     |  
|                                                                                    |  |                                 |           
|Cash - Beginning of Period                                                          |  |                                 | 1,048,720  |   |                                 |   | 1,703      |                                                                                              |  |   | 268         |  
|                                                                                    |  |                                 |            |  
|                                                                                    |  |                                 |           
|Cash - End of Period                                                                |  | $                               | 308,173    |   |                                 | $ | 2,446,829  |                                                                                              |  | $ | 308,173     |  
|                                                                                    |  |                                 |            |  

Supplemental Disclosure of Cash Flow Information(note 15)

(The accompanying notes are an integral part of these unaudited consolidated financial statements.)



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31,
2007

(Unaudited)



|1. | Description of Business
|-- | -----------------------

Star Energy Corporation
was organized under the laws of the State of Nevada on December 7, 1999. Star Energy Corporation and Subsidiaries (the Company) is seeking to acquire, explore and develop oil and gas properties, presently in Ukraine.

The Companys operations began on July 2, 2003 when it purchased a 15% working interest and 12% net revenue interest in eight oil and gas
producing wells known as the Galvan Ranch Gas Wells in Webb County, Texas.

During the second quarter of 2006, the Company concluded that
the Galvan Ranch Gas Wells, which had generated revenues of only $55,852 in 2005 and $33,431 for the nine months ended September 30, 2006, were not meeting expectations, were without perceived growth potential and were a distraction to the
Companys ability to raise financing and grow. The Companys then principal shareholder was not interested in pursuing a strategy of focusing on areas in Russia and the former Soviet Union, rather than the United States. Therefore, in
conjunction with the Companys acquisition of Volga-Neft Limited Company (Volga-Neft) described below, the Company transferred its interest in the Galvan Ranch Gas Wells to its then principal shareholder in exchange for 3,250,000
shares of the Companys common stock, which the Company redirected to the contemporaneous acquisition of Volga-Neft. See note 11.

Under its new strategy, on October 6, 2006, the Company acquired 100% of the capital stock of Volga-Neft, a Russian limited liability company primarily engaged in the processing and sale of crude oil in Samara, Russia.

On April 13, 2007, the Company was advised by the audit firm that purportedly audited the financial statements of Volga-Neft covering certain
periods prior to the Companys acquisition of Volga-Neft that such financial statements were not audited by that firm. The Company therefore concluded that those financial statements could not be relied upon, determined that certain
representations, warranties and covenants made by the stockholders of Volga-Neft were untrue, and determined that other information provided to the Company with respect to the business, financial condition, operations and prospects of Volga-Neft was
not reliable. Accordingly, the Company decided to seek, and obtained, rescission of the transaction through a Rescission Agreement dated June 14, 2007 among the Company, Volga-Neft and the former shareholders of Volga-Neft. See notes 6, 11, 15
and 16.

As a result of the disposition of the Galvan Ranch Gas Wells and rescission of the Volga-Neft agreement, as of October 6,
2006, the Company was considered to have re-entered the development stage.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|2. | Going Concern
|-- | -------------

The accompanying unaudited
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America with the assumption that the Company will be able to realize its assets and discharge its liabilities in
the normal course of business.

The Company is in the development stage and has not realized revenues from its planned operations. The
Company has sustained losses of $1,386,763 and $1,796,225 for the three month periods ended March 31, 2008 and 2007, respectively. As of March 31, 2008, the Company had negative working capital of $574,587 (compared to a positive working
capital of $633,120 at December 31, 2007) and an accumulated deficit of $11,481,683 (compared to $10,094,920 at December 31, 2007). The Company has funded operations by raising $7,500,000 through debt financing on February 9, 2007
(see note 10) and through the issuance of capital stock. Managements plan is to seek additional funds through future equity and/or debt financing until it achieves profitable operations from oil and gas drilling activities. Although the
Company plans to seek additional financing, there can be no assurance that the Company will be able to secure financing or obtain such on satisfactory terms. The Companys continuation as a going concern depends upon its ability to raise funds
and achieve and sustain profitable operations.

The accompanying unaudited consolidated financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the inability of the Company to continue as a going concern.



|3. | Summary of Significant Accounting Policies
|-- | ------------------------------------------

The
accounting policies of the Company are in accordance with U.S. generally accepted accounting principles, and their basis of application is consistent with that of the previous year. Outlined below are those policies considered particularly
significant:



| | a) | Basis of Presentation
| | -- | ---------------------

The unaudited interim consolidated
financial statements presented herein have been prepared by the Company in accordance with U.S. generally accepted accounting principles for interim financial statements and in accordance with the instructions to Form 10-QSB and Regulation S-X
pertaining to interim financial statements. Accordingly, they do not include all information and notes required by U.S. generally accepted accounting principles for complete financial statements. The unaudited interim consolidated financial
statements reflect all adjustments, consisting of normal recurring adjustments and accruals which, in the opinion of management, are considered necessary for a fair presentation of the Companys consolidated financial position, results of
operations and cash flows for the interim periods presented.

Results of operations for the interim periods are not necessarily indicative
of results of operations for future interim periods or for the full fiscal year ending December 31, 2008.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|3. | Summary of Significant Accounting Policies(contd)
|-- | --------------------------------------------------



| | b) | Principles of Consolidation
| | -- | ---------------------------

The unaudited consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiaries, Anglo-Ukr-Energy LLC (AUE) and Cosmonite Limited. All significant inter- company balances and transactions have been eliminated on consolidation.



| | c) | Reporting Currency
| | -- | ------------------

The U.S. dollar has been used as the
unit of measurement in these unaudited consolidated financial statements.



| | d) | Investments
| | -- | -----------

The Company has accounted for its investment
in Volga-Neft using the cost method of accounting for investments described in paragraph 6a, APB No. 18, The Equity Method of Accounting for Investments in Common Stock. Under the cost method of accounting, the Company carried the
investment at historical cost and periodically evaluated the fair value of the investment to determine if an other-than-temporary decline in value had occurred.



| | e) | Debt Issuance Costs
| | -- | -------------------

Debt issuance costs are stated at
cost and are being amortized on a straight line basis over three years.



| | f) | Equipment
| | -- | ---------

Equipment is stated at cost. Depreciation is
provided using the straight-line method based on the following estimated useful lives:



|                               |  |         |  | 
|------------------------------ |  | ------- |  | 
|Computer hardware              |  | 3 years |  | 
|Computer software - general    |  | 3 years |  | 
|Computer software - accounting |  | 5 years |  | 
|Office equipment               |  | 5 years |  | 
|Furniture and fixtures         |  | 7 years |  | 



| | g) | Revenue Recognition
| | -- | -------------------

Revenue is recognized from oil sales
at such time as the oil is delivered to the buyer. Revenue is recognized from gas sales when the gas passes through the pipelines at the well head. The Company believes that both oil and gas revenues should be recognized at these times because
ownership of the oil and gas generally passes to the customer at these times. Management believes that this policy meets the criteria of the Securities and Exchange Commissions (SEC) Staff Accounting Bulletin No. 104
Revenue Recognition in Financial Statements in that there is persuasive evidence of an existing contract or arrangement, delivery has occurred, the price is fixed and determinable and collectability is reasonably assured.

The Company does not have any gas balancing arrangements.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|3. | Summary of Significant Accounting Policies(contd)
|-- | --------------------------------------------------



| | g) | Revenue Recognition (contd)
| | -- | ----------------------------

Interest income is
recognized on the accrual basis.



| | h) | Comprehensive Income (Loss)
| | -- | ---------------------------

The Company has adopted
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. (SFAS No. 130). SFAS No. 130 establishes standards for the reporting and presentation of comprehensive
income (loss) and its components in a full set of financial statements. Comprehensive income (loss) is presented in the statements of operations, and consists of net income and unrealized gains (losses) on available for sale marketable securities;
foreign currency translation adjustments and changes in market value of future contracts that qualify as a hedge; and negative equity adjustments recognized in accordance with SFAS No. 87, Employers Accounting for Pensions.
SFAS No. 130 requires only additional disclosures in the financial statements and does not affect the Companys financial position or results of operations.



| | i) | Asset Retirement Obligations
| | -- | ----------------------------

For operating properties,
costs associated with environmental remediation obligations are accrued in accordance with SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS No 143). SFAS No. 143 requires the Company to record a
liability for the present value of the estimated environmental remediation costs, and the related asset created with it, in the period in which the liability is incurred. The liability will be accreted and the asset will be depreciated over the life
of the related assets. Adjustments for changes resulting from the passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation will be made.

