UNITED
STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington,
DC 20549







FORM
10-Q








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





For the
quarterly period ended March 31,
2008








o Transition Report
pursuant to 13 or 15(d) of the Securities Exchange Act of 1934





For the
transition period from _____ to _____








Commission
File Number: 333-140806








Capital
City Energy Group, Inc.


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








Nevada
            
            20-5131044(State
      or other jurisdiction of incorporation or
    organization)
            
            (IRS
      Employer Identification No.)








8351
N. High Street, Suite 101


Columbus, Ohio
43235


(Address
of principal executive offices)








(614)
310-1614


(Issuer’s
telephone number)








_______________________________


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








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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check One):





Large
Accelerated filer o  Accelerated filer o   
Non-accelerated filer o    
Smaller Reporting Company x





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





State the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date:There are 30,791,714 shares of Common Stock and 3,132,211 shares of Preferred A
Stock issued and outstanding as of May 12, 2008.





Transitional
Small Business Disclosure Format (check one):o
Yes    x No





Capital City Energy Group,
Inc.








TABLE OF
CONTENTS







PagePART I -
      FINANCIAL INFORMATIONItem 1.
            Financial Statements
            3Item 2.
            Plan of Operation
            10Item 3.
            Controls and Procedures
            13PART II - OTHER
      INFORMATIONItem 1.
            Legal Proceedings
            14Item 2.
            Unregistered Sales of Equity Securities and
      Useof
Proceeds
            14Item 3.
            Defaults Upon Senior
    Securities
            14Item 4.
            Submission of Matters to a Vote of
      SecurityHolders
            14Item 5.
            Other Information
            14Item 6.
            Exhibits
            14Signatures
            16









- 2
-




PART
I - FINANCIAL INFORMATION







Item 1. Financial
Statements







Our
unaudited financial statements included in this Form 10-Q are as
follows:




PageReport
      of Independent Registered Public Accounting Firm
              4Consolidated
      Balance Sheets as of March 31, 2008 (unaudited) and
      December  31, 2007 (audited)
              5Consolidated
      Statements of Operations for the three months ended March 31, 2008 and
      2007
              6Consolidated
      Statements of Stockholders’ Equity from December 31, 2006 through March
      31, 2008 (unaudited)
              7Consolidated
      Statements of Cash Flows for the three months ended March 31, 2008 and
      2007
              8Notes
      to Financial Statements
              9






- 3
-




MOORE
& ASSOCIATES, CHARTERED
 ACCOUNTANTS AND
ADVISORS
 PCAOB
REGISTERED
 
 
 REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To
the Board of Directors
 Capital
City Energy Group, Inc.
 
 We have
reviewed the accompanying balance sheets of Capital City Energy Group, Inc. as
of March 31, 2008, and the related statements of operations, stockholders’
equity (deficit), and cash flows for the three-month periods ended March 31,
2008 and 2007. These interim financial statements are the responsibility of the
Corporation’s management.
 
 We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists of principally applying analytical procedures and making
inquiries of persons responsible for the financials and accounting matters. It
is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
 
 Based on
our reviews, we are not aware of any material modifications that should be made
to such consolidated financial statements for them to be in conformity with
accounting principles generally accepted in the United States of
America.
 
 
 
 
 
 /s/
Moore & Associates, Chartered
 
 Moore
& Associates, Chartered
 Las
Vegas, Nevada
 May 16,
2008
 
 
 
 
 2675 S. JONES BLVD. SUITE 109, LAS VEGAS, NEVADA 89146
(702) 253-7499 Fax: (702)253-7501
  - 4
-
  CAPITAL
CITY ENERGY GROUP, INC.
 BALANCE
SHEETS
 
 March
      31,
              
              
              December
      31,2008
              
              
              2007(unaudited)ASSETSCURRENT
      ASSETSCash
              
              $
              224,578
              
              
              $
              200,451Prepaid expenses
              
              
              142,428
              
              
              
              40,991Accounts receivable
              
              
              1,003,351
              
              
              
              414,826Total
      Current Assets
              
              
              1,370,357
              
              
              
              656,268PROPERTY
      AND EQUIPMENT, net
              
              
              153,598
              
              
              
              147,261OIL
      AND GAS PROPERTIES, net
              
              
              6,666,395
              
              
              
