##### Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB/A

(Amendment No. 2)



|x | Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2006.
|- | ---------------------------------------------------------------------------------------------------------------------------



| ̈ | Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from
 to .
|- | -----------------------------------------------------------------------------------------------------------------------

Commission file number: 000-29323

STAR
ENERGY CORPORATION

(Name of small business issuer as specified

in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Nevada                                                         |  | 87-0643634                          
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)
|                                                              
|317 Madison Avenue, New York, New York 10017                  
|(Address of Principal Executive Offices) (Zip Code)           

Issuers Telephone Number: (212) 500-5006

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

Securities registered under Section 12(g) of
the Exchange Act:



|                               
|-------------------------------
|Common Stock ($0.001 Par Value)
|Title of Class                 



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

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and if no disclosure will be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB   ̈

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

The issuers revenues for the fiscal year
ended December 31, 2006, were $32,923.

The aggregate market value of the issuers common stock, $0.001 par value (the only class of voting
stock), held by non-affiliates as of June 15, 2007 was approximately $75,886,500 based on the average closing bid and asked prices for the issuers common stock on May 31, 2007.

At June 15, 2007, the number of shares outstanding of the issuers common stock, $0.001 par value (the only class of voting stock), was 29,007,500 shares.

Transition Small Business Disclosure Format.    Yes   ̈    No  x



---

##### Table of Contents

EXPLANATORY NOTE

Star Energy Corporation (referred to as us, we, the Company, Star or Star Energy) is filing this Amendment No. 2 (this Amendment) to amend
certain items contained in our Annual Report on Form 10-KSB for our fiscal year ended December 31, 2006, which was originally filed with the Securities Exchange Committee (the SEC) on June 19, 2007 (the Original
Report).

On April 11, 2008, our Board of Directors determined that we needed to restate the financial statements contained in the Original
Report and our Quarterly Reports on Form 10-QSB for the quarterly periods ended March 31, 2007, June 30, 2007 and September 30, 2007. The determination was made by our Board of Directors and our Chief Financial Officer based upon
comments from the staff (the Staff) of the Securities and Exchange Commission, and following consultation with our senior management, legal advisor and independent registered public accounting firm. This Amendment is in response to such
comments and to effectuate certain other changes that we believe are appropriate.

The changes to our financial statements contained in this Amendment did
not result in a change in our profit or loss for any reported period other than a correction of two mathematical errors for the period from re-entering the development stage (October 6, 2006) through the end of the period covered by this Amendment.

The purpose of this Amendment is to amend and restate the following Items in the Original Report:



| |  |  | Item 1, Description of the Business, to, among other things:
| | - |  | --------------------------------------------------------------



| | ¡ |  | Amend the discussion under Business History to (a) expand our disclosure regarding the reasons why we sold the Galvan Ranch Gas Wells and provide
additional information as to why we rescinded our acquisition of Volga-Neft Limited Company, a Russian limited liability company (Volga-Neft) and (b) clarify that we did not issue any shares of our common stock with respect to two
terminated proposed acquisitions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Amend the second paragraph under Our Current Business Plans to clarify that, oil and gas reserves information determined under the Ukraine system does
not correlate with proved reserves determined using the reasonable certainty, legal and economic criteria inherent in the SECs definition of proved reserves.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Amend the discussion under Debenture Financing to expand and clarify certain disclosures and to reflect that, prior to our rescission of the acquisition
of Volga-Neft, we, through our Chief Executive Officer, obtained the approval of the debenture holders to the rescission.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Item 6, Managements Discussion and Analysis, to revise the discussion therein as a result of the changes made in Item 1,
Description of Business, above, and Item 7, Financial Statements, discussed below, of this Report.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Item 7, Financial Statements, to, among other things:
| | - |  | -------------------------------------------------------



| | ¡ |  | Update to March 14, 2008 the report of our independent registered public accounting firm with respect to our financial statements as of and for the year ended
December 31, 2006.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Restate our balance sheet and statement of stockholders equity as of and for the year ended December 31, 2006 to (a) record the acquisition in 2006
of the capital stock of Volga-Neft using the cost method of accounting therefor under paragraph 6a of Accounting Principles Board Opinion No.18 (see Note 5, Investment in Volga-Neft and Rescission of Stock Purchase Agreement, of the
Notes to Financial Statements included in Item 7 of this Report) as opposed to a retroactively rescinded transaction and (b) reflect the assets and liabilities of the Galvan Ranch Gas Wells at December 31, 2005 as Net Assets
from Discontinued Operations (see Note 14, Discontinued Operations, of the Notes to Financial Statements included in Item 7 of this Report).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 2 -



---

##### Table of Contents

| | ¡ |  | Restate our statements of operations and comprehensive loss and cash flows for the years ended December 31, 2006 and 2005, and the period from re-entering the
development stage (October 6, 2006) through December 31, 2006 to reflect our activities with respect to the Galvan Ranch Gas Wells as discontinued operations (see Note 1, Description of Business, and Note 14, Discontinued
Operations, of the Notes to Financial Statements included in Item 7 of this Report), and to correct calculation errors with respect to the period from re-entering the development stage (October 6, 2006) through December 31, 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Restate our statements of cash flows for the year ended December 31, 2006 and the period from re-entering the development stage (October 6, 2006) through
December 31, 2006 to (a) implement changes resulting from reflecting the Galvan Ranch Gas Wells as discontinued operations, (b) reflect as non-cash stock based compensation expense the amount of $103,360 which was previously reported
as issuance of common stock for services and prepaid expenses, and (c) give effect to the changes made to our balance sheets and statements of operations and comprehensive loss.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Amend Note 1, Description of Business, of the Notes to Financial Statements to (a) describe our interest in the Galvan Ranch Gas Wells and the
reasons why we sold the Galvan Ranch Gas Wells and provide information concerning our acquisition of the capital stock of Volga-Neft and the reasons why we rescinded that acquisition, with cross references to additional information contained
elsewhere in this Report concerning the sale of the Galvan Ranch Gas Wells and our acquisition and rescission of the capital stock of Volga-Neft and (b) clarify the status of our operations at the date of the updated report of our independent
registered public accounting firm.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Add Note 2, Going Concern, to the Notes to Financial Statements.
| | - |  | ------------------------------------------------------------------



| | ¡ |  | Amend Note 3 (formerly Note 2), Summary of Significant Accounting Principles, to revise and update certain information contained therein to the date of
the report of our independent registered public accounting firm.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Move the note concerning Financial Instruments from Note 2, Summary of Significant Accounting Policies, to a new separate Note 4,
Financial Instruments, of the Notes to Financial Statements.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Amend Note 5 (formerly Note 10), Investment in Volga-Neft and Rescission of Stock Purchase Agreement, of the Notes to Financial Statements to expand our
disclosure regarding the reasons we rescinded our acquisition of Volga-Neft.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Expand Note 6 (formerly Note 3), Loan Receivable from Volga-Neft, of the Notes to Financial Statements to expand the disclosure concerning the
receivable and repayment thereof;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Amend Note 10 (formerly Note 7), Asset Retirement Obligations, of the Notes to Financial Statements to reflect the disposal of $1,327 of assets in 2006.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



- 3 -



---

##### Table of Contents

| | ¡ |  | Amend Note 11 (formerly Note 10), Capital Stock, of the Notes to Financial Statements to include additional information concerning our re-acquisition of
3,250,000 shares of our common stock from Ruairidh Campbell and transfer of our interest in the Galvan Ranch Gas Wells to Mr. Campbell, including our accounting therefor, and add information concerning our issuance of shares to acquire
Volga-Neft.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Amend Note 12 (formerly Note 9), Income Taxes, of the Notes to Financial Statements to revise the amount of net operating loss carryforwards scheduled
to expire in 2026.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Add Note 13, Supplemental Disclosure of Cash Flow Information, of the Notes to Financial Statements.
| | - |  | ------------------------------------------------------------------------------------------------------



| | ¡ |  | Add Note 14, Discontinued Operations, of the Notes to Financial Statements regarding the Galvan Ranch Gas Wells.
| | - |  | ------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Add Note 15, Restatement of Previously Issued Financial Statement, of the Notes to Financial Statements.
| | - |  | ----------------------------------------------------------------------------------------------------------



| | ¡ |  | Reflect in Note 16 (formerly Note 11), Subsequent Events, of the Notes to Financial Statements certain events, not disclosed elsewhere in the financial
statements included in Item 7 of this Report, that occurred after the December 31, 2006, and to reflect under Convertible Debentures that, prior to our rescission of the acquisition of Volga-Neft, we, through our Chief
Executive Officer, obtained the approval of the debenture holders to the rescission.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Item 8A, Controls and Procedures, to revise the discussion therein in light of this Amendment.
| | - |  | ------------------------------------------------------------------------------------------------

In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, this Amendment also includes as exhibits, currently dated certifications from our Chief
Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

Other than portions of the footnotes
to the financial statements and the report of our independent registered public accounting firm with respect to our financial statements as of and for the year ended December 31, 2006, which have been updated to March 14, 2008, each as
included in Item 7, and the information included in Item 8, of this Amendment, this Amendment speaks only as of June 19, 2007, the date of filing of the Original Report, and does not reflect events that occurred subsequent to the
filing of the Original Report, nor does this Amendment update, modify or supersede disclosures that may have been affected by events that occurred subsequent to June 19, 2007. Therefore, you should read this Amendment together with our reports
that cover periods after December 31, 2006, including amendments thereto, and that update, modify or supersede the information contained in the Original Report, as amended by this Amendment.



- 4 -



---

##### Table of Contents

PART I



|ITEM 1. | DESCRIPTION OF BUSINESS
|------- | -----------------------

History

We were incorporated in Nevada on December 7, 1999, as Cairo Acquisitions, Inc. to engage in any legal undertaking. On November 21, 2002, we
changed our name to Star Energy Corporation to reflect the decision of our management to enter into exploration, development and production of oil and gas resources.

Unless the context otherwise requires, references to Star, we, us, and our company refer to Star Energy Corporation and its subsidiaries at the applicable time.

Business History

From July 2, 2003 until
October 6, 2006, we were engaged, as an independent oil and natural gas producer, in the exploration, development, production and sale of oil and gas derived from eight oil and gas wells, known as the Galvan Ranch Gas Wells, located
in Webb County, West Texas, Texas, in each of which we had a 15% working interest and a 12% net revenue interest. The wells were on five separate parcels of land spread over 425 acres of the Galvan Ranch. Our interests in our wells were maintained
and operated by Lewis Petro Properties, Inc. (Lewis), a local operator, under the terms of an Operating Agreement. Lewis maintained a varying interest in each of our wells. The terms of the Operating Agreement granted to Lewis the
exclusive right to conduct operations with respect to our interests in our wells in exchange for a monthly operating fee for each well and any other costs incurred in normal operation of the wells. Title to all machinery, equipment or other property
attached to the wells under the Operating Agreement, as amended, belonged to each party in proportion to its interest in each well, as did any amount recovered as the result of salvaging machinery or equipment from the wells. Under the Operating
Agreement, Lewis was permitted to make capital expenditures without notifying us of the expense up to $25,000. Amounts that were to be spent over that amount required that notice be provided by Lewis to us. Should we have wished to drill an
additional well on the property under lease, we would have been required to provide notice to all owners of the lease of our intent to drill and of the exercise of our option to participate in new drilling. Should other owners have chosen not to
participate in the drilling costs, we would have been entitled to recoup 300% of the cost incurred in drilling the well from production before reverting to our minority interest on the lease. Abandonment of wells was required to have been approved
by the party holding a majority interest in the specific well to be abandoned. Prior to drilling new wells, a geological review of the prospective area would have been made by us in cooperation with Lewis to determine the potential for additional
gas reserves. Our consultants would then have reviewed available geophysical data (generally seismic and gravity data) to further evaluate the area. After the evaluation of the geophysical data, if the target would have appeared to have contained
significant accumulations of gas, we would have considered the economic feasibility of drilling the target. Significant accumulations of gas would not have guaranteed economic recovery because it would have depended on many factors such as how much
it costs to drill and complete wells in a certain area, how close the wells are to pipelines and pipeline pressure, what the price of oil or gas is, how accessible the area is, whether the project is a developmental or wildcat prospect.