For non-operating properties, costs associated with environmental remediation obligations are accrued when it is probable that such costs will be
incurred and they can be reasonably estimated. Estimates for reclamation and other closure costs are prepared in accordance with SFAS No. 5 Accounting for Contingencies, or Statement of Position 96-1 Environmental Remediation
Liabilities. Accruals for estimated losses from environmental remediation obligations have historically been recognized no later than completion of the remedial feasibility study for each facility and are charged to provision for closed
operations and environmental matters. Costs of future expenditures for environmental remediation are not discounted to their present value unless subject to a contractually obligated fixed payment schedule. Such costs are based on managements
current estimate of amounts to be incurred when the remediation work is performed, within current laws and regulations.

Future closure,
reclamation and environmental-related expenditures are difficult to estimate, in many circumstances, due to the early stage nature of investigations, and uncertainties associated with defining the nature and extent of environmental contamination and
the application of laws and regulations by regulatory authorities and changes in reclamation or remediation technology. Management periodically reviews accrued liabilities for such reclamation and remediation costs as evidence becomes available
indicating that the Companys liabilities have potentially changed.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|3. | Summary of Significant Accounting Policies(contd)
|-- | --------------------------------------------------



| | j) | Income Tax
| | -- | ----------

The Company accounts for income taxes
pursuant to SFAS No. 109, Accounting for Income Taxes (SFAS No. 109) and FIN No. 48, Accounting for Uncertainty in Income Taxes (FIN No. 48). Deferred taxes are provided under a
liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.



| | k) | Impairment of Long-lived Assets
| | -- | -------------------------------

The Company evaluates
the recoverability of long-lived assets and the related estimated remaining lives when events or circumstances lead management to believe that the carrying value of an asset may not be recoverable. Recoverability is assessed based on the carrying
amount of a long-lived asset compared to the sum of the future undiscounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable (exceeds the
total undiscounted cash flows expected from its use and disposition) and exceeds its fair value. For the periods ended March 31, 2008 and December 31, 2007, no events or circumstances occurred for which an evaluation of the recoverability
of long-lived assets was required.



| | l) | Earnings (Loss) per Share
| | -- | -------------------------

The Company has adopted SFAS
No.128, Earnings per Share which requires disclosure on the consolidated financial statements of basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding for the year. In contrast, diluted earnings (loss) per share considers the potential dilution that occurs from other financial instruments that would increase the total number of outstanding shares of
common stock. The computation of diluted earnings (loss) per share has not been presented as its effect would be anti-dilutive.



| | m) | Pension and Post-employment Benefits
| | -- | ------------------------------------

The Companys
mandatory contributions to the governmental pension plan are expensed when incurred. Discretionary pensions and other post-employment benefits are not material.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|3. | Summary of Significant Accounting Policies(contd)
|-- | --------------------------------------------------



| | n) | Concentration of Credit Risk
| | -- | ----------------------------

SFAS No. 105,
Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit Risk, requires disclosure of any significant off-balance-sheet risk and credit risk concentration.
The Company does not have significant off-balance-sheet risk or credit risk concentration.

The Company provides credit to its clients in
the normal course of its operations. It carries out, on a continuing basis, credit checks on its clients and maintains provisions for contingent credit losses that, once they materialize, are consistent with managements forecasts.

For other receivables, the Company determines, on a continuing basis, the probable losses and sets up a provision for losses based on the estimated
realizable value.



| | o) | Use of Estimates
| | -- | ----------------

Preparation of consolidated financial
statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to the consolidated
financial statements. These estimates are based on managements best knowledge of current events and actions the Company may undertake in the future. Actual results may ultimately differ from those estimates, although management does not
believe such changes will materially affect the consolidated financial statements in any individual year.



| | p) | Share-Based Payment
| | -- | -------------------

The Company has adopted the
disclosure requirements of SFAS No. 123(R), Share-Based Payment (SFAS No. 123(R)) for stock options and similar equity instruments (collectively, options) issued to employees. The Company applies the
fair-value based method of accounting as prescribed by SFAS No. 123(R). Under the fair-value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is
usually the vesting period. For stock options, the fair value is determined using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the
underlying stock, the expected dividends on it, and the risk-free interest rate over the expected life of the option. SFAS No. 123(R) also applies to transactions in which an entity issues its equity instruments to acquire goods or services
from non-employees. Those transactions must be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

Value of options granted has been estimated using the Black-Scholes option pricing model. The assumptions are evaluated annually and revised as necessary
to reflect market conditions and additional experience.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|3. | Summary of Significant Accounting Policies(contd)
|-- | --------------------------------------------------



| | q) | Convertible Debenture with Stock Purchase Warrants
| | -- | --------------------------------------------------

The
Company has issued convertible debt with non-detachable conversion features and detachable warrants. The values assigned to the warrants and embedded conversion feature of the debt is based on the guidance of Emerging Issue Task Force
(EITF) No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios (EITF No. 98-5), EITF No. 00-19, Accounting for
Derivative Financial Instruments to, and Potentially Settled in, a Companys Own Stock (EITF No. 00-19), SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity (SFAS No. 150) and EITF No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments of the FASBs Emerging Issues Task Force (EITF No. 00-27). The
non-detachable conversion feature and detachable warrants are recorded as a discount to the related debt either as additional paid-in capital or a derivative liability, depending on the guidance, using the intrinsic value method or relative fair
value method, respectively. The debt discount associated with the warrants and embedded conversion feature, if any, is amortized to interest expense over the life of the debenture or upon earlier conversion of the debenture using either the
effective yield method or the straight-line method, as appropriate.



| | r) | Recent Accounting Pronouncements
| | -- | --------------------------------

In September 2006, the
Financial Accounting Standards Board (FASB) issued FASB Staff Position SFAS No. 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair value and expands
the related disclosure requirements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. SFAS 157 indicates, among other things, that a fair
value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. SFAS
157 defines fair value based upon an exit price model. In February 2008, the FASB issued FASB Staff Positions (FSP) SFAS No. 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive
Accounting Pronouncements That Address Leasing Transactions, and FSP SFAS No. 157-2, Effective Date of FASB Statement No. 157. FSP SFAS 157-1 removes leasing transactions from the scope of SFAS No. 157, while SFAS
No. 157-2 defers the effective date of SFAS 157 to the fiscal year beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. It does not defer recognition and disclosure requirements for financial assets and financial liabilities, or for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually. Effective January 1,
2008, the Company adopted SFAS 157, with the exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial liabilities. The adoption of SFAS 157 did not impact the Companys financial position or results of
operations.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|3. | Summary of Significant Accounting Policies(contd)
|-- | --------------------------------------------------



| | r) | Recent Accounting Pronouncements (contd)
| | -- | -----------------------------------------

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (SFAS 159). This Statement permits all entities to
choose, at specified election dates, to measure eligible items at fair value (the fair value option). A business entity is to report unrealized gains and losses on items for which the fair value option has been elected in earnings at
each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected is to be recognized in earnings as incurred and not deferred. SFAS 159 became effective for the Company as of January 1, 2008.
The Company has not elected the fair value option for any of its arrangements. Accordingly, the adoption of SFAS 159 did not have any impact on the Companys consolidated financial statements.

In April 2008, FASB issued FASB Staff Position SFAS No. 142-3, Determination of the Useful Life of Intangible Assets (FSP SFAS
No. 142-3). FSP SFAS No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognizable intangible asset under SFAS No. 142, Goodwill
and Other Intangible Assets (SFAS No. 142). The intent of FSP SFAS No. 142-3 is to improve the consistency between the useful life of a recognizable intangible asset under SFAS No. 142 and the period of expected cash
flows used to measure the fair value of the asset under SFAS 141(R), Business Combinations and other U.S. generally accepted accounting principles. FSP SFAS No. 142-3 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company does not anticipate that the adoption of FSP SFAS No. 142-3 will have an impact on its financial position or
results of operations.



|4. | Financial Instruments
|-- | ---------------------

Unless otherwise noted, it
is managements opinion that the Company is not exposed to significant interest, currency or credit risks arising from the financial instruments. The fair value of the financial instruments approximates their carrying values, unless otherwise
noted.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|5. | Fair Value Measurements
|-- | -----------------------

Effective January 1,
2008, the Company adopted SFAS 157, except as it applies to the nonfinancial assets and nonfinancial liabilities subject to FSP SFAS 157-2. SFAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset
or a liability. As a basis for considering such assumptions, SFAS 157 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:



|          |  |                                                                                                                 
|--------- |  | ----------------------------------------------------------------------------------------------------------------
|Level 1 - |  | Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|          | 
|Level 2 - |  | Include other inputs that are directly or indirectly observable in the marketplace.                             
|          | 
|Level 3 - |  | Unobservable inputs which are supported by little or no market activity.                                        

The fair value hierarchy also requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.