              7,214,863OTHER
      ASSETSDeposits
              
              
              4,485
              
              
              
              4,485TOTAL
      ASSETS
              
              $
              8,194,835
              
              
              $
              8,022,877LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts payable and accrued expenses
              
              $
              297,931
              
              
              $
              360,708Notes payable-current portion
              
              
              25,491
              
              
              
              -Notes payable-related party
              
              
              -
              
              
              
              100,000Total
      Current Liabilities
              
              
              323,422
              
              
              
              460,708LONG
      TERM LIABILITIESNotes payable
              
              
              50,984
              
              
              
              -Deferred income taxes payable
              
              
              234,942
              
              
              
              163,960Total
      Long Term Liabilities
              
              
              285,926
              
              
              
              163,960TOTAL LIABILITIES
              
              
              609,348
              
              
              
              624,668STOCKHOLDERS'
      EQUITYPreferred shares: $0.001 par value, 10,000,000 shares
      authorized:
                3,142,650 shares issues and outstanding
              
              
              3,143
              
              
              
              3,143Common shares: $0.001 par value, 90,000,000 shares
authorized:
                26,880,536 and 20,750,740 shares issues and outstanding,
      respectively
              
              
              26,881
              
              
              
              20,751Additional paid-in capital
              
              
              6,485,597
              
              
              
              6,271,727Retained earnings
              
              
              1,069,866
              
              
              
              1,102,588Total
      Stockholders' Equity
              
              
              7,585,487
              
              
              
              7,398,209TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              8,194,835
              
              
              $
              8,022,877
 
  The
accompanying notes are an integral part of these financial
statements.
 - 5
-
 CAPITAL
CITY ENERGY GROUP, INC.
 STATEMENTS
OF OPERATIONS
 (UNAUDITED)
 
 For
      the Three Months EndedMarch
      31,2008
              
              
              2007REVENUESOil
      and gas revenue
              
              $
              520,932
              
              
              $
              646,715Management
      revenue
              
              
              40,133
              
              
              
              53,433Total
      Revenues
              
              
              561,065
              
              
              
              700,148OPERATING
      EXPENSESLease
      operating costs
              
              
              204,879
              
              
              
              200,470Depreciation
      and depletion
              
              
              186,991
              
              
              
              190,320General
      and administrative
              
              
              510,094
              
              
              
              216,418Total
      Operating Expenses
              
              
              901,964
              
              
              
              607,208INCOME
      (LOSS) FROM OPERATIONS
              
              
              (340,899
              )
              
              
              92,940OTHER
      INCOME (EXPENSE)Gain
      on sale of assets
              
              
              525,000
              
              
              
              -Interest
      expense
              
              
              (2,097
              )
              
              
              (102,776
              )Total
      Other Income (Expense)
              
              
              522,903
              
              
              
              (102,776
              )NET
      INCOME (LOSS) BEFORE INCOME TAXES
              
              
              182,004
              
              
              
              (9,836
              )INCOME
      TAX EXPENSE
              
              
              (70,982
              )
              
              
              -NET
      INCOME (LOSS)
              
              $
              111,022
              
              
              $
              (9,836
              )BASIC
      EARNINGS (LOSS) PER SHARE
              
              $
              0.00
              
              
              $
              (0.00
              )FULLY
      DILUTED INCOME (LOSS) PER SHARE
              
              $
              0.00
              
              
              $
              (0.00
              )BASIC
      WEIGHTED AVERAGE NUMBEROF SHARES OUTSTANDING
              
              
              22,488,138
              
              
              
              18,095,740FULLY
      DILUTED WEIGHTED AVERAGE NUMBER OF SHARES
      OUTSTANDING
              
              
              29,083,588
              
              
              
              24,691,190
 
  The
accompanying notes are an integral part of these financial
statements.
 - 6
-
  CAPITAL
CITY ENERGY GROUP, INC.
 STATEMENTS
OF STOCKHOLDERS’ EQUITY
 (UNAUDITED)
 
 Additional
              
              
              
              
              
              TotalPreferred
      Stock
              
              
              Common
      Stock
              
              
              Paid-In
              
              
              Retained
              
              
              Stockholders'Shares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Capital
              
              
              Earnings
              
              
              EquityBalance,
      December 31, 2006
              
              
              3,142,650
              
              
              $
              3,143
              
              
              
