AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON



### May 14, 2008



SECURITIES AND EXCHANGE
COMMISSIONWASHINGTON, D.C.  20549



### FORM 10-KSB

(Mark One)

[  X ]          ANNUAL REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934For the fiscal year ended:February
29, 2008



[   ]           TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934For the transition period
from_________________ to _________________________



Commission file number:333-91191



### INTERMOUNTAIN REFINING CO., INC.

(Name of small business issuer in its
charter)



|NEW MEXICO                                                     | 74-2329327                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or other jurisdiction of incorporation
or organization) | (I.R.S. Employer Identification
Number)



1921 Bloomfield
BoulevardFarmington, New Mexico 
87401Telephone: (505)
326-2668(Address, including zip code, and
telephone number, including area code, of issuer's principal executive
offices)

Securities registered under Section 12(b) of the Exchange
Act: NoneSecurities registered under
Section 12(g) of the Exchange Act: None

Check whether the issuer is not required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act[    ]

Note - Checking the box above will not relieve any Registrant
required to file reports pursuant to Section 13 or 15(d) of the Exchange Act
from their obligations under those Sections.

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

-Continued-

10-KSB 1<page>

Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [
]	Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act. Yes____ No
_X_



State issuer's revenues for its most recent fiscal year:
$356,296



State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act)  N/A as of April 30, 2008. There
presently is no market maker for the Registrant's common stock. As no public
trading market exists for the stock , bid and ask prices are not
available.Note: If determining whether a
person is an affiliate will involve an unreasonable effort and expense, the
issuer may calculate the aggregate market value of the common equity held by
non-affiliates on the basis of reasonable assumptions, if the assumptions are
stated.

(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING
DURING THE PAST FIVE YEARS)

Check whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes_____ No
_____

(APPLICABLE ONLY TO CORPORATE
REGISTRANTS)



State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 1,155,609 shares
of common stock, no par value, were outstanding on April 30,
2008.

DOCUMENTS INCORPORATED BY
REFERENCE

If the following documents are incorporated by reference,
briefly describe them and identify the part of the Form 10-KSB (e.g. Part I,
Part II, etc.) into which the document is incorporated: (1) any annual report to
security holders; (2) any proxy or information statement; and (3) any prospectus
filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities
Act"). The list documents should be clearly described for identification
purposes (e.g. annual report to security holders for fiscal year ended December
24, 1990).

Certain exhibits required to be filed in Part IV of
this Form 10-KSB have been incorporated by reference to Intermountain's
registration statement on Form S-1 dated April 9, 2001. See exhibit index on
page 34 of this report.

Transitional Small Business Disclosure Format (check one)
Yes____ No _X_

10-KSB 2<page>

### Cross Reference Sheet



The Registrant has included all information required in Parts
I, II and III of Form 10-KSB in its Integrated Annual Report to Shareholders as
of February 29, 2008 as filed herein as part of this report. The following table
provides a cross reference to the specific pages and sections of the Integrated
Annual Report to Shareholders where the information required in Form 10-KSB may
be found:





|Item in Form 10-KSB                                                                          | Section in Integrated Annual Report to
Shareholders                                   | Page
|-------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ----
|Part I                                                                                       |                                                                                       |     
|Item 1. Description of Business                                                              | Intermountain's Business Activities                                                   | 3   
|Item 2. Description of Property                                                              | Description of Properties                                                             | 4   
|Item 3. Legal Proceedings                                                                    | Legal Proceedings                                                                     | 5   
|Item 4. Submission of Matters to a Vote of Security
Holders                                  | Submission of Matters to a Vote of Security
Holders                                   | 5   
|Part II                                                                                      |                                                                                       |     
|Item 5. Market for Common Equity and Related Stockholder
Matters                             | Market for Common Equity and Related Shareholder
Matters                              | 5   
|Item 6. Management's Discussion and Analysis or Plan of
Operation                            | Management's Discussion and Analysis of Financial Condition
and Results of Operations | 6   
|Item 7. Financial Statements                                                                 | Financial Statements of Intermountain                                                 | 6   
|Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure | Changes in and Disagreements with Accountants                                         | 6   
|Item 8A(T). Controls and Procedures                                                          | Controls and Procedures                                                               | 15  
|Part III                                                                                     |                                                                                       |     
|Item 9. Directors, Executive Officers, Promoters and Control
Persons;                        | Directors and Executive Officers                                                      | 12  
|Compliance with Section 16(a) of the Exchange
Act                                            | Compliance with Section 16(a) of the Exchange
Act                                     | 15  
|Code of Ethics                                                                               | Code of Ethics                                                                        | 14  
|Item 10. Executive Compensation                                                              | Compensation of Directors and Executive
Officers                                      | 13  
|Item 11. Security Ownership of Certain Beneficial Owners and
Management                      | Security Ownership of Certain Beneficial Owners and
Management                        | 14  
|Item 12. Certain Relationships and Related
Transactions                                      | Certain Relationships and Related Party
Transactions                                  | 14  
|Item 13. Exhibits                                                                            | See Page 34 of this Form 10-KSB                                                       | N/A 
|Reports on Form 8-K                                                                          | See Page 34 of this Form 10-KSB                                                       | N/A 
|Item 16. Principal Accountant Fees and Services                                              | Principal Accountant Fees and Services                                                | 15  

10-KSB 3<page>

### Intermountain Refining Co., Inc.

### Integrated Annual Report to Shareholders

### February 29, 2008













































The information contained within this report is
intended to provide all information required to comply with the Securities
Exchange Act of 1934 disclosure requirements of Form 10-KSB except for required
exhibits and disclosure about reports filed on Form 8-K for which disclosure has
been included in our Form 10-KSB as filed with the Securities and Exchange
Commission on May 14, 2008. You may obtain a copy of our Form 10-KSB as filed by
submitting a written request to Intermountain Refining Co., Inc., PO Box 35,
Farmington, NM 87499 or you can access our public filings on the internet at
"www.sec.gov" by searching the Edgar Database on "Intermountain
Refining".10-KSB
4                                                                                                                      
IARS 1<page>

### Table Of Contents





|                                                                                     | Page
|------------------------------------------------------------------------------------ | ----
|Intermountain's Business Activities                                                  | 3   
|Natural Gas Production                                                               | 3   
|Leasing of Asphalt Products Manufacturing and Storage
Facilities                     | 3   
|Other Business Activities                                                            | 3   
|Employees                                                                            | 4   
|Research and Development Activities                                                  | 4   
|Government Regulation, Environmental Laws and
Taxes                                  | 4   
|Competition                                                                          | 4   
|Seasonality                                                                          | 4   
|Description Of Properties                                                            | 4   
|Legal Proceedings                                                                    | 5   
|Submission of Matters to a Vote of Security
Holders                                  | 5   
|Market for Common Equity and Related Shareholder
Matters                             | 5   
|Market for Intermountain Common Stock                                                | 5   
|Shares Eligible for Future Sale                                                      | 5   
|Dividends                                                                            | 6   
|Financial Statements Of Intermountain                                                | 6   
|Changes In And Disagreements With Accountants                                        | 6   
|Managements Discussion And Analysis Of Financial Condition
And Results Of Operations | 6   
|Liquidity and Capital Resources                                                      | 6   
|Cash Requirements as of February 29, 2008                                            | 7   
|Results of Operations                                                                | 8   
|Changes in Accounting Principles                                                     | 11  
|Critical Accounting Estimates                                                        | 11  
|Inflation, Deflation and Changing Prices                                             | 12  
|Directors And Executive Officers                                                     | 12  
|Compensation Of Directors And Executive
Officers                                     | 13  
|Security Ownership Of Certain Beneficial Owners And
Management                       | 14  
|Security Ownership of Certain Owners                                                 | 14  
|Security Ownership of Management                                                     | 14  
|Code of Ethics                                                                       | 14  
|Compliance with Section 16(a) of the Exchange
Act                                    | 14  
|Certain Relationships And Related Party
Transactions                                 | 14  
|Controls and Procedures                                                              | 15  
|Principal Accountant Fees and Services                                               | 15  
|Index To Financial Statements                                                        | 16  

10-KSB
5                                                                                                                      
IARS 2<page>

### Intermountain's Business Activities

Intermountain was incorporated under the laws of the state of
New Mexico in January 1984 and conducts its business in the following
areas:

- Production of natural gas
- Leasing of asphalt products manufacturing and storage
facilities
- Other business activities including leasing unused space in
Intermountain's office building

### Natural Gas Production

On August 1, 2004, we acquired an estimated 12.28% working
interest (9.98% net revenue interest) in 15 natural gas wells located on
approximately 5,420 gross acres in San Juan County New Mexico. The wells are
operated by an unrelated third party.

On February 28, 2007, we sold all of our interests in 19
natural gas producing wells that we operated in Southwestern Kansas. Projections
of future cash flows associated with the Kansas properties were expected to
decline significantly due to the old age of the subject producing wells coupled
with recent changes made by Oneok Field Services to the gas purchase and sale
agreement. Day to day operation and maintenance of the wells was performed by an
individual under contract with Intermountain.

In the past, sales of natural gas from the Kansas properties
represented a significant portion of our total revenues. We are presently
seeking to acquire, through purchase or merger, additional oil and/or natural
gas producing properties within the United States, to replace revenues and cash
flows lost due to the sale of the Kansas properties.

### Leasing of Asphalt Products Manufacturing and Storage
Facilities

Since January 2002, Paramount Petroleum Corporation has leased
a portion of our asphalt facilities located in Fredonia, Arizona. Material
provisions of the lease agreement with Paramount include the
following:

- Paramount is responsible for the operation and maintenance of
the asphalt storage and manufacturing facility and is obligated to reimburse
Intermountain for any direct costs that we may incur with respect to Paramount's
operation of the facility during the term of the agreement. Intermountain is
responsible for maintenance and other costs associated with the facility that is
not being used by Paramount.
- The primary term of the agreement was for two years beginning
on January 1, 2002 and expired on December 31, 2003. Since the expiration of the
agreement's original term, it has been automatically extended on a year to year
basis. The agreement may be cancelled by either party upon 90 days advance
notification prior to the end of any extended term. As the agreement was not
terminated prior to December 31, 2007, the term of the agreement has been
automatically extended to December 31, 2008. There is no assurance that
Paramount will continue leasing the facility beyond the end of the current
extended term.
- Paramount pays $3,200 per month for rent of Intermountain's
asphalt products storage and manufacturing equipment.
- In addition to basic equipment rent, Paramount pays a fee of
$5.50 per ton for all asphalt products shipped from the facility. In the event
that total shipments of asphalt products exceeds 10,000 tons during a calendar
year, Paramount will pay a supplemental fee of $4.50 per ton applicable to all
volumes shipped during the year.

In October
2007, we sold all of all of the land and remaining equipment located at the
facility, including the land and equipment associated with the asphalt products
manufacturing and storage facility to an unrelated third party. However, under
the terms of the sale agreement, Intermountain retained all of the benefits and
obligations associated with the Paramount lease agreement until December 31,
2010, or sooner at the sole option of Intermountain.

### Other Business Activities

We lease unused office space in our Farmington, New Mexico
office building to unrelated third parties and actively manage the building.
Revenues from office leasing varies between $13 and $25 per square foot annually
depending on the type of space rented and additional services provided to
tenants such as secretarial, phone answering, cleaning, and office machine use.
Leasing of office space should not be viewed as a material source of revenues
for Intermountain.

10-KSB
 6                                                                                                                      
 IARS 3<page>

### Employees

We presently employ three people, including officers, who are
salaried and employed on a full time basis in our administrative offices in
Farmington, New Mexico. All full time employees are eligible to participate
in Intermountain's SIMPLE IRA Plan and a group medical insurance program. Our
employees are not represented by a union and management believes its employee
relations to be satisfactory.