Cash and cash equivalents (level 1), accounts payable and accrued
liabilities (level 2) are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments.



|6. | Investment in Volga-Neft and Rescission of Stock Purchase Agreement
|-- | -------------------------------------------------------------------

The Company acquired, on October 6, 2006, 100% of the capital stock in Volga-Neft for 10,000,000 shares of the Companys common stock for an aggregate value of $11,700,000, based on the closing market price
of the Companys common stock on that date. The 100% investment in Volga-Neft has been recorded at its cost amount using the cost method of accounting for investments described in paragraph 6a of APB No. 18, The Equity Method of
Accounting for Investments in Common Stock.

On April 13, 2007, the Company was advised by the audit firm that purportedly
audited the financial statements of Volga-Neft covering certain periods prior to the Companys acquisition of Volga-Neft that those financial statements were not audited by that firm. The Company therefore concluded that those financial
statements could not be relied upon, determined that certain representations, warranties and covenants made by the stockholders of Volga-Neft were untrue, and determined that other information provided to the Company with respect to the business,
financial condition, operations and prospects of Volga-Neft was not reliable. Accordingly, the Company decided to seek, and obtained, rescission of the transaction.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|6. | Investment in Volga-Neft and Rescission of Stock Purchase Agreement(contd)
|-- | ---------------------------------------------------------------------------

Under the Stock Purchase Agreement, the shareholders of Volga-Neft made numerous representations and warranties, including that Volga-Nefts books
and records were complete and correct, represented actual transactions and were maintained in accordance with sound business practice. As part of the Companys further investigation once it was advised that the audit firm that purportedly
audited the pre-acquisition financial statements of Volga-Neft disclaimed performing an audit of the pre-acquisition financial statements of Volga-Neft, the Company was advised by Volga-Nefts internal accountant that the revenues of Volga-Neft
for the period of January 1, 2006 through December 31, 2006 were actually $47 million (rather than the $83 million reflected in financial statements provided to the Company for the shorter January 1, 2006 through October 6, 2006
period). The Company was also advised by an accounting firm which it intended to retain to re-audit Volga-Nefts financial statements, among other things, that documents requested were not provided, that reconciliations did not
exist, that no observations of inventories had occurred in the past and that some properties listed as owned by Volga-Neft may have been leased. These factors led to the conclusion that the books and records of Volga-Neft were not complete and
correct and were not maintained in accordance with sound business practice. These factors also put into question the Companys ability to rely on other representations and warranties made by the shareholders of Volga-Neft. In addition, because
the independent auditor was unable to audit opening balances for post-acquisition financial statements of Volga-Neft, the Company could not receive the comfort that a post-closing audit provides an acquirer with respect to the accuracy of
representations and warranties.

In lieu of retaining Volga-Neft and spending the time, effort and cost of trying to establish the degree
to which breaches existed and the level of damages sustained, and then seek indemnification against the Volga-Neft shareholders in Russia, the Company determined that it was in its best interests to seek rescission of the Stock Purchase Agreement.
Consequently, the Company obtained rescission of the transaction. By a Rescission Agreement dated June 14, 2007 among the Company, Volga-Neft and the former shareholders of Volga-Neft, the Stock Purchase Agreement under which the Company
acquired all of the outstanding shares of capital stock of Volga-Neft was rescinded; the Company returned the shares of Volga-Neft it received to the former stockholders of Volga-Neft who, in turn, returned to the Company the 10,000,000 shares of
the Companys common stock that had been previously issued to them, and the Company cancelled those shares. The cancellation of the shares was accounted for at its recorded amount of $11,700,000 using the guidance of paragraph 23 of APB 29,
Accounting for Nonmonetary Transactions. In addition, Volga-Neft issued a $4,200,000 promissory note in the Companys favor to repay $3,000,000 of loans made to Volga-Neft since the acquisition and to reimburse the Company for costs
and damages incurred by the Company. The Company, in turn, sold the promissory note to a non-related third party on a non-recourse basis for $3,000,000. See notes 11, 15 and 16.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|7. | Option to Acquire Oil and Gas Properties
|-- | ----------------------------------------

On
August 1, 2007, the Company entered into separate agreements with each of Firecreek Petroleum, Inc. (Firecreek), a wholly-owned subsidiary of EGPI Firecreek, Inc., PJM Management, Inc. (PJM) and Double Coin Ltd.
(Double Coin), pursuant to which the Company acquired from Firecreek and Double Coin any and all of their rights and interests with respect to certain projects in Ukraine, consisting of 100% of a project known as the Region Project, 51%
of a project known as the Dewon ZAO Project and 100% of a project known as the Bukovyna Project (the Projects). Of the rights held by Firecreek and Double Coin, one was a letter of intent for AUE to acquire the Region Project for $5.5
million, the second was an oral understanding pursuant to which the Company entered into a letter of intent to acquire 51% of the Dewon ZAO Project for $40.0 million and the third was a contract for AUE to acquire the Bukovyna Project for $20.0
million. AUE was a company being formed on behalf of Firecreek and Double Coin in Ukraine to acquire the Projects. The Company was granted the right to complete, and did complete, the organization of AUE as a subsidiary of the Company. In exchange
for the Companys acquisition of the rights of Firecreek and Double Coin, the Company issued 2,100,000 shares of the Companys common stock and paid $100,000 to Firecreek and issued 2,500,000 shares of the Companys common stock to
Double Coin. The Company issued 150,000 shares of the Companys common stock and paid $10,000 to PJM which acted as a finder for Firecreek and Double Coin. The shares were valued at $0.27 per share for a total consideration of $1,392,500. The
purchase price for the Companys acquisition of the rights of Firecreek and Double Coin and PJMs finders fee was negotiated with them and was equal to approximately 2.1% of the total purchase price that was to be paid to the owners
of the Projects, based on the market value of the Companys common stock at the time the Company entered into the agreements with Firecreek, PJM and Double Coin. Firecreek, PJM and Double Coin are not related to the Company, its officers,
directors and affiliates.

The Companys right to proceed with respect to one of these projects expired on November 10, 2007,
while the rights to the other two projects expired on November 15, 2007 and November 26, 2007, respectively. The Company sought extensions from the owners of the Projects, but was unable to negotiate an extension of the letter of intent
with respect to the Dewon ZAO Project (which was needed to complete due diligence and seek requisite financing for the Project), unable to obtain the due diligence materials it needed with respect to the Region Project and unable to obtain the
necessary financing for the Bukovyna Project. Accordingly, the Company no longer has rights to acquire any of the Projects and, as such, the options to acquire the oil and gas properties have been completely written-off. The Company has commenced an
arbitration proceeding against Firecreek and Double Coin seeking a return of the consideration paid to them.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|8. | Equipment
|-- | ---------

Equipment is comprised of the
following:



|                               |  |      |        |                                      |   |        |  |                                         |        |  |   |        | 
|------------------------------ |  | ---- | ------ | ------------------------------------ | - | ------ |  | --------------------------------------- | ------ |  | - | ------ | 
|                               |  | Cost |        | March 31,2008AccumulatedDepreciation |   | Cost   |  | December 31,2007AccumulatedDepreciation |       
|                               |  |      |        |                                     
|                               |  |      |        |                                     
|Computer hardware              |  | $    | 17,105 |                                      | $ | 3,229  |  | $                                       | 17,105 |  | $ | 1,813  | 
|Computer software - accounting |  |      | 6,416  |                                      |   | 428    |  |                                         | 6,416  |  |   | 107    | 
|Computer software - general    |  |      | 5,054  |                                      |   | 654    |  |                                         | 5,054  |  |   | 164    | 
|Office equipment               |  |      | 2,930  |                                      |   | 342    |  |                                         | 2,930  |  |   | 195    | 
|Furniture and fixtures         |  |      | 2,216  |                                      |   | 185    |  |                                         | 2,216  |  |   | 105    | 
|                               |  |      |        |                                     
|                               |  |      |        |                                     
|                               |  | $    | 33,721 |                                      | $ | 4,838  |  | $                                       | 33,721 |  | $ | 2,384  | 
|                               |  |      |        |                                     
|                               |  |      |        |                                     
|Net carrying amount            |  |      |        |                                      | $ | 28,883 |  |                                         |        |  | $ | 31,337 | 
|                               |  |      |        |                                      |   |        |  |                                         |        |  |   |        | 



|9. | Debt Issuance Costs
|-- | -------------------



|                    |  |      |         |                                      |   |         |  |                                         |         |  |   |         | 
|------------------- |  | ---- | ------- | ------------------------------------ | - | ------- |  | --------------------------------------- | ------- |  | - | ------- | 
|                    |  | Cost |         | March 31,2008AccumulatedAmortization |   | Cost    |  | December 31,2007AccumulatedAmortization |        
|                    |  |      |         |                                     
|                    |  |      |         |                                     
|Debt issuance costs |  | $    | 608,900 |                                      | $ | 232,284 |  | $                                       | 608,900 |  | $ | 181,542 | 
|                    |  |      |         |                                     
|                    |  |      |         |                                     
|Net carrying amount |  |      |         |                                      | $ | 376,616 |  |                                         |         |  | $ | 427,358 | 
|                    |  |      |         |                                      |   |         |  |                                         |         |  |   |         | 