              18,095,740
              
              
              $
              18,096
              
              
              $
              7,382,111
              
              
              $
              914,987
              
              
              $
              8,318,337Common
      stock issued for cash at $10.00 per share
              
              
              -
              
              
              
              -
              
              
              
              2,155,000
              
              
              
              2,155
              
              
              
              2,152,845
              
              
              
              -
              
              
              
              2,155,000Common
      stock issued upon exercise of warrants at $0.25
              
              
              -
              
              
              
              -
              
              
              
              250,000
              
              
              
              250
              
              
              
              6,000
              
              
              
              -
              
              
              
              6,250Common
      stock issued upon exercise of warrants at $1.00
              
              
              -
              
              
              
              -
              
              
              
              250,000
              
              
              
              250
              
              
              
              24,750
              
              
              
              -
              
              
              
              25,000Costs
      incurred by the Energy Funds not included in
    re-capitalization
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              (3,293,979
              )
              
              
              -
              
              
              
              (3,293,979
              )Net
      income for the year ended December 31, 2007
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              187,601
              
              
              
              187,601Balance,
      December 31, 2007
              
              
              3,142,650
              
              
              
              3,143
              
              
              
              20,750,740
              
              
              
              20,751
              
              
              
              6,271,727
              
              
              
              1,102,588
              
              
              
              7,398,209Recapitalization
              
              
              -
              
              
              
              -
              
              
              
              6,060,000
              
              
              
              6,060
              
              
              
              (6,060
              )
              
              
              -
              
              
              
              -Common
      stock issued for debt at $3.36 per share
              
              
              -
              
              
              
              -
              
              
              
              29,796
              
              
              
              30
              
              
              
              99,970
              
              
              
              -
              
              
              
              100,000Common
      stock issued for services at $3.00 per share
              
              
              -
              
              
              
              -
              
              
              
              40,000
              
              
              
              40
              
              
              
              119,960
              
              
              
              -
              
              
              
              120,000Dividends
      paid on preferred stock
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (138,744
              )
              
              
              (138,744
              )Net
      income for the three months ended March 31, 2008
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              106,022
              
              
              
              106,022Balance,
      March 31, 2008
              
              
              3,142,650
              
              
              $
              3,143
              
              
              
              26,880,536
              
              
              $
              26,881
              
              
              $
              6,485,597
              
              
              $
              1,069,866
              
              
              $
              7,585,487
 
  The
accompanying notes are an integral part of these financial
statements.
  - 7
-
 CAPITAL
CITY ENERGY GROUP, INC.
 STATEMENTS
OF CASH FLOWS
 (UNAUDITED)
 For
      the Three Months EndedMarch
      31,2008
                
                
                2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
                
                $
                106,022
                
                
                $
                (9,836
                )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
      and depletion
                
                
                186,991
                
                
                
                190,320Common
      stock issued for services
                
                
                120,000
                
                
                
                -Gain
      on sale of assets
                
                
                (525,000
                )
                
                
                -Amortization
      of discount on debt
                
                
                -
                
                
                
                91,667Changes
      in operating assets and liabilitiesChanges
      in accounts receivable
                
                
                (588,525
                )
                
                
                (17,974
                )Changes
      in prepaid expenses and deposits
                
                
                (101,437
                )
                
                
                -Changes
      in deferred taxes payable
                
                
                70,982
                
                
                
                -Changes
      in accounts payable and accrued expenses
                
                
                (62,777
                )
                
                
                51,934Net
      Cash Provided by Operating Activities
                
                
                (793,744
                )
                
                
                306,111CASH
      FLOWS FROM INVESTING ACTIVITIESSale
      of oil and gas properties
                
                
                1,000,000
                
                
                
                -Purchase
      of property and equipment
                
                
                (6,424
                )
                
                
                -Purchase
      of oil and gas properties
                
                
                (113,436
                )
                
                
                (1,345,871
                )Net
      Cash Used by Investing Activities
                
                
                880,140
                
                
                
                (1,345,871
                )CASH
      FLOWS FROM FINANCING ACTIVITIESRepayment
      of notes payable
                
                
                (11,312
                )
                
                
                -Proceeds
      from notes payable
                
                
                87,787
                
                
                