On March 24, 2006, we executed a letter of intent to acquire Terrabyte, LLC (Terrabyte), an oil and gas exploration company headquartered in Allegan,
Michigan. Terrabyte was positioned to initiate an enhanced secondary recovery water flood development to produce oil from the Mohican River field located in the vicinity of the Perry Township, Ashland County, Ohio. Subsequent to the three month
period ended June 30, 2006, we announced that the parties had not been able to reach a mutually acceptable definitive agreement, terminated the letter of intent, and ended all further negotiations.



- 5 -



---

##### Table of Contents

During the third quarter of 2006, we believed that the Galvan Ranch Gas Wells, which had generated revenues of only
$55,852 in 2005 and $33,431 for the nine months ended September 30, 2006, were not meeting expectations, were without perceived growth potential and were a distraction to our ability to raise financing and grow. Mr. Ruairidh Campbell, at
the time a principal shareholder and one of our officers and directors, was not interested in pursuing a strategy of focusing on areas in Russia and the former Soviet Union, rather than the United States. On October 6, 2006, we transferred,
pursuant to an Assignment and Bill of Sale, our entire interest in the Galvan Ranch Gas Wells to Ruairidh Campbell, who contemporaneously resigned as an officer and director of Star. In consideration therefor, Mr. Campbell transferred to us,
for cancellation and return to our authorized but unissued shares of common stock, the 3,250,000 shares held by him. As a result, since October 6, 2006, we no longer have had any interest in the Galvan Ranch Gas Wells and are no longer engaged
in the oil and gas business in the United States.

Pursuant to a Stock Purchase Agreement, dated October 6, 2006, we acquired 100% of the capital
stock of Volga-Neft Limited Company, a Russian limited liability company primarily engaged in the processing and sale of crude oil in Samara, Russia (Volga-Neft), in consideration for our issuance to the stockholders of Volga-Neft of an
aggregate of 10,000,000 shares of our common stock, which represented, at the time, 25.6% of our issued and outstanding shares. Thereafter, we borrowed and advanced $3,000,000 of working capital to Volga-Neft. Volga-Neft (i) sells to local oil
exporters, wholesalers, and distributors crude oil it has purchased from local oil developers and (ii) processes crude oil purchased from local oil developers, selling the processed petroleum products in the local market to oil exporters,
wholesalers, and distributors. As a result of this acquisition, Volga-Neft became our wholly-owned subsidiary.

On April 13, 2007, we were advised by
RSM Top-Audit, the audit firm that purportedly audited the financial statements of Volga-Neft covering certain periods prior to our acquisition of Volga-Neft, that those financial statements were not audited by that firm. These financial statements,
which we filed with the Securities and Exchange Commission on a Form 8-K/A on December 8, 2006, were the balance sheets of Volga-Neft as of October 6, 2006 and December 31, 2005, and the related statements of income,
stockholders equity and cash flows for the period January 1, 2006 through October 6, 2006 and the year ended December 31, 2005. We therefore concluded that those financial statements could not be relied upon, and, on
May 11, 2007, we filed a Current Report on Form 8-K to disclose these developments.

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



- 6 -



---

##### Table of Contents

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

On November 6, 2006, we entered into a Letter of Intent to acquire 100% of the common stock of Samaratransoil Ltd., a company organized under the laws of the
Russian Federation, from its sole stockholder in exchange for 1,000,000 shares of our common stock. The consummation of this transaction was subject to certain conditions, including completion of due diligence to our satisfaction. After performing
our due diligence, we determined not to proceed further with the transaction and did not issue any shares of our common stock with respect to this prospective acquisition.

On November 28, 2006, we entered into a Stock Purchase Agreement to acquire 51% of the capital stock of Kommunarskoe NGDU, a Russian limited liability company, from its sole stockholder in exchange for 6,000,000
shares of our common stock. The consummation of this transaction was subject to certain conditions, including completion of due diligence to our satisfaction. After performing our due diligence as part of satisfying the closing conditions, we
determined not to proceed further with the transaction. Effective June 14, 2007, all parties to this Stock Purchase Agreement agreed not to proceed with the transaction and to end all further negotiations, and we did not issue any shares of our
common stock with respect to this prospective acquisition.

Our Current Business Plans

We are not currently engaged in an active business. Our goal is to be engaged in the acquisition, exploration, development, production in, and sale of oil derived from
resources in, the Commonwealth of Independent States.

In this regard, on March 12, 2007, we entered into a memorandum of understanding to acquire
Anglo-Ukra Energy, a Ukrainian holding company. Anglo-Ukra Energy is a special purpose Ukrainian holding entity for the acquisition and development of certain Ukrainian energy projects. The memorandum of understanding provides us with the right to
concessions over three oil and gas fields in the Ukraine (Region, Sakhalinska and Bukovyna). The three fields subject to the memorandum of understanding are believed to contain resources of over 150 million barrels of oil and reserves of over
75 billion cubic feet of natural gas, each determined under the Ukraine system of estimation. Resources and reserves determined under the Ukraine system do not correlate with proved reserves determined using the reasonable certainty,
legal and economic criteria inherent in the Securities and Exchange Commissions definition of proved reserves. The Securities and Exchange Commissions requirement, unlike the Ukraine system, limits reportable quantities to
amounts which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. As part of our anticipated expansion of our efforts in the
Ukraine, we plan to open and staff an office in Kiev.

The closing of the transaction is subject to, among other things, the execution of a definitive
agreement, approval by our Board of Directors, completion of due diligence, and receipt of required governmental and third party approvals. In addition, the closing of this transaction will be conditioned upon the execution by a third party of a
release relinquishing all rights over certain oil and gas fields with producing and proven reserves which Anglo-Ukra Energy has an option to acquire. There can be no assurance that we will complete the transactions contemplated by the memorandum.



- 7 -



---

##### Table of Contents

Debenture Financing

On February 9, 2007, we entered into a securities purchase agreement, whereby we issued $7,500,000 in principal amount of convertible debentures (the Debentures) to institutional investors. The Debentures bear interest at
8% per annum, payable quarterly, are secured by all our assets and mature on February 9, 2010 or earlier upon acceleration following an event of default, as defined in the Debentures. The Debentures were originally convertible into shares
of our common stock at the option of the holders at a conversion price of $2.00 per share. In addition, the debenture holders were issued warrants which allow the holders to purchase, at any time until February 9, 2012, up to 2,437,500 shares
of our common stock. The Warrants were originally exercisable at an exercise price equal to $3.81 per share. The Debentures and the Warrant have conversion and exercise price adjustment clauses to adjust their conversion and exercise prices based on
certain events, including stock splits and stock combinations, and, with exceptions relating to issuances under stock option plans and acquisitions and strategic transactions synergistic with our business, to reduce the conversion and exercise
prices to the price at which new shares are issued. The right of each investor to convert the Debentures, or exercise the Warrants, is subject to the restriction that such conversion or exercise does not result in the investor beneficially owning at
any one time more that 4.99% of our outstanding common stock.

Payment of the Debentures is guaranteed by Volga-Neft pursuant to the terms of a Guarantee
dated as of February 9, 2007, and is secured by all of Volga-Nefts assets, as well as all of our assets. We believe that our acquisition of Volga-Neft was a significant factor in our ability to obtain this financing.

The rescission of the acquisition of Volga-Neft could have resulted in the acceleration of the maturity of some or all of our $7,500,000 principal amount of 8% Secured
Convertible Debentures we issued in February 2007 and that otherwise would be due on February 9, 2010 or earlier upon acceleration, following an event of default, as defined in the Debentures. Prior thereto, we, through our Chief Executive
Officer, obtained the oral approval of the debenture holders.

Pursuant to the terms of a Registration Rights Agreement by and between us and the
purchasers of the Debentures, dated as of February 9, 2007, we agreed to prepare and file by April 15, 2007 with the Securities and Exchange Commission a registration statement for the purpose of registering for resale all of the shares of
our common stock issuable upon conversion of the Debentures and the exercise of the Warrants. We have not, to date, filed the registration statement. The Registration Rights Agreement provided that, if we did not file the registration statement by
April 15, 2007, the registration statement was not declared effective by the Securities and Exchange Commission by July 15, 2007, and in certain other circumstances (including if the registration statement did not remain continuously
effective except for certain limited periods for specified reasons), we were to pay, on the applicable date and each monthly anniversary of that date, as partial liquidated damages, 1.5% of the principal amount of the Debentures then held by the
debenture holders. If we failed to pay any of these amounts within seven days after the date payable, the Registration Rights Agreement provides that we are to pay interest thereon at the rate of 18% per annum.

As a condition of the Debenture financing, we entered into agreements with each of our then officers, directors and principal stockholders pursuant to which each of them
agreed not to sell any shares of our common stock prior to 90 calendar days after a registration statement covering the resale all of the shares of our common stock issuable upon conversion of the Debentures and the exercise of the Warrants has been
declared effective by the Securities and Exchange Commission.

We paid Rodman & Renshaw LLC, placement agent for the Debenture financing, $525,000
(7% of the gross proceeds from the sale of the Debentures), plus $25,000 in reimbursement of its expenses, under a Placement Agency Agreement, dated February 9, 2007. We also issued to Rodman & Renshaw LLC and its designees warrants to
purchase, until February 12, 2012, 262,500 shares of our common stock at an exercise price of $3.81 per share. The warrants have exercise price adjustment clauses to adjust their exercise price based on certain events, including stock splits
and stock combinations, and, with exceptions relating to issuances under stock option plans and acquisitions and strategic transactions synergistic with our business, to reduce the exercise price to the price at which new shares are issued. We also
have agreed to indemnify Rodman & Renshaw LLC, its selected dealers, agents and their respective officers, directors, employees and controlling persons against liabilities incurred under the Securities Act, as well as claims



- 8 -



---

##### Table of Contents

made against those persons for finders or brokers fees, and to reimburse those persons for expenses (including reasonable attorneys fees)
incurred in investigating and defending against claims asserted against them, in connection with the offer and sale of the Debentures, except in certain circumstances, and to the extent indemnification is not available, to contribute to payments
made by those persons. In addition, we issued 15,500 shares of our common stock valued at $58,900 to an unaffiliated third party for its assistance in identifying potential institutional investors.

Competition

The oil and gas exploration industry is highly
competitive. We expect to encounter competition in all aspects of our operations, including property acquisition, and for equipment and labor required to operate and to develop properties and operations. We expect to be in competition with major oil
companies, independent oil companies, and individual producers and operators that have financial and other resources substantially greater than ours.

In
addition, the oil industry as a whole also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers. The price and availability of alternative energy sources could adversely
affect our operations.

Governmental Regulation

Our
operations will be subject to various levels of government controls and regulations in virtually all of the countries in the Commonwealth of Independent States, including environmental controls and regulations, that will vary from country to country
and from time to time as they are reviewed for amendment or expansion.

We will attempt to comply with all legal requirements in the conduct of our
operations and employ business practices which we consider to be prudent under the circumstances in which we operate. Failure to comply with such rules and regulations can result in substantial penalties. The regulatory burden on the oil and gas
industry increases our cost of doing business and affects our profitability. Because such rules and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws.

Environmental Regulation

Oil exploration, storage, transportation,
refining, and related activities are subject to numerous and constantly changing country, state and local laws governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations
may require the acquisition of certain permits prior to or in connection with our operations, restrict or prohibit the types, quantities and concentration of substances that we can release into the environment, restrict or prohibit activities that
could impact endangered or threatened species, protected areas or natural resources, require some degree of remedial action to mitigate pollution from former operations and impose substantial liabilities for pollution resulting from our operations.