The debt issuance costs were incurred in connection with the issuance of the convertible
debentures as described in note 10.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|10. | Convertible Debentures
|--- | ----------------------

On February 9, 2007,
the Company entered into a securities purchase agreement, whereby the Company issued $7,500,000 in principal amount of convertible debentures. The convertible debentures bear interest at 8% per annum, are secured by all the assets of the
Company and mature on February 9, 2010. The debentures were originally convertible into common shares at the option of the holders, at a conversion price of $2.00 per share. In addition, the debenture holders were issued warrants which allow
the holders to purchase, at any time until February 9, 2012, up to 2,437,500 common shares. The warrants were originally exercisable at an exercise price of $3.81 per share. The debentures have a conversion price adjustment clause to adjust the
conversion price based on certain events, including a stock split and, with certain exceptions, stock issuances at less than the conversion price.

The rescission of the acquisition of Volga-Neft could have resulted in the acceleration of the maturity of some or all of the Companys debentures issued in February 2007 and that otherwise would be due on February 9, 2010 or
earlier upon acceleration, following an event of default, pursuant to a debentures agreement. Prior thereto, the Company, through its Chief Executive Officer, obtained the oral approval of the debenture holders. Pursuant to the terms of a
registration rights agreement between the Company and the purchasers of the debentures, dated as of February 9, 2007, the Company agreed to prepare and file, by April 15, 2007, with the SEC, a registration statement for the purpose of
registering for resale all of the shares of the Companys common stock issuable upon conversion of the debentures and the exercise of the warrants. The Company has not, to date, filed the registration statement. The registration rights
agreement provided that, if the Company did not file the registration statement by April 15, 2007, and if the registration statement was not declared effective by the SEC by July 15, 2007, and in certain other circumstances (including if
the registration statement did not remain continuously effective except for certain limited periods for specified reasons), the Company was to pay, on the applicable date and each monthly anniversary of that date, as partial liquidated damages, 1.5%
of the principal amount of the debentures then held by the debenture holders.

On October 11, 2007, the Company entered into waiver
and consent agreements with the holders of the debentures, in which the debenture holders, among other things, waived all accrued liquidated damages under the registration rights agreement and agreed that future liquidated damages would not be
payable if the Company filed the requisite registration statement by April 11, 2008. In consideration for such agreement by the holders of debentures in the principal amount of $5,000,000, the Company paid $302,322 to such debenture holders,
with the conversion price of those debentures remaining at $2.00 per share and the warrants to purchase up to 1,625,000 shares of common stock remaining at $3.81 per share, in each case subject to potential anti-dilution adjustments. In
consideration for such agreement by the holders of debentures in the principal amount of $2,500,000, the Company issued 100,000 shares of common stock to such debenture holders, reduced the conversion price of the debentures from $2.00 to $.75 per
share of the Companys common stock, and lowered the exercise price of the warrant to purchase up to 812,500 shares of common stock from $3.81 to $.75 per share until October 11, 2010, which will then revert to $3.81 per share, in each
case subject to potential anti-dilution adjustments. Subsequent to the period end, the waiver and consent agreements were amended (see note 17).



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|10. | Convertible Debentures(contd)
|--- | ------------------------------

On
February 28, 2008, the Company entered into waiver and consent agreements with the holders of its outstanding 8% secured convertible debentures, in which the debenture holders, among other things, deferred until April 11, 2009 interest
that would otherwise be due on April 1, 2008. In consideration therefore, the Company has agreed to pay a premium of $12,000 on April 1, 2009.

Discount on Debt-Relative Fair Value of Warrants

Accounting Principles Board Opinion No. 14
(APB No. 14) Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants, provides that the total proceeds from the issuance of debt with detachable stock purchase warrants should be allocated to the
warrants and debt based on their relative fair values. Based on the relative fair values of the warrants, the Company recorded $200,218 as debt discount reducing the carrying value of the debt.

The debt discount is being amortized over the term of the debt. For the three month periods ended March 31, 2008 and 2007, the amortization of debt
discount was $16,685 and Nil, respectively, and is included in debenture interest in other expenses. The unamortized debt discount at March 31, 2008 was $125,136 (December 31, 2007- $141,821).



|11. | Capital Stock
|--- | -------------

On October 6, 2006, an
assignment and bill of sale was entered into between the Company and Ruauridh Campbell, who contemporaneously ceased being an officer, director and principal shareholder of the Company. Pursuant to the assignment, Mr. Campbell agreed to
transfer to the Company for cancellation 3,250,000 shares of the Companys common stock. In consideration thereof, the Company agreed to assign to Mr. Campbell the Companys interest in and to certain oil and gas wells, which
comprised the Companys only operating assets until that time, known as the Galvan Ranch Gas Wells, which are located in Webb County, Texas, having a book value at the time of $44,373. The closing market price of the Companys common stock
on October 6, 2006 was $1.17 per share. However, a large number of shares exchanged by Mr. Campbell were restricted securities that were not subject to a current registration statement and were subject to a relatively thin trading market
for the Companys common stock. In addition, the Galvan Ranch Gas Wells produced minimal, if any, positive cash flows to the Company. In accordance with SFAS 153, Exchanges of Nonmonetary Assets, the Company recorded the stock
received at the then book value of its interest in the Galvan Ranch Gas Wells and generated no profit or loss on the exchange.

On
October 6, 2006, the Company issued 10,000,000 common shares to acquire Volga-Neft valued at $11,700,000.

On November 29, 2006,
the Company issued 400,000 common shares for employment services valued at $1,113,000.

On December 18, 2006, the Company issued
25,000 common shares for employment services valued at $71,250.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|11. | Capital Stock(contd)
|--- | ---------------------

On
March 1, 2007, the Company issued 250,000 common shares for consulting and other services valued at $870,000.

On April 11, 2007,
the Company issued 4,500 common shares for investor relations services valued at $17,100.

On April 11, 2007, the Company issued
15,500 common shares for finance services valued at $58,900.

On June 14, 2007, the Company rescinded its acquisition of Volga-Neft
and cancelled the 10,000,000 common shares returned to the Company by Volga-Neft. The transaction was accounted for at its recorded amount of $11,700,000 using the guidance of paragraph 23 of APB 29, Accounting for Nonmonetary
Transactions.

On August 1, 2007, the Company issued 8,000 common shares for finance services valued at $2,560.

On October 5, 2007, the Company issued 4,750,000 common shares valued at $1,282,500, in accordance with the purchase agreements of August 1,
2007, described in note 7.

On November 1, 2007, the Company issued 100,000 common shares valued at $42,000, in accordance with the
waiver and consent agreements of October 11, 2007 as described in note 10.

All the shares issued were valued based on the closing
market price of the Companys common stock on the date of their issuance.

Warrants

On February 9, 2007, the Company issued warrants to the debenture holders which allow the holders to purchase, at any time until February 9,
2012, up to 2,437,500 common shares. The warrants were originally exercisable at a price of $3.81 per share. On October 11, 2007, the Company entered into waiver and consent agreements with the holders of the debentures in the amount of
$2,500,000 to reduce the exercise price of the warrant to purchase up to 812,500 shares of common stock from $3.81 to $.75 per share until October 11, 2010, which will then revert to $3.81 per share, subject to potential anti-dilution
adjustments.