                -Costs
      incurred by the Energy Funds not included in
    re-capitalization
                
                
                -
                
                
                
                (85,886
                )Dividends
      paid
                
                
                (138,744
                )
                
                
                -Net
      Cash Provided by Financing Activities
                
                
                (62,269
                )
                
                
                (85,886
                )NET
      DECREASE IN CASH
                
                
                24,127
                
                
                
                (1,125,646
                )CASH
      AT BEGINNING OF YEAR
                
                
                200,451
                
                
                
                1,169,749CASH
      AT END OF YEAR
                
                $
                224,578
                
                
                $
                44,103SUPPLIMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCASH PAID FOR:Interest
                
                $
                2,097
                
                
                $
                11,109Income Taxes
                
                $
                -
                
                
                $
                -NON CASH FINANCING ACTIVITIES:Common stock issued for debt
                
                $
                100,000
                
                
                $
                -
 
 The
accompanying notes are an integral part of these financial
statements.
  - 8
-
   CAPITAL
CITY ENERGY GROUP, INC.
 NOTES TO
FINANCIAL STATEMENTS
  
 
 NOTE
1 - CONDENSED FINANCIAL STATEMENTS
 
 The
accompanying financial statements have been prepared by the Company without
audit.  In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at March 31, 2008 and for all
periods presented have been made.
 
 Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. It is suggested that
these condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 2007 audited
financial statements.  The results of operations for the periods ended
March 31, 2008 and 2007 are not necessarily indicative of the operating results
for the full years.


- 9
-




Item
2.     Plan of Operation





Forward-Looking
Statements





Certain
statements, other than purely historical information, including estimates,
projections, statements relating to our business plans, objectives, and expected
operating results, and the assumptions upon which those statements are based,
are “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements generally are identified by the words “believes,”
“project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”
“may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and
similar expressions. We intend such forward-looking statements to be covered by
the safe-harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and are including this
statement for purposes of complying with those safe-harbor provisions.
Forward-looking statements are based on current expectations and assumptions
that are subject to risks and uncertainties which may cause actual results to
differ materially from the forward-looking statements. Our ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse affect on our operations
and future prospects on a consolidated basis include, but are not limited to:
changes in economic conditions, legislative/regulatory changes, availability of
capital, interest rates, competition, and generally accepted accounting
principles. These risks and uncertainties should also be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. We undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Further information concerning our business, including
additional factors that could materially affect our financial results, is
included herein and in our other filings with the SEC.





Management’s
Assessment of Our Business





Capital
City Energy Group, Inc., a Nevada corporation (“Capital City Energy Group,” the
“Company,” “we,” or “our”), through its wholly-owned acquisition subsidiary,
merged with Capital City Petroleum, Inc., a Delaware corporation (“CCP”), on
March 11, 2008 and continued the business of CCP.  Headquartered in
Columbus, Ohio, the Company is a rapidly expanding energy
company.  Our business is evolving from being an innovative leader in
the design, management and sponsorship of retail and institutional direct
participation energy programs to become one of the few vertically integrated
independent oil & natural gas companies.  Our strategy, which we
refer to as the “Triad,” is to continue to grow a portfolio of core areas which
provide growth opportunities through grass-roots drilling, operating, service
companies, acquisitions and fund management.  The Triad consists of:
Fund Management, Principal Investments and Strategic Acquisitions of energy
related companies.





Founded
in 2003, CCP began its operations when the price of oil & gas was
undervalued and there were significant opportunities to create income streams
and asset accumulation programs for investors through the development of private
equity funds.  At first, CCP managed various funds interested in investing
in oil and gas properties.  By late 2006, however, CCP began making
principal investments in energy properties alongside the funds it was
managing.  With committed capital purchasing various interests in
production and development wells for its own account, CCP made the first step
advancing its innovative Triad business model.  Since the Merger
effected on March 11, 2008, the Company intends to continue the expansion of the
Triad business model. We believe the direct ownership in the full spectrum of
assets within the energy industry transforms Capital City Energy Group into a
more dynamic and full-service energy company.





Our
vision is to rapidly grow shareholder value through our Triad business
model.  Each prong of our model is briefly discussed
below.





Fund Management.