For example, the government of the Russian Federation, Ministry of Natural Resources, and other agencies establish special rules, restrictions and
standards for enterprises conducting activities affecting the environment. The general principle of Russian environmental law is that any environmental damage must be fully compensated. Under certain circumstances, top officers of the entity causing
substantial environmental damage may be subject to criminal liability. The law of the Russian Federation on subsoil requires that all users of subsoil ensure safety of works related to the use of subsoil and comply with existing rules and standards
of environment protection.

Environmental laws and regulations may substantially increase the cost of our operations and may prevent or delay the
commencement or continuation of a given project and thus generally could have a material adverse effect upon our capital expenditures, earnings, or competitive position. Violation of these laws and regulations could result in significant fines or
penalties. We may experience accidental spills, leaks and other discharges of contaminants at some of the properties that we may acquire, operate or sell, or in which we may hold an interest but not operational control, as have other similarly
situated oil and gas companies, and including past or ongoing contamination for which we may be held responsible. The costs of remedying such conditions may be significant, and could have a material adverse impact on our financial condition and
results of operations.



- 9 -



---

##### Table of Contents

Changes in existing environmental laws and regulations or in the interpretations thereof could have a significant impact
on our operations, as well as the oil and gas industry in general. For instance, any changes in environmental laws and regulations that result in more stringent and costly waste handling, storage, transport, disposal or clean-up requirements could
have a material adverse impact on our results of operations.

Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements and Labor
Contracts

We have no patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts.

Employees

Our corporate headquarters are in New York, New York. We
have two full-time employees at our corporate headquarters in addition to our three executive officers. All of our executive officers are employed by us full-time, with the exception of our Chief Financial Officer, who devotes approximately twenty
hours per week to this role.



- 10 -



---

##### Table of Contents

|ITEM 6 | MANAGEMENTS DISCUSSION AND ANALYSIS
|------ | ------------------------------------

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

FORWARD LOOKING STATEMENTS

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

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

OVERVIEW

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

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

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



- 11 -



---

##### Table of Contents

Under our new strategy, pursuant to a Stock Purchase Agreement, on October 6, 2006, we acquired 100% of the capital
stock of Volga-Neft Limited Company, a Russian limited liability company primarily engaged in the processing and sale of crude oil in Samara, Russia (Volga-Neft), in consideration for our issuance to the stockholders of Volga-Neft of an
aggregate of 10,000,000 shares of our common stock, representing, at the time, 25.6% of our issued and outstanding shares. Thereafter, we borrowed and advanced $3,000,000 of working capital to Volga-Neft. Volga-Neft (i) sells to local oil
exporters, wholesalers, and distributors crude oil it has purchased from local oil developers and (ii) processes crude oil purchased from local oil developers, selling the processed petroleum products in the local market to oil exporters,
wholesalers, and distributors. As a result of this acquisition, Volga-Neft became our wholly-owned subsidiary.

In April 2007, we were advised that the
financial statements of Volga-Neft purportedly audited by RSM Top-Audit in Russia for periods prior to our acquisition of Volga-Neft, that we filed with the Securities and Exchange Commission on a Form 8-K/A on December 8, 2006, should no
longer be relied upon because the individuals who purportedly performed the audit were not the auditing firms representatives. These financial statements pertain to the audited balance sheets of Volga-Neft as of October 6, 2006 and
December 31 2005, and the related statements of income, stockholders equity and cash flows for the period January 1, 2006 through October 6, 2006 and the year ended December 31, 2005. We filed a Current Report on Form 8-K
to disclose these developments on May 11, 2007.

Under the Stock Purchase Agreement, the shareholders of Volga-Neft made numerous representations and
warranties, including that Volga-Nefts books and records were complete and correct, represented actual transactions and were maintained in accordance with sound business practice. As part of our further investigation once we were advised that
RSM Top-Audit disclaimed performing an audit of the pre-acquisition financial statements of Volga-Neft, we were advised by Volga-Nefts internal accountant that the revenues of Volga-Neft for the period January 1, 2006 through the
December 31, 2006 were actually $47 million (rather than the $83 million reflected in financial statements provided to us for the shorter January 1, 2006 through October 6, 2006 period). We were also advised by an accounting firm
which we intended to retain to re-audit Volga-Nefts financial statements, among other things, that documents requested were not provided, that reconciliations did not exist, that no observations of inventories had occurred in the
past and that some properties listed as owned by Volga-Neft may have been leased. These factors led us to conclude that the books and records of Volga-Neft were not complete and correct and were not maintained in accordance with sound business
practice. These factors also put into question our ability to rely on other representations and warranties made by the stockholders of Volga-Neft. In addition, because our independent auditor was unable to audit opening balances for post-acquisition
financial statements of Volga-Neft, we could not receive the comfort that a post-closing audit provides an acquirer with respect to the accuracy of representations and warranties. In lieu of retaining Volga-Neft and spending the time, effort and
cost of trying to establish the degree to which breaches existed and the level of damages sustained, and then seek indemnification against the Volga-Neft stockholders in Russia, we determined that it was in our best interests to seek rescission of
the Stock Purchase Agreement.

By a Rescission Agreement dated June 14, 2007 among us, Volga-Neft and the individuals from whom we acquired the shares
of Volga-Neft, the Stock Purchase Agreement was rescinded, we returned the shares of Volga-Neft we received to the former stockholders of Volga-Neft who, in turn, returned to us the 10,000,000 shares of our common stock that we had previously issued
to them. In addition, Volga-Neft issued a $4,200,000 promissory note in our favor to repay $3,000,000 of loans we made to Volga-Neft since the acquisition and to reimburse us for costs and damages incurred by us. We, in turn, sold the promissory
note to a non-related third party on a non-recourse basis for $3,000,000.

While the Rescission Agreement does not affect the rights that any third parties
may have against us with respect to agreements entered into, actions taken, or transactions or events that occurred, directly by or with us, we do not believe we have any such obligations. The Rescission Agreement also did not relieve us with
respect to breaches of agreements to which we are a party that may have resulted from the Rescission Agreement.



- 12 -



---

##### Table of Contents

We are accounting for our investment in, including our acquisition (in 2006) and disposition (in 2007) of, Volga-Neft
using the cost method of accounting under Accounting Principles Board Opinion No. 18.

PLANS FOR FUTURE OPERATIONS

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

RESULTS OF OPERATIONS

Revenues

As a result of the disposition of the Galvan Ranch, and its inclusion in discontinued operations and our accounting for our investment in Volga-Neft under the cost method of accounting, we had no revenues in either
2006 or 2005.

Operating Expenses From Continuing Operations

Selling, general and administrative expenses for the year ended December 31, 2006 increased to $493,873 from $26,333 for the year ended December 31, 2005, primarily due to the incurrence in 2006 of investor relations costs of
approximately $210,407, cash salaries of $32,000, approximately $103,360 of expense recognized for financial accounting purposes under Statement of Financial Accounting Standards No. 123(R) of shares issued to officers and directors, a $61,447
increase in legal and accounting fees, travel expenses of approximately $40,000 and website design costs of approximately $20,325.

The debt forgiven
income of $30,000 in 2006 related to the forgiveness by Ruairidh Campbell, as part of our disposition to him of the Galvan Ranch Wells, of monies owed by us to him.

The rescission of our acquisition of Volga-Neft resulted in $650,000 of associated costs.

As a result, our net loss from
continuing operations was $1,113,873 in 2006 compared to $26, 333 in 2005.

Discontinued Operations

Discontinued operations reflect the results of the operations of Galvan Wells Ranch, which we disposed of in October 2006. The Galvan Ranch Wells had a loss of $56,138 in
2006 compared to $9,500 in 2005.

Oil and gas revenues of the Galvan Wells Ranch for the year ended December 31, 2006 decreased to $32,923 from
$55,852 for the year ended December 31, 2005, a decrease of approximately 41.1%. Production costs for the year ended December 31, 2006 decreased by $12,449, or 47.3%, to $13,849 in 2006 from $26,298 in 2005 and depreciation expenses for
the year ended December 31, 2006 decreased by $3,500, or 57.3%, to $2,611 in 2006 from $6,111 in 2005. These decreases were attributable to our disposition on October 6, 2006 of our interest in the Galvan Ranch Wells, which was included in
our results of operations for a full year in 2005.



- 13 -



---

##### Table of Contents

Net Losses

As a
result of the foregoing, we incurred a loss, an overall net loss and comprehensive loss of $1,170,011 in 2006 compared to $35,833 in 2005.

LIQUIDITY
AND CAPITAL RESOURCES

Our cash of $1,703 at December 31, 2006 was $12,272 less than at December 31, 2005.

In 2006, operating activities from continuing operations provided $23,467 of cash, which resulted primarily from increases in accounts payable and accrued liabilities of
$368,980 and $665,000, respectively, which offset other use of cash to support our cash loss from continuing operations of $1,010,513 ( our net loss of $1,170,011 less a $56,138 loss from discontinued operations and $103,360 of non-cash stock based
compensation expense).

Investing activities during the year ended December 31, 2006 used cash of $1,000,000, which was advanced to Volga-Neft in 2006
to meet liabilities of Volga-Neft. This advance was repaid to us in 2007 from the $3,000,000 proceeds we received from the sale of the $4,200,000 note we received in connection with the rescission of the Volga-Neft.

Financing activities provided $1,000,000 from our borrowing of $1,000,000 from Blue Water Partners, a merchant banking firm, which was used to advance working capital to
Volga-Neft to meet certain liabilities of Volga-Neft as discussed in Investing Activities, above.

We are not currently generating cash from
operations and have no lines of credit or other bank financing arrangements.

To obtain working capital, on February 9, 2007, we entered into a
Securities Purchase Agreement with institutional investors pursuant to which we sold $7,500,000 principal amount of our 8% Secured Convertible Debentures for a total gross purchase price of $7,500,000 (the Debenture Financing). We paid
Rodman & Renshaw LLC, placement agent for the Debenture Financing, $525,000 (7% of the gross proceeds from the sale of such Debentures), plus $25,000 in reimbursement of its expenses, under a placement agency agreement dated
February 9, 2007.

Of the net proceeds of the Debenture Financing, estimated at $6,975,000, we advanced $3,000,000 to Volga-Neft for the payment of
its liabilities. At the time of the rescission of our acquisition of Volga-Neft, we received, in addition to the return of the 10,000,000 shares of our common stock that we had issued in consideration for our acquisition, a $4,200,000 promissory
note in full settlement of all monetary claims we may have against Volga-Neft or its stockholders from which we acquired Volga-Neft. We, in turn, sold the promissory note to an unaffiliated third party on a non-recourse basis for $3,000,000.

We intend to use these proceeds and the balance of the funds obtained in the Debenture Financing, to fund strategic initiatives and to repay certain
liabilities. We expect such funds to be sufficient to fund our operations in 2007.

The unpaid principal amount of the Debentures, together with accrued
but unpaid interest and any other amounts due thereon, is due and payable on February 11, 2010, or earlier upon acceleration following an event of default, as defined in the Debentures. As a result of the rescission on June 14, 2007 of the
Stock Purchase Agreement which resulted in the return by us of all of the capital stock of Volga-Neft to the former shareholders thereof and the return by them to us of 10,000,000 shares of our common stock, each holder of an 8% Secured Debenture
issued by us as part of the offering and sale of an aggregate $7,500,000 of the Debentures in February 2007 could have declared the outstanding principal amount of such holders Debenture, plus accrued and unpaid interest, liquidated damages
and other amounts owing in respect of the holders Debenture due and payable at its Mandatory Default Amount. The Mandatory Default Amount is defined in the Debenture, which, at a minimum, would be 130% of the outstanding principal
amount of the Debenture plus all accrued and unpaid interest thereon. Commencing five trading days after the occurrence of an event of default that results in the eventual acceleration of a Debenture, the interest rate on the Debenture shall accrue
interest at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. Prior to our rescission of the Volga-Neft transaction, we, through our Chief Executive Officer, obtained the approval of the
Debenture holders.