### Research and Development Activities

We have not spent any material amount on research or
development activities since our inception.

### Government Regulations, Environmental Laws and Taxes

Our business is subject to certain national, state and local
laws and regulations relating to the production and transportation of oil,
natural gas and the processing of hydrocarbons, as well as environmental and
safety matters. Many of these laws and regulations have become more stringent in
recent years, imposing greater liability on a larger number of potentially
responsible parties. We believe we have complied in all material respects with
these laws and regulations. Because the requirements imposed by such laws and
regulations are frequently changed, we are unable to predict the ultimate cost
of compliance with these requirements or their effect on our
operations.

The operation of gas fields and the processing of hydrocarbons
inherently involve environmental risks. These risks can be minimized, but not
eliminated, through the use of various engineering and other technological
methods. We intend to employ such methods to industry standards.

Severance taxes on natural gas production are collected and
paid by the first purchaser of the production.

### Competition

The petroleum and natural gas industries are highly
competitive. We encounter competition from other oil and gas and petroleum
companies in all of our operations, including the acquisition of producing
properties, obtaining services, including oil field services, and the sale of
natural gas. Our competitors include integrated petroleum and natural gas
companies and numerous independent oil and gas companies, and individuals. Many
of these competitors are large and well established with substantially larger
operating staffs and greater capital resources and who, in many instances, have
been engaged in the energy business for a much longer time than Intermountain.
Such competitors may be able to develop better information and provide better
analysis of available information, to pay more for raw materials and productive
oil and natural gas properties and exploratory prospects and to define,
evaluate, bid for and purchase a greater number of properties and prospects than
our resources permit.

The market for the asphalt products produced at the asphalt
storage and manufacturing facility in Fredonia, Arizona is generally located in
northwestern Arizona and southwestern Utah. Paramount competes for market share
with various suppliers throughout this region. The long term success of the
equipment lease to Paramount is greatly dependent on Paramount's ability to
compete with the other suppliers in the region.

### Seasonality

Traditionally, the demand for natural gas has been higher
during colder winter months compared to warmer summer months. More recently
however, demand for natural gas has increased during summer months due to an
increase in gas fired electric generation facilities. Accordingly, over the past
several years, seasonal variation of natural gas supply and demand has been
somewhat diminished.

The use of asphalt products for highway construction, repair
and maintenance is usually restricted during winter months where cold weather,
rain and snow are factors. We expect that the majority of fees earned from the
shipment of asphalt products will occur during the months of May through October
and that the asphalt manufacturing facility will normally be idle during the
months of December through March.

### Description of Properties

All properties used in the conduct of our businesses are owned
in fee except for the mineral leases associated with our natural gas properties,
which are held by production.  There are no outstanding mortgages on any of
our properties.

We own an average 12.48% working interest (9.98% net revenue
interest) in 15 natural gas producing wells on 5,420 gross acres in San Juan
County, New Mexico. As of February 29, 2008, the proven producing reserves are
estimated to be 294 million cubic feet of natural gas net to our interest.
During the year ended February 29, 2008, we produced 17 million cubic feet of
natural gas net to our interest.

10-KSB
7                                                                                                                      
IARS 4<page>

On February 28, 2007, we sold all of our interest in the
Kansas properties. The properties consisted of an average 98.4% working interest
(average 79.7% net revenue interest) in 19 producing natural gas wells on 10,601
gross lease acres in Scott and Finney Counties in southwest Kansas.  
For the year ended February 28, 2007, we produced 139 million cubic feet of
natural gas net to our interest.

No reserve estimates of our gas properties have been filed
with any Federal authorities or agencies.

Additional information relative to our oil and natural gas
reserves and activities is included in Note M of our February 29, 2008 financial
statements included on page 27 of this report. Estimates of reserves are based
on internal data prepared by us and should not be construed as exact quantities.
Estimates of reserves are subject to future changes based on numerous factors,
including, but not limited to, changes in future market prices, changes in
transportation and gathering system operating conditions and arrangements,
changes in operating and production costs, changes in production characteristics
of individual wells, and changes in regulatory requirements. Many of the factors
affecting changes in reserve estimates are unpredictable and beyond our
control.In October
20007, we sold, to an unrelated party, all of the remaining 18 acres of land and
remaining equipment located at the asphalt storage and manufacturing facility in
Fredonia, Arizona.  The asphalt storage and manufacturing equipment has
been under lease to Paramount and portions of the asphalt products manufacturing
equipment located at the facility are owned by Paramount. The portions of the
equipment that were not leased to Paramount have been dismantled and recoverable
metals were sold for salvage. Under the terms of the land and equipment sale
agreement, we retained the benefits and obligations of the Paramount lease until
December 31, 2010 or such earlier time as we may determine. It is our intention
to retain the benefits and obligations under the lease with Paramount until the
lease is either terminated by Paramount, or the retention rights expire in 2010,
whichever occurs first.

We own a 7,000 square foot office building in Farmington, New
Mexico.  Approximately one half of the office building is used for our
corporate offices.  The remainder of the space is leased, or available for
lease, to non-related tenants.

We owned two Caterpillar Model 3606 diesel powered electric
generators, each capable of producing up to 1.5 megawatts, that were located at
our Fredonia, Arizona facility. The generators were taken out of service in
January 1999 because we were no longer able to generate electricity at
competitive prices. In November 2006, the electric generation facility
(including land, building, generators, associated equipment, and fuel inventory)
was sold to a regional electric power distributor.

### Legal Proceedings

We are not aware of any pending or threatened legal
proceedings to which Intermountain is a party. We are not aware of any pending
or threatened legal proceedings to which any director, officer, affiliate of
Intermountain, or any owner of more than 5% of Intermountain's common stock, is
an adverse party to, or has a material interest adverse to,
Intermountain.

### Submission of Matters to a Vote of Security Holders

There have been no matters submitted to a vote of security
holders during the past year through the solicitation of proxies or
otherwise.

### Market for Common Equity and Related Shareholder Matters

### Market for Intermountain Common Stock

There is presently no public market for our common stock.
Accordingly, we are unable to provide any historical information regarding sales
prices for our common stock. No prediction can be made as to the effect, if any,
that the sale of shares, or the availability of shares for sale, will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the common stock in the public market could adversely
affect prevailing market prices and our ability to raise equity capital in the
future.

### Shares Eligible for Future Sale

There are 1,155,609 shares of Intermountain common stock
outstanding held by approximately 425 shareholders. Of the 1,155,609 shares
outstanding, 442,643 shares are freely tradable in the public market without
restriction, and 712,966 shares are subject to restrictions on future sales as
set forth in Rule 144 of the Securities Act of 1933.

10-KSB
8                                                                                                                      
IARS 5<page>

Of the 712,966 restricted shares, 704,056 shares are held by
affiliates of Intermountain. In general, persons who are affiliates of
Intermountain are entitled to sell, within any three month period, a number of
shares that does not exceed the greater of the following:

- One percent of the then outstanding shares of common stock,
or
- The average weekly reported trading volume of the common
stock during the four calendar weeks immediately preceding the date on which
notice of such sale is filed with the Securities and Exchange Commission,
provided that manner of sale and notice requirements and requirements as to the
availability of current public information concerning Intermountain are
satisfied.

Mr. William N. Hagler and Mr. Rick
L. Hurt may be considered affiliates of Intermountain. See "Security Ownership
of Certain Beneficial Owners and Management".

### Dividends

Intermountain has never paid any dividends on its common stock
and while there are no restrictions on the payment of dividends, Intermountain
does not anticipate paying any dividends in the foreseeable future.

### Financial Statements of Intermountain

The audited financial statements of Intermountain as of
February 29, 2008 and for each of the two years in the period ended February 29,
2008 are included beginning on page 16 of this report. Supplemental financial
information relative to Intermountain's natural gas reserves and activities is
included in Notes L and M to Intermountain's audited financial statements as of
February 29, 2008 beginning on page 26 of this report.

### Changes in and Disagreements with Accountants

There have been no disagreements between Intermountain and its
accountants regarding financial disclosure issues.

### Management's Discussion and Analysis of Financial Condition and Results of
Operations

The following discussion of our financial condition as of
February 29, 2008 and results of operations for the years ended February 28,
2007 and February 29, 2008, should be read in conjunction with our financial
statements, the notes related thereto, and the other financial data included
elsewhere in this report.

Some of the statements contained in this report relate to
future expectations, contain projections of results of operations or financial
condition or include other forward-looking information. When used in this
report, the words "estimate", "project", "anticipate", "intend", "believe",
"hope", "may" and similar expressions, as well as "will", "shall" and other
indications of future tense, are intended to identify forward-looking
statements. Those statements are subject to known and unknown risks,
uncertainties and other factors that could cause the actual results to differ
materially from those contemplated by the statements.  You are cautioned
not to place undue reliance on the forward-looking statements.



### Liquidity and Capital Resources

The following table presents selected financial data regarding
cash and working capital for each of the past two fiscal years:



|                                         | Fiscal Year Ended
|---------------------------------------- | -----------------
|                                         | February 28, 2007
|Cash and cash equivalents (unrestricted) | $   2,391,302    
|                                         |                  
|Working capital                          | $     2,266,766  



During the year ended February 29, 2008, we realized $150,000
cash used from operating activities. The negative cash flow was primarily
attributed to the payment of income taxes due with respect to fiscal year end
February 28, 2007 income tax obligations. Significant non-operating sources and
uses of cash during the year ended February 29, 2008 consisted of the use of
$219,000 to drill a replacement well in Kansas and net cash proceeds from the
sale of the Fredonia facility of $41,000.

10-KSB
9                                                                                                                      
IARS 6<page>

During the year ended February 28, 2007, we realized $213,000
of cash flow from operating activities. The positive cash flow was primarily
from profits realized from normal operations with no other significant operating
sources or uses of cash. Significant non-operating sources and uses of cash
during the year ended February 28, 2007 consisted of $1,100,000 proceeds from
the sale of our Kansas gas properties, and $270,000 proceeds from the sale of
the electric generation facility, offset by $52,000 used for improvements to the
electric generation equipment prior to its sale.



### Cash requirements as of February 29,
2008

While current cash balances are adequate to satisfy normal
operating costs, our present forecasts indicate that future cash flows from
current operations will not be sufficient to fully cover normal operating costs.
It is our intent to acquire, through purchase or merger, additional interests in
oil and/or natural gas producing properties to replace cash flows lost as the
result of the sale of our Kansas natural gas properties. There are presently no
formal plans or agreements in place and there is no assurance that we will enter
into any formal agreements in the near future that would have a significant
impact on Intermountain's financial condition.



Estimated cash requirements for the next twelve months
include:

- $24,000 per month for normal general and administrative
costs, including costs to operate our Farmington office building
- $600 per month estimated costs associated with the retained
obligations under the lease of the asphalt products manufacturing and storage
facility to Paramount



In its efforts to develop additional sources of revenues,
Intermountain may incur some project development costs. We are unable to predict
the level of costs that may be incurred for such additional projects during the
next year.