Prior to
the extended bull market in energy prices, the Company recognized the need to
provide investors with some exposure to alternative asset classes such as
commodities including oil and natural gas resources.  This particular
asset class did not correlate to the traditional returns associated with the
stock or bond markets, and thus served to fill a void by providing high yield
income opportunities, while lowering overall portfolio volatility.  To
take advantage of this non-correlation, we formed funds, each a blind pool
designed to invest in direct participation in oil, natural gas and lease acreage
opportunities across the country.  The funds were each structured as a
diverse and balanced collection of small working interest investments in a
variety of energy properties including existing production, developmental
drilling, lease acreage, and exploration opportunities with established and
successful oil & natural gas operating companies.  The Company
formed nine funds with total investment capital of $18,302,000.





The
current funds are structured as partnerships and offer a diversified holding of
income producing, direct investments in oil wells, natural gas wells, pipelines,
royalty acreage and mineral rights. Coupled with the intent to generate cash
distributions, the funds are designed to maximize tax deductions from intangible
drilling costs and other tax benefits from the ownership of direct interests in
oil and gas properties.





There are
significant barriers to entry that relate to this business model. A great deal
of energy industry expertise has been assembled for the benefit of the Funds.
Successful business relationships with external oil and gas operating companies
have been established, fostered and nurtured for several years. We have reached
a point in the marketplace where additional successful oil and gas operators are
beginning to seek out and make unsolicited contacts with us. Adding to this
nucleus of energy industry experience are numerous supporting relationships from
legal, accounting, geological and marketing organizations. The business model is
also highly regulated from a federal and state perspective. The logistical
operations that make up the back office have been established to be cost
effective, scalable and efficient.





- 10
-






After the
merger, we determined to operate the Fund Management Division through our wholly
owned subsidiary, Avanti Energy Partners, LLC, an Ohio limited liability company
(“Avanti”), which will oversee all duties related to the management of the
Funds.  The performance of each Fund is continually monitored, and
when necessary, positions are either acquired or sold for the benefit of the
Fund.  The primary responsibility of Avanti for each Fund is to
locate, screen, evaluate and select the energy properties for the Funds. Avanti
will utilize strategic business relationships with oil and gas operators across
the United States to generate investment opportunities. These relationships have
strengthened over time due to synergies in the business goals of the Funds and
those of the operators. As part of a prudent practice of risk management, the
operating companies may offer up to 75% of a prospect to external venture
partners. In turn for receiving a readily available inventory of prospects, the
Funds provide a steady source of investment capital to the operators allowing
them to complete their projects. Over time, Avanti plans to leverage these
relationships to conduct business with the highest quality oil and gas operators
on a regular basis for the benefit of the Funds. This will allow Avanti to avoid
the heavily promoted or syndicated projects, which is typically utilized by many
of our competitors resulting in higher costs and excessive markups.





Avanti
will rely on internal expertise along with input from independent consulting
geologists to make investment decisions. As required, Avanti will employ
Certified Petroleum Geologists with regional expertise. Furthermore, we have
developed a proprietary economic analysis model that will allow Avanti to be
used in concert with third party recommendations in making investment decisions.
Conservative resource production and pricing scenarios are utilized to project
investment returns and downside sensitivities are examined to provide further
justification to the viability of the project.





All back
office operations will be managed by the Company, through Avanti, including
distribution of the Funds, issuing certificates of ownership, receiving investor
monies, processing operator revenue checks, and issuing monthly investor
distribution checks. In addition, the Company executes operator subscription
documents, joint operating agreements, and files title assignment documents
which verify ownership interests in the energy properties.  The
management of the Funds generates fee revenue from front-end management services
and a two percent annual advisory fee. Front-end fees pay for the distribution
and printing costs, legal, marketing, accounting, geological review, evaluating
the prospects for investment and broker dealer sales commissions.





Principal
Investments.





Under our
Principal Investment Division, we invest our own capital in energy properties
through joint ventures and partnerships with other oil & natural gas
companies.  Our relationships with the various funds we manage allow
us to make these independent investments in oil & gas
properties.  Nevertheless, our investments include strategic ownership
in production, locations for future drilling, equipment, pipelines, seismic,
acreage or other energy related properties that may not be suitable for our
income oriented energy funds, but have potential for growth and strategic
advantages for our energy funds and shareholders.  This division of
our business provides revenue through our direct ownership in producing assets.
The long term goal of this division is to function strategically with the our
other divisions in order to create attractive cash flow returns, while growing a
strong asset base, including proven and probable oil & gas
reserves.