- 14 -



---

##### Table of Contents

Pursuant to the terms of a Registration Rights Agreement by and between us and the purchasers of the Debentures, dated as
of February 9, 2007, we agreed to prepare and file by April 15, 2007 with the Securities and Exchange Commission a registration statement on Form SB-2 for the purpose of registering for resale all of the shares of our common stock issuable
upon conversion of the Debentures and the exercise of the Warrants. We have not, to date, filed the Registration Statement. The Registration Rights Agreement provided that, if we did not file the Registration Statement by April 15, 2007, the
Registration Statement were not declared effective by the Securities and Exchange Commission by July 15, 2007, and in certain other circumstances (including if the Registration Statement did not remain continuously effective except for certain
limited periods for specified reasons), we are to pay, on the applicable date and each monthly anniversary of that date, as partial liquidated damages, 1.5% of the principal amount of the Debentures then held by the Debentureholders. If we fail to
pay any of these amounts within seven days after the date payable, the Registration Rights Agreement provides that we are to pay interest thereon at the rate of 18% per annum.

OFF-BALANCE SHEET FINANCING

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



- 15 -



---

##### Table of Contents

|ITEM 7. | FINANCIAL STATEMENTS
|------- | --------------------

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2006 AND 2005

CONTENTS



|                                                               |  |      
|-------------------------------------------------------------- |  | -----
|Report of Independent Registered Public Accounting Firm - 2006 |  | 17   
|                                                               | 
|Report of Independent Registered Public Accounting Firm - 2005 |  | 18   
|                                                               | 
|Balance Sheets                                                 |  | 19   
|                                                               | 
|Statements of Operations and Comprehensive Loss                |  | 20   
|                                                               | 
|Statements of Stockholders Equity                             |  | 21   
|                                                               | 
|Statements of Cash Flows                                       |  | 22   
|                                                               | 
|Notes to Financial Statements                                  |  | 23-44



- 16 -



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of Star Energy
Corporation:

We have audited the accompanying balance sheet of Star Energy Corporation (a development stage company) (the
Company) as of December 31, 2006 and the related statements of operations and comprehensive loss, stockholders equity and cash flows for the year ended December 31, 2006, and the period from re-entering the development
stage (October 6, 2006) through December 31, 2006. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion.

In our opinion, based on our audit, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2006 and the results of its operations and its cash flows for the year ended December 31, 2006 and the period from re-entering the development stage (October 6, 2006) through December 31, 2006, in conformity
with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is in the development stage, has experienced operating losses and has no source of revenues to cover its operating costs.
These and other factors raise substantial doubt about the Companys ability to continue as a going concern. Managements plans regarding these matters are also described in Note 2 to the financial statements. The financial statements do
not include any adjustments that might result from the outcome of this uncertainty.

As described in note 15 to the financial statements,
the accompanying financial statements of the Company as at December 31, 2006 and for the year then ended, and the period from re-entering the development stage (October 6, 2006) through December 31, 2006 have been restated. We therefore
withdraw our previous report dated June 18, 2007 on those financial statements originally filed.



|                |  |                      
|--------------- |  | ---------------------
|                |  | LOGO                 
|                | 
|Toronto, Canada |  | CHARTERED ACCOUNTANTS
|March 14, 2008  |  |                      



- 17 -



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and

Board of Directors of

Star Energy Corporation

We have audited the accompanying
balance sheet of Star Energy Corporation, as of December 31, 2005 and the related statements of income, stockholders equity, and cash flows for the year then ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Star Energy Corporation, as of December 31, 2005 and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United States of America.

JONES SIMKINS, P.C.

Logan, Utah

March 18, 2006



- 18 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Balance Sheets

December 31, 2006 and 2005



|                                                                         |  |      |            |   |      |   |         |  
|------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ------- | -
|                                                                         |  | 2006 |            |   | 2005 |  
|                                                                         |  |      |            |  
|ASSETS                                                                   | 
|Current                                                                  |  |      |            |   |      |   |         |  
|Cash                                                                     |  | $    | 1,703      |   |      | $ | 13,975  |  
|Investment in Volga-Neft (note 5)                                        |  |      | 11,700,000 |   |      |   |        |  
|Prepaid expenses                                                         |  |      | 1,080,890  |   |      |   |        |  
|Loan receivable from Volga-Neft (note 6)                                 |  |      | 1,000,000  |   |      |   |        |  
|                                                                         |  |      |            |  
|                                                                         |  |     
|Total Current Assets                                                     |  |      | 13,782,593 |   |      |   | 13,975  |  
|                                                                         |  |     
|Net Assets from Discontinued Operations (note 14)                        |  |      |           |   |      |   | 55,640  |  
|                                                                         |  |      |            |  
|                                                                         |  |     
|Total Assets                                                             |  | $    | 13,782,593 |   |      | $ | 69,615  |  
|                                                                         |  |      |            |  
|                                                                        
|LIABILITIES                                                              | 
|Current                                                                  |  |      |            |   |      |   |         |  
|Accounts payable                                                         |  | $    | 375,327    |   |      | $ |        |  
|Accrued liabilities                                                      |  |      | 665,000    |   |      |   |        |  
|Advance from related party (note 8)                                      |  |      | 2,785      |   |      |   |        |  
|Loan payable (note 9)                                                    |  |      | 1,000,000  |   |      |   |        |  
|                                                                         |  |      |            |  
|                                                                         |  |     
|Total Current Liabilities                                                |  |      | 2,043,112  |   |      |   |        |  
|                                                                         |  |      |            |  
|                                                                         |  |     
|Total Liabilities                                                        |  |      | 2,043,112  |   |      |   |        |  
|                                                                         |  |      |            |  
|                                                                        
|STOCKHOLDERS EQUITY                                                     | 
|Capital Stock (note 11)                                                  |  |      |            |   |      |   |         |  
|Authorized:                                                              |  |      |            |   |      |   |         |  
|5,000,000 preferred stock, par value $0.001 per share                    |  |      |            |   |      |   |         |  
|225,000,000 common stock, par value $0.001 per share                     |  |      |            |   |      |   |         |  
|Issued:                                                                  |  |      |            |   |      |   |         |  
|38,737,500 common stock (2005 - 31,562,500)                              |  |      | 38,738     |   |      |   | 31,563  |  
|                                                                         |  |     
|Additional Paid-in Capital                                               |  |      | 12,910,065 |   |      |   | 77,363  |  
|                                                                         |  |     
|Accumulated Deficit and Deficit Accumulated During the Development Stage |  |      | (1,209,322 | ) |      |   | (39,311 | )
|                                                                         |  |      |            |  
|                                                                         |  |     
|Total Stockholders Equity                                               |  |      | 11,739,481 |   |      |   | 69,615  |  
|                                                                         |  |      |            |  
|                                                                         |  |     
|Total Liabilities and Stockholders Equity                               |  | $    | 13,782,593 |   |      | $ | 69,615  |  
|                                                                         |  |      |            |  

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



- 19 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Statements of Operations and Comprehensive Loss

Years Ended December 31, 2006 and 2005, and the Period from Re-entering the

Development Stage (October 6, 2006) through December 31, 2006



|                                                                                |  |      |            |   |                        |   |            |                                                                               |  |   |            |  
|------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---------------------- | - | ---------- | ----------------------------------------------------------------------------- |  | - | ---------- | -
|                                                                                |  | 2006 |            |   | Restated(Note 15) 2005 |   |            | (Note 1) Period from Re-entering the DevelopmentStage throughDecember 31,2006 | 
|                                                                                |  |      |            |  
|Oil and Gas Revenues                                                            |  | $    |           |   |                        | $ |           |                                                                               |  | $ |           |  
|                                                                                |  |      |            |  
|                                                                                |  |      |           
|Operating Expenses                                                              |  |      |            |   |                        |   |            |                                                                               |  |   |            |  
|Selling, general and administrative                                             |  |      | 493,873    |   |                        |   | 26,333     |                                                                               |  |   | 493,873    |  
|                                                                                |  |      |            |  
|                                                                                |  |      |           
|Total Operating Expenses                                                        |  |      | 493,873    |   |                        |   | 26,333     |                                                                               |  |   | 493,873    |  
|                                                                                |  |      |            |  
|                                                                                |  |      |           
|Operating Loss                                                                  |  |      | (493,873   | ) |                        |   | (26,333    | )                                                                             |  |   | (493,873   | )
|                                                                                |  |      |            |  
|                                                                                |  |      |           
|Other Income (Expense)                                                          |  |      |            |   |                        |   |            |                                                                               |  |   |            |  
|Debt forgiven                                                                   |  |      | 30,000     |   |                        |   |           |                                                                               |  |   | 30,000     |  
|Costs associated with the rescission of the stock purchase agreement (note 5)   |  |      | (650,000   | ) |                        |   |           |                                                                               |  |   | (650,000   | )
|                                                                                |  |      |            |  
|                                                                                |  |      |           
|Total Other Income (Expense)                                                    |  |      | (620,000   | ) |                        |   |           |                                                                               |  |   | (620,000   | )
|                                                                                |  |      |            |  
|                                                                                |  |      |           
|Net Loss from Continuing Operations                                             |  |      | (1,113,873 | ) |                        |   | (26,333    | )                                                                             |  |   | (1,113,873 | )
|                                                                                |  |      |            |  
|                                                                                |  |      |           
|Net Loss from Discontinued Operations (note 14)                                 |  |      | (56,138    | ) |                        |   | (9,500     | )                                                                             |  |   |           |  
|                                                                                |  |      |            |  
|                                                                                |  |      |           
|Net Loss and Comprehensive Loss                                                 |  | $    | (1,170,011 | ) |                        | $ | (35,833    | )                                                                             |  | $ | (1,113,873 | )
|                                                                                |  |      |            |  
|                                                                                |  |      |           
|Net Loss per Common Share from Continuing Operations - Basic and Diluted        |  | $    | (0.03      | ) |                        | $ | (0.00      | )                                                                             |  |   |            |  
|                                                                                |  |      |           
|Net Loss per Common Share from Discontinued Operations - Basic and Diluted      |  |      | (0.00      | ) |                        |   | (0.00      | )                                                                             |  |   |            |  
|                                                                                |  |      |            |   |                        |   |            |                                                                              
|                                                                                |  |      |           
|Net Loss per Common Share - Basic and Diluted                                   |  | $    | (0.03      | ) |                        | $ | (0.00      | )                                                                             |  |   |            |  
|                                                                                |  |      |            |   |                        |   |            |                                                                              
|                                                                                |  |      |           
|Basic and Diluted Weighted Average Number of Shares Outstanding During the Year |  |      | 33,284,375 |   |                        |   | 31,562,500 |                                                                               |  |   |            |  
|                                                                                |  |      |            |   |                        |   |            |                                                                              

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



- 20 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Statements of Stockholders Equity

