siberian10k123110.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 000-53766

SIBERIAN ENERGY GROUP INC.

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

NEVADA	52-2207080
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

330 Madison Ave, 6th Floor, New York, New York 10017

(Address of principal executive offices)

275 Madison Ave, 6th Floor, New York, NY 10016

(Address of former principal executive offices)

(212) 828-3011

(Registrant's telephone number)

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)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]

Indicated by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

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

Large accelerated filer [ ]	Accelerated filer[ ]
Non-accelerated filer [ ]	Smaller reporting company [X]

(Do not check if a smaller reporting company)

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

The issuer's revenues for the most recent fiscal year ended December 31, 2010 were $0.

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing value of the Registrant's common stock on June 29, 2010 (the nearest closing date prior to, as there was no closing price of the Registrant’s common stock on June 30, 2010), was approximately $1,222,620.

As of April 8, 2011, the issuer had 667,659 shares of common stock, $0.001 par value per share outstanding, which number does not include 429 shares which the registrant has agreed to issue to its President, Helen Teplitskaia for services rendered during the months of January through March 2011, which shares have not been issued to date and have not been included in the total number of outstanding shares disclosed throughout this report.

Documents Incorporated by Reference: NONE

Transitional Small Business Disclosure Format: Yes [ ] No [X]

SIBERIAN ENERGY GROUP INC.

FORM 10-K

YEAR ENDED DECEMBER 31, 2010

INDEX

Part I

Item 1. Business	4
Item 1A. Risk Factors	11
Item 1B. Unresolved Staff Comments	17
Item 2. Properties	17
Item 3. Legal Proceedings	18
Item 4. (Removed and Reserved)	18

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6. Selected Financial Data	21
Item 7. Management's Discussion and Analysis or Plan of Operation	21
Item 7A. Quantitative and Qualitative Disclosure About Market Risk	25
Item 8. Financial Statements and Supplementary Data	F-1
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	26
Item 9A. Controls and Procedures	26
Item 9B. Other Information	27

Part III

Item 10. Directors, Executive Officers and Corporate Governance	28
Item 11. Executive Compensation	35
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	39
Item 13. Certain Relationships and Related Transactions	40
Item 14. Principal Accountant Fees and Services	42

Part IV

Item 15. Exhibits, Financial Statement Schedules

PART I

ITEM 1. BUSINESS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K (THIS "FORM 10-K"), INCLUDING STATEMENTS UNDER "ITEM 1. BUSINESS," AND "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS", CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (COLLECTIVELY, THE "REFORM ACT"). CERTAIN, BUT NOT NECESSARILY ALL, OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "SHOULD", OR "ANTICIPATES", OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF SIBERIAN ENERGY GROUP INC. AND KONDANEFTEGAZ, LLC, A RUSSIAN LIMITED LIABILITY, THE REGISTRANT’S 44% OWNED SUBSIDIARY, AND ZAURALNEFTEGAZ LIMITED, A COMPANY ORGANIZED UNDER THE LAWS OF THE COUNTRY OF ENGLAND, WHICH THE REGISTRANT OWNS 50% OF (COLLECTIVELY "SIBERIAN", THE "COMPANY", "WE", "US" OR "OUR") TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-K, UNLESS ANOTHER DATE IS STATED, ARE TO DECEMBER 31, 2010.

Investors should also take note of the fact that some of the more technical terms relating to the Company's operations as described below are explained in greater detail under exhibit 99.1, incorporated by reference hereto.

BUSINESS DEVELOPMENT:

Siberian Energy Group Inc. was formed as a Nevada corporation on August 13, 1997, as Advanced Rehab Technology Corporation. Subsequently, on March 9, 2001, the Company changed its name to Talking Cards, Inc.; on February 12, 2002, the Company changed its name to Oysterking Incorporated; on December 3, 2002, the Company changed its name to 17388 Corporation Inc., at which point the controlling interest of the Company was sold and a new board of directors was appointed; on May 5, 2003, the Company changed its name to Trans Energy Group Inc.; and on December 3, 2003, the Company changed its name to Siberian Energy Group Inc.

On September 17, 1999, the Company affected a 1-for-30 reverse stock split. A subsequent 3-for-1 forward split was consummated on October 2, 2000 and a further 1:2 reverse stock split was affected on May 2, 2005. As described below, effective March 15, 2011, the Company affected a 1:70 reverse stock split with the shares held by remaining shareholders rounded up to a minimum of 100 shares on a per shareholder basis (collectively the “Stock Splits”). All share amounts, trading prices, and option and warrant exercise prices, subsequently listed are retroactively adjusted to reflect these Stock Splits unless otherwise provided.

In the spring of 2003, a majority of the Company's shares were purchased by new shareholders who stepped into the management of the Company and defined its new business direction as an oil and gas exploration company.

