U. S.
Securities and Exchange Commission
 Washington,
D. C. 20549
  FORM
10-Q
 
 [X]
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended March 31, 2008
  [  
      ]
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from _____ to _____
  Commission
File No. 0-52485
 
 CASPIAN
INTERNATIONAL OIL CORPORATION
 (Name of
Issuer in its Charter)
  Delaware
            20-5588710(State
      or Other Jurisdiction of incorporation or organization)
            (I.R.S.
      Employer I.D. No.)
 
 4265 San Felipe, Suite 1100
Houston, TX 77027
 (Address
of Principal Executive Offices)
 
 Issuer's
Telephone Number: (713) 960-6618
 
 Indicate  by
check mark  whether the  Registrant  (1) has filed
all reports required to be filed by Sections 13 or 15(d) of
the  Securities Exchange Act of
1934  during  the  preceding  12
months  (or for such shorter  period  that the
Registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.
  Yes
      X
            No
      ___
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check One)
  Large
      accelerated filer ___
            Accelerated filer ___
            Non-accelerated filer ___
            Small
      reporting companyX
  Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes
      ___
              No X
 APPLICABLE
ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding
of each of the Registrant's classes of common stock, as of the latest
practicable date:
 May 15,
2008
 Common
Voting Stock: 62,757,028 shares
  
  CASPIAN
INTERNATIONAL OIL CORPORATION
 FORM
10-Q
 TABLE
OF CONTENTS
 
 
 PART
      I — FINANCIAL INFORMATIONItem
      1.  Unaudited Consolidated Financial StatementsConsolidated
      Balance Sheet as of March 31, 2008 and December 31,2007
            2-3Consolidated
      Statement of Income for the Three Month Period Ended March 31, 2008 and
      2007
            4Consolidated
      Statements of Cash Flows for Three Months Ended March 31 2008 , and
      2007
            5Notes
      to Consolidated Financial Statements
            6-35Item
      2.  Managements’ Discussion and Analysis of Financial Condition
      and Results of Operations
            36-44Risk
      Factors That May Affect Future Results
            39-44Item
      3.  Quantitative and Qualitative Disclosures about Market
      Risk
            44Item
      4.  Controls and Procedures
            44-45PART
      II — OTHER INFORMATIONItem
      1.  Legal Proceedings
            45Item
      2.  Unregistered Sales of Equity Securities
            45Item
      3.  Default Upon Senior Securities
            45Item
      4.  Submission of Matters to a Vote of Security
      Holders
            45Item
      5.  Other Information
            45Item
      6.  Exhibits
            45Signatures
            46
 
 
  Caspian
International Oil Corporation
 Consolidated
Balance Sheets
 
 Note
            
            As
      of March31,
      2008
                USD
              (unaudited)
            
            As
      of December31,
      2007
              USDASSETSCurrent
      assetsCash
            
            5
            
            
            136,469
            
            
            125,031Accounts
      receivable, net
            
            6
            
            
            3,452,459
            
            
            5,560,069Inventories
            
            7
            
            
            1,206,156
            
            
            1,475,137Deferred
      income tax assets
            
            19
            
            
            1,329,944
            
            
            1,393,167Total
      current assets
            
            
            
            
            6,125,028
            
            
            8,553,404Non-current
      assetsInvestments,
      equity method
            
            8
            
            
            67,347
            
            
            49,875Oil
      exploration assets, full cost method
            
            9
            
            
            5,698,728
            
            
            5,358,615Property,
      plant and equipment
            
            10
            
            
            18,046,922
            
            
            18,996,417Intangible
      assets
            
            11
            
            
            158,233
            
            
            164,747Restricted
      cash
            
            
            
            
            439
            
            
            441Total
      non-current assets
            
            
            
            
            23,971,669
            
            
            24,570,095TOTAL
      ASSETS
            
            
            
            
            30,096,697
            
            
            33,123,499
   The
accompanying notes are an integral part of these consolidated financial
statements
 
 2
  Caspian
International Oil Corporation
 Consolidated
Balance Sheets
 
 Note
            
            As of March31,
      2008 USD
              (unaudited)
            
            As
      of December 31,
      2007

                USDLIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable and other liabilities
            
            12
            
            
            5,044,688
            
            
            5,961,857Short-term
      loans
            
            13
            
            
            4,586,217
            
            
            5,306,085Taxes
      payable
            
            14
            
            
            1,764,910
            
            
            1,888,837Dividends
      payable prior to reverse merger
            
            
            
            
            167,147
            
            
            310,241Total
      current liabilities
            
            
            
            
            11,562,962
            
            
            13,467,020Non-current
      liabilitiesLong-term
      loans
            
            13
            
            
            12,235,962
            
            
            12,729,082Deferred
      income tax liabilities
            
            19
            
            
            2,275,277
            
            
            2,368,487Obligation
      for historical reimbursement
            
            15
            
            
            3,210,540
            
            
            3,151,916Asset
      retirement obligations
            
            16
            
            
            193,575
            
            
            190,032Total
      non-current liabilities
            
            
            
            
            17,915,354
            
            
            18,439,517Total
      liabilities
            
            
            
            
            29,478,316
            
            
            31,906,537Minority
      interest
            
            
            
            
            280,433
            
            
            277,772Stockholders’
      equity
            
            17Common
      stock, $ 0.001 par value – authorized 200,000,000 shares; issued and
      outstanding 62,757,028 shares
            
            
            
            
            62,757
            
            
            62,757Additional
      paid-in capital
            
            
            
            
            3,821,850
            
            
            3,822,375Accumulated
      other comprehensive income
            
            
            
            
            413,893
            
            
            402,989Accumulated
      deficit
            
            
            
            
            (3,960,552
            )
            
            (3,348,931
            )Total
      stockholders’ equity
            
            
            
            
            337,948
            
            
            939,190TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            
            
            
            30,096,697
            
            
            33,123,499
   The
accompanying notes are an integral part of these consolidated financial
statements
 
 3
  Caspian
International Oil Corporation
 Consolidated
Statements of Operations
 
 Note
            
            For
      three months ended March 31,
      2008
              USD
              (unaudited)
            
            For
      threemonths
      endedMarch
      31,
      2007
              USD
              (unaudited)RevenuesSales
            
            18
            
            
            5,597,858
            
            
            2,840,9695,597,858
            
            
            2,840,969ExpensesProduction
      and operating expenses
            
            
            
            
            (4,497,086
            )
            
            (4,136,733
            )General
      and administrative expenses
            
            
            
            
            (1,186,161
            )
            
            (1,275,426
            )Accretion
      expenses
            
            
            
            
            (62,167
            )
            
            (57,742
            )Loss
      from disposal of fixed assets
            
            
            
            
            (8,776
            )
            
            (3,435
            )Income/(loss)
      from operating activities
            
            
            
            
            (156,332
            )
            
            (2,632,367
            )Share
      of profits of associates
            
            
            
            
            17,669
            
            
            29,512Interest
      expense
            
            
            
            
            (449,772
            )
            
            (158,756
            )Foreign
      currency exchange gain/(loss), net
            
            
            
            
            (53,457
            )
            
            240,816Equipment
      rental income
            
            
            
            
            -
            
            
            93,543Other
      non-operating income, net
            
            
            
            
            -
            
            
            3,575Income/(loss)
      before income taxes and minority interest
            
            
            
            
            (641,892
            )
            
            (2,423,677
            )Income
      tax benefit/(expense)
            
            19
            
            
            27,174
            
            
            506,418Minority
      interest
            
            
            
            
            3,097
            
            
            61,417Net
      income/(loss)
            
            
            
            
            (611,621
            )
            
            (1,855,842
            )Other
      comprehensive income:Foreign
      currency translation adjustment
            
            
            
            
            10,904
            
            
            317,271Comprehensive
      income (loss)
            
            
            
            
            (600,717
            )
            
            (1,538,571
            )Basic
      and diluted earnings(loss) per shareBasic
      and diluted
            
            
            
            
            (0.01
            )
            
            (0.03
            )
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements
 
  4
  Caspian
International
Oil Corporation
 Consolidated
Statements of Cash Flows
 
 For
      three monthsended
      March31,
      2008
              USD
              (unaudited)
            
            
            For three monthsended
      March31,
      2007
              USD
              (unaudited)Operating
      activities:Net
      income/(loss)
            
            
            (611,621
            )
            
            
            (1,855,842
            )Adjustments
      for non-cash items:Depreciation,
      depletion and amortization
            
            
            935,592
            
            
            
            621,286Stock-based
      compensation
            
            
            21,646
            
            
            
            283,706Investment
      income
            
            
            (17,669
            )
            
            
            (29,515
            )Accretion
      expenses
            
            
            62,167
            
            
            
            57,742Minority
      interest
            
            
            (3,097
            )
            
            
            (61,417
            )Impairment
      loss on fixed assets
            
            
            8,776
            
            
            
            3,435Foreign
      exchange difference on long-term obligations
            
            
            33,116
            
            
            
            (205,182
            )Deferred
      income taxes
            
            
            (27,174
            )
            
            
            (506,418
            )Changes
      in assets and liabilitiesAccounts
      receivable
            
            
            1,957,094
            
            
            
            675,470Inventories
            
            
            359,273
            
            
            
            100,893Accounts
      and taxes payable and other liabilities
            
            
            (1,345,603
            )
            
            
            (7,060
            )Net
      cash ( used in)/ provided by operating activities
            
            
            1,372,500
            
            
            
            (922,902
            )Investing
      activities:Acquisition
      of property, plant and equipment
            
            
            (34,834
            )
            
            
            (232,005
            )Proceeds
      from disposal of property, plant and equipment
            
            
            43,142
            
            
            
            2,495Acquisition
      of intangible assets
            
            
            (17,048
            )
            
            
            -Decrease
      of accounts receivable (financial aid)
            
            
            199,269
            
            
            
            -Increase
      in accounts receivable (financial aid)
            
            
            (199,269
            )
            
            
            (525
            )Acquisition
      of oil exploration assets
            
            
            (211,416
            )
            
            
            -Net
      cash used in investing activities
            
            
            (220,156
            )
            
            
            (230,035
            )Financing
      activities:Increase
      in accounts payable (financial aid)
            
            
            303,830
            
            
            
            136,773Proceeds
      from loans
            
            
            589,276
            
            
            
            1,309,735Proceeds
      from common stock
            
            
            -
            
            
            
            200Decrease
      of accounts payable (financial aid)
            
            
            -
            
            
            
            (124,099
            )Repayment
      of loans
            
            
            (1,784,313
            )
            
            
            (309,030
            )Distribution
      by subsidiary for period prior to reverse merger
            
            
            (142,383
            )
            
            
            (14,906
            )Net
      cash provided by/(used in) financing activities
            
            
            (1,033,590
            )
            
            
            998,673Effect
      of exchange rates on cash
            
            
            (107,316
            )
            
            
            128,478Net
      increase (decrease) in cash and cash equivalents
            
            
            11,438
            
            
            
            (25,786
            )Cash
      and cash equivalents at beginning of the period
            
            
            125,031
            
            
            
            238,900Cash
      and cash equivalents at end of the period (Note 5)
            
            
            136,469
            
            
            
            213,114Supplemental
      informationInterest
      paid
            
            
            449,772
            
            
            
            158,756Oil
      and gas assets purchased as accounts payable
            
            
            8,765
            
            
            
            61,761
   The
accompanying notes are an integral part of these consolidated financial
statements
 