The
principal investment strategy of the Triad is to continue investing in similar
assets as the Funds, while using the same proven strategy employed by the Funds.
The relationship between our own portfolio and that of the Funds will not be
mutually exclusive, and provides for significant synergistic
opportunities.  While the goal for the funds is to generate steady
cash distributions and tax benefits to the investors, the objective for our own
portfolio is long term growth and to be more opportunistic in adding
value.  An example is purchasing promising lease acreage which may not
be drilled in the short term.  If the value of the lease increases due
to successful production established in close proximity, we are in a better
position to take advantage of the increase in value even though no income stream
has been established.  In addition, oil and gas operators working with
the funds can be referred to us as a principal investor, while joint venture
operating partners may be referred to the funds as a supplier of readily
available production and other income producing projects.





Some of
our initial positions include the prolific Texas Barnett Shale natural gas
formation, coal bed methane development in southeast Oklahoma along with
production from the Woodford Shale, and horizontal drilling development of oil
and gas from the Buda and Georgetown formations in southeast
Texas.  We are encouraged by the results of the investments we have
made recently, specifically a 4-well position in central Kansas, and a second
Barnett Shale gas well in Texas. We are continuing to evaluate several acreage
opportunities for drilling prospects or to leverage royalty override income. We
have the ability to purchase the Funds we manage, in order to provide a short
term liquidity event to the investors. This affords us the long term benefits of
the cash flow and accompanying assets. We anticipate utilizing this strategy to
benefit both the Fund investors and our stockholders.





Strategic
Acquisitions





Under our
Strategic Acquisition Division, we hope to acquire complementary energy-related
businesses.  We believe our ability to bring capital, contacts and
financial structure makes us an ideal partner for many privately held
middle-market companies in the energy sector who seek to grow or capitalize
their businesses.  We anticipate financing these acquisitions with a
combination of cash, stock and bank debt.  These opportunities must be
financially advantageous and strategic to the Fund Management and Principal
Investment Divisions. Acquisitions may be in the form of a merger, joint venture
or outright purchase of a company.  We seek out opportunities to
acquire and/or collaborate with reliable oil and natural gas industry
partners.  The acquisitions we target include well operators,
drillers, pipelines, energy service companies and lease owners, among
others.  The direct ownership in the full spectrum of energy assets
allows us to extend greater strategic control over our investments and
strengthen our position as a vertically integrated, full-service energy
company.





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Our
Strategic Acquisition Division will be overseen by Daniel Coffee, the Company’s
Chief Operating Officer, through Capital City Petroleum and our wholly owned
subsidiary, Eastern Well Services, LLC, an Ohio limited liability company
(“Eastern”).  Eastern will manage our upstream operations, while
Capital City Petroleum will manage the downstream
activities.  Consistent with the business model, the Company continues
to assess various merger and acquisition target opportunities which present
themselves with greater frequency as we continues to grow by executing our Triad
business strategy.  There are many attractive opportunities in the oil
industry lacking the capital resources to complete transactions. Because of our
history and our depth of management, we have access to a proprietary deal flow
with well operators, seismic data firms, drilling companies, well servicing,
wireline, pressure pumping, well cementing companies, pipeline operators,
geologists, engineers and specialty energy groups imbedded within large regional
banks to access opportunities not readily available in the
marketplace.  This should provide an excellent environment for our
forthcoming merger and acquisition activities.





Also
included in this aspect of our strategy is the opportunity to provide long-term
consulting services and field expertise to operators and service companies both
on a domestic and international scale.  To date, we place three
consultants with domestic energy companies to assist them in their international
exploration objectives.  We have started to generate revenues, but
these revenues have not been significant to date.  We intend this
consulting activity will add another source of income to the Company by
utilizing long term consulting agreements to third parties worldwide, without
adding much in the way of associated overhead burden or required capital
investment.





Other
than the consulting engagements, we have not begun to implement this third part
of the Triad for acquisitions and investments in energy businesses and related
assets. However, we believe that acquisitions provide the Company an immediate
presence in the field, and serve to balance the income stream from the Funds
with operations in oil and natural gas fields.