On May 9, 2003, the Company entered into an Acquisition Agreement (the "Acquisition Agreement") by and among the Company, Zaural Neftegaz, a Russian corporation ("ZNG"), the shareholders of ZNG and Oleg Zhuravlev, President of ZNG, and a former Director of the Company. Pursuant to the Acquisition Agreement, the Company acquired a 51% interest in ZNG by issuing to ZNG 28,571 shares of the Company's common stock. In June 2004, the Company purchased the remaining 49% of ZNG in exchange for 98,571 shares of the Company's common stock, making ZNG a wholly-owned subsidiary of the Company. The Company had no affiliation with ZNG prior to the acquisition in May 2003.

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The activities of ZNG were carried out through the Joint Venture Shareholders' Agreement ("Joint Venture") entered into on October 14, 2005 with Baltic Petroleum (E&P) Limited ("BP" or "Baltic") and Zauralneftegaz Limited, the joint venture company ("ZNG, Ltd."), as contemplated by the Option Agreement, as amended (the "Option"). The Company closed the Joint Venture and transferred 100% of the outstanding stock of ZNG to ZNG, Ltd. in connection with the terms and conditions of the Joint Venture. As a result of such transfer, the Company holds 50% of the outstanding stock of ZNG, Ltd., which holds 100% of the outstanding stock of the Company's former wholly-owned subsidiary, ZNG. ZNG, Ltd. operates through ZNG and is engaged in the exploration and development of, production and sale of, oil and gas assets in the Western Siberian region of the Russian Federation and the former Soviet Union.

On December 13, 2006, we entered into an Interest Purchase Agreement (the "Purchase Agreement") with Key Brokerage LLC ("Key Brokerage"), pursuant to which we purchased 100% of the stock of Kondaneftegaz LLC ("KNG"), a Russian limited liability company, which was created in 2004 for the purpose of oil and gas exploration in the Khanty-Mansiysk district of Western Siberia, Russia. In addition to acquiring 100% of the stock of KNG, we received the geological information package on the Karabashski zone of Khanty-Mansiysk Autonomous district (Tuymen region of Russian Federation) ("Geological Data").

On or about September 30, 2008, we entered into an Agreement of Purchase and Sale with Limited Liability Company Neftebitum, a Russian limited liability company, and two Russian individuals, pursuant to which we sold fifty-six percent (56%) of the ownership interest of KNG, as described in greater detail below.

All dollar amounts used throughout this Report are in United States dollars, unless otherwise stated. All amounts in Canadian dollars used throughout this Report are preceded by CDN, for example CDN $500, is referring to $500 Canadian dollars.

BUSINESS OPERATIONS:

We are a development stage company which is seeking opportunities for investment in and/or acquisition of small to medium companies in Russia, specifically in the oil and gas industry.

We currently hold investments in ZNG, Ltd. and KNG. Both companies are involved in oil and gas exploration in the Western Siberia region of Russia; provided however, as described below, ZNG, Ltd. has advised us that it will no longer undertake any further exploration activities in Western Siberia and we have recently been advised that KNG has determined not to undertake any further exploration activities. As a result, we are currently seeking out additional oil and gas acquisition opportunities in Russia at this time and do not anticipate ZNG, Ltd. or KNG generating any revenues moving forward.

Moving forward the Company plans to focus on those assets that involve less exploration risk and is also actively seeking and negotiating the acquisition of production or close-to-production assets in Russia and countries of the former Soviet Union; however, the Company has not entered into any definitive agreements to date, and there can be no assurance that any such agreements will be entered into on favorable terms, if at all.

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Description of KNG

KNG was created in 2004 for the purpose of oil and gas exploration in the Khanty-Mansiysk district of Western Siberia, Russia. In October 2007, KNG was awarded two oil and gas exploration licenses in Khanty-Mansiysk region in Western Siberia, Russia for the Karabashsky-61 and Karabashsky-67 blocks located in the Khanty-Mansiysk Autonomous Region, Russian Federation. The license areas together cover 166,000 acres and are situated in the territory of the Urals oil and gas bearing area. KNG also has eight more outstanding applications for exploration licenses filed with the Russian authorities, which auctions have not occurred to date.

The right to use the subsurface resources of the Karabashski-61 and Karabashki-67 Fields is granted for the term of validity of the license (five (5) years), from the date of its state registration (October 22, 2007), subject to the completion of certain exploration activities on the license blocks. The term of use of the subsurface resources can be extended to finish exploration and estimation of deposit or for liquidation work, if the terms of usage of the subsurface resources are not breached.