 5
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  1 
Background
  (a) Organization
and environment
  Caspian
International Oil Corporation was organized under the laws of the State of
Florida on April 9, 1987 as HWS November Corporation.  On May 19, 1989, the
Company filed an amendment to its Articles of Incorporation changing its name to
Abcor Products, Inc.  On August 22, 2005, the Company filed an amendment to
its Articles of Incorporation changing its name to CRSI Group, Inc. (“CRSI
Group, Inc.”).
  Care
Recruitment Solutions International, Inc. (“CRSI”) was organized under the laws
of the State of Florida on October 18, 2004. CRSI was a development stage
enterprise that primarily provided international recruiting, placement and
staffing of nurses to hospitals and other health care agencies.
  On June
30, 2005, CRSI Group consummated an agreement with CRSI pursuant to which CRSI
exchanged all of its then issued and outstanding shares of common stock for
17,995,912 (approximately 90%) of the common stock shares of CRSI
Group.
  On August
10, 2006 CRSI Group acquired all of the beneficial interest in the registered
capital stock of Caspian International Oil Corporation (CIOC) B.V., a
corporation organized under the laws of The Kingdom of the Netherlands (“CIOC”).
 CIOC is a holding company that owns 95% of the equity in each of two
limited liability partnerships organized under the laws of the Republic of
Kazakhstan:  SIF Dank, LLP (“Dank”) and Kor-Tazh, LLP (“Kor-Tazh”).
 Dank is engaged in the business of providing oil field services such as 2D
and 3D seismic acquisitions, data processing and interpretation, reservoir
modelling and topography to the oil exploration industry in Kazakhstan.
 Kor-Tazh operates an oil field in western Kazakhstan. CIOC BV was
treated as an acquirer for accounting purposes. A new Board of Directors was
elected that is comprised primarily of the former directors of CIOC BV. The
Company’s financial statements are presented as a continuation of CIOC BV, and
not those of CRSI, and the capital structure of the Company is now different
from that appearing in the historical financial statements of CRSI due to the
effect of the recapitalization.
  On
October 6, 2006 Articles of Merger were filed with the Division of Corporations
of the Florida Department of State, according to which CRSI Group, Inc was
merged with and into its subsidiary, Caspian International Oil Corporation, for
the purpose of changing the company’s domicile from Florida to Delaware.
Each share of common stock of CRSI Group, Inc outstanding prior to the merger
was changed and converted into one fully paid share of common stock of Caspian
International Oil Corporation.
  Hereinafter,
Caspian International Oil Corporation and its wholly owned subsidiaries may be
referred to individually or in the aggregate as the "Company".
  (b) Kazakhstan
business environment
  Company
activity is subject to economical, political and social risks inherent to doing
business in Kazakhstan. Those risks include the consequences of government
policy, economic conditions, legislative changes in tax and laws and currency
exchange rates fluctuations.
  6
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  2  Basis of
preparation
  The
Company’s operations are subject to country risk, being the economic, political,
and social risks inherent in doing business in Kazakhstan. These risks include
matters arising out of the policies of the government, economic conditions,
imposition of or changes to taxes and regulations, foreign exchange fluctuations
and the enforceability of contract rights.
  (a) Statement
of compliance
  These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (“US
GAAP”).
  The
accompanying unaudited financial data as of and for the three months ended March
31, 2008 and 2007 have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations.
These unaudited condensed consolidated financial statements should be read in
conjunction with the audited financial statements and the Footnotes thereto
included in the Company’s annual Report on Form 10-KSB for the fiscal year ended
December 31, 2007.
  In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary  to present fairly the financial position, results
of operations, and cash flows as of and for the three months ended March 31,
2008 have been made. The results of operations for the three months ended March
31, 2008 are not necessarily indicative of the operating results for the full
year.
  (b) Principles
of consolidation
  These
consolidated financial statements include the financial position and results of
the Company and controlled subsidiaries of which the Company directly or
indirectly owns more than 50% of the voting interest, unless minority interest
shareholders have substantive participating rights. Investments in companies of
which the Company directly or indirectly owns more than 50% of the voting
interest but where minority interest shareholders have substantive participating
rights, and investments in companies of which the Company directly or indirectly
owns between 20% and 50% of the voting interest and over which it exercises
significant influence but not control, are accounted for using the equity method
of accounting. Equity investments and investments in other companies are
included in “Investments” in the consolidated balance sheet.
  All
significant intercompany balances and transactions have been eliminated in
consolidation.
  (c) Accounting
records
  Two Kazakhstan
subsidiaries of the Company, Dank and Kor-Tazh maintain their accounting
records in accordance with the legislative requirements of the Republic of
Kazakhstan. CIOC BV maintains its accounting records in accordance with the
legislative requirements of the Kingdom of the Netherlands.
The accompanying consolidated financial statements have been prepared from
those accounting records and adjusted as necessary to comply, in all material
respects, with the requirements of US GAAP.
  7
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  2  Basis of
preparation (continued)
  (d) Functional
and reporting currency
  The
accounting records of the entities operating in Kazakhstan (Dank and Kor-Tazh),
are maintained in Kazakhstan Tenge (“KZT”). The accounting records of CIOC B.V.
and the Company are maintained in EUR and USD, respectively.
  The
Company has determined that the functional currency of Dank and Kor-Tazh is KZT
and functional currency of CIOC BV is EUR in accordance with US Statement of
Financial Accounting Standards ("SFAS") No. 52, Foreign Currency Translation,
based on the economic substance of the underlying events and circumstances
relevant to the entities within the Company.
  For the
purposes of presenting consolidated financial statements prepared in conformity
with US GAAP, the USD is considered to be the reporting currency of the
Company.
  For
presentation purposes, the consolidated financial statements are translated into
USD using the current-rate method. Accordingly, assets and liabilities are
translated at rates of exchange in effect at the consolidated balance sheet
date. Capital accounts are translated at their historical exchange rates when
the capital stock was issued. Retained earnings are translated at the translated
amount at the end of the prior period, plus the translated amount of the net
income for the period, less the translated amount of any dividends declared
during the current period. Revenues and expenses are translated at average rates
of exchange in effect during the three months ended March 31, 2008. Differences
arising from the translation are included in accumulated other comprehensive
income as a separate component of stockholders’ equity. Exchange differences are
recognised in profit or loss in the period in which they arise.
  The
Company has not entered into any material transactions that are denominated in
hyper-inflationary currencies.
  For
translation purposes the Company has used the closing exchange rates of USD 1 to
KZT 120.69.
  (e) Convertibility
of the Kazakhstan Tenge (KZT)
  KZT is
not a convertible currency outside the Republic of Kazakhstan. Accordingly,
any conversion of KZT amounts to USD should not be construed as a representation
that KZT amounts have been, could be, or will be in the future, convertible into
USD at the exchange rate shown, or at any other exchange
rate.
  8
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  (f) Going
concern
  The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities in the normal course of business and the continuation of the
Company as a going concern. For the three month period ended March 31, 2008 the
Company had a net loss of $ 611,621.  As of March 31, 2008, the
company had $5,437,934 of negative working capital and $136,469 of cash with
which to satisfy any future cash requirements along with $1,177,678 of
availability under a borrowing arrangement for Kor-Tazh which is to be used for
oil development activity.
  Although
not as severe as the situations experienced during the first quarter of 2007,
the Company did experience some weather conditions during the month of March,
2008 which prevented the full utilization of its seismic crews which resulted in
an unfavourable impact on profitability for the first quarter of 2008. Barring
any other unforeseen events, especially those that prevent Dank from fulfilling
its contracts on schedule, the Company expects to return to profitability during
2008. Significant work remains to be done on seismic contracts signed in 2007
and the Company is aggressively pursing new contracts for 2008 and
beyond.   Revenues for the year 2008 are expected to exceed those
of 2007. In addition, the Company has significantly reduced the General and
Administrative cost of its Corporate headquarters
which  should  have a substantial  favourable
impact on profits for the remainder of 2008. Therefore, the consolidated
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
 
 3  Significant
accounting policies
  The
following significant accounting policies have been applied in the preparation
of the consolidated financial statements. These accounting policies have been
consistently applied.
  (a) Use
of estimates
  The
preparation of the consolidated financial statements in conformity with US GAAP
requires management of the Company to make a number of estimates and assumptions
relating to the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the period.
Significant items subject to such estimates and assumptions include the carrying
value of oil exploration assets and property, plant and equipment;
valuation allowances for receivables, inventories and deferred income tax
assets; asset retirement obligations and assets and obligations related to
employee benefits.  Actual results could differ from those
estimates.
  9
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  3  Significant
accounting policies (continued)
  (b) Cash
  Cash and
cash equivalents include all highly liquid investments with an original maturity
of three months or less.
  (c) Receivables
  Trade
accounts receivable are recorded at their transaction amounts less provisions
for doubtful debts. Provisions for doubtful debts are recorded to the extent
that there is likelihood that any of the amounts due will not be
obtained.
  (d) Inventories
  Inventories,
consisting primarily of spare parts and fuel are stated at the lower cost or
market value. Cost is determined using the “average cost” method.
  (e) Oil  exploration
and production  assets
 The
Company follows the full cost method of accounting
for  the  costs of acquisition, exploration and development
of its  oil properties. Under this method, all productive and
non-productive costs incurred in connection with the acquisition of, exploration
for and development of oil  reserves for each cost center are
capitalized. Capitalized costs include acquisition costs, geological and
geophysical work, delay rentals and the costs of drilling, completing and
equipping oil  wells. Capitalized costs of proved oil properties are
depleted on a unit of production method using estimated proved
oil  reserves. The amortizable base used to calculate unit of
production depletion includes estimated future development costs and
dismantlement, restoration, and abandonment costs, net of estimated salvage
values. Sales of oil properties are accounted for as adjustments of capitalized
costs with no gain or loss recognized, unless such adjustment would
significantly alter the relationship between capitalized costs and proved
reserves.
  Internal
costs, including salaries, benefits and other salary related costs, which can be
directly identified with acquisition, exploration or development activities, are
capitalized while any costs related to production, general corporate overhead,
or similar activities are charged to expense. Geological and geophysical costs
not directly associated with a specific unevaluated property are included in the
amortization base as incurred. Capitalized internal costs directly identified
with the Company’s acquisition, exploration and development activities amounted
to approximately $ 211,415 and $61,761during the
three months ended March 31, 2008 and 2007, respectively. The Company also
capitalizes a portion of interest expense on borrowed funds.
  Under
full cost accounting rules, the net capitalized costs of evaluated oil
properties shall not exceed an amount equal to the present value of future net
cash flows from estimated production of proved oil reserves, based on current
economic and operating conditions, including the use of oil  prices as
of the end of each quarter.
  10
 
 Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 
 3  Significant
accounting policies (continued)
  (e) Oil
exploration assets (continued)
 