Expected sources of cash during the next twelve months consist
of cash flows from operating activities estimated as follows:

- $7,000 per month (net of production costs) from estimated
natural gas operations in New Mexico based on results of operations during the
year ended February 29, 2008 and projected natural gas prices over the next 12
months
- $1,100 per month from Farmington office space
rental
- $5,000 per month dividends, interest, and royalty income on
investments and cash balances
- $3,200 per month from the retained benefits under the lease
agreement with Paramount of the asphalt storage and manufacturing facility, plus
an estimated average $8,300 per month in throughput fees based on annual asphalt
product shipments of 10,000 tons during the upcoming 2008 paving
season



Under the sale agreement for the Kansas gas producing
properties, we are entitled to receive an additional $370,000 from the purchaser
if a replacement well (which was completed in July 2007 at a cost of $219,000)
is successful in producing saleable quantities of natural gas. Initial gas
pressures at the wellhead of the replacement well were not sufficient to produce
saleable quantities of natural gas. At the advise of our consultant, we have
been pumping water from the well in an effort to dewater the producing zone with
the expectation that gas pressures will eventually improve to the point that
natural gas can be produced in saleable quantities. Ongoing dewatering costs are
estimated to be approximately $600 per month. There is no assurance that we will
be successful in returning the gas unit to production within a reasonable amount
of time.

Estimates of future sources and uses of cash presented herein
are based on our assumptions and expectations that our operations will continue
at current levels without material interruption and that collection of accounts
will occur under agreed terms. Actual results may be materially
different.

10-KSB
10                                                                                                                      
IARS 7<page>

### Results of Operations

The following table summarizes the results of Intermountain's
operations for each of the past two fiscal years. All percentage amounts were
calculated using the underlying data.



|                                                    | Fiscal Year Ended
|--------------------------------------------------- | -----------------
|                                                    | February 28, 2007
|Revenues                                            | $    850,764     
|Costs and Expenses (net of gains on sale of
assets) | (171,004)        
|Net income before taxes                             | 1,021,768        
|Income taxes                                        | 187,330          
|Net income                                          | $   834,438      

#### 

#### Revenues

The following table presents a summary of our revenues for the
periods indicated. All percentage amounts were calculated using the underlying
data.



|                                  | Fiscal Year Ended
|--------------------------------- | -----------------
|                                  | February 28, 2007
|Natural gas production            | $     670,621    
|Asphalt equipment rental and fees | 154,325          
|Real estate rental                | 22,818           
|Other revenues                    | 3,000            
|Total Revenues                    | $    850,764     

Changes in individual components of revenues are discussed
below:

##### Natural gas revenues

The following table contains gas production volumes, net to
our interest, and average sales prices received for the periods
indicated:



|                                | Fiscal Year Ended
|------------------------------- | -----------------
|                                | February 28,2007 
|Natural gas produced, net (Mcf) | 164,164          
|Average selling price ($/Mcf)   | $4.09            

The decrease in natural gas revenues for the year ended
February 29, 2008 as compared to the year ended February 28, 2007 consisted of a
$30,000 (18%) decrease in New Mexico natural gas revenues along with the
elimination of $498,000 (100%) in Kansas natural gas revenues. The Kansas
properties were sold on February 28, 2007. The decrease in New Mexico natural
gas revenues consisted of an 8,000 Mcf (32%) decrease in production offset by a
$1.46/Mcf (21%) increase in average selling price. Due to the complexity of the
economic factors affecting energy prices, we are unable to predict the direction
or magnitude of future price changes. Production of natural gas in New Mexico
was lower than expected during the year ended February 29, 2008. Production from
natural gas wells naturally decline over time but the periodic application of
stimulation and well bore maintenance procedures can often improve production
performance. The operating partner of the New Mexico properties has indicated
that during the summer of 2008, it plans to perform simulation procedures on at
least one of the wells in an effort to improve production.

The decrease in oil and natural gas revenues for the year
ended February 28, 2007 as compared to the year ended February 28, 2006
consisted of a $251,000 (34%) decrease in Kansas natural gas revenues, a $35,000
(21%) decrease in New Mexico natural gas revenues, along with a $27,000 (100%)
decrease in Nebraska crude oil revenues. The decrease in Kansas natural gas
revenues consisted of a $1.15/Mcf (24%) decrease in selling price along with a
19,000 Mcf (12%) decrease in production. The Kansas gas properties were sold on
February 28, 2007. The decrease in New Mexico natural gas revenues consisted of
a $0.62/Mcf (8%) decrease in selling price along with a 2,700 MCF (10%) decrease
in production. The Nebraska oil properties were sold in November
2005.

##### Leasing of asphalt products manufacturing and storage
facilities

The agreement with Paramount provides for Intermountain to
receive $3,200 per month in basic rent for Intermountain's asphalt storage and
manufacturing facility. In addition, Intermountain receives a basic $5.50 per
ton fee for all asphalt products shipped from the facility plus a supplemental
fee of $4.50 per ton, applied retroactively to all tons shipped during the year,
in the event that annual shipments from the facility exceed 10,000
tons.

10-KSB
11                                                                                                                      
IARS 8<page>

The increase in asphalt equipment rental fees during the year
ended February 29, 2008 as compared to the year ended February 28, 2007 was due
to an increase in product shipments from the facility during the 2007 paving
season. Basic equipment rental revenues remained the same during the two
periods. Fees received for products shipped increased by $44,000 (38%). The
current extended term of the agreement with Paramount will expire on December
31, 2008. There is no assurance that the current agreement will be continued
beyond its current term. In October 2007, we sold all of the remaining assets at
the Fredonia facility but retained the benefits and obligations under the lease
agreement with Paramount until December 31, 2010 or at an earlier time at the
option of Intermountain. We intend to maintain the retention rights until they
expire in 2010 unless Paramount elects to cancel the existing lease agreement.
We would normally expect that asphalt fee revenues associated with this activity
to remain relatively flat over the 2008 paving season, however, with the recent
significant increases in crude oil prices, we anticipate that asphalt product
sales will trend downward.

The decrease in asphalt equipment rental fees during the year
ended February 28, 2007 as compared to the year ended February 28, 2006 was
attributed to an expected decrease in product shipments, specifically paving
grade asphalt products, from the facility. Basic equipment rental revenues
remained the same during the two periods. Fees received for products shipped
decreased by $65,000 (30%).

##### Real estate rental

Real estate rental revenues declined by an average $812 per
month for the year ended February 29, 2008 as compared to the year ended
February 28, 2007 due to a decrease in occupancy. As of February 29, 2008, there
were six small to medium sized single office spaces available for rent in our
Farmington office building.

Real estate rental revenues declined by an average $61 per
month for the year ended February 28, 2007 as compared to the year ended
February 28, 2006 due to a slight decrease in average occupancy.

#### Costs and Expenses

The following table presents a summary of our costs and
expenses (including gains and losses on sales of assets and other miscellaneous
charges and credits) for the last two fiscal years:



|                                                      | Fiscal Year Ended
|----------------------------------------------------- | -----------------
|                                                      | February 28, 2007
|Cost of sales                                         | $    457,557     
|General and administrative costs                      | 287,817          
|Depletion, depreciation and amortization              | 45,003           
|Bad debt expense                                      | -                
|Gain on sale of refinery land and equipment           | (6,768)          
|Salvage of refinery equipment                         | (11,141)         
|Gain on sale of electric generation equipment         | (4,936)          
|(Gain)/loss on sale of oil producing properties       | (918,085)        
|Accretion of discount on asset retirement
obligations | 2,131            
|Loss on settlement of asset retirement
obligations    | 7,615            
|Interest and investment (income) expense, net         | (30,197)         
|Total costs and expenses                              | $   (171,004)    
|                                                      |                  

Changes in individual components of costs and expenses are
discussed below.

##### Cost of sales

Cost of sales includes costs incurred in the production of
natural gas, and costs of maintaining the asphalt facility.

10-KSB
12                                                                                                                      
IARS 9<page>

The decrease in cost of sales during the year ended February
29, 2008 compared to the year ended February 28, 2007 consisted of a $311,000
(73%) decrease in natural gas production costs and a $20,000 (68%) decrease in
asphalt facility maintenance costs. The decrease in natural gas production costs
was substantially attributed to the $311,000 (558%) reduction in costs
associated with the Kansas natural gas producing properties which were sold on
February 28, 2007. While the Kansas properties were sold in the previous year,
during the year ended February 29, 2008 we incurred approximately $30,000 in
costs associated with repair claims made by the purchaser under the warranty
provisions of the sale contract, and approximately $5,000 in costs associated
with dewatering the replacement well completed in July 2007. New Mexico natural
gas production costs were relatively unchanged during the year ended February
29, 2008 compared to the year ended February 28, 2007. Well pump, production
tubing, surface equipment, and well casing failures occur randomly and the
timing and cost of repairs cannot be accurately predicted. In addition, future
repair costs may be material and become a critical factor in assessing the
economic viability of individual wells. The decrease in maintenance costs
associated with the Fredonia asphalt facility was primarily attributed to the
cessation of debris removal and cleanup upon completion of dismantling and metal
salvage activities.  While the facility was sold in October 2007, we retained
the obligation to incur certain costs associated with the equipment leased to
Paramount, including property taxes, environmental permit fees, and insurance.
Our obligation to incur such costs will expire on December 31, 2010 or such
earlier time as we may determine.

The decrease in cost of sales during the year ended February
28, 2007 compared to the year ended February 28, 2006 consisted of an $82,000
(16%) decrease in oil and natural gas production costs offset by a $17,000
(150%) increase in asphalt facility maintenance costs. The decrease in oil and
natural gas production costs consisted of a $36,000 (10%) decrease in Kansas
natural gas production costs, a $32,000 decrease in New Mexico natural gas
production costs, and a $14,000 (100%) decrease in Nebraska crude oil production
costs. The decrease in Kansas costs was mainly attributed to a $37,000 (16%)
decrease in well equipment repair costs. The decrease in New Mexico costs was
attributed to decreases in most cost categories including a $6,000 (27%)
decrease in gathering fees, a $4,000 (22%) decrease in severance taxes, an
$8,000 (77%) decrease in water disposal, and an $8,000 (31%) decrease in well
maintenance supplies and repairs. As the Nebraska properties were sold during
the prior year, there were no Nebraska costs during the year ended February 28,
2007. The increase in costs associated with the asphalt facility was primarily
due to costs associated with cleanup and disposal of debris remaining upon
completion of metal salvage activities.

##### General and administrative expenses

General and administrative expenses include the cost of our
officers and administrative employees, costs incurred to operate and maintain
our Farmington office building, and all items of general overhead required to
manage and administer our corporate affairs.

The increase in general and administrative expenses for the
year ended February 29, 2008 compared to the year ended February 28, 2007
consisted of an $11,000 increase in office building repair and maintenance costs
offset by an overall $6,000 decrease in all other costs categories. The increase
in office building repairs and maintenance costs was attributed to routine
periodic roof repairs and renovation of offices that were vacated during the
year ended February 29, 2008. The overall decrease in all other general and
administrative costs is attributed to the elimination of administrative
operations connected to the Kansas natural gas operations, which were sold on
February 28, 2007.

General and administrative expenses during the year ended
February 28, 2007 compared to the year ended February 28, 2006 were relatively
unchanged and there were no significant changes in individual cost categories.

##### Depletion, depreciation and
amortization

The decrease in depletion and depreciation for the year ended
February 29, 2008 compared to the year ended February 28, 2007 consisted of a
$23,500 (54%) reduction in depletion expense and a $500 decrease in depreciation
expense. The decrease in depletion expense consisted of a $9,000 (31%) decrease
in New Mexico depletion along with a $14,500 (100%) decrease in Kansas depletion
as a result of the sale of the Kansas properties on February 28,
2007.

The decrease in depletion and depreciation for the year ended
February 28, 2007 compared to the year ended February 28, 2006 consisted solely
of a $5,500 (11%) decrease in depletion on oil and natural gas producing
properties. There was no change in depreciation expense associated with the
asphalt facility or the Farmington office building. The decrease in depletion
consisted of a $2,000 (12%) decrease in Kansas depletion, a $1,300 (4%) decrease
in New Mexico depletion, and the elimination of $2,200 of Nebraska
depletion.