On or about September 30, 2008, we entered into an Agreement of Purchase and Sale with Limited Liability Company Neftebitum, a Russian limited liability company (“Neftebitum”), Sergey V. Prokopiev, an individual and Russian citizen, and Oleg G. Shelepov, an individual and Russian citizen (collectively, the “Purchasers” and the “Sale Agreement”). The Company’s Board of Directors approved and ratified the Company’s entry into the Sale Agreement and the transactions contemplated therein on or about October 30, 2008. Pursuant to the Sale Agreement, the Company agreed to sell to the Purchasers an aggregate of fifty-six percent (56%) of the registered capital of KNG for aggregate consideration of 5,600 Russian Rubles (approximately $223). Neftebitum agreed to purchase a 51% interest for total consideration of 5,100 Russian Rubles (approximately $203) and Mr. Prokopiev and Mr. Shelepov agreed to each purchase a 2.5% interest for consideration of 250 Russian Rubles each (approximately $10).

Pursuant to the Sale Agreement, the Sellers are obligated to maintain KNG’s main priority of performing geological studies and exploring for hydrocarbon deposits in the Karabashsky-61 and Karabashsky-67 blocks (the “Blocks”). Further, the Purchasers are obligated to provide financing, by way of direct financing or third-party loans, in the amounts necessary to comply with the licensing agreements for the Blocks. The Company’s and the Purchasers’ relationship is to be regulated by an Operating Agreement which was entered into in connection with the Sale Agreement. Lastly, the Sale Agreement provides that in connection with Neftebitum obtaining a majority interest in KNG, it is obligated to be a guarantor and accept joint responsibility with KNG for repayment of any financing the Purchasers obtain for KNG.

As of the date of this filing, the Company is aware that Neftebitum has raised approximately $155,000 through the sale of debt to pay for the first stage of the seismic project and the government fees for the subsoil use.

KNG previously prepared and coordinated with the Russian authorities an exploration works program on the Karabashski-61 and Karabashski-67 license areas. Certain preliminary exploration activities were performed on the licensed areas over the past several years; however, KNG recently determined to cease exploration activities on the licensed areas at this time. As such, we do not anticipate KNG generating any revenues moving forward. The Company is currently evaluating spinning off its investment in KNG and focusing its attention on the acquisition of assets in producing fields, funding permitting, as described in further detail under “Plan of Operations For The Next Twelve Months.”

As of December 31, 2010, the Company owned a 44% interest in KNG. Effective September 30, 2008, the Company's 44% investment in KNG is recorded on the equity method of accounting. The operations of KNG prior to September 30, 2008 are included in the consolidated accounts of the Company in the accompanying financial statements.

After careful consideration of the current financial position of KNG, the Company has applied an impairment charge to the value of investment in KNG which resulted in carrying it at zero value.

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Description of ZNG

ZNG has been involved in the oil and gas research activities in the Kurgan region of the Russian Federation. During 2003-2008 it has completed seismic studies and a drilling program in the Kurgan region of Siberia, Russia. The Company believes ZNG, Ltd. has created value through the geological results of the two exploratory wells and other data gathered in the area and ZNG, Ltd. is considering its options with regard to realizing this value in connection with a potential direct sale of geophysical and seismic data to a third party operating in the area.

Between 2003 and 2007, ZNG carried out extensive seismic and gas seismotomographic studies on its 4 licensed blocks acquired in 2003 through a government tender (which have since expired): the Privolny, Mokrousovsky, West-Suersky and Orlovo-Pashkovsky blocks, and drilled 2 exploratory wells on the Privolny and Mokrousovsky blocks. Based on the interpretation of seismic and seismotomographic surveys and analysis of samples from the wells, ZNG prepared a comprehensive analysis of geological resources of the Kurgan region. Both the Privolny-1 and Mokrousovsky-1 studies confirmed the presence of hydrocarbons and contributed greatly to the understanding of geological resources in the region. However, a substantial amount of further exploration studies and work is required before a conclusion on the future potential of the blocks can be drawn. Upon the expiration of the license terms of these blocks in March 2008, ZNG kept the preferential right to re-apply for the licenses.

The Company’s investment in the Joint Venture is recorded on the equity method of accounting. Since cumulative losses of Joint Venture exceed the Company’s investment, the investment asset is carried at zero value as of and through December 31, 2010.

As of the date of this filing, Baltic has advised us that Baltic and as a result, ZNG, has withdrawn from any further exploration activities in the Kurgan region and that they will not expend any further resources on such activities moving forward. Baltic has however advised us that they believe they may be able to sell ZNG’s previously prepared seismic and geological studies and data in the future, assuming other exploration companies in the area desire to purchase such information, of which there is no assurance.

Joint Venture

The operations of the Joint Venture were funded via loans provided to ZNG, Ltd. and ZNG by Caspian Finance Limited ("Caspian"), a financing company wholly-owned by Baltic. Loans are guaranteed by ZNG, Ltd.’s holdings in ZNG. As of December 31, 2010, the total funding provided to ZNG, Ltd. and ZNG by Baltic was equal to approximately $23.5 million plus accrued interest of approximately $5 million. The loans are not dilutive to the Company's ownership in ZNG.