On February 12, 2007, the Company issued warrants to a third party in connection with the placement of the debentures
which allow the holders to purchase, at any time until February 12, 2012, up to 262,500 common shares at a price of $3.81 per share.

Outstanding stock warrants have not been included in the calculation of the diluted earnings per share as their inclusion would be anti-dilutive.

No warrants have been exercised to date.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|11. | Capital Stock(contd)
|--- | ---------------------

Warrants
(contd)

As of March 31, 2008, warrants to purchase 2,700,000 shares were outstanding, having an exercise price of $0.75 (as to
812,500 shares) and $3.81 per share (as to 1,887,500 shares) with a weighted average exercise price of $2.89 per share and an average remaining contractual life of 3.83 years.



|                              |  |                   |  |                              |      |                                         |            | 
|----------------------------- |  | ----------------- |  | ---------------------------- | ---- | --------------------------------------- | ---------- | 
|                              |  | Number ofWarrants |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualTerm |           
|                              |  |                   | 
|Balance, January 1, 2007      |  |                  |  | $                            |     |                                         |            | 
|                              |  |                   | 
|Issued during the year        |  | 2,700,000         |  |                              | 2.89 |                                         |            | 
|Exercised during the year     |  |                  |  |                              |     |                                         |            | 
|Forfeitures during the year   |  |                  |  |                              |     |                                         |            | 
|Expired during the year       |  |                  |  |                              |     |                                         |            | 
|                              |  |                   |  |                              |     
|                              |  |                   | 
|Balance, December 31, 2007    |  | 2,700,000         |  |                              | 2.89 |                                         | 4.08 years | 
|                              |  |                   | 
|Issued during the period      |  |                  |  |                              |     |                                         |            | 
|Exercised during the period   |  |                  |  |                              |     |                                         |            | 
|Forfeitures during the period |  |                  |  |                              |     |                                         |            | 
|Expired during the period     |  |                  |  |                              |     |                                         |            | 
|                              |  |                   |  |                              |     
|                              |  |                   | 
|Balance, March 31, 2008       |  | 2,700,000         |  | $                            | 2.89 |                                         | 3.83 years | 
|                              |  |                   |  |                              |     

Warrants were valued using the Black-Scholes model, using the weighted average key assumptions of
volatility of 0% - 111%, a risk-free interest rate of 4.3% - 4.78%, a term equivalent to the life of the warrant, and reinvestment of all dividends in the Company at zero percent.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|11. | Capital Stock(contd)
|--- | ---------------------

Stock Options

On August 15, 2007, the Board of Directors of the Company adopted the Companys 2007 Stock Option Plan (2007 Plan)
to allow options to purchase up to 4,000,000 shares of the Companys common stock to be granted to employees and non-employee directors.

On August 22, 2007, the Company granted options to purchase 1,900,000 shares of the Companys common stock under the 2007 Plan at an exercise price of $0.44 per share, the closing market price of the Companys common stock on
the date of grant.

On August 27, 2007, the Company granted options to purchase 100,000 shares of the Companys common stock
under the 2007 Plan at an exercise price of $0.58 per share, the closing market price of the Companys common stock on the date of grant.

On October 2, 2007, the Company granted options to purchase 200,000 shares of the Companys common stock under the 2007 Plan at an exercise price of $0.30 per share, the closing market price of the Companys common stock on
the date of grant.

October 5, 2007, the Company granted options to purchase 200,000 shares of the Companys common stock under
the 2007 Plan at an exercise price of $0.47 per share, the closing market price of the Companys common stock on the date of grant.

October 15, 2007, the Company granted options to purchase 150,000 shares of the Companys common stock under the 2007 Plan at an exercise price of $0.41 per share, the closing market price of the Companys common stock on the
date of grant.

Presently outstanding options vest in three equal annual installments commencing one year after the date of grant, and have
a term of 10 years from the date of grant.

For the three month periods ended March 31, 2008 and 2007, outstanding stock options have
not been included in the calculation of the diluted earnings per share as their inclusion would be anti-dilutive.

No options have been
exercised to date.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|11. | Capital Stock(contd)
|--- | ---------------------

Stock Options
(contd)

The following table sets forth certain information concerning the Companys stock options granted, exercised, forfeited
and expired during the periods ended March 31, 2008 and December 31, 2007:



|                           |  |                        |  |                                   |  |                              |      |                                         |            | 
|-------------------------- |  | ---------------------- |  | --------------------------------- |  | ---------------------------- | ---- | --------------------------------------- | ---------- | 
|                           |  |                        |  | Number ofSharesSubject toIssuance |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualTerm |           
|                           |  |                        |  |                                   | 
|                           |  |                        |  |                                  
|Balance, January 1, 2007   |  |                        |  |                                  |  | $                            |     |                                         |            | 
|                           |  |                        |  |                                  
|Granted                    |  |                        |  | 2,550,000                         |  |                              | 0.44 |                                         |            | 
|Exercised                  |  |                        |  |                                  |  |                              |     |                                         |            | 
|Forfeited                  |  |                        |  |                                  |  |                              |     |                                         |            | 
|Expired                    |  |                        |  |                                  |  |                              |     |                                         |            | 
|                           |  |                        |  |                                   |  |                              |     
|                           |  |                        |  |                                  
|Balance, December 31, 2007 |  |                        |  | 2,550,000                         |  |                              | 0.44 |                                         | 9.69 years | 
|                           |  |                        |  |                                  
|Granted                    |  |                        |  |                                  |  |                              |     |                                         |            | 
|Exercised                  |  |                        |  |                                  |  |                              |     |                                         |            | 
|Forfeited                  |  |                        |  |                                  |  |                              |     |                                         |            | 
|Expired                    |  |                        |  |                                  |  |                              |     |                                         |            | 
|                           |  |                        |  |                                   |  |                              |     
|                           |  |                        |  |                                  
|Balance, March 31, 2008    |  |                        |  | 2,550,000                         |  | $                            | 0.44 |                                         | 9.44 years | 
|                           |  |                        |  |                                   |  |                              |     
|                           |  |                        |  |                                  
|Exercisable, end of period |  |                        |  |                                  |  | $                            |     |                                         |            | 
|                           |  |                        |  |                                   |  |                              |     
|                           |  |                        |  |                                  
|                           |  | Range ofexerciseprices |  | Number ofSharesSubject toIssuance |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualTerm |           
|                           |  |                        | 
|                           |  |                        |  |                                  
|                           |  | $0.30 - $0.58          |  | 2,550,000                         |  | $                            | 0.44 |                                         | 9.44 years | 

The compensation cost recognized for stock-based compensation was $109,175 and Nil for the three
month periods ended March 31, 2008 and 2007, respectively.

As of March 31, 2008 and 2007, there was $893,433 and Nil,
respectively, of the total unrecognized compensation cost, net of estimated forfeitures, related to all unvested stock options, which is expected to be recognized over a weighted average period of approximately 3 years.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|11. | Capital Stock(contd)
|--- | ---------------------

Stock Options
(contd)

There were no options granted during the three month periods ended March 31, 2008 and 2007.



|12. | Income Taxes
|--- | ------------

The Company accounts for income
taxes pursuant to SFAS No. 109 and FIN No. 48. This standard prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates. The effects of future changes in tax laws or rates are not anticipated.

Under SFAS No. 109, income taxes are recognized for the following: a) amount of tax payable for the current year, and b) deferred tax liabilities and assets for future tax consequences of events that have been recognized differently in
the financial statements than for tax purposes.