##### Gain on sale of refinery land and
equipment

In October 2007,we sold our remaining 18 acres of land and all
remaining equipment located at the Fredonia facility to an unrelated third party
for $80,000. The proceeds from the sale included $40,000 cash down payment and a
$40,000 6% note receivable, payable in 36 equal monthly installments. On the
date of closing, the carrying value of the land and equipment was $11,353, net
of accumulated depreciation of $577,919, which resulted in a $68,383 gain on the
sale, after closing costs of $264.

During the year ended February 28, 2007, we sold approximately
1 acre of land at the Fredonia facility to a Red Hills Manufacturing (a related
party) for $7,500. On the date of closing, the carrying value of the parcel was
$732, which resulted in a $6,768 gain on the sale after $50 in selling
expenses.

10-KSB
13                                                                                                                      
IARS 10<page>

##### Salvage of refinery equipment:

In April, 2005, we began the process of dismantling the
portions of our refining equipment at our Fredonia facility that were no longer
used for ongoing operations and were not expected to be used in the future. We
recognized $11,000 during 2007 and $10,000 during 2008 from the salvage of
metals and used equipment removed from the facility. The entire facility was
sold during October 2007.

##### Gain on sale of electric generation facility:

In November 2006, we sold our electric generation facility to
an unrelated third party for $269,800. As of the date of sale, the carrying
value of the facility was $264,900 (net of prior impairments in value), which
resulted in a gain on the sale of $4,900.

##### (Gain) loss on sale of oil and gas producing
properties:

On February 28, 2007, we sold all of our interests in our
Kansas natural gas producing properties. The $1,124,000 proceeds from the sale
(including cash of $1,100,000 and release from asset retirement obligations of
$24,000) exceeded the $206,000 net carrying value of the properties, which
resulted in a recognized gain on the sale of $918,000.

##### Accretion of discount and loss on settlement of asset
retirement obligations:

Accretion of discount on asset retirement obligations consists
of changes in the present value of future asset retirement obligations with the
passage of time. Gains or losses on the settlement of asset retirement
obligations arise from the difference between actual asset retirement costs
incurred and the present value, at the time of retirement, of the previously
estimated retirement cost.

There were no significant changes in the accretion of discount
on asset retirement obligations during the year ended February 29, 2008 compared
to the year ended February 28, 2007.

There were no significant changes in the accretion of discount
on asset retirement obligations during the year ended February 28, 2007 compared
to the year ended February 28, 2006. There were two wells plugged and abandoned
during the year ended February 28, 2007, which resulted in a total loss on
settlement of asset retirement obligations of $7,600.

##### Interest and investment (income) expense,
net

Interest and investment income includes earnings on cash
balances and net earnings on investments, less interest expense
incurred.

Net interest and investment income during the year ended
February 29, 2008 consisted of $58,900 earned on cash balances and notes
receivable, and $5,900 of dividends and royalties on investments (less $2,800 in
depletion on investments in royalty trusts), offset by $500 of interest expense
paid on 2007 income tax obligations. Due to recent declines in overall interest
rates, it is anticipated that interest income earned on cash balances will
decline over the next twelve months. Investment income is expected to remain
relatively unchanged over the next twelve months.

Net interest and investment income during the year ended
February 28, 2007 consisted of $26,700 earned on cash balances and $6,600 of
dividends and royalties on investments, less $3,100 in depletion on investments
in oil and natural gas royalty trusts. We did not incur any interest expense
during the year ended February 28, 2007.

### Changes in Accounting Principles

During the year ended February 29, 2008, the Financial
Accounting Standards Board did not issue any new statements that required any
changes in our accounting principles.

### Critical Accounting Estimates

Certain accounting estimates are important to the presentation
of our financial condition and results of operations and require management's
subjective or complex judgments. Such estimates are subject to change based on
future conditions and events that may have a material effect on our financial
condition and results of operations.

#### Natural Gas Reserve Estimates

Estimating natural gas reserves is a subjective process that
is dependent on the quality of available data and on interpretation and judgment
concerning such data. Reserve estimates are subject to change over time as
additional information becomes available and as a result of changes in
market prices and production costs. Our estimates of reserves can be adversely
affected by future changes including material decreases in market prices,
increases in operating costs, and higher than expected declines in production
quantities.

10-KSB
14                                                                                                                      
IARS 11<page>

As capitalized costs and estimated future retirement costs
associated with our oil and gas properties are depleted on the
unit-of-production basis, decreases in estimated oil and gas reserves would
increase depletion expense resulting in a decrease in oil and gas operating
income.

We have recorded estimates of future asset retirement
obligations associated with the eventual plugging and abandonment of our oil and
natural gas wells. The fair value of future plugging and abandonment costs is
estimated by escalating current plugging and abandonment costs (at an assumed
inflation rate over the expected economic life of an individual well) discounted
at our credit-adjusted risk-free interest rate. The fair value of the
future plugging and abandonment costs is capitalized and depreciated using the
unit-of-production method. The discount on the asset retirement obligation is
accreted over time until the obligation is settled or the asset is
sold. The expected economic life of an individual well is determined from
the estimate of reserve quantities at the time the well was acquired. Future
increases in well plugging and abandonment costs in excess of assumed inflation
rates and premature or earlier than expected well retirement could result in the
recognition of a loss on the settlement of future well plugging and abandonment
obligations.

#### Impairment of Long-Lived Assets

Events or changes in circumstances periodically require that
long-lived assets (including oil and natural gas properties) be evaluated to
determine if the carrying amount of the asset may not be recoverable out of
estimated future cash flows from the asset. Such periodic evaluations are
subjective and require the use of estimates of future cash flows that are
subject to change. There are currently no impairments recognized with respect to
our existing long-term assets.

#### Accounting for Income Taxes

Deferred tax assets and liabilities arise from temporary
differences from the differing treatment of items for tax and accounting
purposes. While we have estimated that we have net deferred tax assets arising
from temporary differences, we have provided a valuation allowance equal to the
amount of the estimated net deferred tax assets because we are uncertain that
future results of operations will be adequate to recover such deferred tax
assets.

### Inflation, Deflation and Changing Prices

The results of operations and capital expenditures will
continue to be affected by inflation, deflation and changing prices.  A
decline in the price of natural gas could have an adverse effect on
Intermountain's operations.  Management is unable to determine the full
impact of inflation, deflation and changing prices on the results of operations
or working capital.

### Directors and Executive Officers



|Name and Address                                                  | Age | Position                                      | Held Since
|----------------------------------------------------------------- | --- | --------------------------------------------- | ----------
|William N. Hagler4421 Bella
Vista Cr.Farmington, New Mexico 87401 | 75  | President and Director                        | 1984      
|                                                                  |     |                                               |           
|Rick L. Hurt5701 Tee
Dr.Farmington, New Mexico 87402              | 55  | Controller, Secretary, Treasurer and Director | 1985      

Background information concerning the Officers and
Directors is as follows:

William N. Hagler has been the President and a Director
of Intermountain since 1984. Mr. Hagler received a B.S. degree in Industrial
Engineering from North Carolina State University in 1955.  From 1955 to
1968, he was employed by Esso Standard Oil, Cities Service Oil Co. and Riffe
Petroleum Co. in various phases of the petroleum refining and marketing
industry.  In July 1968, he became assistant to the president and later
vice president of Plateau, Inc., Farmington, New Mexico, a regional refining and
marketing firm.  His responsibilities have included refinery management,
marketing, corporate development, economics and planning, crude oil supply,
negotiation and administration of processing arrangements, labor relations,
coordination of refinery acquisition and expansion programs, and relations with
state and federal regulatory bodies.  In 1979, Mr. Hagler organized Unico,
Inc., the former parent company of Intermountain, and served as its President
and as a Director from its inception until June 1998 when he resigned both
positions. In April 1993, Mr. Hagler accepted an appointment as a Director of
Saba Petroleum and from October 1998 until December 1998 also served as its
Management Committee Chairman. He resigned from all Saba Petroleum positions in
March 1999. During 1999, Mr. Hagler accepted an appointment as Chairman of the
Board of Directors of Petrominerals Corporation. Mr. Hagler resigned his
position with Petrominerals during 2002. Mr. Hagler is also a member of the
Farmington, New Mexico Public Utilities Commission.

10-KSB
15                                                                                                                      
IARS 12<page>

Rick L. Hurt has been the Secretary, Treasurer and a
Director of Intermountain since 1985. Mr. Hurt received a BBA degree in
Accounting from the University of New Mexico in 1979.  From 1979 to 1982,
he was employed as a staff accountant and later as a senior accountant by the
accounting firm of Fox & Company in its Albuquerque, New Mexico
offices.  From 1982 until March 1985, he was employed as chief accountant
for the law firm of Davis and Davis in Austin, Texas.  Mr. Hurt is
certified as a public accountant in the state of New Mexico.  Mr. Hurt
joined Unico, Inc., the former parent company of Intermountain, as Assistant
Controller in March 1985, and became its Controller, Secretary, Treasurer, and a
Director in May 1985. Mr. Hurt resigned from these Unico positions in June 1998.

Both Mr. Hagler and Mr. Hurt may be deemed a parent or
promoter of Intermountain as those terms are defined in the rules and
regulations promulgated under the Securities Act of 1933.

No family relationship exists between any officer or director
of Intermountain and no officer or director of Intermountain has been subject,
during the preceding 5 years, to any of the events set forth in paragraph (d) of
Item 401 of Regulation S-B.

### Compensation of Directors and Executive Officers

The following table will inform you about the compensation
earned by all of our executive officers for services rendered during the last
two fiscal years:



|Name and Principal
Positions                       | Year     | Salary           | Bonus   | Other Annual Compensation | Long-Term Compensation Awards - Restricted
Stock Awards | All Other Compensation 
|-------------------------------------------------- | -------- | ---------------- | ------- | ------------------------- | ------------------------------------------------------- | -----------------------
|                                                   |          | ($)              | ($)     | ($)                       | (#)                                                     | ($)                    
|William N. Hagler                                  | 2008     | $101,164         | $  0    | $  0                      | 0                                                       | $3,035     (1)         
|Chief Executive Officer and Director               | 2007     | $101,164         | $  0    | $  0                      | 0                                                       | $3,035     (1)         
|                                                   |          |                  |         |                           |                                                         |                        
|Rick L. Hurt                                       | 2008     | $ 54,889         | $  0    | $  0                      | 0                                                       | $1,647    (1)          
|Secretary, Treasurer, and Director                 | 2007     | $ 54,889         | $  0    | $  0                      | 0                                                       | $1,647    (1)          
|                                                   |          |                  |         |                           |                                                         |                        
|All officers and directors as a group ( 2
persons) | 20082007 | $156,053$156,053 | $  0$
0 | $  0$
0                   | 00                                                      | $4,682    (1)$4,682
(1)

(1) Consists of SIMPLE IRA employer matching contributions
amounting to the lesser of employee elective deferrals or 3% of salary.

Our employees, including officers, may receive such bonuses
and salary increases as the Board of Directors, in its sole discretion, may
award from time to time. We have not increased officers salaries since April
1997, at which time, a 2.5% cost of living adjustment was awarded.

We provide health insurance benefits to the officers and all
other full time employees.

We maintain a SIMPLE IRA plan for our officers and all of our
full time employees. Participation in the plan is voluntary and employee
contributions are limited by regulations established annually by the Internal
Revenue Service. We are required to match employee contributions up to the
lesser of 3% of salary or the amount of employee contributions.

No director has been compensated for attending meetings of the
Board of Directors. However, by resolution of the Board of Directors, a fixed
sum and expenses of attendance, if any, may be allowed for attendance at each
regular and special meeting of the Board of Directors.

We do not currently maintain director and officer liability
insurance.

We have no employment contracts with any of our employees. All
employees can terminate employment at will.