Recent Events:

In August 2010, and effective as of July 1, 2010, the Company entered into extensions to the Employment Agreements of David Zaikin, its Chairman and Chief Executive Officer and Elena Pochapski, its Director and Chief Financial Officer, which Employment Agreements were extended until December 31, 2010. Mr. Zaikin’s Employment Agreement extension set his annual compensation at $180,000 and Ms. Pochapski’s Employment Agreement extension set her annual compensation at $75,000.

In October 2010, the Company entered into Debt Conversion Agreements with nine (9) creditors of the Company (the majority of which were shareholders and related parties of the Company), pursuant to which such creditors agreed to convert an aggregate of $2,554,460 of debt owed to such creditors by the Company and accrued and unpaid interest thereon, which debt represented loans previously provided by the creditors to the Company, accrued and unpaid salary and other debts owed to the creditors by the Company, into 331,748 shares of restricted common stock of the Company (representing approximately 55% of the Company’s then outstanding shares, at the rate of one share for each $7.70 of debt converted (the “Conversion”). The Conversion price of $7.70 per share was calculated based on the average market price of the Company’s common stock for the six months prior to September 30, 2010.

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Included in the creditors who agreed to the Conversions were Alternative Energy Finance (which is an entity controlled by Timothy Peara, a Director of the Company), which converted $158,924 of debt owed to it by the Company into 20,640 shares of restricted common stock (representing approximately 3.4% of the Company’s then outstanding common stock); Timothy Peara, who converted $147,537 of debt owed to him by the Company into 19,161 shares of restricted common stock (representing approximately 3.2% of the Company’s then outstanding common stock); Elena Pochapski, the Company’s Chief Financial Officer and Director, who converted $298,832 owed to her by the Company into 38,809 shares of restricted common stock (representing approximately 6.5% of the Company’s then outstanding common stock); and David Zaikin, the Company’s Chief Executive Officer and Director, who converted $1,153,228 of debt owed to him by the Company into 149,770 shares of restricted common stock (representing approximately 24.9% of the Company’s then outstanding common stock). Additionally, Business Standard, a consultant of the Company, converted $607,975 of debt owed to it by the Company into 78,958 shares of common stock (representing 13.2% of the Company’s then outstanding common stock).

A form of the Debt Conversion Agreements is incorporated by reference as Exhibit 10.44 herewith.

On February 28, 2011, the Company held an Annual Meeting of Stockholders (the “Meeting”). The Meeting was announced and disclosed pursuant to the Schedule 14C Information Statement Filing, filed with the Securities and Exchange Commission on January 14, 2011, notice of which was mailed to shareholders of the Company on or around January 17, 2011. Present at the Meeting was David Zaikin, the Company’s Chief Executive Officer and Director. Certain of the Company’s officers, Directors and affiliates, including Elena Pochapski, our Chief Financial Officer and Director; Timothy Peara, our Director; Helen Teplitskaia, our President and Director; and Business Standard, a significant shareholder of the Company (the “Majority Shareholders”), provided Mr. Zaikin voting proxies to vote the shares of common stock which they held as of January 7, 2011, the record date of the Meeting (the “Record Date”). As of the Record Date, Mr. Zaikin, both personally and as a result of the voting proxies obtained from the Majority Shareholders had the right to vote an aggregate of 346,310 shares of our common stock or 57.5% of our outstanding common stock as of the Record Date.

At the Meeting, Mr. Zaikin, voting all of the shares described above, approved the Proposals (as defined below), which included the filing of a Certificate of Amendment to our Articles of Incorporation with the Secretary of State of Nevada (the “Amendment”) to affect a 1:70 reverse stock split of our outstanding common stock and to re-authorize 100,000,000 shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, $0.001 par value per share; provided that no shareholder following the reverse split will hold less than 100 shares of common stock and any fractional shares left after the reverse split will be rounded up to the nearest whole share on a per shareholder basis (the “Rounding”).

The Amendment was filed with and became effective with the Secretary of State of Nevada on March 4, 2011; provided however that the reverse split did not become effective with the Financial Industry Regulatory Authority (“FINRA”) until March 15, 2011. As a result of the filing of the Amendment and the reverse split, the Company had approximately 667,659 post- reverse split shares of common stock issued and outstanding (after taking into account the Rounding) and 100,000,000 shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, $0.001 par value per share, authorized.

Additionally, as a result of the above, the Company’s symbol on the OTC Pinks (the Company was automatically delisted from the Over-The-Counter Bulletin Board (the “OTCBB”) on February 22, 2011, due to the failure of a market maker to quote the Company’s common stock on the OTCBB for the time period required under FINRA rules and regulations and re-quoted on the OTCBB on March 22, 2011) changed to “SIBND”, effective March 15, 2011, which symbol will change back to “SIBN” after twenty business days.