Years Ended December 31, 2006 and 2005, and the Period from Re-entering

the Development Stage (October 6, 2006) through December 31, 2006



|                                                      |  |                       |   |  |              |        |   |                          |   |            |                                                                    |  |   |                     |   |  |   |            |  
|----------------------------------------------------- |  | --------------------- | - |  | ------------ | ------ | - | ------------------------ | - | ---------- | ------------------------------------------------------------------ |  | - | ------------------- | - |  | - | ---------- | -
|                                                      |  | Number ofCommonShares |   |  | CapitalStock |        |   | AdditionalPaid-inCapital |   |            | AccumulatedDeficit andDeficitAccumulatedDuring theDevelopmentStage |  |   | StockholdersEquity |  
|                                                      |  |                       |  
|                                                      |  |                       |   |  |             
|Balance, January 1, 2005                              |  | 31,562,500            |   |  | $            | 31,563 |   |                          | $ | 77,363     |                                                                    |  | $ | (3,478              | ) |  | $ | 105,448    |  
|                                                      |  |                       |   |  |             
|Net loss for the year                                 |  |                      |   |  |              |       |   |                          |   |           |                                                                    |  |   | (35,833             | ) |  |   | (35,833    | )
|                                                      |  |                       |  
|                                                      |  |                       |   |  |             
|Balance, December 31, 2005                            |  | 31,562,500            |   |  |              | 31,563 |   |                          |   | 77,363     |                                                                    |  |   | (39,311             | ) |  |   | 69,615     |  
|                                                      |  |                       |   |  |             
|Common shares issued to purchase Volga-Neft (note 11) |  | 10,000,000            |   |  |              | 10,000 |   |                          |   | 11,690,000 |                                                                    |  |   |                    |   |  |   | 11,700,000 |  
|                                                      |  |                       |   |  |             
|Common shares cancelled (note 11)                     |  | (3,250,000            | ) |  |              | (3,250 | ) |                          |   | (41,123    | )                                                                  |  |   |                    |   |  |   | (44,373    | )
|                                                      |  |                       |   |  |             
|Common shares issued for services (note 11)           |  | 425,000               |   |  |              | 425    |   |                          |   | 1,183,825  |                                                                    |  |   |                    |   |  |   | 1,184,250  |  
|                                                      |  |                       |   |  |             
|Net loss for year                                     |  |                      |   |  |              |       |   |                          |   |           |                                                                    |  |   | (1,170,011          | ) |  |   | (1,170,011 | )
|                                                      |  |                       |  
|                                                      |  |                       |   |  |             
|Balance, December 31, 2006                            |  | 38,737,500            |   |  | $            | 38,738 |   |                          | $ | 12,910,065 |                                                                    |  | $ | (1,209,322          | ) |  | $ | 11,739,481 |  
|                                                      |  |                       |  

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



- 21 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Statements of Cash Flows

Years Ended December 31, 2006 and 2005, and the Period from Re-entering the

Development Stage (October 6, 2006)
through December 31, 2006



|                                                                               |  |      |            |   |                       |   |         |                                                                            |  |   |            |  
|------------------------------------------------------------------------------ |  | ---- | ---------- | - | --------------------- | - | ------- | -------------------------------------------------------------------------- |  | - | ---------- | -
|                                                                               |  | 2006 |            |   | Restated(note 15)2005 |   |         | (Note 1)Period fromRe-entering theDevelopmentStage throughDecember 31,2006 | 
|                                                                               |  |      |            |  
|Cash Flows from Operating Activities                                           |  |      |            |   |                       |   |         |                                                                            |  |   |            |  
|Net loss                                                                       |  | $    | (1,170,011 | ) |                       | $ | (35,833 | )                                                                          |  | $ | (1,113,873 | )
|Loss from discontinued operations                                              |  |      | 56,138     |   |                       |   | 9,500   |                                                                            |  |   |           |  
|Adjustment to reconcile non-cash item:                                         |  |      |            |   |                       |   |         |                                                                            |  |   |            |  
|Stock based compensation expense                                               |  |      | 103,360    |   |                       |   |        |                                                                            |  |   | 103,360    |  
|Changes in working capital:                                                    |  |      |            |   |                       |   |         |                                                                            |  |   |            |  
|Accounts payable                                                               |  |      | 368,980    |   |                       |   |        |                                                                            |  |   | 368,950    |  
|Accrued liabilities                                                            |  |      | 665,000    |   |                       |   |        |                                                                            |  |   | 665,000    |  
|                                                                               |  |      |            |  
|                                                                               |  |      |           
|Net Cash Provided by (Used in) Operating Activities from Continuing Operations |  |      | 23,467     |   |                       |   | (26,333 | )                                                                          |  |   | 23,437     |  
|                                                                               |  |      |            |  
|                                                                               |  |      |           
|Cash Flows from Investing Activities                                           |  |      |            |   |                       |   |         |                                                                            |  |   |            |  
|Advances of loan receivable                                                    |  |      | (1,000,000 | ) |                       |   |        |                                                                            |  |   | (1,000,000 | )
|Proceeds from issuance of note payable                                         |  |      |           |   |                       |   |        |                                                                            |  |   | (30,000    | )
|                                                                               |  |      |            |  
|                                                                               |  |      |           
|Net Cash Used in Investing Activities from Continuing Operations               |  |      | (1,000,000 | ) |                       |   |        |                                                                            |  |   | (1,030,000 | )
|                                                                               |  |      |            |  
|                                                                               |  |      |           
|Cash Flows from Financing Activities                                           |  |      |            |   |                       |   |         |                                                                            |  |   |            |  
|Proceeds from loan payable                                                     |  |      | 1,000,000  |   |                       |   |        |                                                                            |  |   | 1,000,000  |  
|                                                                               |  |      |            |  
|                                                                               |  |      |           
|Net Cash Provided by Financing Activities from Continuing Operations           |  |      | 1,000,000  |   |                       |   |        |                                                                            |  |   | 1,000,000  |  
|                                                                               |  |      |            |  
|                                                                               |  |      |           
|Cash Flows from Discontinued Operations                                        |  |      |            |   |                       |   |         |                                                                            |  |   |            |  
|Operating cash flows                                                           |  |      | (38,554    | ) |                       |   | 22,766  |                                                                            |  |   | 7,968      |  
|Investing cash flows                                                           |  |      | 44,403     |   |                       |   |        |                                                                            |  |   | 44,403     |  
|Financing cash flows                                                           |  |      | (41,588    | ) |                       |   |        |                                                                            |  |   | (44,373    | )
|                                                                               |  |      |            |  
|                                                                               |  |      |           
|Net Cash (Used in) Provided by Discontinued Operations                         |  |      | (35,739    | ) |                       |   | 22,766  |                                                                            |  |   | 7,998      |  
|                                                                               |  |      |            |  
|                                                                               |  |      |           
|Net (Decrease) Increase in Cash                                                |  |      | (12,272    | ) |                       |   | (3,567  | )                                                                          |  |   | 1,435      |  
|                                                                               |  |      |           
|Cash - Beginning of Period                                                     |  |      | 13,975     |   |                       |   | 17,542  |                                                                            |  |   | 268        |  
|                                                                               |  |      |            |  
|                                                                               |  |      |           
|Cash - End of Period                                                           |  | $    | 1,703      |   |                       | $ | 13,975  |                                                                            |  | $ | 1,703      |  
|                                                                               |  |      |            |  
|                                                                               |  |      |           
|Supplemental Disclosure of Cash Flow Information(note 13)                      |  |      |            |   |                       |   |         |                                                                            |  |   |            |  

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



- 22 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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

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

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

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

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

On April 13, 2007, the Company was advised by the audit firm that purportedly audited the financial statements of Volga-Neft covering certain periods
prior to the Companys acquisition of Volga-Neft that such financial statements were not audited by that firm. The Company therefore concluded that those financial statements could not be relied upon, determined that certain representations,
warranties and covenants made by the stockholders of Volga-Neft were untrue, and determined that other information provided to the Company with respect to the business, financial condition, operations and prospects of Volga-Neft was not reliable.
Accordingly, the Company decided to seek, and obtained, rescission of the transaction through a Rescission Agreement dated June 14, 2007 among the Company, Volga-Neft and the former shareholders of Volga-Neft. See notes 5, 6, 11, 13 and 15.

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



- 23 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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

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

The Company is in the development stage and has not realized revenues from its planned operations. The Company has sustained
losses of $1,170,011 and $35,833 for the years ended December 31, 2006 and 2005, respectively. As of December 31, 2006, the Company had working capital of $11,739,481 (December 31, 2005 - $22,601) and an accumulated deficit of $1,209,322
(December 31, 2005 - $39,311). The Company has funded operations by raising $7,500,000 through debt financing on February 9, 2007 (see note 16) and through the issuance of capital stock. Managements plan is to seek additional funds
through future equity and/or debt financing until it achieves profitable operations from oil and gas drilling activities. Although the Company plans to seek additional financing, there can be no assurance that the Company will be able to secure
financing or obtain such on satisfactory terms, if at all. The Companys continuation as a going concern depends upon its ability to raise funds and achieve and sustain profitable operations.

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



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

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



| | a) | Reporting Currency
| | -- | ------------------

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



| | b) | Investments
| | -- | -----------

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



- 24 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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



| | c) | Oil and Gas Producing Activities
| | -- | --------------------------------

The Company utilizes the
successful efforts method of accounting for its oil and gas producing activities. Under this method, all costs associated with productive exploratory wells and productive or nonproductive development wells are capitalized while the costs of
nonproductive exploratory wells are expensed.

If an exploratory well finds oil and gas reserves, but a determination that such reserves can
be classified as proved is not made after one year following completion of drilling, the costs of drilling are charged to operations. Indirect exploratory expenditures, including geophysical costs and annual lease rentals are expensed as incurred.
Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value and a loss is recognized at the time of impairment allowance. Other unproved properties are amortized based on the Companys
experience of successful drillings and average holding period. Capitalized costs of producing oil and gas properties after considering estimated dismantlement and abandonment costs and estimated salvage values, are depreciated and depleted by the
units-of-production method. Support equipment and other property and equipment are depreciated over their estimated useful lives. The Company evaluates purchases for potential intangible items. However, all intangible items have been determined to
be insignificant.

On the sale or retirement of a complete unit of a proved property, the cost and related accumulated depreciation,
depletion and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to accumulated depreciation, depletion and
amortization with a resulting gain or loss recognized in income.

On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration the amount of any recorded impairment if the property has been assessed individually. If a partial interest in an unproved property is sold, the amount received is treated
as a reduction of the cost of the interest retained.



| | d) | Revenue Recognition
| | -- | -------------------

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

The Company does not have any gas balancing arrangements.



- 25 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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



| | e) | Comprehensive Income (Loss)
| | -- | ---------------------------

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



| | f) | Asset Retirement Obligations
| | -- | ----------------------------

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

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

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



- 26 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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



| | g) | Income Tax
| | -- | ----------

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



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

The Company evaluates the
recoverability of long-lived assets and the related estimated remaining lives when events or circumstances lead management to believe that the carrying value of an asset may not be recoverable. Recoverability is assessed based on the carrying amount
of a long-lived asset compared to the sum of the future undiscounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable (exceeds the total
undiscounted cash flows expected from its use and disposition) and exceeds its fair value. For the years ended December 31, 2006 and 2005, no events or circumstances occurred for which an evaluation of the recoverability of long-lived assets
was required.



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

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



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

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



- 27 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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



| | k) | Concentration of Credit Risk
| | -- | ----------------------------

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

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

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



| | l) | Use of Estimates
| | -- | ----------------

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



- 28 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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



| | m) | Recent Accounting Pronouncements
| | -- | --------------------------------

In February 2006, the
Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 155, Accounting for Certain Hybrid Financial Instruments an Amendment to FASB Statements No. 133 and
140 (SFAS No. 155). This statement permits fair value of remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; clarifies which interest-only strips and
principal-only strips are not subject to the requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities; establishes a requirement to evaluate interests in securitized financial assets to identify
interests that. are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives;
and amended SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities a replacement of FASB Statement No. 125 (SFAS No. 140), to eliminate the prohibition on a
qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired,
issued, or subject to a remeasurement (new basis) event occurring after the beginning of an entitys first fiscal year that begins after September 15, 2006. The Company is currently reviewing the effect, if any, the proposed guidance will
have on its financial statements.