10-KSB
16                                                                                                                      
IARS 13<page>

### Security Ownership of Certain Beneficial Owners and Management

### Security Ownership of Certain Owners

The following table lists the only persons known to us who
beneficially own five percent (5%) or more of the issued and outstanding
Intermountain common stock, its only voting security:



|Title of Class | Name and address of Beneficial
owner | Amount and nature of Beneficial
ownership | Percent of Class
|-------------- | ------------------------------------ | ----------------------------------------- | ----------------
|Common stock,  | William N. Hagler                    | 693,808 shares of                         | 60.04%          
|no par value   | 4421 Bella Vista Cr.                 | record and beneficially                   |                 
|               | Farmington, NM 87401                 |                                           |                 

### Security Ownership of Management

The following table lists the ownership of Intermountain
common stock by the management:



|Title of Class | Name and address of Beneficial
owner | Amount and nature of Beneficial
ownership | Percent of Class
|-------------- | ------------------------------------ | ----------------------------------------- | ----------------
|Common stock,  | William N. Hagler                    | 693,808 shares of                         | 60.04%          
|no par value   | 4421 Bella Vista Cr.                 | record and beneficially                   |                 
|               | Farmington, NM 87401                 |                                           |                 
|               |                                      |                                           |                 
|Common stock,  | Rick L. Hurt                         | 6,904 shares of                           | 0.60%           
|no par value   | 5701 Tee Dr.                         | record and beneficially                   |                 
|               | Farmington, NM 87402                 |                                           |                 
|               |                                      |                                           |                 
|Common stock,  | All officers and directors           | 700,712 shares of                         | 60.64%          
|no par value   | (2 people) as a group                | record and beneficially                   |                 
|               |                                      |                                           |                 

### Code of Ethics

On March 15, 2006, our Board of Directors adopted a written
Code of Ethics designed to deter wrongdoing and promote honest and ethical
conduct, full, fair and accurate disclosure, compliance with laws, prompt
internal reporting and accountability to adherence to the Code of Ethics. This
Code of Ethics has been filed with the Securities and Exchange Commission as an
Exhibit to our Form 10-KSB for the year ended February 28, 2006. Individuals may
obtain a written copy of the Code of Ethics by submitting a written request to
Intermountain's administrative offices.

### Compliance with Section 16(a) of the Exchange Act

In accordance with Section 16(a) of the Securities Exchange
Act of 1934, any person who, at any time during the last fiscal year, was an
officer, director, or beneficial owner of more than 10% of any securities of an
issuer that have been registered pursuant to Section 12 of the Exchange Act, is
required to file periodic reports with the Securities and Exchange Commission
and provide copies of the reports to the registered issuer. In accordance with
item 405 of Regulation S-B, we are required to report information regarding
untimely or delinquent filings by such individuals. We are not aware of any
untimely or delinquent filing of periodic reports of individuals during the year
ended February 29, 2008.

### Certain Relationships and Related Party Transactions

During the last two fiscal years, there have been no
transactions, or series of transactions, between Intermountain and other related
parties that are of a nature that are required to be disclosed in this report.
However, information relative to this topic may be found in Note H to
Intermountain's financial statements on page 24 of this report.

10-KSB
17                                                                                                                      
IARS 14<page>

### Controls and Procedures

### Evaluation of Disclosure Controls and
Procedures:

Disclosure controls and procedures are designed and
implemented to ensure that all material information relating to a company is
made known to its chief operating officer, chief financial officer, and such
other persons who are responsible for preparing and filing periodic reports with
the Securities and Exchange Commission. William N. Hagler and Rick L. Hurt,
representing all of the officers and directors of Intermountain, have evaluated
our disclosure controls and procedures and concluded that such controls were
effective as of February 29, 2008.

### Management’s Report on Internal Control over
Financial Reporting

Intermountain's management is responsible for
establishing and maintaining adequate internal control over financial reporting.
William N. Hagler and Rick L. Hurt, representing all of the officers and
directors of Intermountain, conducted an evaluation of the effectiveness of
internal control over financial reporting based on the Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that
Intermountain's internal control over financial reporting was effective as of
February 29, 2008.

This annual report does not include an attestation report of
the company's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
company's registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management's report in this annual report.

### Changes in Internal Controls:

There have been no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of Management's last evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.

### Principal Accountant Fees and Services

Information regarding services and the related fees billed by
our principal accountants during the periods indicated is as follows:



|                                                                                                                                                                                                       | For the years ended
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------
|                                                                                                                                                                                                       | February 28,       
|                                                                                                                                                                                                       | 2007               
|Audit fees: Includes audit and review services applicable to
Intermountain’s annual financial statements, Forms 10-KSB and 10-QSB, and
other filings made with the Securities and Exchange Commission. | $   24,110         
|Audit related fees                                                                                                                                                                                     | 0                  
|Tax fees                                                                                                                                                                                               | 0                  
|All other fees                                                                                                                                                                                         | 0                  
|Total fees billed by principal accountants                                                                                                                                                             | $   24,110         

We, due to our small size, do not have an audit committee. All
functions and procedures that would traditionally be performed by an audit
committee are performed by our board of directors.  Our board of directors
pre-approves all engagements for services performed by our principal
accountants.  Generally, we do not engage our principal accountants for services
other than those related to auditing and reviewing of financial statements
included in statutory filings with the Securities and Exchange
Commission.

10-KSB
18                                                                                                                      
IARS 15<page>

### Index to Financial Statements



|                                                                  | Page
|----------------------------------------------------------------- | ----
|Report of Independent Registered
Public Accounting Firm           | 16  
|                                                                  |     
|Balance Sheet as of February 29,
2008                             | 17  
|                                                                  |     
|Statements of Income and
Comprehensive Income for the years ended |     
|February 28, 2007
and February 29, 2008                           | 18  
|                                                                  |     
|Statements of Cash Flows for the
years ended                      |     
|February 28, 2007
and February 29, 2008                           | 19  
|                                                                  |     
|Statements of Changes in
Stockholders' Equity                     |     
|for the
years ended February 28, 2007 and February 29, 2008       | 20  
|                                                                  |     
|Notes to financial
statements                                     | 21  
|                                                                  |     

Report of Independent Registered Public Accounting
FirmStockholders and Board of
DirectorsIntermountain Refining Co., Inc.



We have audited the accompanying balance sheet of
Intermountain Refining Co., Inc. as of February 29, 2008, and the related
statements of income and comprehensive income, changes in stockholders' equity,
and cash flows for the years ended February 28, 2007 and February 29, 2008.
These financial statements are the responsibility of Intermountain’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States.) Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but nor for the purpose of
expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting.  Accordingly, we do not express such an
opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Intermountain Refining Co., Inc. as of February 29, 2008, and the results of
operations and cash flows for the years ended February 26, 2007 and February 29,
2008, in conformity with accounting principles generally accepted in the United
States of America.Richey, May & Co., LLPEnglewood, ColoradoMay 12,
2008

10-KSB
19                                                                                                                      
IARS 16<page>



|Intermountain Refining Co., Inc.                                           |  |              
|-------------------------------------------------------------------------- |  | -------------
|Balance Sheet                                                              |  |              
|February 29, 2008                                                          |  |              
|                                                                           |  |              
|Assets                                                                     |  |              
|Current Assets                                                             |  |              
|Cash and cash equivalents - Note
A                                         |  | $   2,062,887
|Accounts receivable - Note B                                               |  | 13,051       
|Current portion of notes receivable
– Notes C and F                        |  | 15,731       
|Accrued interest receivable                                                |  | 685          
|Income tax refund receivable - Note G                                      |  | 11,468       
|Prepaid expenses                                                           |  | 939          
|Total Current Assets                                                       |  | 2,104,761    
|Property, Plant and
Equipment, net                                         |  |              
|Land, buildings and
improvements                                           |  | 343,057      
|Equipment                                                                  |  | 45,990       
|Asphalt equipment – Notes A and
C                                          |  | 4,000        
|Oil and gas properties, (successful
efforts method) - Notes L, M and N     |  | 658,489      
|                                                                           |  | 1,051,536    
|Less accumulated depletion and
depreciation                                |  | (469,077)    
|                                                                           |  | 582,459      
|Other Assets                                                               |  |              
|Available-for-sale investments - Note
E                                    |  | 136,508      
|Notes receivable (net of current portion)                                  |  | 23,223       
|Other assets                                                               |  | 275          
|                                                                           |  | 160,006      
|Total Assets                                                               |  | $ 2,847,226  
|Liabilities and Stockholders' Equity                                       |  |              
|Current Liabilities                                                        |  |              
|Accounts payable                                                           |  | $     4,002  
|Taxes other than income
taxes                                              |  | 2,618        
|Income taxes payable - Note
G                                              |  | 100          
|Total Current
Liabilities                                                  |  | 6,720        
|Deferred Taxes -
Note G                                                    |  | 21,767       
|Asset Retirement Obligations - Notes A and
N                               |  | 7,187        
|Commitments and
Contingencies - Note I                                     |  | -            
|Stockholders' Equity                                                       |  |              
|Common stock, no par value, authorized
10,000,000 shares,                  |  |              
|issued and outstanding 1,155,609 shares                                    |  | 1,455,314    
|Preferred stock, $0.01 par value, authorized 5,000,000
shares,             |  |              
|issued and outstanding 0 shares                                            |  | -            
|Retained earnings                                                          |  | 1,315,813    
|Accumulated other comprehensive income - Note
E                            |  | 40,425       
|                                                                           |  | 2,811,552    
|Total Liabilities and Stockholders'
Equity                                 |  | $ 2,847,226  
|                                                                           |  |              
|The accompanying notes are an integral part of these
financial statements. |  |              

10-KSB
20                                                                                                                      
IARS 17<page>



|Intermountain Refining Co., Inc.                                                                                                                                       |                     |              
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | -------------
|Statements of Income and Comprehensive Income                                                                                                                          |                     |              
|                                                                                                                                                                       | For the years ended
|                                                                                                                                                                       | February  28,       | February  29,
|                                                                                                                                                                       | 2007                | 2008         
|Revenues                                                                                                                                                               |                     |              
|Natural gas production revenues                                                                                                                                        | $   670,621         | $   142,372  
|Asphalt equipment rental and throughput
fees - Notes C and D                                                                                                           | 154,325             | 197,844      
|Real estate rental income                                                                                                                                              | 22,818              | 13,080       
|Other revenues - Note H                                                                                                                                                | 3,000               | 3,000        
|                                                                                                                                                                       | 850,764             | 356,296      
|Operating  Expenses, Investment Income and Other Gains
and Losses                                                                                                      |                     |              
|Cost of sales, exclusive of depletion,
depreciation and amortization shown below                                                                                       | 457,557             | 126,987      
|General and administrative                                                                                                                                             | 287,817             | 292,835      
|Depletion, depreciation and
amortization                                                                                                                               | 45,003              | 21,006       
|Bad debt expense                                                                                                                                                       | -                   | 11,311       
|Gain on sale of refinery land and equipment - Notes C
and H                                                                                                            | (6,768)             | (68,383)     
|Salvage of refinery equipment - Note I                                                                                                                                 | (11,141)            | (9,930)      
|Gain on sale of electric generation equipment - Note
O                                                                                                                 | (4,936)             | -            
|(Gain)/Loss on sales of oil and gas producing properties
– Note L                                                                                                      | (918,085)           | -            
|Accretion of discount on asset retirement obligations -
Note N                                                                                                         | 2,131               | 417          
|Loss on settlement of asset retirement obligations -
Note N                                                                                                            | 7,615               | -            
|Interest and investment expense/(income),
net                                                                                                                          | (30,197)            | (61,499)     
|                                                                                                                                                                       | (171,004)           | 312,744      
|Income From Operations Before Income
Taxes                                                                                                                             | 1,021,768           | 43,552       
|Provision (benefit) for income taxes -
Note G                                                                                                                          |                     |              
|Current                                                                                                                                                                | 187,330             | 781          
|Deferred                                                                                                                                                               | -                   | -            
|                                                                                                                                                                       | 187,330             | 781          
|                                                                                                                                                                       |                     |              
|Net Income                                                                                                                                                             | 834,438             | 42,771       
|                                                                                                                                                                       |                     |              
|Other Comprehensive Income (Loss), net of
tax:                                                                                                                         |                     |              
|Unrealized holding gain/(loss) on investments available for
sale (net of deferred income tax expense/(benefit) of  $(1,211) in 2007 and
$3,240 in 2008)- Notes E and G | (2,251)             | 6,019        
|                                                                                                                                                                       |                     |              
|Comprehensive Income                                                                                                                                                   | $   832,187         | $    48,790  
|                                                                                                                                                                       | =========           | =========    
|Weighted Average Number of Shares
Outstanding                                                                                                                          | 1,155,609           | 1,155,609    
|Basic and Fully Diluted Earnings Per
Share                                                                                                                             |                     |              
|Net income                                                                                                                                                             | $      
0.72        | $      
0.04 
|                                                                                                                                                                       | ========            | ========     
|                                                                                                                                                                       |                     |              
|                                                                                                                                                                       |                     |              
|The accompanying notes are an integral part of these
financial statements.                                                                                             |                     |              