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At the Meeting, Mr. Zaikin voted 346,310 shares of our common stock or 57.5% of our outstanding common stock (which included shares held by the Majority Shareholders, who provided voting proxies to Mr. Zaikin to vote such shares held by the Majority Shareholders at the Meeting) in favor of and to approve the following items (the “Proposals”), which were approved, confirmed and ratified at the Meeting (no votes were cast against or withheld in connection with the Proposals to come before the Meeting, and no broker non-votes were cast at the Meeting):

To re-elect David Zaikin, Elena Pochapski, Helen Teplitskaia and Timothy Peara as Directors of the Company;

To authorize and approve the Amendment and reverse split;

To approve and ratify the Company’s 2010 Stock Incentive Plan (described in greater detail below); and

To ratify the appointment of Lumsden & McCormick, LLP, as the Company’s independent auditors for the fiscal years ending December 31, 2011 and 2010.

Estimate of Amount of Time Spent On Research and Development

An initial business plan was developed over the course of three months in 2003. During that time period, market research was conducted. Research and development activities on the licensed blocks in the Kurgan Region were directly borne by the Company up to the time the Joint Venture was closed in October 2005. Research activities include gravimetric, seismic works and seismotomography studies on the previously licensed areas. Costs incurred by ZNG and ZNG Ltd. in connection with these studies as of December 31, 2010 totaled approximately $18 million.

Employees

Siberian Energy Group Inc. currently employs three (3) employees in management. KNG, which we own a 44% interest in, has two (2) part-time employees. Zauralneftegaz ("ZNG"), which is 50% owned by the Company through its joint venture ZNG, Ltd., currently employs two (2) part-time employees.

Critical Accounting Policies and Estimates

The Company prepares its consolidated financial statements in accordance with accounting principals generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of any contingent assets and liabilities. On an on-going basis, we evaluate our estimates. We base our estimates on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policy affects our more significant judgments and estimates used in the preparation of our financial statements:

Going Concern

The Company's financial statements have been prepared assuming that the Company will continue as a going concern; however, since inception of its current endeavors in 2003, the Company has not earned any revenues from production of hydrocarbons and is considered to be in the development stage, which raises substantial doubt about its ability to continue as a going concern. The Company is of the opinion that sufficient financing will be obtained from external sources to provide the Company with the ability to continue its operations. Since inception, the Company has obtained cash financing from organizing stockholders and employees in the form of loans, advances and deferred salaries, as well as through financing previously received of $25,000 to $85,000 per month in management fees from its Joint Venture, which management fees the Company has not received since October 2007, and which the Company does not believe will ever resume. There can be no certainty as to availability of continued financing in the future. Failure to obtain sufficient financing may require the Company to reduce its operating activities. A failure to continue as a going concern would require stated amounts of assets and liabilities to be reflected on a liquidation basis which could differ from the going concern basis.

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Competition

Competition among Russian oil producers occurs in two distinct tiers. The first tier includes large corporations such as Surgutneftegaz, LUKoil, Sibneft, Tatneft, Slaveft, YUKOS, TNK, Bashneft, Rosneft and Sidanco which together control more than 90% of the Russian oil and gas market. These companies operate large-scale fields and are primarily oriented towards exportation. The second tier, so called junior players, includes a large number of smaller companies that operate small and medium sized oil and gas fields. These companies enjoy a limited but stable range of customers within Russia's domestic market, and their customers include the larger companies which purchase this product for export. Like other junior players, the Company believes it has potential to succeed, assuming it can locate and obtain rights to additional producing properties or exploration projects, given the continued high demand for oil both domestically and internationally.

Another type of competition which the Company may face in the future is competition in the process of acquisition of new licenses. The Company expects that competitive pressures will further increase if hydrocarbon reservoirs are found in the Kurgan province and/or Khanty-Mansiysk district of Western Siberia, Russia.

Dependence on One or A Few Major Customers

The nature of the oil industry is not based on individual customers. Crude and refined products are sold to local and international brokers as well as to refineries. The Company does not currently and can provide no assurances that it will ever produce crude or refined products.

Patents, Trademarks and Licenses

KNG currently holds two five-year oil and gas exploration licenses, awarded in October 2007; provided that KNG has recently decided not to move forward with the exploration of such licenses.

Need For Government Approval

Federal and local government approval will not be required for conversion of any exploration licenses to production licenses and/or for extension of licenses beyond their initial term. However, the Company will need to receive approval for additional exploration licenses it may choose to acquire in the future and additional approval will be required if the Company is to deliver future crude or refined products on the national pipeline system. These approvals can only be guaranteed once the Company has proved reserves.

Additionally, under certain Russian federal laws the Company does not require the approval of state and/or federal agencies for conversion of exploration licenses to production licenses and extension of production licenses beyond their initial term as they automatically convert to 25 year production licenses upon the discovery of oil and gas, of which the Company provides no assurance.