 Given the
volatility of oil prices, it is reasonably possible that the estimate of
discounted future net cash flows from proved oil reserves could change. If oil
prices decline, even if only for a short period of time, it is possible that
impairments of oil properties could occur. In addition, it is reasonably
possible that impairments could occur if costs are incurred in excess of any
increases in the cost ceiling, revisions to proved oil  reserves
occur, or if properties are sold for proceeds less than the discounted present
value of the related proved oil  reserves.
  The
capitalized oil  property costs, less accumulated depreciation,
depletion and amortization and related deferred income taxes, if any, are
generally limited to an amount (the ceiling limitation) equal to the sum of (a)
the present value of estimated future net revenues computed by applying current
prices in effect as of the balance sheet date to estimated future production of
proved oil  reserves, less estimated future expenditures (based on
current costs) to be incurred in developing and producing the reserves using a
discount factor of 10% and assuming continuation of existing economic
conditions; and (b) the cost of investments in unevaluated properties excluded
from the costs being amortized.  In determining whether impairment of
unevaluated properties has occurred, management evaluates, among other factors,
current oil industry conditions, capital availability, holding periods of the
properties, and available geological and geophysical data. Any impairment
assessed is added to the costs being amortized. Costs of drilling exploratory
dry holes are included in the amortization base immediately upon determination
that a well is dry.
  No
ceiling write down was recorded in any of the periods presented.
  The
Company’s oil properties primarily include the value of the license and other
capitalized costs under this method of accounting.
  (f) Property,
plant and equipment
  Property,
plant, and equipment are stated at cost.
  Depreciation
on plant and equipment is calculated on the straight-line method over the
estimated useful lives of the assets. The estimated useful life of buildings is
12.5 years, while machinery and equipment is 5 to
12.5 years.
  (g) Intangible
assets
  Intangible
assets, which are acquired by the Company and which have finite useful lives,
are stated at cost less accumulated amortisation and impairment losses.
Intangible assets are amortised on a straight-line basis over their estimated
useful lives from the date the asset is available for use.
  11
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 3  Significant
accounting policies (continued)
  (h) Impairment
  In
accordance with SFAS No 144, Accounting for the
Impairment or Disposal
of Long–lived Assets, long-lived
assets, such as property, plant, and equipment, and purchased intangible assets
subject to amortisation, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset.
  (i) Restricted
cash
  Cash
funds for which restrictions on immediate use exist are accounted for within
other non-current assets.
  (j) Trade
and other payables
  Trade and
other payables are stated at cost.
  (k) Asset
retirement obligations
  The
Company follows SFAS 143, Accounting for Asset Retirement
Obligations. SFAS 143 requires that the fair value of a liability for an
asset’s retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement cost is capitalized as part of the carrying value of the
long-lived asset. Subsequently, the asset retirement cost is amortized to
expense over the useful life of the asset. The asset retirement obligation
recorded relates to the expected plugging and abandonment costs of oil wells and
the removal of pipeline, compressor and related production
facilities.
  (l) Income
taxes
  Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognised for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognised in the consolidated statement of income in the reporting
period that includes the enactment date and is not accounted for as an
adjustment of the annual effective tax rate.
  (m) Revenue
recognition
  Revenue
for oil field services companies is recognized when we determine that following
criteria are met: (i) persuasive evidence an arrangement exists; (ii) services
have been rendered; (iii) the fee is fixed or determinable; and (iv)
collectibility is reasonable assured. All advance client payments are classified
as unearned revenues until services are provided.
  12
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 
 3 Significant
accounting policies (continued)
  (m) Revenue
recognition (continued)
  Services
are provided subject to customer acceptance provisions. Customer acceptance
provisions and the related accounting take the following form: It is based
on customer-specified objective criteria. The Company does not recognize revenue
until it can demonstrate that the customer-specified objective criteria have
been satisfied. The Company recognizes revenue upon receipt of the act of
acceptance for services provided signed and stamped by the
customer.
  The
Company uses the sales method of accounting for crude oil revenues. Under this
method, revenues are recognized based on actual volumes of oil and sold to
purchasers. The volumes sold may differ from the volumes to which the Company is
entitled based on its interests in the properties. These differences create
imbalances that are recognized as a liability only when the estimated remaining
reserves will not be sufficient to enable the under produced owner to recoup its
entitled share through production. There are no significant balancing
arrangements or obligations related to the Company’s operations.
  The oil
company is at the exploration stage at the moment and does not generate any
revenue.
  (n) Rental
income
  Rental
income from rent of equipment is recognized on a straight-line basis over the
term of the relevant lease.
  (o) Minority
interest
  Minority
interest in the consolidated balance sheet reflects minority owners’ percentage
share of capital in the subsidiaries of CIOC. The minority interest is
calculated based on the stockholders’ equity capital of each subsidiary as
determined under US GAAP.
  (p) Earnings
per share
  Basic and
diluted earnings per share are computed by dividing net income available to
common stockholders by the weighted-average number of shares of common stock
outstanding during the reporting period.
  (q) Segment
reporting
  SFAS No.
131, Disclosures about
Segments of an Enterprise and Related Information
requires that a business enterprise report financial and descriptive information
about its reportable operating segments. The Company’s business activities are
conducted predominantly through two major business segments: oil field services
and oil field exploration. Oil field services  represents 2D and 3D
seismic acquisitions, data processing and interpretation, reservoir
modelling and topography to the oil exploration industry in Kazakhstan. Oil
field exploration represents operating an oil field in western
Kazakhstan.
  13
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  3  Significant
accounting policies (continued)
  (r) Contingencies
  Certain
conditions may exist as of the balance sheet date, which may result in losses to
the Company but impact of which will only be resolved when one or more future
events occur or fail to occur. If the Company’s assessment of a contingency
indicates that it is probable that a material loss has been incurred and the
amount of liability can be estimated, then the estimated liability is accrued
and charged to the consolidated statement of income. If the assessment indicates
that a potentially material loss is not probable, but is reasonably possible, or
is possible, but can not be estimated, then the nature of the contingent
liability, together with an estimate of the range of possible loss, is disclosed
in the notes to the consolidated financial statements.
  (s) Recent
accounting pronouncements
  In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No. 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements. SFAS No. 157 applies under other accounting pronouncements
that require or permit fair value measurements. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007.
In February 2008, the FASB issued a FASB Staff Position (“FSP”) on SFAS No. 157
that permits a one –year delay of the effective date for all non-financial
assets and non-financial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually) . The Company adopted SFAS No. 157 effective January 1, 2008,
with the exceptions allowed under the FSP described above and does not expect
any significant impact on its consolidated financial statements.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—Including an Amendment of FAS Statement
No. 115. SFAS No. 159 gives companies the option of applying at
specified election dates fair value accounting to certain financial instruments
and other items that are not currently required to be measured at fair value. If
a company chooses to record eligible items at fair value, the company must
report unrealized gains and losses on those items in earnings at each subsequent
reporting date. SFAS No. 159 also prescribes presentation and disclosure
requirements for assets and liabilities that are measured at fair value pursuant
to this standard and pursuant to the guidance in SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (as amended). SFAS No. 159 will
be effective for fiscal year 2008. As the provisions of SFAS No. 159 are
applied prospectively, the impact to the Registrants will depend on the
instruments selected for fair value measurement at the time of implementation.
The Company is currently assessing the impact that SFAS No. 159 will have
on its consolidated financial statements.
  14
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 
 3  Significant
accounting policies (continued)
  (s) Recent
accounting pronouncements (continued)
  In April
2007, the FASB issued FASB Staff Position No. FIN 39-1, Amendment of FASB
Interpretation No. 39 (FSP FIN 39-1). FSP FIN 39-1 allows entities that are
party to a master netting arrangement to offset the receivable or payable
recognized upon payment or receipt of cash collateral against fair value amounts
recognized for derivative instruments that have been offset under the same
master netting arrangement in accordance with FASB Interpretation No. 39. The
guidance in FSP FIN 39-1 is effective for fiscal years beginning after November
15, 2007, with early adoption permitted. Entities are required to recognize the
effects of applying FSP FIN 39-1 as a change in accounting principle through
retrospective application for all financial statements presented unless it is
impracticable to do so. FSP Fin 39-1 has had no impact on the Company’s
consolidated financial statements as of March 31, 2008.
  In
December 2007, the FASB issued SFAS No. 141 (R), Business Combinations, and
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements. SFAS
No. 141  (R) requires an acquirer to measure the
identifiable assets acquired, the liabilities assumed and any non-controlling
interest in the acquiree at their fair values on the acquisition date, with
goodwill being the excess value over the net identifiable assets acquired. SFAS
No. 160 clarifies that a non-controlling interest in a subsidiary should be
reported as equity in the consolidated financial statements, consolidated net
income shall be adjusted to include the net income attributed to the
non-controlling interest and consolidated comprehensive income shall be adjusted
to include the comprehensive income attributed to the non-controlling interest.
The calculation of earnings per share will continue to be based on income
amounts attributable to the parent. SFAS No. 141 (R) and SFAS
No. 160 are effective for financial statements issued for fiscal years
beginning after December 15, 2008. Early adoption is prohibited. The
Company is currently evaluating the impact that SFAS No. 141 (R) and SFAS No.
160 will have on its consolidated financial statements.
  In March,
2008 the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging
Activities. SFAS No. 161 requires enhanced disclosures about an entity’s
derivative and hedging activities and is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008.
Early application is encouraged. The Company is currently evaluating the impact
of SFAS No. 161 on its consolidated financial statements.
 
 15
 
 Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  3  Significant
accounting policies (continued)
 (t) Share-Based
Compensation
 The
Company accounts for share based compensation in accordance with the provisions
of SFAS No. 123R which requires that the compensation cost relating to share
based payment transactions be recognized in financial statements. The Company
has issued to certain employees shares of common stock and stock options in
compensation for the execution of employment agreements.  Following is
a summary of employee awarded shares of common stock and stock options for the
three months ended March   31, 2008:
  SharesCommon
      Stock
            
            
            Stock
      OptionsBalance
      at Dec. 31, 2007
            
            
            150,000
            
            
            
            800,0002008
      Awards
            
            
            0
            
            
            
            02008
      Cancellations
            
            
            0
            
            
            
            (191,667
            )Balance
      at Mar. 31, 2008
            
            
            150,000
            
            
            
            608,333
  The fair
value of the shares of common stock and the stock options are being amortized on
a straight line basis over the respective vesting periods. The shares vest after
one year of service and all shares have been amortized as of March 31,
2008.   The stock options vest over three years of
service.  For the three  months ended March  31,
2008 the Company recorded in General and Administrative
Expense  $21,646 as employee  share based compensation
cost.
  Employee
stock options are valued using the Black –Scholes method based on the following
weighted average assumptions:
  Expected Dividend Yield
            
            
            0.0
            %Risk
      Free Interest Rate
            
            
            5.0
            %Expected life (years)
            
            
            1.5Volalitility
            
            
            110
            %
  The
weighted average fair value of the 608,333 employee stock options is $0.35 per
share. As of March 31, 2008 the remaining deferred compensation cost for the
employee stock options is  $98,154.
  The fair
value of the shares of common stock is based on the market value of the stock on
the dates of execution of the employment agreements. The weighted average value
of the 150,000 shares is $0.79 per share. At March 31, 2008 all of the shares of
common stock were fully vested and have been amortized.
  There
were no shares of common stock or stock options issued to third parties during
the three months ended March 31, 2008.
  16
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  (u) 
Concentrations of Credit Risk
  Financial
instruments that potentially subject Company to concentrations of credit risk
consist primarily of accounts receivable. The Company has significant
concentrations of credit risk in accounts receivable.
 