10-KSB
21                                                                                                                      
IARS 18<page>



|Intermountain Refining Co.,
Inc.Statements of Cash Flows                                                                                              
|------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                      
|                                                                                                                                                      
|Increase (Decrease) in Cash and Cash
Equivalents                                                                                                      
|Cash Flows From Operating Activities                                                                                                                  
|Net income                                                                                                                                            
|Adjustments to reconcile net income to
net cash provided by operating activities:                                                                     
|Depreciation, depletion and
amortization                                                                                                              
|Accretion of discount on asset retirement
obligations                                                                                                 
|Depletion on investments in oil and gas
royalty trusts                                                                                                
|Bad debt expense                                                                                                                                      
|Loss on settlement of asset retirement
obligations                                                                                                    
|Gain on sale of refinery land and equipment                                                                                                           
|Gain on sale of electric generation
equipment                                                                                                         
|(Gain) loss on sale of oil and gas
producing properties                                                                                               
|Changes in operating assets and
liabilities:                                                                                                          
|(Increase) decrease in
accounts receivable                                                                                                            
|(Increase) decrease in accrued interest
receivable                                                                                                    
|(Increase) decrease in prepaid expenses                                                                                                               
|Increase in income tax refund receivable                                                                                                              
|Decrease in accounts payable
and accrued expenses                                                                                                     
|Increase (decrease) in
income taxes accrued                                                                                                           
|Net Cash Flow Provided by Operating
Activities                                                                                                        
|                                                                                                                                                      
|Cash Flows From Investing Activities                                                                                                                  
|Purchases of available for sale
investments                                                                                                           
|Proceeds from sale of electric generation
equipment                                                                                                   
|Purchase of improvements to electric generation
equipment                                                                                             
|Proceeds from sale land and equipment                                                                                                                 
|Collection of notes receivable                                                                                                                        
|Proceeds from surrender of life insurance
policy                                                                                                      
|Oil and gas development costs                                                                                                                         
|Proceeds from the sale of oil and gas producing
properties                                                                                            
|Settlement of asset retirement
obligations                                                                                                            
|Net Cash Flow Provided (Used) by Investing
Activities                                                                                                 
|                                                                                                                                                      
|Increase (decrease) in Cash and Cash
Equivalents                                                                                                      
|                                                                                                                                                      
|Cash and Cash Equivalents at Beginning of
Year                                                                                                        
|                                                                                                                                                      
|Cash and Cash Equivalents at End of Year                                                                                                              
|Supplemental Cash Flow
Disclosures                                                                                                                    
|Intermountain paid interest of  $0 in 2007 and $518 in
2008.                                                                                          
|Intermountain paid income taxes of $491 in 2007.
Intermountain paid income taxes of  $200,616 and received a refund of income
taxes of $1,400 in 2008.
|Supplemental Schedule of Noncash Investing
Activities:                                                                                                
|During 2007, Intermountain's available for sale investments
decrease in value by $2,251, net of deferred tax benefits of
$1,211.                      
|During 2008, Intermountain's available for sale investments
increased in value by $9,259, net of deferred taxes of $3,240.                            
|During 2008, Intermountain issued a $40,000 note receivable
in conjunction with the sale of land and equipment.                                       
|The accompanying notes are an integral part of these
financial statements.                                                                            

10-KSB
22                                                                                                                      
IARS 19<page>



|Intermountain Refining Co., Inc.                                          
|--------------------------------------------------------------------------
|Statements of Changes in Stockholders'
Equity                             
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Balance, February 28, 2006                                                
|                                                                          
|Holding gain on available for sale                                        
|investments - Notes E and G                                               
|                                                                          
|Net income                                                                
|                                                                          
|Balance, February 28, 2007                                                
|                                                                          
|Holding loss on available for sale                                        
|investments - Notes E and G                                               
|                                                                          
|Net income                                                                
|                                                                          
|Balance, February 29, 2008                                                
|                                                                          
|                                                                          
|The accompanying notes are an integral part of these
financial statements.

10-KSB
23                                                                                                                      
IARS 20<page>

Intermountain Refining Co., Inc.

Notes to Financial Statements

February 29, 2008

### Note A - Summary of Significant Accounting Policies



Business Activity:  Intermountain owns an
approximate 12.48% working interest (9.98% net revenue interest) in 15 natural
gas producing wells (operated by others) in San Juan County, New Mexico.
Intermountain owned a 98.4% working interest (81.5% net revenue interest) in 19
natural gas producing wells located in Southwestern Kansas and was the operator
of the properties.  The Kansas properties were sold effective as of
February 28, 2007.

Intermountain owned an asphalt products manufacturing and
storage facility located in Fredonia Arizona that was sold to an unrelated third
party on October 18, 2007. The facility has been under lease to Paramount
Petroleum Corporation since 2002 and Intermountain will retain the benefits and
obligations under the lease agreement until December 31, 2010, or such earlier
time at the option of Intermountain. Intermountain receives fixed monthly lease
payments and variable throughput fees for products shipped from the facility.

Intermountain owns an office building in Farmington, New
Mexico that it uses for its corporate offices and leases unused space to others.

Cash and Cash Equivalents:  For purposes of reporting
cash flows, cash and cash equivalents include cash on hand, cash in depository
institutions, and interest bearing over-night cash investments. 
Intermountain maintains its cash balances in a national financial
institution.  The balances maintained are in excess of the maximum
insurance provided by the Federal Deposit Insurance Corporation. Intermountain
does not believe that it has any significant credit risk for amounts in excess
of the federally insured amounts.

Property, Plant and Equipment:  Property, plant
and equipment is stated at cost. Depreciation of property and equipment is
provided on the straight-line method over the following useful lives:



|Buildings | 15-20
|--------- | -----
|Equipment | 3-20 

Maintenance, repairs and renewals, which neither materially
add to the value of the property nor appreciably prolong its life, are charged
to expense as incurred. Gains or losses on disposition of property are included
in results of operations.

Long-lived assets to be held and used are reviewed for
impairment whenever events or changes in circumstances indicate that the related
carrying amount may not be recoverable. A review for impairment includes
comparing the current carrying amount of an asset to the estimated future cash
flows expected to result from the use of the asset and its eventual disposition.
If such future estimated cash flows are not sufficient to recover the carrying
cost, then an impairment loss is recognized. When required, impairment losses on
assets to be held are recognized based on the excess of the asset's carrying
amount over the fair value of the asset.

Asset Retirement Obligations: Asset retirement
obligations, such as future plugging and abandonment of oil and gas wells, are
recognized based on the present value of the future retirement costs as of the
date an asset is acquired and capitalized as part of the cost of the asset. The
capitalized cost is amortized to expense and the discount on the future
obligation is amortized to accretion expense over the life of the asset. Actual
costs associated with asset retirement activities are charged against the asset
retirement obligation. Gains or losses on the ultimate settlement of asset
retirement obligations are charged to results of operations in the year of
retirement.

Oil and Gas Properties:The successful efforts method
of accounting for the acquisition, exploration, development and production of
oil and gas properties is utilized. Costs of acquiring undeveloped oil and gas
leases are capitalized. All development costs of proved properties are
capitalized as incurred and all exploration costs are expensed. The capitalized
costs of oil and gas wells and related equipment are amortized by the
units-of-production method based on the estimated proved oil and gas reserves.

Revenue Recognition:Natural gas production revenues
are recognized upon delivery. Real estate rental income, asphalt equipment
rental fees, and other revenues are recognized on a monthly basis as services
are provided. Asphalt product throughput fees are recognized on a monthly basis
as asphalt products are shipped. Additional throughput fees are recognized, if
and when, annual calendar shipments exceed 10,000 tons.

10-KSB
24                                                                                                                      
IARS 21<page>

Intermountain Refining Co., Inc.

Notes to Financial Statements - Continued



Income Taxes:Deferred income tax expense and benefits
are provided on temporary differences arising from the timing of recognition of
income and expenses for financial reporting purposes and recognition for income
tax purposes. Items that give rise to deferred taxes include: differences
between straight line depreciation used for financial reporting purposes and
statutory depreciation used for tax purposes; cost depletion used for financial
reporting purposes and statutory depletion used for tax purposes; differences
between book and tax treatment of asset retirement obligations; differences
between book and tax timing of gain recognition on installment sales and,
financial statement recognition of operating and capital losses which are
carried forward to future years for income tax purposes. Deferred tax assets are
limited to amounts considered to be realizable in future periods.

Earnings Per Share:Income (loss) per share is based on
the weighted average number of common shares outstanding during each
period.

Estimates:  The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.

Fair Value of Financial Instruments:  The carrying
amount of cash and cash equivalents, accounts receivable, notes receivable,
accounts payable, and accrued expenses approximate fair value because of the
short maturity of these amounts. None of Intermountain's financial instruments
are held for trading purposes.

Available for Sale Investments:Available for sale
investments include investments in publicly traded equity securities and oil and
gas royalty trusts, and brokerage money market accounts. The carrying amounts of
Intermountain's available for sale investments are reflected at fair value.
Unrealized holding gains and losses in the market value of the investments are
reported as other comprehensive income (loss) and included in changes in equity.

Concentration of Credit Risk:Intermountain generates
substantially all of its natural gas revenues from one customer. Intermountain
generates all of its asphalt manufacturing and storage revenues from one
customer, Paramount Petroleum Corporation. Intermountain has not experienced any
credit losses with respect to its natural gas or asphalt manufacturing and
storage receivables. Accordingly, no provision for doubtful accounts on such
receivables has been recorded by Intermountain. Collateral is not required on
oil and natural gas receivables or asphalt manufacturing and storage
receivables.

Other Comprehensive Gains and Losses: Other
comprehensive income includes unrealized gains and losses (net of deferred tax
liabilities or benefits) on changes in the value of available for sale
investments and is recorded as changes in equity.  Reclassification adjustments
for realized gains and losses are reflected in earnings on the statements of
income.



### Note B - Accounts Receivable

Accounts receivable consists of amounts due from customers for
sales of natural gas, equipment rental, office space rental, and services
rendered.  Credit sales are generally made on terms of net 30 days in
accordance with normal industry practice.  Intermountain performs periodic
credit evaluations of its customers' financial condition and generally does not
require collateral.  The past due status of a receivable is determined
based on the timeliness of payments as based upon the agreed-upon credit terms.
Management does not believe that an allowance for bad debts on accounts
receivable is necessary.