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Costs and Effects of Compliance with Environmental Laws

According to the laws and regulations of the Russian Federation, organizations are permitted to carry out seismic and other development activities on licensed fields, provided the companies conform to ecological standards. Accordingly, ZNG and KNG have previously encountered two costs associated with environmental law compliance: costs associated with obtaining licenses and costs associated with obtaining permission from the Russian Ministry of Natural Resources (the "Ministry"). ZNG’s costs have totaled approximately $186,900, which includes $2,000 relating to the ecological review by the Ministry and $184,900 in legal costs and fees to obtain the Company's licenses (which the Company and its partners have determined not to proceed in the exploration of).

The Company will face additional costs to comply with environmental laws, which may be significant. In addition, the Ministry imposes certain environmental obligations on the Company, such as clean-up procedures.

ITEM 1A. RISK FACTORS

Our securities are highly speculative and should only be purchased by persons who can afford to lose their entire investment in our Company. If any of the following risks actually occur, our business and financial results could be negatively affected to a significant extent. The Company's business is subject to many risk factors, including the following:

RISK OF CONTINUING OUR BUSINESS PLAN WITHOUT ADDITIONAL FINANCING.

We depend to a great degree on the ability to attract external financing in order to conduct future exploratory and development activities. The Company believes it can satisfy its cash requirements during the next twelve months, estimated at approximately $300,000, through funding provided by existing stockholders. As of December 31, 2010, the total funding provided to ZNG, Ltd. and ZNG by Baltic was equal to $23.5 million plus accrued interest of approximately $5 million, which has been spent on various purposes, including seismic and gas seismotomography surveys, drilling of two exploratory wells, and paying consultants for services performed in connection with surveys performed on the previously licensed area. Our partner in ZNG, Baltic and our partner in KNG, Neftebitum, have informed us that they do not plan to move forward with any further exploration activities through ZNG or KNG, respectively. If you invest in our Company and we are unable to raise the required funds, your investment could become worthless.

SHAREHOLDERS MAY BE DILUTED SIGNIFICANTLY THROUGH OUR EFFORTS TO PAY CONSULTANTS, OBTAIN FINANCING, SATISFY OBLIGATIONS AND/OR COMPLETE ACQUISITIONS THROUGH THE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK OR OTHER SECURITIES.

We have no committed source of financing. Wherever possible, our Board of Directors will attempt to use non-cash consideration to satisfy obligations and pay consultants. In many instances, we believe that the non-cash consideration will consist of restricted shares of our common stock or other securities. These transactions may result in significant additional shares of common stock of the Company being issued in consideration for services rendered, loans made, or to satisfy outstanding amounts owed or accrued to various parties, similar to the Conversion, described above. Additionally, moving forward, we may attempt to conduct acquisitions of other entities or assets using our common stock or other securities as payment for such acquisitions. Our Board of Directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued shares of common stock and preferred stock with various preferences and other rights. These actions may, similar to the Conversions, result in substantial dilution of the ownership interests of existing shareholders, cause the value of the Company’s common stock to decline in value, and dilute the book value of the Company’s common stock.

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WE WILL NEED TO RAISE SUBSTANTIAL FINANCING, WHICH MAY CAUSE SUBSTANTIAL DILUTION TO EXISTING SHAREHOLDERS, TO ACQUIRE RIGHTS TO ADDITIONAL ASSETS AND WILL REQUIRE SUBSTANTIAL TIME AND FINANCING BEFORE WE ANTICIPATE GENERATING REVENUES THROUGH OUR FUTURE OPERATIONS, IF ANY.

Assuming the Company can locate and obtain rights to additional exploration assets, licenses or other rights to production or potential future production, the Company will need to raise substantial additional funds to complete the acquisition of any such assets. Assuming such assets can be acquired, of which there can be no assurance, and which acquisition(s) may cause substantial dilution to our existing shareholders, the Company anticipates the need for approximately $15,000,000 in funding for exploration and other expenses prior to the expected generation of any revenues, of which there can be no assurance. Therefore, investors should keep in mind that even if the Company is able to locate suitable investment opportunities and assets, raise the substantial funding necessary to acquire such assets, is able to raise the substantial amounts of additional financing that the Company will require for its future exploration operations, it could still be years before the Company generates any revenue, if ever. If the Company is unable to locate or obtain rights to additional exploration or production assets, the Company does not raise the funding required to complete future exploration activities, no commercial amounts of hydrocarbons are discovered or the Company is unable to extract such hydrocarbons, the Company may be forced to abandon its business plan, and the Company could be forced to abandon or curtail its business plan as well, which could cause the value of the Company's common stock to substantially decline or become worthless.

OUR AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT AS TO WHETHER OUR COMPANY CAN CONTINUE AS A GOING CONCERN.