In March 2006, FASB issued SFAS No. 156, Accounting for Servicing of Financial AssetsAn
Amendment of FASB Statement No.140 (SFAS No. 156). In a significant change to current guidance, SFAS No. 156 permits an entity to choose either of the following subsequent measurement methods for each class of separately
recognized servicing assets and servicing liabilities: (1) amortization method or (2) fair value measurement method. SFAS No. 156 is effective for fiscal years that begin after September 15, 2006. The Company is currently
reviewing the effect, if any, the proposed guidance will have on its financial position and results of operations.

In April 2006, the FASB
issued FSP No. 46(R)-6, Determining the Variability to be Considered in Applying FASB Interpretation No. 46(R) (FSP FIN No. 46(R)-6). FSP FIN No. 46(R)-6 provides accounting guidance on how to distinguish
between arrangements that create variability (i.e., the risks and rewards) within an entity and arrangements that are subject to that variability (i.e., variable interests). FSP FIN No. 46(R)-6 is responding to a need for accounting guidance on
arrangements that can be either assets or liabilities (i.e., derivative financial instruments). FSP FIN No. 46(R)-6 is effective for the first fiscal period that begins after June 15, 2006. The Company is currently reviewing the effect, if
any, the proposed guidance will have on its financial position.



- 29 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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



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



In June 2006, the FASB issued Financial Accounting Standards Interpretation (FIN) FIN No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109 (FIN No. 48). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS
No. 109. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides
accounting guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently
reviewing the effect, if any, the proposed guidance will have on its financial position.

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

In September 2006, FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS No. 158) . The Company has adopted SFAS No. 158 except for the requirement to measure plan assets and benefit obligations as of the date of
the Companys fiscal year-end statement of financial position which is effective to fiscal years beginning after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS No. 158 could have
on its financial statements.



- 30 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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



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



In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities (SFAS
No. 159), which permits entities to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. An entity would report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent reporting date. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge accounting provisions. The decision about whether to elect the fair value option is applied instrument by instrument, with a few exceptions; the decision is
irrevocable; and it is applied only to entire instruments and not to portions of instruments.

The statement requires disclosures that
facilitate comparisons (a) between entities that choose different measurement attributes for similar assets and liabilities and (b) between assets and liabilities in the financial statements of an entity that selects different measurement
attributes for similar assets and liabilities.

SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year provided the entity also elects to apply the provisions of SFAS No. 157. Upon implementation, an entity shall report the effect of the first remeasurement to fair value as a
cumulative-effect adjustment to the opening balance of retained earnings. Since the provisions of SFAS No. 159 are applied prospectively, any potential impact will depend on the instruments selected for fair value measurement at the time of
implementation.

In April 2007, the FASB issued a FASB Statement Position (FSP) on FASB Interpretation (FIN) 39-1
(FIN No. 39-1) which modifies FIN No. 39, Offsetting of Amounts relating to Certain Contracts (FIN No. 39). FIN 39-1 addresses whether a reporting entity that is party to a master netting
arrangement can offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments that have been
offset under the same master netting arrangement in accordance with FIN No. 39. Upon adoption of this FASB Staff Position (FSP), a reporting entity shall be permitted to change its accounting policy to offset or not offset fair
value amounts recognized for derivative instruments under master netting arrangements. The guidance in this FSP is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the potential impact of
implementing this standard.

In May, 2007 the FASB issued FIN No. 48-1, Definition of Settlement in FASB Interpretation 48
(FIN 48-1). FIN 48-1 amends FIN 48, to provide guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The guidance in FIN 48-1
shall be applied upon the initial adoption of FIN 48, and accordingly, the Company will apply the provisions of FIN 48-1 effective January 1, 2007. The Company is currently reviewing the effect, if any, the proposed guidance will have on its
financial position.



- 31 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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



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



In December 2007, FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141(R)). This statement
replaces SFAS No. 141, Business Combinations and requires an acquirer to recognize the assets acquired, the liabilities assumed, including those arising from contractual contingencies, any contingent consideration, and any
noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. SFAS No. 141(R) also requires the acquirer in a business combination achieved in
stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance
with SFAS No. 141(R)). In addition, SFAS No. 141(R)s requirement to measure the noncontrolling interest in the acquiree at fair value will result in recognizing the goodwill attributable to the noncontrolling interest in addition to
that attributable to the acquirer. SFAS No. 141(R) amends SFAS No. 109, Accounting for Income Taxes, to require the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a
business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. It also amends SFAS No. 142, Goodwill and Other Intangible Assets,
to, among other things, provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use. SFAS No. 141(R) applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS No. 141(R) could have on its
financial statements.

In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statementsamendment of Accounting Research Bulletin No. 51 (SFAS No. 160). SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation
of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 also changes the way
the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the
consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS No. 160 requires that a parent recognize a gain or loss in net income when a subsidiary is
deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary. SFAS
No. 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS No. 160 could have on
its financial statements.



- 32 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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



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



In February 2008, FASB issued FSP SFAS No. 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions
(FSP SFAS No. 140-3). The objective of this FSP is to provide guidance on accounting for a transfer of a financial asset and a repurchase financing. This FSP presumes that an initial transfer of a financial asset and a repurchase
financing are considered part of the same arrangement (linked transaction) under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No. 140). However,
if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under SFAS No. 140. FSP SFAS No. 140-3 is effective for financial statements issued
for fiscal years beginning after November 15, 2008, and interim periods within these fiscal years. Earlier application is not permitted. The Company is currently reviewing the effect, if any, the proposed guidance will have on its financial
statements.

In February 2008, FASB issued FSP SOP No. 07-1-1, Effective Date of AICPA Statement of Position 07-1
(SOP No. 07-1-1). SOP No. 07-1-1 delays indefinitely the effective date of AICPA Statement of Position No. 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by
Parent Companies and Equity Method Investors for Investments in Investment Companies (SOP No. 07-1). SOP No. 07-1 clarifies when an entity may apply the provisions of the Guide. Investment companies that are within the
scope of the Guide report investments at fair value; consolidation or use of the equity method for investments is generally not appropriate. SOP No. 07-1 also addresses the retention of specialized investment company accounting by a parent company
in consolidation or by an equity method investor. The Company is currently reviewing the effect, if any, the proposed guidance will have on its financial statements.

In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133 (SFAS No. 161). SFAS
No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and
cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS No. 161 could have on its financial
statements.



- 33 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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

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



|5. | Investment in Volga-Neft and Rescission of Stock Purchase Agreement
|-- | -------------------------------------------------------------------

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

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

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



- 34 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



|5. | Investment in Volga-Neft and Rescission of Stock Purchase Agreement (contd)
|-- | ----------------------------------------------------------------------------



In lieu of retaining Volga-Neft and spending the time, effort and cost of trying to establish the degree to which breaches existed and the
level of damages sustained, and then seek indemnification against the Volga-Neft shareholders in Russia, the Company determined that it was in its best interests to seek rescission of the Stock Purchase Agreement. Consequently, the Company obtained
rescission of the transaction. By a Rescission Agreement dated June 14, 2007 among the Company, Volga-Neft and the former shareholders of Volga-Neft, the Stock Purchase Agreement under which the Company acquired all of the outstanding shares of
capital stock of Volga-Neft was rescinded; the Company returned the shares of Volga-Neft it received to the former stockholders of Volga-Neft who, in turn, returned to the Company the 10,000,000 shares of the Companys common stock that had
been previously issued to them, and the Company cancelled those shares. The cancellation of the shares was accounted for at its recorded amount of $11,700,000 using the guidance of paragraph 23 of APB 29, Accounting for Nonmonetary
Transactions. In addition, Volga-Neft issued a $4,200,000 promissory note in the Companys favor to repay $3,000,000 of loans made to Volga-Neft since the acquisition and to reimburse the Company for costs and damages incurred by the
Company. The Company, in turn, sold the promissory note to a non-related third party on a non-recourse basis for $3,000,000. See notes 6, 11, 13 and 15.



|6. | Loan Receivable from Volga-Neft
|-- | -------------------------------

The loan
receivable from Volga-Neft, along with $2,000,000 of additional advances to Volga-Neft during 2007, bore interest at 4% per annum, had a maturity date of December 8, 2008 and was secured by the assets of Volga-Neft.

On June 14, 2007, the Company rescinded the October 6, 2006 acquisition of Volga-Neft. As part of the Rescission Agreement, Volga-Neft issued a
$4,200,000 promissory note in the Companys favor to repay the $3,000,000 of loans made to Volga-Neft since the acquisition and to reimburse the Company for costs and damages incurred by the Company. The note was non-interest bearing provided
the principal was repaid by September 1, 2007. The Company sold the promissory note to a non-related third party on a non-recourse basis for $3,000,000.



- 35 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



|7. | Oil and Gas Properties
|-- | ----------------------

Oil and gas properties are
comprised as follows:



|                                                         |  |      |   |                                            |   |      |  |                                          |        |  |   |        | 
|-------------------------------------------------------- |  | ---- | - | ------------------------------------------ | - | ---- |  | ---------------------------------------- | ------ |  | - | ------ | 
|                                                         |  | Cost |   | 2006 AccumulatedDepletion and Amortization |   | Cost |  | 2005AccumulatedDepletion andAmortization |       
|                                                         |  |      |   |                                           
|                                                         |  |      |   |                                           
|Oil and gas properties and related equipment             |  | $    |  |                                            | $ |     |  | $                                        | 56,250 |  | $ | 9,034  | 
|Capitalized costs related to asset retirement obligation |  |      |  |                                            |   |     |  |                                          | 1,125  |  |   |       | 
|                                                         |  |      |   |                                           
|                                                         |  | $    |  |                                            | $ |     |  | $                                        | 57,375 |  | $ | 9,034  | 
|                                                         |  |      |   |                                           
|                                                         |  |      |   |                                           
|Net carrying amount                                      |  |      |   |                                            | $ |     |  |                                          |        |  | $ | 48,341 | 
|                                                         |  |      |   |                                            |   |      |  |                                          |        |  |   |        | 



|8. | Advance from Related Party
|-- | --------------------------

The advance is from a
director, is non-interest bearing, unsecured and has no specific terms of repayment.



|9. | Loan Payable
|-- | ------------

The loan is payable to Blue Water
Partners and is non-interest bearing, unsecured and due on demand.



|10. | Asset Retirement Obligation
|--- | ---------------------------

The following is a
reconciliation of the aggregate retirement liability associated with the Companys obligation to plug and abandon its oil and gas properties:



|                             |  |      |        |   |      |   |       |  
|---------------------------- |  | ---- | ------ | - | ---- | - | ----- | -
|                             |  | 2006 |        |   | 2005 |  
|                             |  |      |        |  
|Balance at beginning of year |  | $    | 1,327  |   |      | $ | 2,060 |  
|Abandonment of wells         |  |      |       |   |      |   | (797  | )
|Accretion expense            |  |      |       |   |      |   | 64    |  
|Disposal of asset            |  |      | (1,327 | ) |      |   |      |  
|                             |  |      |        |  
|                             |  |     
|Balance at end of year       |  | $    |       |   |      | $ | 1,327 |  
|                             |  |      |        |  



- 36 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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

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

On
October 6, 2006, the Company issued 10,000,000 common shares to acquire Volga-Neft valued at $11,700,000. The investment in Volga-Neft has been recorded at its cost amount using the cost method of accounting for investments described in
paragraph 6a of APB No. 18, The Equity Method of Accounting for Investments in Common Stock.