### 

### Note C - Sale of Fredonia Arizona
Facility

In October 2007, Intermountain sold its remaining 18 acres of
land and all remaining equipment located at its Fredonia facility to an
unrelated third party for $80,000. The proceeds from the sale included $40,000
cash down payment and a $40,000 6% note receivable, payable in 36 equal monthly
installments. On the date of closing, the carrying value of the land and
equipment was $11,353, net of accumulated depreciation of $577,919, which
resulted in a $68,383 gain on the sale, after closing costs of $264. As an
inducement to enter into the transaction, the purchaser granted Intermountain
the right to retain all benefits and obligations related to the asphalt
manufacturing and storage equipment under lease to Paramount Petroleum. The
rights and obligations associated with the leased equipment will expire on
December 31, 2010 unless terminated earlier at Intermountain's
option.

10-KSB
25                                                                                                                      
IARS 22<page>

Intermountain Refining Co., Inc.

Notes to Financial Statements - Continued



### Note D - Asphalt Product Storage
Services

Effective January 1, 2002, Intermountain leased its asphalt
storage and processing equipment to Paramount Petroleum Corporation for $3,200
per month plus a throughput fee of $5.50 per ton for asphalt products shipped
from the facility during the term of the agreement. In addition, if annual
product shipments from the facility exceed 10,000 tons, Paramount will pay an
additional throughput fee of $4.50 per ton, applicable to all tons shipped
during the year. The initial term of the agreement expired on January 1, 2003
but has been automatically extended on a year to year basis under the extension
terms of the agreement. The facility was sold to an unrelated third party on
October 18, 2007 (see Note C), however, the benefits and obligations under the
lease agreement were retained by Intermountain until December 31, 2010, or such
earlier time at the option of Intermountain. For the year ended February 28,
2007, Intermountain recognized equipment rental revenues of $38,400 and
throughput fees of $115,925. For the year ended February 29, 2008, Intermountain
recognized equipment rental revenues of $38,400 and throughput fees of
$159,444.

### 

### Note E - Available-For-Sale
Investments

Available-for-sale investments consist of the following at
February 29, 2008:



|Description                                    | Cost        | Unrealized gain/(loss) | Estimated Fair Value
|---------------------------------------------- | ----------- | ---------------------- | --------------------
|Investment in natural gas royalty trusts *     | $   36,795  | $  42,012              | $ 78,807            
|Investment in common stock equities            | 14,781      | 20,180                 | 34,961              
|Brokerage money market accounts                | 22,740      | 0                      | 22,740              
|Total investments available for sale           | $    74,316 | $    62,192            | $ 136,508           
|                                               |             |                        |                     
|*Cost net of accumulated depletion of $12,538. |             |                        |                     

Investments in royalty trusts and common stock equities are
stated at their estimated fair value as of the balance sheet date presented.
Unrealized holding gains and losses in market value of investment securities are
classified as comprehensive gain and loss and included as an increase or
reduction of stockholders' equity. Unrealized holding gains/(losses) in market
value of investment securities were $(3,462) for the year ended February 28,
2007 and $9,259 for the year ended February 29, 2009.

Gains and losses on the sale of investment securities (when
incurred) are determined using the first-in first-out method. Given that the
investments are in royalty trusts and common stock equities, no contractual
maturities exist that would require separate disclosure. The fair market values
of the investments are subject to ongoing fluctuation. The amount ultimately
realized upon disposition will be different from the amounts reported in these
financial statements.



### Note F - Notes Receivable

Notes receivable consisted of the following as of February 28,
2007:



|6% Note receivable dated October 18, 2007 payable in 36
equal monthly installments beginning November 18, 2007, secured by land and
equipment located in Fredonia, Arizona | $    38,954
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------
|Less current portion                                                                                                                                                       | (15,731)   
|Notes Receivable                                                                                                                                                           | $   23,223 

10-KSB
26                                                                                                                      
IARS 23<page>

Intermountain Refining Co., Inc.

Notes to Financial Statements - Continued



### Note G - Income Taxes

Income tax expense (benefit) differs from income tax at the
statutory rate as follows:



|                                               | February 28 | February 29
|---------------------------------------------- | ----------- | -----------
|                                               | 2007        | 2008       
|Income at statutory rate                       | 35%         | 35%        
|State income taxes                             | 1%          | (8)%       
|Income not includable for tax purposes         | -  %        | (2)%       
|Expenses not deductible for tax purposes       | -  %        | 1%         
|Carry-back of net operating loss to prior year | -%          | 24%        
|Change in valuation allowance and other        | (18)%       | (52)%      
|Income tax expense (benefit)                   | 18 %        | 2%         
|                                               |             |            
|                                               |             |            

Income tax expense (benefit) for the periods indicated
consists of the following:



|                              | For the years ended
|----------------------------- | -------------------
|                              | February 28,       
|                              | 2007               
|Current                       |                    
|Federal                       | $    158,308       
|State                         | 29,022             
|Deferred                      |                    
|Federal                       | 259,740            
|State                         | 40,710             
|Change in valuation
allowance | (299,950)          
|Total income taxes            | $     187,330      



Deferred tax assets/(liabilities) as of February 29, 2008
consist of the following:



|Net deferred tax asset arising from book and tax basis
differences in depreciable assets                                       | $      35,989
|------------------------------------------------------------------------------------------------------------------------------ | -------------
|Deferred tax asset arising from book accrual of asset
retirement obligations                                                   | 634          
|Deferred tax liability from use of installment method for
tax purposes on the recognition of capital gains on the sale of
land | (11,575)     
|Deferred tax liability arising from deferral of gain on
receipt of stock from demutualization of a life insurance company      | (5,173)      
|Valuation allowance provided for net deferred tax
assets                                                                       | (19,875)     
|Deferred taxes receivable/(payable)                                                                                            | $        -   
|                                                                                                                               |              
|Deferred tax liability from unrealized holding gain on
available for sale investments recorded as other comprehensive
income   | $  (21,767)  
|                                                                                                                               |              

### Note H - Related Party Transactions

Following are descriptions of transactions involving
Intermountain and other related parties that occurred during the past two fiscal
years. In the opinion of management, the terms of the transactions discussed are
believed to be at least as favorable to Intermountain as those that could have
been secured in arm's length transactions.

Red Hills Manufacturing, Inc. is a small wood products
manufacturing company located in Fredonia, Arizona of which Mr. Hagler
(President, Director and shareholder) and Mr. Hurt (Treasurer, Secretary,
Director and shareholder), among others, are officers, directors, shareholders,
and employees. Mr. Hagler, Mr. Hurt and one other employee perform certain
management and accounting services for Red Hills on a part time basis and Red
Hills compensates the individuals directly for such services. In addition, Red
Hills pays Intermountain $250 per month to compensate for incidental use of
office resources. Amounts received from Red Hills were $3,000 for the year ended
February 28, 2007 and $3,000 for the year ended February 29, 2008.

10-KSB
27                                                                                                                      
IARS 24<page>

Intermountain Refining Co., Inc.

Notes to Financial Statements - Continued

During the year ended February 28, 2007, Intermountain sold
approximately 1 acre of land at the Fredonia facility to Red Hills for $7,500.
On the date of closing, the carrying value of the parcel was $732, which
resulted in a $6,768 gain on the sale after $50 in selling expenses.



### Note I - Commitments and Contingencies

Environmental Matters:  Intermountain has been
involved in the manufacture, storage, and sale of petroleum products since 1984,
which exposes Intermountain to potential claims for environmental remediation
costs, if any, of sites operated by Intermountain. Except as discussed below,
Intermountain is not aware of any claims pending for such sites.

In April, 2005, Intermountain began the process of dismantling
the portions of its refining equipment at its Fredonia facility that were no
longer used for ongoing operations and were not expected to be used in the
future. As part of the dismantling process, Intermountain identified the
presence of asbestos containing materials in portions of the equipment being
dismantled. Intermountain engaged a consultant to evaluate the extent of
asbestos present on the site and to prepare a plan for the abatement and removal
of the material. Intermountain believes that abatement and disposal of the
asbestos containing materials had been completed as of February 28, 2006. The
land associated with the Fredonia facility was sold to an unrelated third party
in October 2007.

Intermountain recognized $11,141 in 2007 and $9,930 in 2008,
from the salvage of metals and used equipment removed from the facility.

Sale of Kansas Natural Gas Producing Properties:On
February 28, 2007, Intermountain sold all of its interest in the leases, wells
and equipment associated with the natural gas producing properties located in
Scott and Finney Counties, Kansas. In accordance with the sale price provisions
of the sale agreement, Intermountain is entitled to receive additional
compensation of $370,000 contingent upon restoration of production from one gas
unit that, due to a significant casing failure, was not producing natural gas as
of the date of sale. Intermountain attempted additional repair efforts
subsequent to February 28, 2007 and ultimately decided to drill a replacement
well on the unit which was completed in July 2007. The capitalized development
cost associated with the replacement well amounted to approximately $219,000
during the year ended February 29, 2008. Initial gas pressure at the wellhead
was not sufficient to produce saleable quantities and, at the advise of its
consultant, Intermountain is presently attempting to dewater the producing
formation in an effort to raise gas pressure. Management believes there is a
reasonable probability that production from the unit can be restored, however,
there is no assurance that the replacement well will be successful.



### Note J - Simple IRA Plan

Intermountain maintains a SIMPLE IRA plan for the benefit of
all of its full time employees.  The plan provides for the elective
deferral of employee wages, subject to annual limits established by the Internal
Revenue Service, and provides a mandatory employer matching contribution. 
Mandatory matching contributions are the lesser of 3% of employee compensation
or the amount of elective deferrals.  Intermountain may elect to reduce the
matching percentage to 1% for two out of five consecutive calendar years. 
Intermountain made matching contributions of $5,385 in 2007 and $5,385 in 2008.



### Note K - Financial Information Relating to Industry
Segments

Intermountain's major industry segments are natural gas
production and the leasing of asphalt product manufacturing and storage
facilities. Intermountain also rents office space in its Farmington, New Mexico
office building. All costs and expenses associated with the overall management
of Intermountain and other miscellaneous activities are included under "Other"
in the following segment information. Selected financial information relating to
these segments, is as follows:

10-KSB
28                                                                                                                      
IARS 25<page>

Intermountain Refining Co., Inc.