Our Company is in its early development stage, as planned principal activities have not begun. We have generated only minimal revenues since inception and have incurred substantial losses including a net loss of $666,116 for the year ended December 31, 2009 a net loss of $579,251 for the year ended December 31, 2010, and had total cash on hand of $467 and a total accumulated deficit of $16,101,756 as of December 31, 2010. These factors among others indicate that the Company may be unable to continue as a going concern, particularly in the event that it cannot generate sufficient cash flow to conduct its operations and/or obtain additional sources of capital and financing.

WE LACK AN OPERATING HISTORY WHICH YOU CAN USE TO EVALUATE US, MAKING ANY INVESTMENT IN OUR COMPANY RISKY.

Our Company lacks a long standing operating history which investors can use to evaluate our Company's previous earnings. Therefore, an investment in our Company is risky because we have no business history and it is hard to predict what the outcome of our business operations will be in the future.

WE MAY CONTINUE TO BE UNPROFITABLE AND MAY NOT GENERATE PROFITS TO CONTINUE OUR BUSINESS PLAN.

As a development stage company, we have had limited revenues and no profits to date and our net cumulative deficit attributable to our development stage as of December 31, 2010, was $15,651,971, and our total cumulative deficit was $16,101,756 which included $449,785 of pre-development stage deficit. We had a working capital deficit of $359,063 as of December 31, 2010. The Company is currently being funded by existing shareholders, but there can be no assurance this amount will be sufficient to continue our planned operations or that we will have enough money to repay our outstanding debts. ZNG has previously determined to cease further exploration activities and KNG recently determined to cease exploration activities as well. As such, we are currently seeking out additional oil and gas exploration and production assets in Russia. If we are unable to locate, or obtain rights to any future oil and gas exploration and production assets in the future, or if through such future oil exploration activities, if any, no viable wells are found, and consequently, we are unable to generate any revenues, we will likely be forced to curtail or abandon our business plan. If this happens, you could lose your investment in our Company. If we are unable to generate profits, we will be forced to rely on external financing, of which there is no guarantee, to continue with our business plan.

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WE HAVE A POOR FINANCIAL POSITION AND IF WE DO NOT GENERATE REVENUES, WE MAY BE FORCED TO ABANDON OUR BUSINESS PLAN.

Our Company currently has a poor financial position. We have generated only minimal revenues to date, and we have not discovered any hydrocarbon reserves or begun production on any wells. There is a risk that we will not find enough, or even any, viable wells which we require to generate enough profits in the future for your investment in our Company to appreciate. If we never generate any revenues, our Company may be forced to curtail or abandon its business plan and your shares may become worthless.

OUR BUSINESS IS SPECULATIVE AND RISKY AND IF WE DO NOT FIND HYDROCARBON RESERVES, WE MAY BE FORCED TO CURTAIL OUR BUSINESS PLAN.

There is a risk that we will not find any hydrocarbon reserves and the cost of acquiring assets or exploration activities will become too high for us to continue our business plan. If we were to cease operations, your investment in our Company could become devalued or could become worthless.

OUR INDUSTRY IS COMPETITIVE AND AS SUCH, COMPETITIVE PRESSURES COULD PREVENT US FROM OBTAINING PROFITS.

The main factor determining success in the oil exploration and extraction industry is finding viable wells. If our Company or joint ventures we may enter into in the future, are unable to find producing wells and our competition is, it is likely that our Company will be driven out of business. Additionally, our industry is subject to significant capital requirements and as such, larger companies may have an advantage should they compete with us for exploration licenses, because they may have resources substantially greater than ours. Investors should take into account the above factors and understand that if we are unable to raise additional capital or generate profits, the Company may be forced to liquidate its assets and an investment in our Company could become worthless.

OUR GROWTH WILL PLACE SIGNIFICANT STRAINS ON OUR RESOURCES.

The Company's growth is expected to place a significant strain on the Company's managerial, operational and financial resources. Furthermore, as the Company receives contracts, the Company will be required to manage multiple relationships with various customers and other third parties. These requirements will be exacerbated in the event of further growth of the Company or in the number of its contracts. There can be no assurance that the Company's systems, procedures or controls will be adequate to support the Company's operations or that the Company will be able to achieve the rapid execution necessary to succeed and implement its business plan. The Company's future operating results will also depend on its ability to add additional personnel commensurate with the growth of its business. If the Company is unable to manage growth effectively, the Company's business, results of operations and financial condition will be adversely affected.

WE RELY ON KEY PERSONNEL AND IF THEY LEAVE OUR COMPANY OUR BUSINESS PLAN COULD BE ADVERSELY AFFECTED.