The current provision for income taxes have been computed as follows:



|                                                                      |  |               |          |   |               |   |          |  
|--------------------------------------------------------------------- |  | ------------- | -------- | - | ------------- | - | -------- | -
|                                                                      |  | March 31,2008 |          |   | March 31,2007 |  
|                                                                      |  |               |          |  
|                                                                      |  |              
|Expected income tax recovery at the statutory rate - 31% (2007 - 31%) |  | $             | (435,427 | ) |               | $ | (563,827 | )
|                                                                      |  |              
|Valuation allowance                                                   |  |               | 435,479  |   |               |   | 564,427  |  
|                                                                      |  |               |          |  
|                                                                      |  |              
|Current provision for income taxes                                    |  | $             | 52       |   |               | $ | 600      |  
|                                                                      |  |               |          |  

The Company has tax losses available to be applied against future years income. Due to the losses
incurred in the current period and expected future operating results, management determined that it is more likely than not that the deferred tax asset resulting from the tax losses available for carryforward and stock option compensation expense
will not be realized through the reduction of future income tax payments. Accordingly, a 100% valuation allowance has been recorded for the current income taxes and the deferred income tax assets.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|12. | Income Taxes(contd)
|--- | --------------------

The Company has
deferred income tax assets as follows:



|                                                   |  |   |            |  
|-------------------------------------------------- |  | - | ---------- | -
|Net operating loss carryforward                    |  | $ | 3,535,127  |  
|Valuation allowance for deferred income tax assets |  |   | (3,535,127 | )
|                                                   |  |   |            |  
|                                                   | 
|                                                   |  | $ |           |  
|                                                   |  |   |            |  

As of March 31, 2008 and December 31, 2007, the Company had approximately $ 11,441,000
and $10,054,000, respectively, of Federal and state net operating loss carryforwards available to offset future taxable income, which expire in 20 years from the date the loss was incurred as follows:



|     |  |   |           
|---- |  | - | ----------
|2026 |  | $ | 1,170,000 
|2027 |  |   | 8,884,000 
|2028 |  |   | 1,387,000 
|     |  |   |           
|     | 
|     |  | $ | 11,441,000
|     |  |   |           



|13. | Commitments and Contingencies
|--- | -----------------------------

Lease

The Company is committed to a lease which expires on November 30, 2008. Future minimum annual payment, inclusive of taxes, under this lease is as
follows:



|     |  |   |       
|---- |  | - | ------
|2008 |  | $ | 58,800
|     |  |   |       

Litigation

In December 2007, the seller of the Bukovyna Project threatened to sue the Company for $5,000,000 as a result of the failure of the Company to consummate the acquisition of that project. The Company has offered to pay
$500,000, provided the Companys lawsuit against the third party financier for wrongfully terminating the loan agreement and failing to provide the requisite funds is successful. The Company cannot estimate its possible loss, if any, or a
reasonable range at this time. If, however, as a result of this potential lawsuit, the Company is required to pay significant monetary damages or settlement costs, the Companys financial position and results of operations could be
substantially harmed.



|14. | Comparative Figures
|--- | -------------------

Certain figures for the
period ended March 31, 2007 and the period from re-entering the development stage (October 6, 2006) through March 31, 2008 have been reclassified to conform with the current periods consolidated financial statement presentation.



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##### Table of Contents

STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|15. | Supplemental Disclosure of Cash Flow Information
|--- | ------------------------------------------------



|                                                                                         |  |                                 |         |                                 |   |                                                                                              |  |   |            |  
|---------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ------------------------------- | - | -------------------------------------------------------------------------------------------- |  | - | ---------- | -
|                                                                                         |  | Three monthsEnded March 31,2008 |         | Three monthsEnded March 31,2007 |   | Restated (note 16)(note 1) Period from Re-entering theDevelopmentStage throughMarch 31, 2008 | 
|                                                                                         |  |                                 |         |                                
|                                                                                         |  |                                 |        
|Non-cash investing activities are as follows:                                            |  |                                 |         |                                 |   |                                                                                              |  |   |            |  
|Issuance of common stock for debt issuance costs (note 9)                                |  | $                               |        |                                 | $ |                                                                                             |  | $ | 58,900     |  
|Increase in loan receivable due to damages related to the Volga Neft rescission (note 6) |  |                                 |        |                                 |   |                                                                                             |  |   | 1,200,000  |  
|Discount on proceeds from collection of loan receivable (note 6)                         |  |                                 |        |                                 |   |                                                                                             |  |   | (1,200,000 | )
|                                                                                         |  |                                 |         |                                
|                                                                                         |  |                                 |        
|Total non-cash investing activities                                                      |  | $                               |        |                                 | $ |                                                                                             |  | $ | 58,900     |  
|                                                                                         |  |                                 |         |                                
|                                                                                         |  |                                 |        
|Non-cash financing activity is as follows:                                               |  |                                 |         |                                 |   |                                                                                              |  |   |            |  
|Discount on convertible debentures (note 10)                                             |  | $                               |        |                                 | $ |                                                                                             |  | $ | 200,218    |  
|                                                                                         |  |                                 |         |                                
|                                                                                         |  |                                 |        
|Interest and income taxes paid during the period:                                        |  |                                 |         |                                 |   |                                                                                              |  |   |            |  
|                                                                                         |  |                                 |        
|Interest                                                                                 |  | $                               | 151,111 |                                 | $ |                                                                                             |  | $ | 837,878    |  
|                                                                                         |  |                                 |         |                                
|                                                                                         |  |                                 |        
|Income taxes                                                                             |  | $                               | 652     |                                 | $ | 600                                                                                          |  | $ | 752        |  
|                                                                                         |  |                                 |         |                                



|16. | Restatement of Previously Issued Financial Statements
|--- | -----------------------------------------------------

The statement of consolidated stockholders (deficit) equity at December 31, 2006 and March 31, 2007 has been corrected to record the acquisition of Volga-Neft using the cost method (note 6). The specific change is to reflect
the issuance of 10,000,000 shares of the Companys common stock valued at $11,700,000 in the statement of consolidated stockholders (deficit) equity at December 31, 2006.



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STAR ENERGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

March 31, 2008 and December 31, 2007

(Unaudited)



|17. | Subsequent Events
|--- | -----------------

On April 9, 2008, the
October 11, 2007 waiver and consent agreements (see note 10) were amended as the Company was unable to file the registration statement by April 11, 2008. The waiver and consent agreements were changed from the Company being required to
file the requisite registration statement by April 11, 2008 to the Company filing the registration statement using its reasonable best efforts, provided that the liquidated damages shall be reinstated should a court of competent jurisdiction
determine that the Company failed to use its reasonable best efforts to file the registration statement.



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS
|------- | ------------------------------------

The following
discussion should be read in conjunction with our financial statements and notes thereto included in this report.

Forward Looking Statements

This Managements Discussion and Analysis and Plan of Operations and other parts of this report contain forward-looking statements that involve
risks and uncertainties. Forward-looking statements can be identified by words such as may, should, anticipates, intends, expects, believes, plans,
predicts, estimates, strategy and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the
forward-looking statements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These risks and uncertainties include, but are not limited to, the following, many of
which are beyond our control: our ability to locate and acquire high oil and gas producing properties, or rights with respect to or interests in, high producing properties; the sufficiency of existing capital resources; our ability to raise
additional capital to fund cash requirements for acquisitions and future operations; our ability to obtain and maintain sufficient energy reserves to fund and maintain operations; the market for any oil and gas production we may generate; domestic
and foreign political conditions; the overall level of the supply of and demand for oil and gas; the price of imports of oil and gas; weather conditions; the price and availability of alternative fuels; the proximity and capacity of oil pipelines
and other transportation facilities to any properties we may acquire or in which we may acquire rights or interests; uncertainties related to our future business prospects, including possible future acquisitions; the volatility of the stock market
in general and our common stock specifically; our ability to maintain the quotation of our common stock on the Over-the-Counter Bulletin Board; and general economic conditions.

We also wish to advise readers not to place any undue reliance on the forward looking statements contained in this report, which reflect our beliefs and expectations only as of the date of this report. We assume no
obligation to update or revise these forward looking statements to reflect new events or circumstances or any changes in our beliefs or expectations, other than as required by law.

Overview

We were incorporated in Nevada on December 7, 1999. Our operations began on July 2, 2003 when we
purchased a 15% working interest and 12% net revenue interest in eight oil and gas producing wells known as the Galvan Ranch Gas Wells in Webb County, West Texas. The wells were on five separate parcels of land spread over 425 acres of
the Galvan Ranch.

During the second quarter of 2006, we believed that the Galvan Ranch Gas Wells, which had generated revenues of only $55,852 in 2005 and
$33,431 for the nine months ended September 30, 2006, were not meeting expectations, were without perceived growth potential and were a distraction to our ability to raise financing and grow. Mr. Ruairidh Campbell, at the time a principal
shareholder and one of our officers and directors, was not interested in pursuing a strategy of focusing on areas in Russia and the former Soviet Union, rather than the United States.

On October 6, 2006, we entered into an Assignment and Bill of Sale with Mr. Campbell pursuant to which we assigned to Mr. Campbell all of our interests in and to the Galvan Ranch Gas Wells. In
consideration therefor, Mr. Campbell transferred to us, for cancellation and return to our authorized but unissued shares of common stock, the 3,250,000 shares of common stock owned by him. As a result, since October 6, 2006, we have no
longer had any interest in the Galvan Ranch Gas Wells and are no longer engaged in the oil and gas business in the United States.