Notes to Financial Statements - Continued



|                                                                                                                                                                                | Years Ended  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------
|                                                                                                                                                                                | February 28, 
|                                                                                                                                                                                | 2007         
|Revenues                                                                                                                                                                        |              
|Asphalt product manufacturing and storage
facilities                                                                                                                            | $    154,325 
|Natural gas production                                                                                                                                                          | 670,621      
|Other                                                                                                                                                                           | 25,818       
|                                                                                                                                                                                | $   850,764  
|Operating Profit (Loss)                                                                                                                                                         |              
|Asphalt product manufacturing and storage facilities
*(1)                                                                                                                       | $  142,821   
|Natural gas production *(2)                                                                                                                                                     | 1,106,451    
|Other                                                                                                                                                                           | (227,504)    
|                                                                                                                                                                                | $   1,021,768
|*(1)Includes gain from sale of land and equipment salvage of
$17,909 during 2007. Includes gain from sale of Fredonia facility and salvage of
equipment of $78,313 during 2008. |              
|*(2) Includes gain on sale of Kansas properties of $918,085
during 2007.                                                                                                        |              
|                                                                                                                                                                                |              
|Depreciation and Depletion                                                                                                                                                      |              
|Asphalt product manufacturing and storage
facilities                                                                                                                            | $         570
|Natural gas production                                                                                                                                                          | 43,795       
|Other                                                                                                                                                                           | 638          
|                                                                                                                                                                                | $   
45,003  
|                                                                                                                                                                                |              
|                                                                                                                                                                                |              
|Identifiable Assets                                                                                                                                                             |              
|Asphalt product manufacturing and storage
facilities                                                                                                                            |              
|Natural gas production                                                                                                                                                          |              
|Other                                                                                                                                                                           |              
|                                                                                                                                                                                |              
|                                                                                                                                                                                |              



Capital Expenditures - During the year ended February
29, 2008, Intermountain capitalized $218,515 in development costs associated
with a replacement well drilled in Kansas. See Note I



Major Customers - Intermountain sold substantially all
natural gas produced from the Kansas gas properties to one customer. Natural gas
sales to the customer, net to Intermountain's interest, were approximately
$485,000 for the year ended February 28, 2007. Intermountain receives all of its
revenues associated with it New Mexico gas properties from the operating
partner. Natural gas revenues received from the operating partner, net to
Intermountain's interest, were approximately $173,000 for the year ended
February 28, 2006 and $142,372 for the year ended February 29, 2008.
Intermountain leased its asphalt products manufacturing and storage equipment to
one customer. Equipment lease and fees revenues received from the customer were
approximately $154,000 for the year ended February 28, 2007 and $198,000 for the
year ended February 29, 2008.



### Note L -Natural Gas Properties

Intermountain currently owns, but does not operate, working
interests in certain proven and developed natural gas reserves and related
production equipment located in Northwestern New Mexico. On February 28, 2007,
Intermountain sold all of its interest in certain proven and developed natural
gas reserves and related production equipment that it operated in Southwestern
Kansas. Intermountain is presently seeking to acquire existing developed and
producing oil and/or gas reserves within the United States but has not
identified any properties that meet Intermountain's criteria. Intermountain may
participate in the drilling of additional development wells on its leased
properties, however, there are no current plans to drill or complete any
additional wells on the New Mexico leases.

10-KSB
29                                                                                                                      
IARS 26<page>

Intermountain Refining Co., Inc.

Notes to Financial Statements - Continued





|Capitalized Costs:  Capitalized costs relating
to natural gas producing activities are as follows at February 29,
2008:                                                
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Proved natural gas
properties                                                                                                                                          
|Unproved natural gas
properties                                                                                                                                        
|Less accumulated depletion                                                                                                                                             
|Net capitalized costs                                                                                                                                                  
|                                                                                                                                                                       
|Results of Operations:Results of operations of
natural gas producing activities, excluding overhead and interest allocations,
for the periods indicated are as follows:
|                                                                                                                                                                       
|                                                                                                                                                                       
|                                                                                                                                                                       
|Revenues                                                                                                                                                               
|Natural gas
sales                                                                                                                                                      
|Costs and Expenses                                                                                                                                                     
|Operating costs                                                                                                                                                        
|Accretion of discount on future plugging and
abandonment costs                                                                                                         
|Loss on settlement of plugging and abandonment
costs                                                                                                                   
|                                                                                                                                                                       
|Depletion, depreciation and
amortization                                                                                                                               
|                                                                                                                                                                       
|Income before taxes                                                                                                                                                    
|Income tax expense                                                                                                                                                     
|Net income                                                                                                                                                             
|                                                                                                                                                                       
|Gain/(loss) on sale of oil and natural gas producing
properties, net of                                                                                                
|income taxes                                                                                                                                                           
|                                                                                                                                                                       

Effective February 28, 2007, Intermountain sold all of its
interest in the Scott and Finney Counties, Kansas natural gas producing
properties to an unrelated third party for $1,100,000. The carrying value of the
property at the time of sale was $206,342, net of accumulated depletion of
$786,725. Satisfaction of the selling price consisted of a cash payment of
$1,100,000 and release from accrued asset retirement obligations of $23,695.
Intermountain may receive additional compensation of up $370,000, contingent
upon the successful return of production of one of the gas units sold. During
the year ended February 29, 2008, Intermountain capitalized $218,515 in
development costs in conjunction with the drilling of a replacement well in its
efforts to return production to the one Kansas gas unit that was sold. As of the
date of this report, natural gas production from the Kansas unit has not yet
been reestablished. See Note I



### Note M - Natural Gas Reserve Data and Supplemental Data
(Unaudited)

In accordance with Statement of Financial Accounting Standards
No. 69, the following unaudited information is presented with regard to
Intermountain's proved natural gas reserves. Information is presented in million
cubic feet (MMcf) except where otherwise indicated in thousand cubic feet (Mcf).

10-KSB
30                                                                                                                     
IARS 27<page>

Intermountain Refining Co., Inc.

Notes to Financial Statements - Continued



|Production:  Intermountain's natural gas
production, average sales price and production cost for the periods indicated
are as follows:                                                               
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Net gas production (Mcf)                                                                                                                                                                             
|Average sales price ($/Mcf)                                                                                                                                                                          
|Average production cost
($/Mcf)                                                                                                                                                                      
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Reserves:  Natural gas reserves as of February
29, 2008 are based on data developed internally by Intermountain.                                                                                     
|                                                                                                                                                                                                     
|Estimated net quantities of proved developed and proved
undeveloped natural gas reserves are as follows at February 29,
2008:                                                                        
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Proved developed                                                                                                                                                                                     
|Proved undeveloped                                                                                                                                                                                   
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Statement of Changes in Quantities of Proved Developed
and Undeveloped  Natural Gas Reserves for the years indicated are as
follows:                                                                 
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Proved reserves - beginning of
year                                                                                                                                                                  
|Acquisition of reserves in place                                                                                                                                                                     
|Sale of reserves in place                                                                                                                                                                            
|Revisions to previous estimates (1)                                                                                                                                                                  
|Production                                                                                                                                                                                           
|Proved reserves - end of period                                                                                                                                                                      
|                                                                                                                                                                                                     
|(1) The decrease in previous estimates for the year
ended February 28, 2007 was due to the write down of reserves associated with a
New Mexico well that was plugged and abandoned during the year.  
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|The Standardized Measure of Discounted Future Net Cash
Flows relating to Proved Natural Gas Reserves are as follows at February 29,
2008:                                                            
|                                                                                                                                                                                                     
|Future cash inflows                                                                                                                                                                                  
|Future production costs                                                                                                                                                                              
|Future plugging and abandonment costs                                                                                                                                                                
|Future income tax expense                                                                                                                                                                            
|Future net cash flow                                                                                                                                                                                 
|Ten percent discount factor                                                                                                                                                                          
|Standardized measure of discounted future
net cash flows                                                                                                                                             
|10-KSB
31                                                                                                   
IARS 28<page>
Intermountain Refining Co., Inc.
Notes to Financial Statements - Continued
|Changes in the Standardized Measure of Discounted Future
Net Cash Flows From Proved Natural Gas Reserve Quantities for the periods
indicated are as follows:                                         
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Standardized measure - beginning of
year                                                                                                                                                             
|Acquisition of reserves in place                                                                                                                                                                     
|Sale of reserves in place                                                                                                                                                                            
|Revisions to previous quantity estimates                                                                                                                                                             
|Sales, net of production costs                                                                                                                                                                       
|Income taxes                                                                                                                                                                                         
|Changes in present value due to price and production
cost changes                                                                                                                                    
|(Including accretion of
discount)                                                                                                                                                                    
|Standardized measure - end of
period                                                                                                                                                                 
|                                                                                                                                                                                                     
|Developed and Undeveloped Acreage:  The
following summarizes Intermountain's gross and net undeveloped and developed
acreage at February 29, 2008:                                                   
|                                                                                                                                                                                                     
|Developed Acreage                                                                                                                                                                                    
|New Mexico                                                                                                                                                                                           
|Undeveloped Acreage                                                                                                                                                                                  
|                                                                                                                                                                                                     
|"Gross Acres" refers to the number of acres in which
Intermountain owns a working interest. "Net Acres" refers to the sum of the
fractional working interest owned by Intermountain in gross acres.  
|                                                                                                                                                                                                     
|Other:  Intermountain held interests in the
following wells at February 29, 2008:                                                                                                                    
|                                                                                                                                                                                                     
|Producing gas wells                                                                                                                                                                                  
|                                                                                                                                                                                                     

### 

### Note N - Asset Retirement Obligations

Accounting for asset retirement obligations relates to legal
obligations associated with the retirement of long lived assets. Intermountain
has a legal obligation to incur plugging and abandonment costs associated with
its natural gas operations.

Changes in Intermountain's asset retirement obligations for
the periods indicated are as follows:



|                                                        | For the years ended
|------------------------------------------------------- | -------------------
|                                                        | February 28, 2007  
|Asset retirement obligation - beginning
of year         | $   32,343         
|Sale of natural gas producing properties                | (23,695)           
|Acquisition of oil and natural gas producing
properties | -                  
|Settlement of asset retirement obligations              | (11,624)           
|Loss on settlement of asset retirement
obligations      | 7,615              
|Accretion of discount                                   | 2,131              
|Asset retirement obligation - end of
year               | $    6,770         

10-KSB
32                                                                                                                      
IARS 29<page>

Intermountain Refining Co., Inc.

Notes to Financial Statements - Continued



Note O - Electric Generation Equipment Held For
Sale

In November 2006, Intermountain sold its electric generation
facility, including associated land, building and fuel inventory, to a regional
electric power distributor for $269,820. In accordance with the 2005 memorandum
of understanding between Intermountain and the purchaser, Intermountain agreed
to transfer operational equipment that was capable of successfully completing a
24-48 hour full load test run. Intermountain incurred improvement costs of
$52,241 in 2007, which were deemed necessary to insure that the generators would
successfully complete the test run. At the time of the sale, the electric
generation facility had a combined carrying value of $264,884, net of impairment
of $440,935. The impairment in value reflected the estimated amount by which the
carrying value of the equipment (including land, building, fuel inventory and
recent improvements) exceeded the estimated proceeds from the sale.

(End of Integrated Annual Report to
Shareholders)

10-KSB
33                                                                                                                      
IARS 30<page>



### Exhibits and Reports on Form 8-K

### Reports on Form 8-K:

There were no reports on Form 8-K filed by Intermountain
during the quarter ended February 29, 2008:



### Exhibits:



|Exhibit | Description                                                                                 
|------- | --------------------------------------------------------------------------------------------
|3.1     | Amended and Restated Articles of Incorporation
(1)                                          
|3.2     | Bylaws (1)                                                                                  
|10.1    | Paramount Petroleum Agreement - November 1999
(1)                                           
|14.1    | Code of Ethics (2)                                                                          
|31.1    | Certification under Rule 13a-14(a)/15d-14(a) of Rick L.
Hurt, Secretary, Treasurer, Director
|31.2    | Certification under Rule 13a-14(a)/15d-14(a) of William N.
Hagler, President, Director      
|32      | Certification of Periodic Financial Report Pursuant to 18
U.S.C Section 1350                

(1) Incorporated herein by reference to Intermountain's
registration statement filed on Form S-1 dated April 9, 2001.

(2) Incorporated herein by reference to Intermountain's Form
10-KSB for the year ended February 28, 2006, as filed with the Commission on May
17, 2006.

### Signatures

Pursuant to the requirements of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Farmington, State of New
Mexico, on May 14, 2008.

Intermountain Refining Co., Inc.

By:/s/ William N.
HaglerWilliam N. Hagler, President

Pursuant to the requirements of the Exchange Act, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

/s/ William N.
Hagler_________________   Date: May 14,
2008William N. Hagler, Chairman of the Board
ofDirectors, and
President/s/ Rick
L. Hurt _____________________    Date: May 14,
2008Rick L. Hurt, Secretary, Treasurer, Director

10-KSB 34<page>