 4  Acquisition
of subsidiaries
  On August
10, 2006 the Company acquired all of the beneficial interest in the registered
capital stock of CIOC B.V., a company organized under Dutch law in 1994. On May
10, 2006 CIOC B.V. acquired 95% of the equity in each of three limited liability
partnerships organized under the laws of the Republic of Kazakhstan:  Dank
and Kor-Tazh. Dank, in turn, owns 100% of the capital stock of PGD Services,
LLP. CIOC B.V. acquired the companies with funds and equity interests
contributed to CIOC B.V. by Nurlan Janseitov and Timur Bergaliyev.
  This
business combination is accounted as a reverse acquisition. CIOC B.V. is
considered the nominal acquiree and accounting acquirer and the Company is
considered the nominal acquirer and accounting acquiree for financial reporting
purposes.  Accordingly, the consolidated balance sheet contains the
net assets of the accounting acquirer and acquiree at historical cost and
the statement of income includes the operations of the acquirer for the periods
presented and the operations of the acquiree from the date of the
transaction.
 5 
Cash
 
 As
      of March 31, 2008
            
            
            As
      of December 31, 2007USD
            
            
            USDCash
       held in bank - KZT
            
            
            71,518
            
            
            
            58,026Cash
      held in bank - other currencies
            
            
            32,974
            
            
            
            25,879Petty
      cash
            
            
            32,157
            
            
            
            41,126136,469
            
            
            
            125,031
 
 17
 
 Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 6 Accounts
receivable, net
 
 As
      of March 31, 2008,
            
            
            As
      of December 31, 2007,USD
            
            
            USDTrade
      receivables
            
            
            2,271,356
            
            
            
            4,074,138Financial
      aid to related parties
            
            
            420,907
            
            
            
            531,468Advances
      paid
            
            
            238,280
            
            
            
            378,471Taxes
      prepaid
            
            
            78,101
            
            
            
            73,325Receivables
      from employees
            
            
            223,689
            
            
            
            277,939Loan
      receivable from employee
            
            
            138,553
            
            
            
            50,183Deferred
      expenses
            
            
            191,019
            
            
            
            284,970Other
      receivables
            
            
            870
            
            
            
            2483,562,775
            
            
            
            5,670,742Less
      allowance for doubtful accounts
            
            
            (110,316
            )
            
            
            (110,673
            )3,452,459
            
            
            
            5,560,069
  The
activity in the allowance for doubtful accounts is as follows:
  For
      three months ended March 31,
              2008
            
            
            For
      three months ended March 31,
              2007USD
            
            
            USDAllowance
      for doubtful accounts at the beginning of the period
            
            
            110,673
            
            
            
            150,529Additions
      charged to impairment loss
            
            
            -
            
            
            
            -Recovery
      of bad debt allowance
            
            
            -
            
            
            
            -Foreign
      currency translation adjustment
            
            
            (357
            )
            
            
            4,348Allowance
      for doubtful accounts at the end of the period
            
            
            110,316
            
            
            
            154,877
 
 18
 
 Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  7 
Inventories
   As
      of March 31,2008
            
            
            As
      of December 31, 2007USD
            
            
            USDSpare
      parts
            
            
            937,542
            
            
            
            1,225,004Other
      materials
            
            
            268,614
            
            
            
            250,1331,206,156
            
            
            
            1,475,137
 
 8 
Investments
  Investments
as of March 31, 2008 amounting to USD 67,347 represent shares of PGD Services,
LLP (“PGDS”). In accordance with the agreement, dated April 5, 2006, Dank
acquired 100% of PGDS’s shares from Janseitov Nurlan Sattarovich (85%),
Janseitova Irina Petrovna (5%), Safronov Gennadiy Nikolayevich (5%) and
Sapozhnikov Anatoliy Ivanovich (5%). In accordance with the agreement signed
between Dank and Paradigm Geophysical B.V. on providing processing and analysis
of seismic data services in Kazakhstan, Paradigm Geophysical B.V. has the power
to govern the financial and operating policies of the PGDS. Net income of PGDS
is distributed 20% to Dank and 80% to Paradigm Geophysical in accordance with
the above-mentioned agreement. PGDS provides the following services in
Kazakhstan: time seismic data processing, depth imaging, structural
interpretation, reservoir evaluation. Total assets of PGDS are in the amount of
USD 2.1 mln. Management of the Company considers that the Company does not have
control but has significant influence over PGDS. Therefore PGDS is not
consolidated in the Company’s consolidated financial statements. Investments in
PGD are accounted for using the equity method. Income of PGDS for three months
ended March 31, 2008 in the amount of USD 17,669 was recognised in the
consolidated income statement for three months ended March 31, 2008 under the
equity method. Income of PGDS for three months ended March 31, 2007 in the
amount of USD 29,512 was recognised in the consolidated income statement for
three months ended March 31, 2007 under the equity method. The Company’s maximum
exposure to loss as a result of involvement with PDS is in the amount of USD
67,347.
  9  Oil
exploration assets
  As
      ofMarch
      31, 2008
            
            
            As
      of December 31, 2007USD
            
            
            USDOil
      exploration assetsEvaluated
            
            
            1,840,689
            
            
            
            1,730,833Unevaluated
            
            
            3,858,039
            
            
            
            3,627,782Less
      accumulated depletion
            
            
            -
            
            
            
            -5,698,728
            
            
            
            5,358,615
  Credit
line received by Kor-Tazh LLP is secured by the oil properties.
 
 19
 
 Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 10Property, plant and
equipment
 As
      of March 31,2008
            
            
            As
      of December31,
      2007USD
            
            
            USDMachinery
      and equipment
            
            
            30,655,021
            
            
            
            30,754,402Vehicles
            
            
            1,931,141
            
            
            
            1,950,909Land
      and buildings
            
            
            1,828
            
            
            
            1,834Other
      property, plant and equipment
            
            
            257,010
            
            
            
            225,74832,845,000
            
            
            
            32,932,893Less
      accumulated depreciation
            
            
            (14,798,078
            )
            
            
            (13,936,476
            )18,046,922
            
            
            
            18,996,417
  Total
depreciation for three months ended March 31, 2008 was USD 909,172, of which USD
890,581 (97.96%) was recorded in production expenses and USD 18,591 (2.04%)
was recorded in general and administrative expenses. Total depreciation for
three months ended March 31, 2007 was USD 599,390, of which USD 586,634 (97.9 %)
was recorded in production expenses and USD 12,756 (2.1 %) was recorded in
general and administrative expenses.
  The
equipment with carrying amount of USD 7,516,740 was pledged as security under
bank loans as of March 31, 2008.
  11Intangible
assets
  As
      of March 31,2008
            
            
            As
      of December 31, 2007USD
            
            
            USDProgram
      software
            
            
            612,173
            
            
            
            597,091Less
      accumulated amortization
            
            
            (453,940
            )
            
            
            (432,344
            )158,233
            
            
            
            164,747
 
 20
 
 Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 12Accounts payable
and other liabilities
  As
      of March 31,2008
            
            
            As
      of December 31, 2007USD
            
            
            USDTrade
      accounts payable
            
            
            1,646,789
            
            
            
            2,518,301Payables
      to employees
            
            
            1,241,206
            
            
            
            1,685,385Advances
      received
            
            
            12,528
            
            
            
            168,429Financial
      aid from related parties
            
            
            491,342
            
            
            
            396,559Payable
      to related parties
            
            
            160,104
            
            
            
            160,622Payables
      to pension fund stipulated by the law of the Republic of
      Kazakhstan
            
            
            374,728
            
            
            
            245,004Interest
      payable
            
            
            698,640
            
            
            
            644,140Vacation
      provision
            
            
            82,194
            
            
            
            92,677Other
      payables
            
            
            337,157
            
            
            
            50,7405,044,688
            
            
            
            5,961,857
 
 13Loans
  As
      of March 31,2008
            
            
            As
      of December 30, 2007USD
            
            
            USDBank
      TuranAlem:KZT
      – fixed from  15% to 16%
            
            
            6,928,213
            
            
            
            7,131,780USD
      – at Libor + 5.65%
            
            
            9,193,944
            
            
            
            10,406,52516,122,157
            
            
            
            17,538,305ShareholderUSD
      – fixed at 4.00%
            
            
            116,862
            
            
            
            116,862116,862
            
            
            
            116,862ShareholderUSD
      - fixed at 6.00%
            
            
            550,000
            
            
            
            350,000550,000
            
            
            
            350,000OtherUSD
            
            
            33,160
            
            
            
            30,00033,160
            
            
            
            30,00016,822,179
            
            
            
            18,035,167Short-term
      loans
            
            
            4,586,217
            
            
            
            5,306,085Long-term
      loans
            
            
            12,235,962
            
            
            
            12,729,082Total
      loans
            
            
            16,822,179
            
            
            
            18,035,167
  21
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  13Loans
(continued)
  Following
is a summary of the Company’s significant outstanding loans with
BTA  as of March 31, 2008:
  Company
            Loan
      agreement #
            Date
      issued
            Date
      expires
            Purpose
      of loan
            Interest
      rate
            Balance
      as of March 31, 2008, USDDank
            63
            May
      2007
            March
      2012
            Equipment
            9.23%
            4,249,35759
            April
      2005
            June
      2010
            Equipment
            11.03%
            2,821,65062
            May
      2007
            May
      2009
            Equipment
            11.76%
            797,17594-1
            May
      2007
            May
      2010
            Equipment
            12.90%
            491,58094-2
            August
      2008
            August
      2010
            Equipment
            12.96%
            327,720110
            June
      2007
            June
      2010
            Equipment
            13.20%
            375,000131-1
            August
      2007
            August
      2010
            Equipment
            13.01%
            131,461682
            March
      2007
            March
      2012
            Equipment
            15.00%
            170,511755
            April
      2007
            March
      2012
            Equipment
            15.00%
            331,427810
            April
      2007
            March
      2012
            Equipment
            15.00%
            248,571876
            April
      2007
            March
      2012
            Equipment
            15.00%
            248,5711257
            June
      2007
            March
      2012
            Equipment
            15.00%
            207,142670
            July
      2007
            March
      2008
            Working
      capital
            15.00%
            331,4271622
            July
      2007
            July
      2008
            Working
      capital
            15.00%
            217,5002146
            Dec
      ember 2007
            November
      2008
            Working
      capital
            16.00%
            360,42881
            March
      2008
            October
      2008
            Working
      capital
            16.00%
            388,600Kor-Tazh
            747
            April
      2007
            March
      2012
            Develop
      oil field
            15%
            396,0561012
            May
      2007
            March
      2012
            Develop
      oil field
            15%
            279,6421116
            May
      2007
            March
      2012
            Develop
      oil field
            15%
            1,195,6251466
            July
      2007
            March
      2012
            Develop
      oil field
            15%
            405,1421973
            October
      2007
            March
      2012
            Develop
      oil field
            15%
            1,010,8541468
            July
      2007
            March
      2012
            Develop
      oil field
            15%
            135,0001576
            July
      2007
            March
      2012
            Develop
      oil field
            15%
            400,000
  22
  Caspian International Oil
Corporation
 Notes to the Consolidated Financial
Statements   14Taxes
Payable
  As
      of March 31, 2008
            
            
            As
      of December 31, 2007USD
            
            
            USDIncome
      tax
            
            
            614,944
            
            
            
            649,202Personal
      income tax
            
            
            333,396
            
            
            
            341,087Social
      tax
            
            
            228,106
            
            
            
            288,313VAT
      payable
            
            
            466,804
            
            
            
            431,798Vehicle
      tax
            
            
            7,918
            
            
            
            7,944Property
      tax
            
            
            52,985
            
            
            
            111,344Other
      taxes
            
            
            60,757
            
            
            
            59,1491,764,910
            
            
            