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Under our new strategy, pursuant to a Stock Purchase Agreement, on October 6, 2006, we acquired 100% of the capital
stock of Volga-Neft Limited Company, a Russian limited liability company primarily engaged in the processing and sale of crude oil in Samara, Russia (Volga-Neft), in consideration for our issuance to the stockholders of Volga-Neft of an
aggregate of 10,000,000 shares of our common stock, representing, at the time, 25.6% of our issued and outstanding shares. Thereafter, we borrowed and advanced $3,000,000 of working capital to Volga-Neft.

On April 13, 2007, we were advised by RSM Top-Audit that the financial statements of Volga-Neft, purportedly audited by RSM Top-Audit for periods prior to our
acquisition of Volga-Neft were not audited by that firm.

Under the Stock Purchase Agreement, the shareholders of Volga-Neft made numerous representations
and warranties, including that Volga-Nefts books and records were complete and correct, represented actual transactions and were maintained in accordance with sound business practice. As part of our further investigation once we were advised
that RSM Top-Audit disclaimed performing an audit of the pre-acquisition financial statements of Volga-Neft, we were advised by Volga-Nefts internal accountant that the revenues of Volga-Neft for the period January 1, 2006 through the
December 31, 2006 were actually $47 million (rather than the $83 million reflected in financial statements provided to us for the shorter January 1, 2006 through October 6, 2006 period). We were also advised by an accounting firm
which we intended to retain to re-audit Volga-Nefts financial statements, among other things, that documents requested were not provided, that reconciliations did not exist, that no observations of inventories had occurred in the
past and that some properties listed as owned by Volga-Neft may have been leased. These factors led us to conclude that the books and records of Volga-Neft were not complete and correct and were not maintained in accordance with sound business
practice. These factors also put into question our ability to rely on other representations and warranties made by the stockholders of Volga-Neft. In addition, because our independent auditor was unable to audit opening balances for post-acquisition
financial statements of Volga-Neft, we could not receive the comfort that a post-closing audit provides an acquirer with respect to the accuracy of representations and warranties. In lieu of retaining Volga-Neft and spending the time, effort and
cost of trying to establish the degree to which breaches existed and the level of damages sustained, and then seek indemnification against the Volga-Neft stockholders in Russia, we determined that it was in our best interests to seek rescission of
the Stock Purchase Agreement. By a Rescission Agreement dated June 14, 2007 among us, Volga-Neft and the individuals from whom we acquired the shares of Volga-Neft, the Stock Purchase Agreement was rescinded, we returned the shares of
Volga-Neft we received to the former stockholders of Volga-Neft who, in turn, returned to us the 10,000,000 shares of our common stock that we had previously issued to them. In addition, Volga-Neft issued a $4,200,000 promissory note in our favor to
repay $3,000,000 of loans we made to Volga-Neft since the acquisition and to reimburse us for costs and damages incurred by us. We, in turn, sold the promissory note to a non-related third party on a non-recourse basis for $3,000,000.

We subsequently received a report from Nixon Peabody, LLP, which was based upon certain documentation and interviews conducted with personnel made available by us,
Volga-Neft and RSM Top-Audit, which report did not constitute a comprehensive analysis because a number of key witnesses and certain sources of documentary evidence were not available to Nixon Peabody. Following receipt of that report, we
concluded that it is unlikely that RSM Top-Audit performed any audit of Volga-Nefts financial statements, that RSM Top-Audit may not, in fact, have been engaged by Volga-Neft to perform an audit, and that, while actions taken by various
individuals in Russia, at least one of whom was employed by RSM Top-Audit, may have resulted in our receipt of the purported audit report of RSM Top-Audit, neither we nor any of our officers or directors knew of these facts or the absence of
the audits prior to RSM Top-Audits advice on April 13, 2007 that RSM Top-Audit had not audited the financial statements of Volga-Neft.



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We have instituted an action against RSM Top-Audit, the international accounting network of which RSM Top-Audit is a
member, certain principals of the audit firms and certain other individuals seeking, among other things, damages suffered by us as a result of the falsified audit of Volga-Neft.

As a result of the rescission, we have not included the assets, liabilities or results of operations of Volga-Neft in our financial statements for any period. While the Rescission Agreement does not affect the rights
that any third parties may have against us with respect to agreements entered into, actions taken, or transactions or events that occurred, directly by or with us, we do not believe we have any such obligations. The Rescission Agreement also did not
relieve us with respect to breaches of agreements to which we are a party that may have resulted from the Rescission Agreement.

On August 1, 2007, we
entered into separate agreements with each of Firecreek Petroleum, Inc. (Firecreek), a wholly-owned subsidiary of EGPI Firecreek, Inc., PJM Management, Inc. (PJM) and Double Coin Ltd. (Double Coin), pursuant to
which we acquired from Firecreek and Double Coin any and all of their rights and interests they had with respect to certain projects in Ukraine, consisting of 100% of a project known as the Region Project, 51% of a project known as the Dewon ZAO
Project and 100% of a project known as the Bukovyna Project (the Projects). Of the rights held by Firecreek and Double Coin, one was a letter of intent for Anglo-Ukr-Energy LLC (AUE) to acquire the Region Project for $5.5
million, the second was an oral understanding pursuant to which we entered into a letter of intent to acquire 51% of the Dewon ZAO Project for $40.0 million and the third was a contract for AUE to acquire the Bukovyna Project for $20.0 million. AUE
was a company being formed on behalf of Firecreek and Double Coin in Ukraine to acquire the Projects. We were granted the right to complete, and did complete, the organization of AUE as our subsidiary. In exchange for our acquisition of the rights
of Firecreek and Double Coin, we issued 2,100,000 shares of our common stock and paid $100,000 to Firecreek and issued 2,500,000 shares of our common stock to Double Coin. We issued 150,000 shares of the Companys common stock and paid $10,000
to PJM which acted as a finder for Firecreek and Double Coin. The shares were valued at $0.27 per share for a total consideration of $1,392,500. The purchase price for our acquisition of the rights of Firecreek and Double Coin and PJMs
finders fee was negotiated with them and was equal to approximately 2.1% of the total purchase price that was to be paid to the owners of the Projects, based on the market value of our common stock at the time we entered into the agreements
with Firecreek, PJM and Double Coin. Firecreek, PJM and Double Coin are not related to our officers, directors and affiliates.

Our right to proceed with
respect to these Projects expired on November 10, 2007, November 15, 2007 and November 26, 2007, respectively. We sought extensions from the owners of the Projects, but were unable to negotiate an extension of the letter of
intent with respect to the Dewon ZAO Project (which was needed to complete due diligence and seek requisite financing for the Project), unable to obtain the due diligence materials we needed with respect to the Region Project and unable to obtain
the necessary financing for the Bukovyna Project. Accordingly, we no longer have rights to acquire any of the Projects and, as such, the options to acquire the oil and gas properties have been completely written-off. We have commenced an arbitration
proceeding against Firecreek and Double Coin seeking a return of the consideration paid to them.



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Plans for Future Operations

Prior to October 6, 2006, we were primarily engaged in domestic energy operations. We have shifted our focus entirely to operations situated in the Commonwealth of Independent States that are considered emerging markets and,
particularly, are seeking to capitalize on the opportunities available to us in Ukraine. With the disposition of the Galvan Ranch Wells and the rescission of the Volga-Neft acquisition, we are not currently engaged in an active business. In light of
our prior experience and taking into consideration the risks inherent to operating in emerging markets, we have retained western legal, accounting and geological consultants. Although we are in discussions regarding potential acquisitions, we are
not currently a party to any agreement to acquire properties or rights with respect to oil or gas properties or production.

Results of Operations

We had no active operations during the first three months of 2008 or 2007 as a result of our disposition of the Galvan Ranch Wells in October 2006 and the
rescission of our acquisition of Volga-Neft.

As a result of the disposition and rescission we had no sales in either three month period. We had a loss of
$1,386,763 for the quarter ended March 31, 2008, compared to a loss of $1,796,225 for the comparable period in 2007.

Our principal operating expenses
for the three month reporting periods ended March 31, 2008 and 2007 were as follows:

Professional fees were $540,321 and $135,607 for the three month
periods ended March 31, 2008 and 2007, respectively. The increase was primarily due to legal and accounting services costs incurred in connection with Securities and Exchange Commission related matters, as well as legal expenses related to
proceedings instituted by us against RSM Top-Audit arising out of our acquisition, and rescission of the acquisition, of Volga-Neft, as well as against Firecreek and Double Coin related to expired acquisition rights in Ukraine, and against a third
party financier who failed to provide the requisite financing for the Bukovyna Project.