Capital
City Energy Group understands that high standards of business conduct, effective
corporate governance, sound financial controls, operational integrity and
community engagement are fundamental to sustained business
success.  The management and staff share this commitment and
dedication to our core values, which are essential to our continued
success.





MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION





THE
FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH THE INFORMATION CONTAINED IN
THE FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS CURRENT
REPORT ON FORM 10Q.





The
following discussion reflects our plan of operation. This discussion should be
read in conjunction with the financial statements of Capital City Petroleum for
the fiscal years ended December 31, 2005, December 31, 2006 and December 31,
2007. This discussion contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933, as amended, Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995, including statements regarding our expected
financial position, business and financing plans. These statements involve risks
and uncertainties. Our actual results could differ materially from the results
described in or implied by these forward-looking statements as a result of
various factors, including those discussed below and elsewhere in this Quarterly
Report, particularly under the headings “Forward Looking
Statements.”





Results
from Operations





The
results from operations are confined to the historical business of CCP and its
divisions only. The historical business of BabyDot, LLC was transferred to Ms.
Jennie Slade in connection with the merger completed on March 11,
2008.





Revenues





Revenue
fell to $561,065 and net income rose to $111,022 during the first quarter of
2008 compared to revenue of $700,148 and a net loss of $9,836 recorded during
the first quarter of 2007.  Lower interest expense combined with a net
gain on sale of assets helped boost net income over the same period in
2007.





Basic
earnings per share rose to $0.005 and fully diluted earnings per share rose to
$0.004, compared to zero basic and fully diluted earnings per share during the
first quarter of 2007, after adjustment for the 10 for 1 exchange as a result of
the merger.





Total
operating expenses rose to $901,964 during the first quarter of 2008, compared
to total operating expenses of $607,208 during the first quarter of
2007.  The increase was driven by higher consulting expenses for
investor relations, marketing and financing activities.





A net
gain on sale of assets of $525,000 was realized during the first quarter of
2008, as mature production in the portfolio was monetized and targeted for
higher return investments.





Total net
oil and gas production realized from principal investments was 33,892 MCF of
natural gas and 4,798 barrels of oil during the first quarter of
2008.  Comparative date for the first quarter of 2007 is
unavailable.





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Average
commodity price realized on principal investment portfolio production during the
first quarter of 2008 was $81.81 per barrel of oil, and $6.49 per thousand cubic
feet (MCF) of natural gas.  Comparative data for the first quarter of
2007 is unavailable.





Cash
available at the end of the first quarter of 2008 rose to $224,578 compared to
cash available of $44,103 at the end of the first quarter 2007.





The year
2007 was a transition year where we focused on broader distribution channels for
the energy funds, structured an institutional fund, expanded our principal
investments and continued to build our management team.  During the
first quarter of 2008, significant advancements were achieved within the
operating divisions to place us in a position to fully execute our business
plan.





Net
Income





Net
income for the year ended December 31, 2007 was $351,561, compared to net income
of $476,922 for the same period ended 2006.





Liquidity
and Capital Resources





As of
March 31, 208, we had total current assets of $1,370,357.  The current
assets consisted mainly of cash in the amount of $224,578, prepaid expenses in
the amount of $142,428 and accounts receivable in the amount of
$1,003,351.  Our total current liabilities as of March 31, 2008 were
$323,422.  The current liabilities consist of accounts payable and
accrued expenses in the amount of $297,931, and notes payable-current portion in
the amount of $25,491.  In addition, we had $$7,585,487 stockholder’s
equity as of March 31, 2008.   This compares to current assets of
$200,451 and total liabilities of $460,708 for the period ended December 31,
2007.  Assets at December 31, 2007 consisted of cash in the amount of
$200,451, prepaid expenses of $40,991 and accounts receivable in the amount of
$414,826.  Liabilities as of December 31, 2007 consisted of accounts
payable and accrued expenses in the amount of $360,708 and notes payable-related
party in the amount of $100,000 remaining payable for the period ended December
31, 2007.  As such, we had working capital of $195,560 as of December
31, 2007 as compared to working capital of $134,837.