            1,888,837
  15Obligation for
historical reimbursement
  As
      of March 31,2008
            
            
            As
      of December 31, 2007USD
            
            
            USDObligation
      for historical reimbursement as of December 31, 2007
            
            
            3,151,916
            
            
            
            2,927,930Accretion
      expense
            
            
            58,624
            
            
            
            223,986Obligation
      for historical reimbursement as of March 31, 2008
            
            
            3,210,540
            
            
            
            3,151,916
  On August
4, 2004 the subsurface contract # 1483 on Zhetibay Severo-Zapadnay oil field was
assigned to Kor-Tazh.  The contract was concluded for twenty years ending
2024 with five years for exploration at the date of contract
commencement.
  The
Company through its purchase of Kor-Tazh is obliged to reimburse USD 6,363,310,
which represents historical costs incurred by the Republic of Kazakhstan for the
oilfield as per the terms of the subsurface contract. Settlement of the
obligation for historical reimbursement should be made in line with a payment
schedule agreed between Kor-Tazh and the Government. The remaining amount shall
be paid by equal portions starting from the ending date of the exploration
period. Therefore no payments were made during three months ended March 31,
2008. The obligation is discounted at 7.65%, being the estimated credit-adjusted
risk free discount rate.
  23
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 16Asset retirement
obligations
 
  As
      of March 31,2008
            
            
            As
      of December 31, 2007USD
            
            
            USDAsset
      retirement obligation as of December 31, 2007
            
            
            190,032
            
            
            
            176,535Accretion
      expense
            
            
            3,543
            
            
            
            13,497Asset
      retirement obligation as of March 31, 2008
            
            
            193,575
            
            
            
            190,032
  The
Company has asset retirement obligations arising from the requirements of
subsurface contract on Zhetibay Severo-Zapadnay field to abandon oil wells and
remove pipeline, compressor and related production facilities. The liability was
initially measured at fair value USD 108,918 and subsequently is adjusted
for accretion expense and changes in the amount or timing of the estimated cash
flows. As of December 31, 2006 the asset retirement obligation was reassessed as
result of technical audit performed by Company’s specialists in order to reflect
fair value as of December 31, 2006. The corresponding asset retirement costs are
capitalised as part of the carrying amount of the related oil exploration assets
and depreciated over the asset’s useful life.
  Management
determined that asset retirement obligations should be recognised for future
costs to abandon wells drilled at field before Kor-Tazh signed the subsurface
contract, but which, in management’s opinion, were not properly abandoned.
 Management believes that this obligation is likely to be settled at the
end of the exploration phase.
  The asset
retirement obligations in the amount of 216,000 USD are discounted at 7.65%,
being the estimated credit-adjusted risk free discount rate.
  17Stockholders’
equity
  On May
10, 2006 CIOC B.V. acquired three Kazakhstan companies: Dank, CGE and Kor-Tazh.
The transaction was accounted as a combination under common control recognising
the assets and liabilities transferred at their carrying amounts as of December
31, 2005. The difference USD 64,699 between the carrying amount of net
assets received and the consideration paid is recognised in CIOC B.V. equity as
an additional paid-in capital.
  On June
13, 2006 CIOC B.V. issued 718 ordinary shares each with a nominal value of EUR
100, at a premium of EUR 3,479 per share. The total value of the share issue,
including premium, is equivalent to USD 3,229,947.
  On August
10, 2006 CIOC B.V acquired CRSI Group, Inc. (subsequently changed to CIOC) in a
reverse acquisition transaction. The stockholders’ equity section of the
consolidated balance sheet as of March 31, 2008 is that of the nominal acquiree
CIOC B.V., not the nominal acquirer CRSI Group, Inc. (subsequently changed to
CIOC). Consequently, the amount shown for capital is valued in terms of the
issued capital of CIOC B.V., plus the cost of the acquisition, which is equal to
zero.
  24
 
 Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 17Stockholders’
equity (continued)
  Common
Stock
  The
number of shares of CIOC common stock issued and outstanding as of March 31,
2008 is 62,757,028 .
  During
first quarter 2008, there have been no shares of common stock issued to
employees or to third parties.  The market value of shares issued in
years prior to first quarter 2008 have been amortized as General and
Administrative expense.
  Stock
Options
  The
Company’s stock option activity during the quarter ended March 31, 2008 is
summarized in the following table:
  Weighted AverageOptions Outstanding
            
            
            Exercise Price
            
            
            Fair
      ValueBalance,12/31/2007
            
            
            950,000
            
            
            
            0.66
            
            
            
            0.34Awards
      in first quarter 2008
            
            
            0Cancellations  in first quarter 2008
            
            
            (191,667
            )
            
            
            0.70
            
            
            
            0.27Balance, 03/31/2008
            
            
            758,333
            
            
            
            0.65
            
            
            
            0.36
  25
 Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  18Revenue
  The major
customers of oil field services segment during first quarter 2008 and 2007 were
as following:
  For
      three months nded March 31, 2008
            
            
            For
      three months ended March 31,2007USD
            
            
            USDSamek
      International
            
            
            3,000,000
            
            
            
            2,126,163Alga
      Caspi Gas
            
            
            1,417,170
            
            
            
            -Anako
            
            
            1,144,960
            
            
            
            -Other
      customers
            
            
            35,728
            
            
            
            714,806Total
      revenue
            
            
            5,597,858
            
            
            
            2,840,969
 
 19Income
tax
  The
income tax charge in the income statement comprised of:
  For
      three months ended March 31, 2008
            
            
            For
      three months ended March 31,2007USD
            
            
            USDCurrent
      tax (expense)/benefit
            
            
            -
            
            
            
            -Deferred
      tax (expense)/benefit
            
            
            27,174
            
            
            
            506,41827,174
            
            
            
            506,418
 
 26
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 19Income Tax
(continued)
  Relationship
between tax expenses and accounting income for three months ended March 31, 2008
and 2007 is explained as follows:
  For
      three months ended March 31, 2008
            
            
            For
      threemonths
      ended March 31, 2007Income/(loss)
      before income taxes
            
            
            (641,892
            )
            
            
            (2,423,677
            )Expected
      tax (provision)/benefit
            
            
            192,567
            
            
            
            727,103Add
      tax effect of:Permanent
      differences
            
            
            (165,393
            )
            
            
            (220,685
            )27,174
            
            
            
            506,418
  The
statutory tax rate of 30% is used in Kazakhstan.
  Deferred
taxes reflect the estimated tax effect of temporary differences between assets
and liabilities for financial reporting purposes and those measured by tax laws
and regulations. The components of deferred tax assets and deferred tax
liabilities are as follows:
  As
      of March 31, 2008
            
            
            As
      of December 31, 2007USD
            
            
            USDDeferred
      tax assets:Accrued
      tax liabilities
            
            
            81,890
            
            
            
            122,892Accrued
      vacation provision
            
            
            31,312
            
            
            
            31,413Deferred
      tax related to oil properties
            
            
            842,827
            
            
            
            779,402Tax
      losses carried forward
            
            
            1,216,742
            
            
            
            1,238,8622,172,771
            
            
            
            2,172,569Valuation
      allowance
            
            
            (842,827
            )
            
            
            (779,402
            )1,329,944
            
            
            
            1,393,167Deferred
      tax liabilities:Fixed
      assets and intangible assets
            
            
            2,275,277
            
            
            
            2,368,4872,275,277
            
            
            
            2,368,487Net
      deferred tax liability
            
            
            945,333
            
            
            
            975,320
  Tax
losses carried forward relate to the oil field services company located in
Kazakhstan and expire in three years.
  Deferred
taxes reflect the estimated tax effect of temporary differences between assets
and liabilities for financial reporting purposes and those measured by tax laws
and regulations. The changes in the deferred tax assets and deferred tax
liabilities are as follows:
  27
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 19Income Tax
(continued)
  Deferred
      Tax AssetsAs
      of March 31,2008
            
            
            Deferred
      Tax LiabilitiesAs
      of March 31,2008USD
            
            
            USDAt
      the beginning of the year
            
            
            1,393,167
            
            
            
            2,368,487Charge
      recognized in income
            
            
            (58,382
            )
            
            
            (85,556
            )Foreign
      currency translation adjustment
            
            
            (4,841
            )
            
            
            (7,654
            )At
      the end of the period
            
            
            1,329,944
            
            
            
            2,275,277
  20Earnings per
share
  For three months endedMarch31,
      2008
            
            
            For three months endedMarch31,
      2007USD
            
            
            USDNet
      profit/(loss) attributable to ordinary shareholders
            
            
            (611,621
            )
            
            
            (1,855,842
            )Weighted
      average number of outstanding common shares
            
            
            62,757,028
            
            
            
            62,298,888Weighted
      average number of outstanding common shares after dilution
            
            
            62,757,028
            
            
            
            62,298,888Basic
      and diluted earnings per share
            
            
            (0.01
            )
            
            
            (0.03
            )
 
 Basic
income (loss) per share is computed by dividing net income (loss) by weighted
average number of shares of common stock outstanding during each period. Diluted
income per share is computed by dividing net income by the weighted average
number of shares of common stock, common stock equivalents and potentially
dilutive securities outstanding during each period. The Company's common stock
equivalents at March 31, 2008 include 758,333 unexercised options. The
computation of diluted net earnings per share does not include dilutive common
stock equivalents in the weighted average shares outstanding as they would be
anti-dilutive.
  28
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 21Segment
Reporting
  The
following table presents the Company’s segment information. For management
purposes, the Company is organized into two major segments – oil field services
and oil field exploration. These segments are the basis on which the
Company reports its primary segment information. Oil field services segment is
represented by Dank. Oil field exploration segment is represented by
Kor-Tazh.
 
 Business
      segments
            
            Oil
      field services
            
            
            Oil
      field exploration
            
            
            Eliminations
            
            
            ConsolidatedUSD
            
            For
      three months ended March 31,
              2008
            
            
            For
      three months ended March 31,
              2008
            
            
            For
      three months ended March 31,
              2008
            
            
            For
      three months ended March 31,
              2008RevenuesSales
      to third parties
            
            
            5,597,858
            
            
            
            -
            
            
            
            -
            
            
            
            5,597,858Inter-segment
      sales
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      sales
            
            
            5,597,858
            
            
            
            -
            
            
            
            -
            
            
            
            5,597,858ExpensesShare
      of profit of associates
            
            
            17,699
            
            
            
            -
            
            
            
            -
            
            
            
            17,699Production
      and operating expenses
            
            
            (4,497,086
            )
            
            
            -
            
            
            
            -
            
            
            
            (4,497,086
            )General
      and administrative expenses, operating
            
            
            (715,842
            )
            
            
            (155,887
            )
            
            
            -
            
            
            
            (871,729
            )General
      and administrative expenses, corporate
            
            
            (157,216
            )
            
            
            (157,216
            )
            
            
            -
            
            
            
            (314,432
            )Accretion
      expenses
            
            
            -
            
            
            
            (62,167
            )
            
            
            -
            
            
            
            (62,167
            )Interest
      expense
            
            
            (446,212
            )
            
            
            (3,560
            )
            
            
            -
            
            
            
            (449,772
            )Foreign
      currency exchange gain, net
            
            
            (40,277
            )
            
            
            (13,180
            )
            
            
            -
            
            
            
            (53,457
            )Loss
      from disposal of fixed assets, net
            
            
            (8,776
            )
            
            
            -
            
            
            
            -
            
            
            
            (8,776
            )Income
      tax benefit
            
            
            27,174
            
            
            