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

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



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

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

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



- 37 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



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

The provision for
income taxes has been computed as follows:



|                                                                      |  |      |          |   |      |   |        |  
|--------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------ | -
|                                                                      |  | 2006 |          |   | 2005 |  
|                                                                      |  |      |          |  
|Expected income tax recovery at the statutory rate - 31% (2005 - 31%) |  | $    | 367,383  |   |      | $ | 4,000  |  
|                                                                      |  |     
|Valuation allowance                                                   |  |      | (367,383 | ) |      |   | (4,000 | )
|                                                                      |  |      |          |  
|                                                                      |  |     
|Current provision for income taxes                                    |  | $    |         |   |      | $ |       |  
|                                                                      |  |      |          |  

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

As of December 31, 2006 and 2005, the Company had approximately $1,170,000 and $42,000 respectively, of Federal and state net operating loss carryforwards available to offset future taxable income, which expire
in 20 years from the date the loss was incurred as follows:



|     |  |   |          
|---- |  | - | ---------
|2025 |  | $ | 42,000   
|2026 |  |   | 1,170,000
|     |  |   |          
|     | 
|     |  | $ | 1,212,000
|     |  |   |          



|13. | Supplemental Disclosure of Cash Flow Information
|--- | ------------------------------------------------



|                                                          |  |      |             |   |      |   |                                                                             |  |   |             |  
|--------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | --------------------------------------------------------------------------- |  | - | ----------- | -
|                                                          |  | 2006 |             |   | 2005 |   | (Note 1) Period fromRe-entering theDevelopmentStage throughDecember 31,2006 | 
|                                                          |  |      |             |  
|Non-cash operating activity is as follows:                |  |      |             |   |      |   |                                                                             |  |   |             |  
|                                                          |  |      |            
|Prepaid wages through issuance of common shares (note 11) |  | $    | (1,080,890  | ) |      | $ |                                                                            |  | $ | (1,080,890  | )
|                                                          |  |      |             |  
|                                                          |  |      |            
|Non-cash investing activity is as follows:                |  |      |             |   |      |   |                                                                             |  |   |             |  
|                                                          |  |      |            
|Acquisition of Volga-Neft (note 5)                        |  | $    | (11,700,000 | ) |      | $ |                                                                            |  | $ | (11,700,000 | )
|                                                          |  |      |             |  

During the year, the Company had no cash flows arising from interest and income taxes paid.



- 38 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



|14. | Discontinued Operations
|--- | -----------------------

As of October 6,
2006, the Company was considered to have re-entered the development stage as a result of the disposition of the Galvan Ranch Gas Wells and rescission of the Volga-Neft agreement described in note 1. Thus, in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), the Companys results of operations and cash flows up to October 6, 2006 have been classified separately as discontinued operations
for all periods presented. For the year ended December 31, 2006, the Company incurred losses in the amount of $56,138 (2005 - $9,500), net of tax, from discontinued operations.

Results of the discontinued operations are summarized below:



|                                              |  |      |         |   |      |   |        |                                                                             |  |   |   | 
|--------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | --------------------------------------------------------------------------- |  | - | - | 
|                                              |  | 2006 |         |   | 2005 |   |        |                                                                             | 
|                                              |  |      |         |   |      |   |        |                                                                            
|                                              |  |      |        
|Account receivable                            |  | $    |        |   |      | $ | 8,291  |                                                                             |  |   |   | 
|Prepaid expenses                              |  |      |        |   |      |   | 1,900  |                                                                             |  |   |   | 
|Oil and gas properties (notes 7 and 11)       |  |      |        |   |      |   | 48,341 |                                                                             |  |   |   | 
|                                              |  |      |         |   |      |   |        |                                                                             |  |   |   | 
|                                              |  |      |        
|Total assets                                  |  |      |        |   |      | $ | 58,532 |                                                                             |  |   |   | 
|                                              |  |      |         |   |      |   |        |                                                                             |  |   |   | 
|                                              |  |      |        
|Account payable                               |  |      |        |   |      |   | 1,565  |                                                                             |  |   |   | 
|Asset retirement obligation (note 10)         |  |      |        |   |      |   | 1,327  |                                                                             |  |   |   | 
|                                              |  |      |         |   |      |   |        |                                                                             |  |   |   | 
|                                              |  |      |        
|Total liabilities                             |  |      |        |   |      | $ | 2,892  |                                                                             |  |   |   | 
|                                              |  |      |         |   |      |   |        |                                                                             |  |   |   | 
|                                              |  |      |        
|Net assets from discontinued operations       |  | $    |        |   |      | $ | 55,640 |                                                                             |  |   |   | 
|                                              |  |      |         |   |      |   |        |                                                                             |  |   |   | 
|                                              |  | 2006 |         |   | 2005 |   |        | (Note 1) Period fromRe-entering theDevelopmentStage throughDecember 31,2006 | 
|                                              |  |      |         |  
|Net sales                                     |  | $    | 32,923  |   |      | $ | 55,852 |                                                                             |  | $ |  | 
|                                              |  |      |         |  
|                                              |  |      |        
|Expenses from discontinued operations:        |  |      |         |   |      |   |        |                                                                             |  |   |   | 
|Production costs                              |  |      | 13,849  |   |      |   | 26,298 |                                                                             |  |   |   | 
|Selling, general and administrative           |  |      | 72,601  |   |      |   | 3,231  |                                                                             |  |   |   | 
|Depreciation                                  |  |      | 2,611   |   |      |   | 6,111  |                                                                             |  |   |   | 
|Loss on assets sold or abandoned              |  |      |        |   |      |   | 29,712 |                                                                             |  |   |   | 
|                                              |  |      |         |  
|                                              |  |      |        
|Total expenses from discontinued operations   |  |      | 89,061  |   |      |   | 65,352 |                                                                             |  |   |  | 
|                                              |  |      |         |  
|                                              |  |      |        
|Loss from discontinued operations             |  |      | (56,138 | ) |      |   | (9,500 | )                                                                           |  |   |  | 
|Income tax                                    |  |      |        |   |      |   |       |                                                                             |  |   |  | 
|                                              |  |      |         |  
|                                              |  |      |        
|Loss from discontinued operations, net of tax |  | $    | (56,138 | ) |      | $ | (9,500 | )                                                                           |  |   |   | 
|                                              |  |      |         |  



- 39 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



|15. | Restatement of Previously Issued Financial Statements
|--- | -----------------------------------------------------

The statements of operations and comprehensive loss and cash flows for the years ended December 31, 2006 and 2005, and the period from re-entering the development stage (October 6, 2006) through December 31, 2006, have been
corrected to segregate discontinued operations from continuing operations, which is required by U.S. generally accepted accounting principles. The changes have not been set forth in this note as the restatement only reclassified certain non-material
operating income and expenses and other expenses between continuing operations and discontinued operations, which is readily determinable from the financial statements (note 14).

The balance sheet and statement of stockholders equity for the year ended December 31, 2006 have been corrected to record the acquisition of
Volga-Neft using the cost method (note 5). The specific changes are to reflect the investment in Volga-Neft of $11,700,000 in the balance sheet, and the related issuance of 10,000,000 shares of the Companys common stock valued at $11,700,000
in the balance sheet and statement of stockholders (deficit) equity for the year ended December 31, 2006.

The statements of cash
flows for the year ended December 31, 2006 and the period from re-entering the development stage (October 6, 2006) through December 31, 2006 have been corrected to include the actual non-cash stock based compensation expense in the amount
of $103,360 which was previously incorrectly reported in the issuance of common stock for services and prepaid expenses.



|16. | Subsequent Events
|--- | -----------------

Option to Acquire Oil and Gas
Properties

On August 1, 2007, the Company entered into separate agreements with each of Firecreek Petroleum, Inc.
(Firecreek), a wholly-owned subsidiary of EGPI Firecreek, Inc., PJM Management, Inc. (PJM) and Double Coin Ltd. (Double Coin), pursuant to which the Company acquired from Firecreek and Double Coin any and all of
their rights and interests with respect to certain projects in Ukraine, consisting of 100% of a project known as the Region Project, 51% of a project known as the Dewon ZAO Project and 100% of a project known as the Bukovyna Project (the
Projects). Of the rights held by Firecreek and Double Coin, one was a letter of intent for Anglo-Ukr-Energy LLC (AUE) to acquire the Region Project for $5.5 million, the second was an oral understanding pursuant to which the
Company entered into a letter of intent to acquire 51% of the Dewon ZAO Project for $40 million and the third was a contract for AUE to acquire the Bukovyna Project for $20 million. AUE was a company being formed on behalf of Firecreek and Double
Coin in Ukraine to acquire the Projects. The Company was granted the right to complete, and did complete, the organization of AUE as a subsidiary of the Company. In exchange for the Companys acquisition of the rights of Firecreek and Double
Coin, the Company issued 2,100,000 shares of the Companys common stock and paid $100,000 to Firecreek and issued 2,500,000 shares of the Companys common stock to Double Coin. The Company issued 150,000 shares of the Companys common
stock and paid $10,000 to PJM which acted as a finder for Firecreek and Double Coin. The shares were valued at $0.27 per share for a total consideration of $1,392,500. The purchase price for the Companys acquisition of the rights of Firecreek
and Double Coin and PJMs finders fee was negotiated with them and was equal to approximately 2.1% of the total purchase price that was to be paid to the owners of the Projects, based on the market value of the Companys common stock
at the time the Company entered into the agreements with Firecreek, PJM and Double Coin. Firecreek, PJM and Double Coin are not related to the Company, its officers, directors and affiliates.



- 40 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



|16. | Subsequent Events(contd)
|--- | -------------------------

Option to
Acquire Oil and Gas Properties (contd)

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

Convertible
Debentures

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

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



- 41 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



|16. | Subsequent Events(contd)
|--- | -------------------------

Convertible
Debentures (contd)

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

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

Capital Stock

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

On April 11, 2007, the Company issued 20,000 common shares for finance services which were valued at $76,000.

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

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

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



- 42 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



|16. | Subsequent Events(contd)
|--- | -------------------------

Capital
Stock (contd)

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

Warrants

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

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

Stock Options

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

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

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

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

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

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



- 43 -



---

##### Table of Contents

STAR ENERGY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

Notes to Financial Statements

December 31, 2006 and 2005



|16. | Subsequent Events(contd)
|--- | -------------------------

Litigation

In December 2007, the seller of the Bukovyna Project threatened to sue the Company for $5,000,000 as a result of the failure of the Company
to consummate the acquisition. The Company has offered to pay $500,000, provided the Companys lawsuit against the third party financier for wrongfully terminating the loan agreement and failing to provide the requisite funds is successful. At
December 31, 2007, the Company could not estimate its possible loss, if any, or a reasonable range. If, however, as a result of this potential lawsuit, the Company is required to pay significant monetary damages or settlement costs, the
Companys financial position and results of operations could be substantially harmed.