Our
Offices





We do not
own any real property. We lease 3,508 square feet of office space for our
corporate headquarters in Columbus, Ohio.  Our lease is for a period
of 5 years at commercial rates in the area.  Additionally, as more
fully discussed in Item 5. Other Information, on May 12, 2008, the Company
entered into a lease with Daniel Coffee, its Chief Operating Officer, for office
space and acreage in Wooster, Ohio. [Canton]




On May
14, 2008, we entered into a lease for approximately 2120 square feet of office
space in the Bourlas Office Park area of Canton, Ohio.  The term of
this lease is five (5) years beginning on July 1, 2008 and ending on June 30,
2013.  The office will be used for the purpose of housing our entire
accounting department.





Off
Balance Sheet Arrangements





As of
March 31, 2008, there were no off balance sheet arrangements.





Going
Concern





The
Company’s financial statements are prepared using generally accepted accounting
principles in the United States of America applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. The Company has not yet established an ongoing source
of revenues sufficient to cover its operating costs and allow it to continue as
a going concern. The ability of the Company to continue as a going concern is
dependent on the Company obtaining adequate capital to fund operating losses
until it becomes profitable. If the Company is unable to obtain adequate
capital, it could be forced to cease operations.





In order
to continue as a going concern, the Company will need, among other things,
additional capital resources. Management’s plan is to obtain such resources for
the Company by obtaining capital from management and significant shareholders
sufficient to meet its minimal operating expenses and seeking equity and/or debt
financing. However management cannot provide any assurances that the Company
will be successful in accomplishing any of its plans.





The
ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plans described in the preceding
paragraph and eventually secure other sources of financing and attain profitable
operations. The accompanying financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.




Item
3.     Controls and Procedures
 
 We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of December 31, 2007. This evaluation was carried
out under the supervision and with the participation of our Chief Executive
Officer, Mr. Timothy Crawford and our Chief Financial Officer, Mr. David Beule,
who have been serving in these capacities since March 11, 2008. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that, as of March 31, 2008, our disclosure controls and procedures are
effective. There have been no changes in our internal controls over financial
reporting during the quarter ended March 31, 2008.
 
 Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.




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Limitations on the
Effectiveness of Internal Controls





Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material error. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving our objectives and our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective at that reasonable assurance level. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the internal control. The design of
any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may
deteriorate.





PART
II - OTHER INFORMATION





Item
1.     Legal Proceedings





We are
not a party to any pending legal proceeding. We are not aware of any pending
legal proceeding to which any of our officers, directors, or any beneficial
holders of 5% or more of our voting securities are adverse to us or have a
material interest adverse to us.





Item
2.     Unregistered Sales of Equity Securities and Use
of Proceeds





None.





Item
3.     Defaults upon Senior Securities





None.





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





No
matters have been submitted to our security holders for a vote, through the
solicitation of proxies or otherwise, during the period ended March 31,
2008.





Item
5.     Other Information





On May
13, 2008 we entered into a long term lease/option to purchase agreement for
property located at 920 West Easton Road, Burbank, Ohio 44214.  The
amount of the lease is to be $4,000 per month rent, $4,000 security deposit. The
term of this lease is 10 years beginning on  June 1, 2008 and ending
on June 30, 2018.  The property being leased will be for the purpose
of general office space, oil field service equipment storage, oil field service
truck parking, storage of oil field supplies, storage of radioactive materials
and explosives for oil field use.





On May
14, 2008 we entered into a five (5) year lease agreement commencing July 1,
2008, for property located at 1611 N. Main Street, Suite A, N. Canton, Ohio
44720.  The amount of the lease is $2,473.33 per month plus a security
deposit equal to one month’s rent.  This property will be used to
house our entire accounting department.





Item
6.      Exhibits





Exhibit Number
            
            Description of Exhibit3.1
            
            Articles
      of Incorporation (1)3.2
            
            By-Laws
      (1)31.1
            
            Certification of Chief Executive Officer pursuant
      to 18 U.S.C. Section 1350, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of
      200231.2
            
            Certification of Chief Financial Officer pursuant
      to 18 U.S.C. Section 1350, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of
      200232.1
            
            Certification of Chief Executive Officer and Chief
      Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002





(1)
            Previously
      included as an exhibit to the 8-KA filed on March 14,
  2008.


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SIGNATURES






In
accordance with the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.







Capital
      City Energy Group, Inc.Date: May
      20, 2008By:       
      /s/ David
      Beule
              David Beule
              Title:
      Chief Financial Officer, Principal Accounting Officer (Since March 11,
      2008)












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