            -
            
            
            
            -
            
            
            
            27,174Net
      income/(loss)
            
            
            (222,708
            )
            
            
            (392,010
            )
            
            
            3,097
            
            
            
            (611,621
            )Total
      assets
            
            
            26,532,498
            
            
            
            8,830,945
            
            
            
            (5,266,746
            )
            
            
            30,096,697
 
 29
 
 Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 21 Segment
Reporting (continued)
 
 Business
      segments
            
            Oil
      field services
            
            
            Oil
      field exploration
            
            
            Eliminations
            
            
            ConsolidatedUSD
            
            For
      three months ended March 31,
              2007
            
            
            For
      threemonths
      ended March 31,
              2007
            
            
            For
      three months ended March 31,
              2007
            
            
            For
      three months ended March 31,
              2007RevenuesSales
      to third parties
            
            
            2,840,969
            
            
            
            -
            
            
            
            -
            
            
            
            2,840,969Inter-segment
      sales
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      sales
            
            
            2,840,969
            
            
            
            -
            
            
            
            -
            
            
            
            2,840,969ExpensesShare
      of profit of associates
            
            
            29,512
            
            
            
            -
            
            
            
            -
            
            
            
            29,512Production
      and operating expenses
            
            
            (4,136,733
            )
            
            
            -
            
            
            
            -
            
            
            
            (4,136,733
            )General
      and administrative expenses
            
            
            (525,372
            )
            
            
            (61,882
            )
            
            
            -
            
            
            
            (587,254
            )General
      and administrative expenses, corporate
            
            
            (344,086
            )
            
            
            (344,086
            )
            
            
            -
            
            
            
            (688,172
            )Accretion
      expenses
            
            
            -
            
            
            
            (57,742
            )
            
            
            -
            
            
            
            (57,742
            )Interest
      expense
            
            
            (150,695
            )
            
            
            (8,061
            )
            
            
            -
            
            
            
            (158,756
            )Foreign
      currency exchange gain, net
            
            
            160,184
            
            
            
            80,632
            
            
            
            -
            
            
            
            240,816Rent
      income
            
            
            93,543
            
            
            
            -
            
            
            
            -
            
            
            
            93,543Loss
      from disposal of fixed assets, net
            
            
            (3,435
            )
            
            
            -
            
            
            
            -
            
            
            
            (3,435
            )Other
      non-operating income (loss), net
            
            
            3,591
            
            
            
            (16
            )
            
            
            -
            
            
            
            3,575Income
      tax benefit
            
            
            506,418
            
            
            
            -
            
            
            
            -
            
            
            
            506,418Net
      income
            
            
            (1,526,104
            )
            
            
            (391,155
            )
            
            
            61,417
            
            
            
            (1,855,842
            )Total
      assets
            
            
            19,646,788
            
            
            
            5,206,071
            
            
            
            (4,144,775
            )
            
            
            20,708,084
 
 30
 
 Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 22Commitments and
Contingencies
  Capital
Commitments
  Under the
terms of the subsurface contract, Kor-Tazh is required to spend a total of USD
14.6 million in exploration and development activities on the oilfield during
twenty years.  The failure to make these minimum capital expenditures could
result in the loss of the subsurface contract.
  In
accordance with the subsurface contract, the Company is committed to contribute
to social sphere development in the total amount of USD 844,000 for all
oilfields during the twenty years.  During year ended December 31, 2007,
the Company made payment of USD 52,000.  Management believes that the
Company will meet this obligation within the exploration phase. There were no
payments made during first quarter 2008.
  In
accordance with the subsurface contract, the Company is committed to finance
professional training in the total amount of USD 146,000 for all oilfields
during the twenty years.  During year ended December 31, 2007, the Company
made payment of USD 24,445.  Management believes that the Company will meet
this obligation within the exploration phase. There were no payments made during
first quarter 2008.
  The
following table lists our significant commitments at March 31, 2008, excluding
current liabilities as listed on our balance sheet:
 
 Payments
      Due By PeriodContractual
      obligations
            
            Total
            
            
            Less
      than 1 year
            
            
            1-3
      years
            
            
            4-5
      years
            
            
            After
      5 yearsCapital
      ExpenditureCommitment
            
            $
            12,084,415
            
            
            $
            584,415
            
            
            $
            7,900,000
            
            
            $
            500,000
            
            
            $
            3,100,000Historical
      cost Due to the Government ofKazakhstan
            
            $
            6,267,860
            
            
            
            -
            
            
            $
            417,860
            
            
            $
            835,700
            
            
            $
            5,014,300Social
      sphere development commitment
            
            $
            792,000
            
            
            $
            42,000
            
            
            $
            126,000
            
            
            $
            85,000
            
            
            $
            539,000Obligation
      to finance professional training
            
            $
            121,555
            
            
            $
            6,555
            
            
            $
            79,000
            
            
            $
            5,000
            
            
            $
            31,000Asset
      retirement obligation
            
            $
            216,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            216,000Loans
            
            $
            16,822,179
            
            
            $
            4,586,216
            
            
            $
            6,425,440
            
            
            $
            5,702,659
            
            
            $
            107,864Interest
      expense
            
            $
            5,978,307
            
            
            $
            1,849,815
            
            
            $
            2,649,299
            
            
            $
            1,434,261
            
            
            $
            44,932Total
            
            $
            42,282,316
            
            
            $
            7,069,001
            
            
            $
            17,597,599
            
            
            $
            8,562,620
            
            
            $
            9,053,096
  For
interest expense computation the Company made an assumption that LIBOR rate
would be consistent for the remainder of the term of the debt.
  31
  Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  22Commitments and
Contingencies (continued)
  Insurance
  The insurance industry in Kazakhstan is in a developing state and
many forms of insurance protection common in other parts of the world are not
yet generally available. The Company does not have full coverage for its plant
facilities, business interruption, or third party liability in respect of
property or environmental damage arising from accidents on Company property
or relating to Company operations. Until the Company obtains adequate insurance
coverage, there is a risk that the loss or destruction of certain assets could
have a material adverse effect on the Company’s operations and financial
position.
  Taxation
contingencies:
  The
taxation system in Kazakhstan is relatively new and is characterised by frequent
changes in legislation, official pronouncements and court decisions, which are
often unclear, contradictory and subject to varying interpretation by different
tax authorities. Taxes are subject to review and investigation by a number of
authorities, which have the authority to impose severe fines, penalties and
interest charges. A tax year remains open for review by the tax authorities
during the three subsequent calendar years; however, under certain
circumstances a tax year may remain open longer.
  These
circumstances may create tax risks in Kazakhstan that are substantially more
significant than in other countries. Management believes that there are no
significant tax uncertainties.
  Issued
guarantee:
  Dank SIF
issued guarantee in the amount of $2,000,000 in favour of Kor-Tazh LLP in Bank
Turanalem.
  23Post balance sheet
events
  Dank
received loan in the amount of USD 580,000 subsequently to March 31,
2008.
  24Related party
transactions
  Related
parties transactions, as defined by SFAS 57, are those that include transactions
between the following:
 a)
              a
      parent company and its subsidiaries;b)
              subsidiaries
      of a common parent;
  32
 
 Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
 24Related party
transactions (continued)
 c)
            an
      enterprise and trusts for the benefit of employees, such as pension and
      profit-sharing trusts that are  managed by or under the trusteeship
      of the enterprise’s management;
  d)
            an
      enterprise and its principal owners, management, or members of their
      immediate families; and
  e)
            affiliates.
  In
considering each possible related party relationship, attention is directed to
the substance of the relationship, and not merely the legal form. Management of
the Company consider that the entities within the Company have appropriate
procedures in place to identify and properly disclose transactions with related
parties in this environment and has disclosed all of the relationships
identified which it deemed to be significant.
  The
relationship between the Company and the described below related parties is as
following:
 
 ·
            “PGDS  Services”
      LLP – is a 100% subsidiary of Dank LLP, which is Variable Interest
      Entity;
 ·
            “Kazpromgeiphysics”
      JSC – Janseitov Nurlan is one of the shareholders of the
      company;
 ·
            “Batyr”
      LLP – Janseitov Nurlan is one of the shareholders of the
      company;
 ·
            “Nurtobe”
      LLP – Bergaliyev Timur is a Director of the
  company;
 ·
            “Turksibstroy”
      LLP – Bergaliyev Timur used to be a Director of the
    company;
 ·
            “City
      lux” LLP – Bergaliyev Timur is a founder and Director of the
      company;
 ·
            “Caspian
      Logging” LLP – related party of “Kazpromgeophysics”
  LLP.
 
 Management
remuneration
  Key
management received the following remuneration during the year, which is
included in general and administrative expenses:
  For
      three months ended March31,
      2008
            
            
            For
      three months ended March31,
      2007USD
            
            
            USDSalaries
      and bonuses
            
            
            174,084
            
            
            
            175,065Other
      long-term service benefits provided
            
            
            -
            
            
            
            -Termination
      benefits
            
            
            -
            
            
            
            -174,084
            
            
            
            175,065
  33
 
 Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  24Related party
transactions (continued)
  Transactions
with other related parties
  The
Company’s other related party transactions are disclosed below.
 
 USD
            
            Transaction
      value
            
            
            Transaction
      valueFor
      three months ended March 31, 2008
            
            
            For
      three months ended March 31, 2007Services
      provided:Other
      related parties“PGD
      Services” LLP
            
            
            17,669
            
            
            
            29,512
  Cost
      of services purchased:Other
      related parties“PGD
      Services” LLP
            
            
            -
            
            
            
            11,991“Batyr”
      Ltd
            
            
            64,718
            
            
            
            67,333139,892
            
            
            
            108,836Financial
      aid received:ShareholderTimur
      Bergaliyev
            
            
            303,830
            
            
            
            12,674Other
      related parties“Kazpromgeophysics”
      JSC
            
            
            199,269
            
            
            
            124,099503,099
            
            
            
            136,773Financial
      aid paid:“Kazpromgeophysics”
      JSC
            
            
            199,269
            
            
            
            124,099“Caspian
      Logging Services” LLP
            
            
            -
            
            
            
            32,026199,269
            
            
            
            156,125
  34
 Caspian
International Oil Corporation
 Notes
to the Consolidated Financial Statements
  24Related party
transactions (continued)
  Outstanding
      balanceAs
      of March 31, 2008
            
            
            Outstanding
      balanceAs of
      December 31, 2007Financial
      aid received:ShareholderTimur
      Bergaliyev, payable
            
            
            458,199
            
            
            
            155,498“Kazpromgeophysics”
      JSC
            
            
            8,286
            
            
            
            241,061“Batyr”
      Ltd
            
            
            24,857
            
            
            
            -491,342
            
            
            
            396,559Finacial
      aid paid:Other
      related parties“Caspian
      Logging Services” LLP, receivable
            
            
            157,428
            
            
            
            282,627“Turksibstroy”
      LLP, receivable
            
            
            217,457
            
            
            
            216,921“City
      Lux” LLP
            
            
            31,817
            
            
            
            31,920Other
            
            
            14,205
            
            
            
            -420,907
            
            
            
            531,468Payable
      to related parties:“PGD
      Services” LLP
            
            
            156,095
            
            
            
            156,600“Nurtobe”
      LLP
            
            
            4,009
            
            
            
            4,022160,104
            
            
            
            160,622Loans
      Received:Shareholder,
      payable
            
            
            700,022
            
            
            
            466,862
  35
 
 ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS
 
 A
Note Regarding Forward-Looking Statements
  This
Report contains certain forward-looking statements regarding Caspian
International Oil Corporation, its business and its financial
prospects.  These statements represent Management’s present intentions
and its present belief regarding the Company’s future.  Nevertheless,
there are numerous risks and uncertainties that could cause our actual results
to differ from the results suggested in this Report.  Among the more
significant factors are:
 
 Ø
            It
      will be necessary for us to incur substantial debt in order to fully
      implement our business plan.  If the results of our operations
      are insufficient to allow us to service our debt, the value of our
      business will be significantly
impaired.
 Ø
            The
      success of our oil field services business will depend on our ability to
      overcome strong competition, much of which is better funded than we
      are.
 Ø
            The
      success of our exploration business will depend on factors over which
      management will have little control, including the results of exploration,
      world oil prices, and policies of the government of
      Kazakhstan.
 