Salary and benefits for the quarter ended March 31, 2008
aggregated $271,707 compared to $369,717 for the corresponding period in 2007. This decrease of $98,010 was a result of a $182,637 reduction in stock-based compensation costs representing the amortized portion of compensation expense related to the
issuance of shares to certain officers and directors, partially offset by higher employee salaries and benefits principally due to a higher staff level in the 2008 period.

Due diligence expenses were $183,667 for the three month period ended March 31, 2008. We had no such costs during the comparable 2007 period. The 2008 expenses were incurred in conjunction with the collection of
legal, seismic and financial audit data for potential acquisitions in Ukraine.

Office and general expenses for the quarter ended March 31, 2008 were
$111,179 compared to $35,072 for the corresponding period in 2007. The higher year-over-year expenses in this category were primarily due to an increase in Board of Directors fees of $27,000, insurance expenses of $12,241 and the cost of maintaining
our office in Kiev, Ukraine established in September 2007.

Consulting expenses of $19,655 for the three month period ended March 31, 2008 were lower
by $885,345 than in the comparable period of 2007. The 2007 expenses included $870,000 of consulting fees related to Volga-Neft.



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Advertising and promotion expenses were $17,570 and $181,968 for the three month periods ended March 31, 2008 and
2007, respectively. The decrease in the 2008 period is primarily due to the absence of advertising expenses of $150,000 incurred in 2007 for promotional activities subsequent to the acquisition of Volga-Neft.

Travel expenses for the quarter ended March 31, 2008 were $13,714 compared to $26,604 for the similar period in 2007. Travel expenses incurred in the 2007 period
stemmed primarily from trips to the Russian Federation related to Volga-Neft.

Depreciation expense was $2,454 for the three month periods ended
March 31, 2008. We had no depreciation expense in the three months ended March 31, 2007. This expense related to computer hardware and office equipment, as well as furniture and fixtures placed in service in the second half of 2007.

Interest income for the quarter ended March 31, 2008 was $2,983 versus $6,108, partially offset by a $1,932 loss on the sale of marketable
securities, for the comparable period in 2007. This decrease reflects a lower average cash balance, which was highest following our private placement in February 2007 of $7,500,000 of 8% Secured Convertible Debentures.

Interest expense for the quarter ended March 31, 2008 was $229,427 compared to $145,833 for the corresponding period in 2007. This increase is largely due to the
$7,500,000 8% Secured Convertible Debentures we issued on February 12, 2007 being outstanding for a full quarter in 2008 versus a partial quarter for 2007. Interest expense included amortization of deferred debt issuance costs of $50,742 and
debt discount of $16,685 for the three month period ended March 31, 2008 and amortization of debt issuance costs of $45,833 for the three months ended March 31, 2007, all related to the Debentures.

Liquidity and Capital Resources

In February 2007, we sold
$7,500,000 principal amount of our 8% Secured Convertible Debentures to institutional investors for a total purchase price of $7,500,000 (the Debenture Financing). We paid Rodman & Renshaw LLC, placement agent for the Debenture
Financing, $525,000 (7% of the gross proceeds from the sale of the Debentures), plus $25,000 in reimbursement of its expenses, under a placement agency agreement. Most of the cash generated from the private placement has been used to fund subsequent
operating activities.

During the three month period ended March 31, 2008, we used $740,547 to fund our operating activities compared to $912,374 used
in the corresponding period of 2007, a reduction of $171,827. The reduction was mainly due to a $344,567 increase in accounts payable in the 2008 three month period versus a $369,667 decrease in the 2007 corresponding period, a difference of
$714,234.Our net loss on a cash basis was $1,207,707 and $588,580 for the quarters ended March 31, 2008 and 2007, respectively, which resulted in a $619,127 increased use of cash that largely offset the reduced use of cash caused by the
change in accounts payable.

There were no investing or financing activities in the quarter ended March 31, 2008.

Investing activities during the first three months of 2007 consumed net cash of $2,592,500 principally from our advance of a loan to Volga-Neft of $2,000,000 prior to
the return of this amount to us in connection with the rescission in June 2007 of the Volga-Neft transaction, coupled with the purchase of marketable securities of $592,500.



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##### Table of Contents

Financing activities provided net cash of $5,950,000 during the first three months of 2007, resulting from the Debenture
Financing. We used $1,000,000 of the net proceeds of this financing to repay the loan we incurred in 2006 to fund liabilities of Volga-Neft. We received the return of this amount in connection with the rescission in June 2007 of the Volga-Neft
transaction.

We intend to use our remaining available cash of $308,173 to fund our operating activities and to repay certain accrued liabilities.
We expect that these funds will be sufficient to sustain our operations for most of the first half of 2008. By that time, we will require additional capital, through the issuance of equity or debt, until we are able to achieve profitable operations.
Although we plan to seek additional financing, there can be no assurance that we will be able to secure financing or, if so, on satisfactory terms.

Off-Balance Sheet Financing

The Company has no off-balance sheet financing arrangements, within the meaning of Item 303(c) of
Securities and Exchange Commission Regulation S-B.



|ITEM 3. | QUANTITATIVE AND QULITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ---------------------------------------------------------

Not
applicable.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Disclosure Controls and Procedures

Disclosure controls and procedures are the controls and other procedures of a company that are designed to provide reasonable assurance that
information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time period
specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, at the end of the period covered by this report. Based upon this evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and procedures were not effective for the following reasons.



| |  |  | In connection with the preparation of our Annual Report on Form 10-KSB for the year ended December 31, 2006, we identified a deficiency in our disclosure
controls and procedures related to the retention, supervision and communication with the appropriate personnel involved with the audit of Volga-Neft, and in our procedures pertaining to the engagement of auditors of Volga-Neft. Management has
evaluated the impact of this control deficiency on our company and has concluded that this control deficiency represents a material weakness in our controls. We caused an investigation to be taken into the events and procedures involving the
Volga-Neft audit, and our controls and procedures regarding our engagement and communication with independent auditors. As a result of the investigation, our prior experience and taking into consideration the
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | risk factors inherent to operating in emerging markets, we have retained western legal, accounting and geological consultants to aid us in our due diligence
of prospective acquisitions. In addition, we hired a full-time Chief Financial Officer. We believe these measures will benefit us by reducing the likelihood of a similar event occurring in the future.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In addition, we failed to timely file Current Reports on Form 8-K regarding two reportable events during 2007, which we reported in Item 8B, Other
Information, in our Annual Report for the year ended December 31, 2007. Management, including the Companys principal executive officer and principal financial officer, is currently reviewing with legal counsel the Form 8-K rules and
will train appropriate personnel on the responsibilities and performing the controls to timely comply with corporate and regulatory policies and procedures.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Due to our relatively small size and not having present operations, our chief financial officer also performs all accounting functions for us. Thus, we do not have
segregation of duties which is a deficiency in our disclosure controls. We do not presently have the resources to cure this deficiency.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We are in the process of overcoming the issues we faced in connection with the Volga-Neft transaction and our failure to timely file certain periodic reports with the SEC. A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that it will detect or uncover failures to disclose material information otherwise required to be set forth in our periodic reports. Furthermore, the design of any system of controls is based in part
upon certain assumptions about the likelihood of future events and reflects the fact that there are resource constraints such that the benefits of controls must be considered relative to their cost. Accordingly, there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Control over Financial Reporting

Our management has not identified any change in our internal control over financial reporting that occurred during the three months ended
March 31, 2008 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

PART II  OTHER INFORMATION



|ITEM 6. | EXHIBITS
|------- | --------



|            |  |                                                                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                      
|            | 
|31.1        |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|            | 
|31.2        |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|            | 
|32.1        |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                            
|            | 
|32.2        |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                            



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##### Table of Contents

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to
be signed on its behalf by the undersigned, hereunto duly authorized, this 15th day of May, 2008.



|                                                                                        
|----------------------------------------------------------------------------------------
|STAR ENERGY CORPORATION                                                                 
|                                                                                        
|/s/ Michael Kravchenko                                                                  
|Michael Kravchenko Chief Financial Officer
(Principal Financial, and Accounting Officer)



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EXHIBIT INDEX



|            |  |                                                                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                      
|            | 
|31.1        |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|            | 
|31.2        |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|            | 
|32.1        |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                            
|            | 
|32.2        |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                            



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