- 44 -



---

##### Table of Contents

ITEM 8A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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



| |  |  | In connection with the preparation of the Original Report, we identified a deficiency in our disclosure controls and procedures related to the retention,
supervision and communication with the appropriate personnel involved with the audit of Volga-Neft, and in our procedures pertaining to the engagement of auditors of Volga-Neft. Subsequent to the filing of the Original report, we caused an
investigation to be taken into the events and procedures involving the Volga-Neft audit, and our controls and procedures regarding our engagement and communication with independent auditors. As a result of the investigation, our prior experience and
taking into consideration the risk factors inherent to operating in emerging markets, we now retain western legal, accounting and geological consultants to aid us in our due diligence of prospective acquisitions. In addition, we hired a full-time
Chief Financial Officer. We believe these measures will benefit us by reducing the likelihood of a similar event occurring in the future.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Subsequent to the filing of the Original report, we determined that we needed to restate the financial statements contained in the Original Report and Quarterly
Reports on Form 10-QSB that we filed for the quarterly periods ended March 31, 2007, June 30, 2007 and September 30, 2007 not only with respect to the accounting treatment afforded to our prior Galvan Ranch Gas Wells and
acquisition and rescission of our acquisition of Volga-Neft, but also in several other ways, as described in the Explanatory Note to this Amendment. We believe our new Chief Financial Officer we hired in August 2007, together with improved
communication with our auditors, will help us to overcome similar issues in the future.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In addition, we have in the past failed to timely file certain Current Reports on Form 8-K that we reported in subsequent periodic reports filed with the SEC.
Management, including the Companys principal executive officer and principal financial officer, have been reviewing with legal counsel the Form 8-K rules and improved communication with counsel concerning significant events to aid us in timely
complying with corporate and regulatory policies and procedures.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



- 45 -



---

##### Table of Contents

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

Changes in Internal
Controls

Management has not identified any change in our internal control over financial reporting that occurred during the fourth quarter of the
fiscal year ended December 31, 2006 that materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



- 46 -



---

##### Table of Contents

|ITEM 13. | EXHIBITS
|-------- | --------



|            |  |                                                                                                                                                                                                                                                                                                                                          
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                              
|            | 
|3.1         |  | Articles of Incorporation of Star (incorporated by reference from the Form 10-SB filed with the Securities and Exchange Commission on February 3, 2000).                                                                                                                                                                                 
|            | 
|3.2         |  | Amended Articles of Incorporation of Star (incorporated by reference from the Form 10-KSB filed with the Securities and Exchange Commission on March 11, 2003).                                                                                                                                                                          
|            | 
|3.3         |  | Bylaws of Star (incorporated by reference from the Form 10-SB filed with the Securities and Exchange Commission on February 3, 2000).                                                                                                                                                                                                    
|            | 
|4.1         |  | Form of the Companys 8% Secured Convertible Debenture due 2010 (incorporated by reference to Exhibit 4.1 from the Form 8-K filed with the Securities and Exchange Commission on February 14,
2007).                                                                                                                                     
|            | 
|4.2         |  | Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 from the Form 8-K filed with the Securities and Exchange Commission on February 14, 2007).                                                                                                                                                               
|            | 
|4.3         |  | Form of Security Agreement dated as of February 9, 2007 (incorporated by reference to Exhibit 4.3 from the Form 8-K filed with the Securities and Exchange Commission on February 14,
2007).                                                                                                                                             
|            | 
|4.4         |  | Form of Subsidiary Guarantee dated as of February 9, 2007 (incorporated by reference to Exhibit 4.4 from the Form 8-K filed with the Securities and Exchange Commission on February 14, 2007).                                                                                                                                           
|            | 
|10.1        |  | Assignment and Bill of Sale between the Star and Monument Resources, Inc. in connection with that acquisition of the Galvan Ranch Wells interest (incorporated by reference from the Form 10-QSB
filed with the Securities and Exchange Commission on July 17, 2003).                                                                    
|            | 
|10.2        |  | Stock Purchase Agreement, dated October 6, 2006, among Star Energy Corporation, Volga-Neft Limited Company, and the shareholders of Volga-Neft Limited Company (incorporated by reference to
Exhibit 10.2 from the Form 8-K filed with the Securities and Exchange Commission on October 6, 2006).                                       
|            | 
|10.3        |  | Rescission Agreement of Stock Purchase Agreement dated June 14, 2007, among Star Energy Corporation, Volga-Neft Limited Company, and the shareholders of Volga-Neft Limited Company (incorporated
by reference to Exhibit 10.3 to the original filing of this report filed with the Securities and Exchange Commission on June 19, 2007).
|            | 
|10.4        |  | Promissory Note dated June 14, 2007 issued by Volga-Neft Limited Company in favor of Star Energy Corporation (incorporated by reference to Exhibit 10.4 to the original filing of this report
filed with the Securities and Exchange Commission on June 19, 2007).                                                                       
|            | 
|10.5        |  | Assignment, Assumption and Release, dated as of June 14, 2007, among Star Energy Corporation, Volga-Neft Limited Company and JSC Capital Department Stores (incorporated by reference to
Exhibit 10.5 to the original filing of this report filed with the Securities and Exchange Commission on June 19, 2007).                         



- 47 -



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.6  |  | Agreement, dated October 6, 2006, among Star Energy Corporation, Volga-Neft Limited Company, and IAB Island Ventures SA (incorporated by reference to Exhibit 10.2 from the Form 8-K filed
with the Securities and Exchange Commission on October 6, 2006).
|      | 
|10.7  |  | Assignment and Bill of Sale, dated October 6, 2006, between Star Energy Corporation and Ruairidh Campbell (incorporated by reference to Exhibit 10.3 from the Form 8-K filed with the Securities
and Exchange Commission on October 6, 2006).              
|      | 
|10.8  |  | Form of Securities Purchase Agreement dated as of February 9, 2007 (incorporated by reference to Exhibit 10.1 from the Form 8-K filed with the Securities and Exchange Commission on February 14,
2007).                                                   
|      | 
|10.9  |  | Form of Registration Rights Agreement dated as of February 9, 2007 (incorporated by reference to Exhibit 10.2 from the Form 8-K filed with the Securities and Exchange Commission on February 14,
2007).                                                   
|      | 
|10.10 |  | Form of Lock-Up Agreement dated as of February 9, 2007 (incorporated by reference to Exhibit 10.3 from the Form 8-K filed with the Securities and Exchange Commission on February 14,
2007).                                                               
|      | 
|10.11 |  | Agreement dated December 14, 2006 between Star Energy Corporation and Rodman & Renshaw (incorporated by reference to Exhibit 10.4 from the Form 8-K filed with the Securities and Exchange
Commission on February 14, 2007).                               
|      | 
|10.12 |  | Employment Agreement with Patrick J. Kealy (incorporated by reference to Exhibit 10.5 from the Form 8-K filed with the Securities and Exchange Commission on November 16, 2006).                                                                           
|      | 
|14.1  |  | Code of Ethics adopted March 1, 2004 (incorporated by reference from the Form 10-KSB filed with the Securities and Exchange Commission on April 14, 2004).                                                                                                 
|      | 
|31.1* |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                          
|      | 
|31.2* |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                          
|      | 
|32.1* |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                      
|      | 
|32.2* |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                      



|* | Filed herewith. All other exhibits are incorporated herein by reference to the filing indicated in the parenthetical reference following the exhibit description.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



- 48 -



---

##### Table of Contents

SIGNATURES

In accordance
with Section 13 or 15(d) of the Exchange Act, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, this 15th day of October, 2008.



STAR ENERGY CORPORATIONBy:

/s/ Patrick J. KealyPatrick J. KealyChief Executive Officer and President(Principal Executive Officer)




- 49 -



---

##### Table of Contents

Exhibit Index



|            |  |                                                                                                                                                                                                                                                                                                                                          
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                              
|            | 
|3.1         |  | Articles of Incorporation of Star (incorporated by reference from the Form 10-SB filed with the Securities and Exchange Commission on February 3, 2000).                                                                                                                                                                                 
|            | 
|3.2         |  | Amended Articles of Incorporation of Star (incorporated by reference from the Form 10-KSB filed with the Securities and Exchange Commission on March 11, 2003).                                                                                                                                                                          
|            | 
|3.3         |  | Bylaws of Star (incorporated by reference from the Form 10-SB filed with the Securities and Exchange Commission on February 3, 2000).                                                                                                                                                                                                    
|            | 
|4.1         |  | Form of the Companys 8% Secured Convertible Debenture due 2010 (incorporated by reference to Exhibit 4.1 from the Form 8-K filed with the Securities and Exchange Commission on February 14,
2007).                                                                                                                                     
|            | 
|4.2         |  | Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 from the Form 8-K filed with the Securities and Exchange Commission on February 14, 2007).                                                                                                                                                               
|            | 
|4.3         |  | Form of Security Agreement dated as of February 9, 2007 (incorporated by reference to Exhibit 4.3 from the Form 8-K filed with the Securities and Exchange Commission on February 14,
2007).                                                                                                                                             
|            | 
|4.4         |  | Form of Subsidiary Guarantee dated as of February 9, 2007 (incorporated by reference to Exhibit 4.4 from the Form 8-K filed with the Securities and Exchange Commission on February 14, 2007).                                                                                                                                           
|            | 
|10.1        |  | Assignment and Bill of Sale between the Star and Monument Resources, Inc. in connection with that acquisition of the Galvan Ranch Wells interest (incorporated by reference from the Form 10-QSB
filed with the Securities and Exchange Commission on July 17, 2003).                                                                    
|            | 
|10.2        |  | Stock Purchase Agreement, dated October 6, 2006, among Star Energy Corporation, Volga-Neft Limited Company, and the shareholders of Volga-Neft Limited Company (incorporated by reference to
Exhibit 10.2 from the Form 8-K filed with the Securities and Exchange Commission on October 6, 2006).                                       
|            | 
|10.3        |  | Rescission Agreement of Stock Purchase Agreement dated June 14, 2007, among Star Energy Corporation, Volga-Neft Limited Company, and the shareholders of Volga-Neft Limited Company (incorporated
by reference to Exhibit 10.3 to the original filing of this report filed with the Securities and Exchange Commission on June 19, 2007).
|            | 
|10.4        |  | Promissory Note dated June 14, 2007 issued by Volga-Neft Limited Company in favor of Star Energy Corporation (incorporated by reference to Exhibit 10.4 to the original filing of this report
filed with the Securities and Exchange Commission on June 19, 2007).                                                                       
|            | 
|10.5        |  | Assignment, Assumption and Release, dated as of June 14, 2007, among Star Energy Corporation, Volga-Neft Limited Company and JSC Capital Department Stores (incorporated by reference to Exhibit
10.5 to the original filing of this report filed with the Securities and Exchange Commission on June 19, 2007).                         



- 50 -



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.6  |  | Agreement, dated October 6, 2006, among Star Energy Corporation, Volga-Neft Limited Company, and IAB Island Ventures SA (incorporated by reference to Exhibit 10.2 from the Form 8-K filed
with the Securities and Exchange Commission on October 6, 2006).
|      | 
|10.7  |  | Assignment and Bill of Sale, dated October 6, 2006, between Star Energy Corporation and Ruairidh Campbell (incorporated by reference to Exhibit 10.3 from the Form 8-K filed with the Securities
and Exchange Commission on October 6, 2006).              
|      | 
|10.8  |  | Form of Securities Purchase Agreement dated as of February 9, 2007 (incorporated by reference to Exhibit 10.1 from the Form 8-K filed with the Securities and Exchange Commission on February 14,
2007).                                                   
|      | 
|10.9  |  | Form of Registration Rights Agreement dated as of February 9, 2007 (incorporated by reference to Exhibit 10.2 from the Form 8-K filed with the Securities and Exchange Commission on February 14,
2007).                                                   
|      | 
|10.10 |  | Form of Lock-Up Agreement dated as of February 9, 2007 (incorporated by reference to Exhibit 10.3 from the Form 8-K filed with the Securities and Exchange Commission on February 14,
2007).                                                               
|      | 
|10.11 |  | Agreement dated December 14, 2006 between Star Energy Corporation and Rodman & Renshaw (incorporated by reference to Exhibit 10.4 from the Form 8-K filed with the Securities and Exchange
Commission on February 14, 2007).                               
|      | 
|10.12 |  | Employment Agreement with Patrick J. Kealy (incorporated by reference to Exhibit 10.5 from the Form 8-K filed with the Securities and Exchange Commission on November 16, 2006).                                                                           
|      | 
|14.1  |  | Code of Ethics adopted March 1, 2004 (incorporated by reference from the Form 10-KSB filed with the Securities and Exchange Commission on April 14, 2004).                                                                                                 
|      | 
|31.1* |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                          
|      | 
|31.2* |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                          
|      | 
|32.1* |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                      
|      | 
|32.2* |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                      



|* | Filed herewith. All other exhibits are incorporated herein by reference to the filing indicated in the parenthetical reference following the exhibit description.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



- 51 -