 Because
these and other risks may cause Caspian International’s actual results to differ
from those anticipated by Management, the reader should not place undue reliance
on any forward-looking statements that appear in this Report.  Readers
should also take note that Caspian International will not necessarily make any
public announcement of changes affecting these forward-looking statements, which
should be considered accurate on this date only.
 
 Results
of Operations
 
 The
Company’s revenue is currently provided by Dank, our oilfield service
subsidiary. Revenues for the three months ended March 31, 2008 were $5,597,858
as compared to $2,840,969 for the three months ended March 31, 2007. The
increase in 2008 revenues is due to better utilization of our seismic crews,
including a fourth crew which was added in the third quarter of 2007. In the
first quarter of 2007 the Company’s seismic crews were not fully utilized due to
harsh weather conditions and one crew being placed on standby while our client
attempted to resolve an issue with the Uzbek government.
 
 Although
not as severe as the harsh weather  experienced in 2007, our seismic
crew operating activities were negatively impacted by unfavorable weather
conditions during the month of March, 2008. As a result, there was a loss from
operating activities of $156,332 for the three months ended March 31, 2008. This
compares to a loss of $2,632,367 for the three months ended March 31, 2007. The
crews impacted by the unfavorable weather conditions in March, 2008 were able to
return to full utilization during the month of April, 2008. Barring any
unforeseen events that prevent Dank from fulfilling its contracts on schedule,
the Company expects revenues for 2008 to exceed those of 2007.
  36
 Expenses
for the three months ended March 31, 2008 were higher than those in the
comparable 2007 period due primarily to the increased costs associated with
adding a fourth seismic crew including increased depreciation expense
for  the additional seismic  equipment. One category of
expense that was lower for the three months ended March 31, 2008 was Corporate
Office overhead which decreased to $314,432 for the three months ended March 31,
2008 as compared to $688,172 for the three months ended March 31,
2007.
 
 A
significant portion of the lower Corporate Office overhead is a reduction in the
cost of the Company’s stock based compensation.  The reduction is
principally due to the cancellation of award shares and stock options of the
Company’s former CEO whose contract was terminated in July, 2007.  In
addition, no shares or stock  options have been issued to third
parties during the three months ended March 31, 2008. Stock based compensation
is not expected to be a significant amount of our General and Administrative
expense in the immediate future.
 
 Interest
expense for the three months ended March 31, 2008 was $449,772 as compared to
$158,756 for the three months ended March 31, 2007. The higher interest expense
was due to the increased level of borrowing by Dank, principally for equipment
needed to meet the increased demand for its services. Our oil exploration and
production subsidiary, Kor-Tazh, also incurred substantial interest costs.
However the majority of interest cost incurred by Kor-Tazh in the development of
its oil field is being capitalized as oil exploration and production assets on
our balance sheet.
 
 Income
tax benefits of $27,174 were recorded for the three months ended March 31, 2008
as compared to tax benefits of $506,418 for the three months ended March 31,
2007. We are accruing tax benefits on losses incurred by Dank as we anticipate
being able to offset those losses against taxable income as Dank returns to
profitability in 2008. However, no tax benefit is being recorded for the loss
attributable to the general and administrative expenses of our U.S. corporate
office.
 
 Our net
loss for the three months ended March 31, 2008 was $611,621 as compared to a net
loss of $1,855,842 for the three months ended March 31, 2007. Higher revenues
from improved utilization of Dank’s seismic crews in 2008 coupled with a
significant reduction in Corporate overhead were the principal factors in the
improvement in 2008. Management is continuing to analyze overhead expenses to
determine if further reductions can be made.
 
 Liquidity
and Capital Resources
  The
primary source of the Company’s capital resources have been from lines of credit
with Bank Turan Alem “BTA”. Our aggregated debt service obligations at March 31,
2008 are shown in the following table:
  37
  Contractual Obligation
            
            Total
            
            
            Less
      than 1 year
            
            
            1-3
      years
            
            
            4-5
      years
            
            
            Over5 yearsBTA-Dank
            
            $
            12,299,835
            
            
            $
            3,886,194
            
            
            $
            6,425,440
            
            
            $
            1,880,337
            
            
            $
            107,864BTA-Kor-Tazh
            
            $
            3,822,322
            
            
            
            -
            
            
            
            -
            
            
            $
            3,822,322
            
            
            
            -Total BTA
            
            $
            16,122,157
            
            
            $
            3,886,194
            
            
            $
            6,425,440
            
            
            $
            5,702,659
            
            
            $
            107,864Other
            
            $
            700,022
            
            
            $
            700,022
            
            
            
            -
            
            
            
            -
            
            
            
            -Total Loans
            
            $
            16,822,179
            
            
            $
            4,586,216
            
            
            $
            6,425,440
            
            
            $
            5,702,659
            
            
            $
            107,864Interest
            
            $
            5,978,307
            
            
            $
            1,
      849,815
            
            
            $
            2,649,299
            
            
            $
            1,434,261
            
            
            $
            44,932
  For the
interest computation the Company made an assumption that the Libor rate would
remain constant for the remaining term of the debt.
 
 During
the first quarter of 2008, the debt obligation related to our BTA-Dank loan was
reduced by approximately $1.4 million.
 
 Our
BTA-Kor-Tazh loan balance remained at $3.8 million at March 31, 2008, leaving
approximately $1.2 million available under Kor-Tazh’s $5 million credit line. It
is anticipated that this $1.2 million will be used in the development of
Kor-Tazh’s oil field, NW Zhetybai, during the second and third quarters of 2008,
principally for well re-entry costs.
 
 Cash
Flow
 
 Our cash
flow for the three months ended March 31, 2008 and 2007 is summarized in the
following table :
 
 Three
      months endedMarch
      31, 2008
            
            
            Three
      months endedMarch 31,
      2007Net
      Cash:(Used
      in)/ provided by operating activities
            
            $
            1,372,500
            
            
            $
            (922,902
            )(Used
      in)/ investing activities
            
            $
            (220,156
            )
            
            $
            (230,035
            )Provided
      by/ (used in) financing activities
            
            $
            (1,033,590
            )
            
            $
            998,673NET
      INCREASE ( DECREASE) IN CASH AND CASH EQUIVALENTS
            
            $
            11,438
            
            
            $
            (25,786
            )
 
 38
 
 Net cash
provided by operating activities improved for the three months ended March 31,
2008 over the three months ended March 31, 2007 due to the increased Dank
revenues resulting from the utilization of our seismic crews, including the
fourth crew added during the third quarter of 2007.
 
 The cash
flow of Dank at this time is adequate to satisfy its working capital
requirements and its debt service. Kor-Tazh will be able to utilize the
remaining balance of its credit line for the well re-entry portion of its
development plan.  However the capital spending required by Dank to
remain competitive and operate efficiently coupled with the funds needed by
Kor-Tazh  to continue  oil development activities in the
North-West Zhetybai Field will likely  result in an increase in the
Company’s debt.
 
 The
Company will continue its efforts to obtain the funds needed to meet the future
capital requirements of Dank and Kor-Tazh and to maximize the value of its
assets, including possibly retiring or refinancing its existing debt. Although
discussions have taken place, no commitment has been received at this
time.
 
 Off-Balance Sheet
Arrangement
 
 The
Company and its subsidiaries do not have any off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on their
financial condition or results of operations.
 
 Risk
Factors That May Affect Future Results
 
 You
should carefully consider the risks described below before buying our common
stock.  If any of the risks described below actually occurs, that
event could cause the trading price of our common stock to decline, and you
could lose all or part of your investment.
 
 I.  Risks
attendant to our oil services business
 
 Cyclical declines in oil and natural
gas prices may result in reduced use of our services, affecting our business,
financial condition and results of operation and our ability to meet our capital
expenditure obligations and financial commitments.
 
 The oil
and natural gas exploration and drilling business is highly cyclical. Generally,
as oil and natural gas prices decrease, exploration and drilling activity
declines as marginally profitable projects become uneconomic and are either
delayed or eliminated. Declines in the number of operating drilling rigs result
in reduced use of and prices for our services. Accordingly, when oil and natural
gas prices are relatively low, our revenues and income will suffer. Oil and
natural gas prices depend on many factors beyond our control, including the
following:
  39
 ·
              worldwide
      economic conditions;
 ·
              changes
      in global supply and demand for oil and natural
  gas;
 ·
              the
      level of production of the Organization of Petroleum Exporting
      Countries;
 ·
              the
      level of production of non-OPEC
countries;
 ·
              political
      conditions, including embargoes, affective oil and gas
      production;
 ·
              global
      petroleum inventories; and
 ·
              advances
      in exploration and production
techniques.
 Depending
on the market prices of oil and natural gas, companies exploring for oil and
natural gas may cancel or curtail their drilling programs, thereby reducing
demand for drilling services. Our contracts are generally short-term, and oil
and natural gas companies tend to respond quickly to upward or downward changes
in prices. Any reduction in the demand for drilling services may materially
erode both pricing and utilization rates for our services and adversely affect
our financial results. As a result, we may suffer losses, be unable to make
necessary capital expenditures and be unable to meet our financial
obligations.
 
 Our
industry is highly competitive.
  The
markets in which we operate are highly competitive. Contracts are traditionally
awarded on a competitive bid basis. Pricing is often the primary factor in
determining which qualified contractor is awarded a job. The competitive
environment has intensified as recent mergers among oil and natural gas
companies have reduced the number of available customers. In Kazakhstan, the
general upturn in economic conditions in this decade has attracted a large
number of new competitors.  Some of them are equipped with
state-of-the-art vehicles, drilling equipment and technology, yet bid for
contracts at highly competitive prices.  Some of them are also
substantially larger than we are and have resources that are significantly
greater than our resources. These competitors are better able to withstand
industry downturns, compete on the basis of price and acquire new equipment and
technologies, all of which could affect our revenues and profitability. These
competitors compete with us both for customers and for acquisitions of other
businesses. This competition may cause our business to suffer. We believe that
competition for contracts will continue to be intense in the foreseeable
future.
 
 Suppliers
 The
equipment utilized in our business is generally available new from manufacturers
or at auction.  Currently, due to the high level of activity in the
oilfield services industry, there is a high demand for new and used equipment.
 Consequently, there is a limited amount of many types of equipment
available at auction and significant backlogs on new equipment.  Our
business plan contemplates that we will follow a program of acquiring capital
equipment as needed to maintain our competitive position in the Kazakhstan oil
industry.  We have already contracted for our immediate equipment
needs.  However, the cost of acquiring new equipment to expand our
business could increase as a result of the high demand for equipment in the
industry.
 
 40
  Severe
weather conditions may affect our operations.
 
 Our
business may be materially affected by severe weather conditions in the areas in
which we operate.  In particular, severe winter weather has in the
past, and may in the future require us to suspend our surveying operations,
which is likely to result in loss of revenue and inefficient use of our
resources.  Moreover, as our oil exploration subsidiary, Kor-Tazh,
will soon be commencing exploration and development activities, we face the risk
that severe weather conditions may delay drilling and, under certain
circumstances, result in damage to our equipment.  Any of these
situations would have an adverse effect on our financial results.
 
 High
interest rates may have a negative effect on our operations.
  Dank has
financed its recent growth by borrowing from a Kazakh bank.  Currently
we carry over $18 million in debt.  On approximately two-thirds of our
debt we pay interest at LIBOR+5.65% per annum.  On most of the
remaining debt we pay interest at 14% to 16%.  These high interest
rates are a function of the relative volatility of the Kazakh economy and the
difficulty of obtaining investment capital in Kazakhstan.  We hope to
utilize our status as a publicly-held company to attract equity financing
including convertible debt.  To some extent, however, we may still
depend on debt financing to fund our expansion.  Although we will
attempt to obtain future debt financing at more reasonable rates, there is no
assurance that we will be successful in doing so.  If we are
unsuccessful in these efforts, the resulting interest expense will have an
adverse effect on our profitability.
 
 Currency
fluctuations may adversely affect our operating results.
  Dank
generates revenues and incurs expenses and liabilities in Tenge, the currency of
the Republic of Kazakhstan.  However, as subsidiaries of CIOC, they
will report their financial results in the United States in U.S.
Dollars.  As a result, our financial results will be subject to the
effects of exchange rate fluctuations between these currencies.  From
time to time, the government of Kazakhstan may take action to stimulate the
Kazakh economy that will have the effect of reducing the value of
Tenge.  In addition, international currency markets may cause
significant adjustments to occur in the value of the Tenge.  Any such
events that result in a devaluation of the Tenge versus the U.S. Dollar will
have an adverse effect on our reported results.  We have not entered
into agreements or purchased instruments to hedge our exchange rate
risks.
 
 Our
business and growth will suffer if we are unable to hire and retain key
personnel that are in high demand.
  Our
future success depends on our ability to attract and retain highly skilled
geophysicists, geologists, engineers, and technicians.  Qualified
individuals are in high demand in Kazakhstan, and there are insufficient
experienced personnel to fill the demand.  Therefore we may not be
able to successfully attract or retain the personnel we need to
succeed.
 
 41
 
 Government regulation may hinder our
ability to function efficiently.
  The
Republic of Kazakhstan is supportive of its oil and gas exploration
industry.  Nevertheless, the government of Kazakhstan is highly
bureaucratized, and the day-to-day operations of our business require frequent
interaction with representatives of the Kazakh government
institutions.  The effort to obtain the registrations, licenses and
permits necessary to carry out our business plans can be
daunting.  Significant delays can result from the need to obtain
governmental approval of our activities.  These delays can have an
adverse effect on the profitability of our operations.  In addition,
future legislation, particularly legislation aimed at protecting the environment
of Kazakhstan and legislation aimed at protecting the workers of Kazakhstan may
increase the cost of our operations, which would adversely affect our
profitability.
 
 We
may have difficulty establishing adequate management and financial controls in
Kazakhstan.
  The
Republic of Kazakhstan has only recently begun to adopt the management and
financial reporting concepts and practices with which investors in the United
States are familiar.  We may have difficulty in hiring and retaining
employees in Kazakhstan who have the experience necessary to implement the kind
of management and financial controls that are expected of a United States public
company.  If we cannot establish such controls, we may experience
difficulty in collecting financial data and preparing financial statements,
books of account and corporate records and instituting business practices that
meet U.S. standards.
 
 Capital outflow policies in
Kazakhstan may hamper our ability to pay dividends to shareholders in the United
States.
  The
Republic of Kazakhstan has adopted currency and capital transfer regulations.
These regulations require that Dank comply with complex regulations for the
movement of capital. The current regulations require notification to the
National Bank of Kazakhstan of all significant currency transactions, impose
registration and licensing requirements on entities involved in currency
exchange, and limit the ability of entities operating in Kazakhstan to
expatriate funds.  Moreover, Kazakhstan changes its currency
regulations frequently.  We may be unable to obtain all of the
required conversion approvals for our operations, and Kazakh regulatory
authorities may impose greater restrictions on the convertibility of the Tenge
in the future. Because all of our future revenues will be in Tenge, any
inability to obtain the requisite approvals or any future restrictions on
currency exchanges will limit our ability to fund business activities outside
Kazakhstan.  Moreover, although we do not expect that the company will
pay dividends in the foreseeable future, our ability to pay dividends to our
shareholders in the future could be hampered by Kazakhstan currency
regulations.
  II. Risks attendant to our oil
exploration business
 
 Kor-Tazh will require significant
financing in order to carry out its exploration and development activities and
such financing may not be available.
  42
  We
anticipate that full development of Kor-Tazh’s oil field will take several years
and require significant capital expenditures. If CIOC is unable to timely obtain
adequate funds to finance these activities, Kor-Tazh’s ability to develop its
oil reserves may be severely limited or substantially delayed. Such limitations
or delay would likely result in substantial losses being reflected in our
statements of operations.
  We
anticipate that amounts required to fund Kor-Tazh’s activities will be funded
from operating cash flows, third-party financing and from joint venture
partners.  Kor-Tazh currently has a $5 million credit line, on which
it has drawn $3.8 million.  Additional funds will be required,
however, as our contract with the Government of Kazakhstan requires that at
least $14,600,000 be committed to development of Kor-Tazh’s oil
field.  No commitments of additional funds have been received,
however, and there can be no assurance that Kor-Tazh will have adequate funds
available to finance its operations.
  The
operations of Kor-Tazh will require significant expenditures of capital that may
not be recovered.
  We
require significant expenditures of capital in order to locate and acquire
producing properties and to drill exploratory and exploitation wells. In
conducting exploration, exploitation and development activities from a
particular well, the presence of unanticipated pressure or irregularities in
formations, miscalculations or accidents may cause our exploration,
exploitation, development and production activities to be unsuccessful,
potentially resulting in abandoning the well. This could result in a total loss
of our investment. In addition, the cost and timing of drilling, completing and
operating wells is difficult to predict.
  Oil
and gas price fluctuations in the market may adversely affect the results of our
operations.
  The
results of our oil exploration and production activities will be highly
dependent upon the worldwide prices received for our oil production.
Substantially all of our sales of oil will be made in the spot market, or
pursuant to contracts based on spot market prices, and not pursuant to
long-term, fixed-price contracts. Accordingly, the prices received for our oil
production will be dependent upon numerous factors beyond our control. These
factors include the level of consumer product demand, governmental regulations
and taxes, the price and availability of alternative fuels, the level of foreign
imports of oil and natural gas and the overall economic environment. Significant
declines in world wide prices for oil could have a material adverse effect on
our financial condition, results of operations and quantities of reserves
recoverable on an economic basis.
  Reserve
Estimates Depend On Many Assumptions That May Turn Out To Be
Inaccurate.
  Any
material inaccuracies in our reserve estimates or underlying assumptions could
materially affect the quantities and present values of our reserves. The process
of estimating oil reserves is complex. It requires interpretations of available
technical data and various assumptions, including assumptions relating to
economic factors. Any significant inaccuracies in these interpretations or
assumptions could materially affect the estimated quantities and present value
of reserves shown in this Report.  In order to prepare these
estimates, we must project production rates and timing of development
expenditures. We must also analyze available geological, geophysical, production
and engineering data, and the extent, quality and reliability of this data can
vary. The process also requires economic assumptions relating to matters such as
oil and natural gas prices, drilling and operating expenses, capital
expenditures, taxes and availability of funds. Therefore, estimates of oil and
natural gas reserves are inherently imprecise.
  43
  Actual
future production, oil and natural gas prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and natural
gas reserves most likely will vary from our estimates. A significant variance
could materially affect the estimated quantities and pre-tax present value of
reserves shown in this report. In addition, we may adjust estimates of proved
reserves to reflect production history, results of exploration and development,
prevailing oil and natural gas prices and other factors, many of which are
beyond our control.
  We may encounter operating hazards
that may result in substantial losses.
  Kor-Tazh
will be subject to operating hazards normally associated with the exploration
and production of oil, including blowouts, explosions, oil spills, cratering,
pollution, earthquakes, labor disruptions and fires. The occurrence of any such
operating hazards could result in substantial losses to us due to injury or loss
of life and damage to or destruction of oil and gas wells, formations,
production facilities or other properties. We intend to maintain insurance
coverage limiting financial loss resulting from certain of these operating
hazards. We may not, however, maintain full insurance coverage for all matters
that may adversely affect our operations, including war, terrorism, nuclear
reactions, government fines, treatment of waste, blowout expenses and business
interruptions. Losses and liabilities arising from uninsured or underinsured
events could reduce our revenues or increase our costs. There can be no
assurance that any insurance will be adequate to cover losses or liabilities
associated with operational hazards. We cannot predict the availability of
insurance, or its availability at premium levels that justify its
purchase.
  ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not
applicable.
 
 ITEM
4.CONTROLS AND
PROCEDURES.
 
 (a)Evaluation of disclosure controls and
procedures.
 
 The term
“disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to
the controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files
under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded,
processed, summarized and reported within required time periods. The Company’s
management, with the participation of the Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by this quarterly
report (the “Evaluation Date”). As a start-up company, the Company has
insufficient personnel resources within its reporting functions, which
constitutes a material weakness in internal controls over financial
reporting.  As a result, management concluded its disclosure controls
and procedures were not effective.  The Company is reviewing ways to
improve the effectiveness, including the addition of an audit committee
financial expert.
  44
 (b)Changes in internal
controls.
 
 The term
“internal control over financial reporting” (defined in SEC Rule 13a-15(f))
refers to the process of a company that is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. The Company’s management, with the participation
of the Chief Executive Officer and Chief Financial Officer has evaluated any
changes in the Company’s internal control over financial reporting that occurred
during the quarterly period covered by this report, and they have concluded that
there was no change to the Company’s internal control over financial reporting
that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.
 
 PART
II   -   OTHER INFORMATION
 
 Item
1.Legal
Proceedings
 
 None.
 
 Item
2.Unregistered Sale
of Equity Securities and Use of Proceeds
 
  Item
3.Default Upon
Senior Securities
 
 None.
 
 Item
4.Submission of
Matters to a Vote of Security Holders
 
 None.
 
 Item
5.Other
Information
 
 None.
 
 Item
6.Exhibits
  31.1
            Rule
      13a-14(a) Certification – CEO31.2
            Rule
      13a-14(a) Certification – CFO32
            Rule
      13a-14(b) Certification
  45
 
 SIGNATURES
 
 Pursuant
to the  requirements  of the Securities  Exchange
Act of 1934, the Registrant  has
duly  caused  this  Report  to
be  signed  on its  behalf by the undersigned
thereunto duly authorized.
   CASPIAN
      INTERNATIONAL OIL CORPORATIONDate:  May
      19, 2008
              By:
              /s/ Nurlan JanseitovNurlan Janseitov, Chief Executive OfficerBy:
              /s/ David FultonDavid Fulton, Chief Financial Officer
   *       *       *       *       *
   46