We rely on the Company's Chief Executive Officer and Chief Financial Officer, David Zaikin and Elena Pochapski, for the success of our Company, who are not currently employed under Employment Agreements, as such prior agreements expired on December 31, 2010. Their experience and input create the foundation for our business and they are responsible for the directorship and control over the Company's development activities. The Company does not hold "key man" insurance on either member of management. Moving forward, should they be lost for any reason, the Company will incur costs associated with recruiting replacement personnel and any potential delays in operations. If we are unable to replace Mr. Zaikin and/or Ms. Pochapski, or if Mr. Zaikin or Ms. Pochapski are unable to spend a sufficient amount of time on Company matters, the Company may be forced to scale back or curtail its business plan. As a result of this, any securities you hold in our Company could become devalued.

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OUR FUTURE PROJECTIONS, ESTIMATES AND STATISTICAL ANALYSIS MAY BE INACCURATE OR SUBSTANTIALLY WRONG, WHICH MAY PREVENT US FROM EXECUTING OUR BUSINESS PLANS.

Projections on future revenues as well as costs and required capital expenditures are based on estimates. Business statistical analysis is used in projection of drilling success ratios, average production costs, world oil price fluctuations and their correspondence to Russian domestic market. If our projections or estimates are wrong or our statistical analysis faulty, our future revenues, if any, may be adversely affected which could prevent us from executing our business strategy. As an investor, if this happens your securities in our Company could be adversely affected and you could lose your investment in our Company.

THERE IS UNCERTAINTY AS TO OUR ABILITY TO ENFORCE CIVIL LIABILITIES BOTH IN AND OUTSIDE OF THE UNITED STATES DUE TO THE FACT THAT OUR OFFICERS, DIRECTORS AND ASSETS ARE NOT LOCATED IN THE UNITED STATES.

Our officers and Directors, our properties and licenses, and the majority of our assets are located in countries other than the United States, including Canada and Russia. As a result, it may be difficult for shareholders to effect service of process within the United States on our officers and Directors. In addition, investors may have difficulty enforcing judgments based upon the civil liability provisions of the securities laws of the United States or any state thereof, both in and outside of the United States.

WE FACE RISKS ASSOCIATED WITH THE FACT THAT THE MAJORITY OF OUR OPERATIONS THROUGH OUR HOLDINGS ARE CONDUCTED IN RUSSIA, AND THE LICENSES OWNED THROUGH OUR HOLDINGS AND THAT WE HOPE TO ACQUIRE IN THE FUTURE ARE IN RUSSIA.

Zauralneftegaz, Ltd. which we own 50% of through our Joint Venture, and KNG, which we own 44% of, hold certain licenses and rights to reapply for licenses to certain oil and gas properties in the Kurgan Region of Russia. Additionally, moving forward, we hope to seek out and acquire additional licenses in Siberia, Russia. As a result, we are subject to various risks associated with doing business in Russia relating to Russia's economic and political environment. As is typical of an emerging market, Russia does not possess a well-developed business, legal and regulatory infrastructure that would generally exist in a more mature free market economy and, in recent years, Russia has undergone substantial political, economic and social change. Furthermore, in recent years the Russian government has unilaterally annexed certain oil and gas properties and companies for the government, and there can be no assurance that if commercially exploitable oil and gas reserves are found on our properties, that such properties will not be annexed or otherwise claimed by the Russian government. Our failure to manage the risks associated with doing business in Russia could have a material adverse effect upon our results of operations.

NEVADA LAW AND OUR ARTICLES OF INCORPORATION AUTHORIZE US TO ISSUE SHARES OF STOCK, WHICH SHARES MAY CAUSE SUBSTANTIAL DILUTION TO OUR EXISTING SHAREHOLDERS.

We have authorized capital stock consisting of 100,000,000 shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, $0.001 par value per share. As of the date of this filing, we had 667,659 shares of common stock issued and outstanding and – 0 – shares of preferred stock issued and outstanding. As a result, our Board of Directors has the ability to issue a large number of additional shares of common stock without shareholder approval, which if issued could cause substantial dilution to our then shareholders. Additionally, shares of preferred stock may be issued by our Board of Directors without shareholder approval with voting powers, and such preferences and relative, participating, optional or other special rights and powers as determined by our Board of Directors, which may be greater than the shares of common stock currently outstanding. As a result, shares of preferred stock may be issued by our Board of Directors which cause the holders to have super majority voting power over our shares, provide the holders of the preferred stock the right to convert the shares of preferred stock they hold into shares of our common stock, which may cause substantial dilution to our then common stock shareholders and/or have other rights and preferences greater than those of our common stock shareholders. Investors should keep in mind that the Board of Directors has the authority to issue additional shares of common stock and preferred stock, which could cause substantial dilution to our existing shareholders. Additionally, the dilutive effect of any preferred stock, which we may issue may be exacerbated given the fact that such preferred stock may have super majority voting rights and/or other rights or preferences which could provide the preferred shareholders with voting control over us subsequent to this filing and/or give those holders the power to prevent or cause a change in control. As a result, the issuance of shares of common stock and/or preferred stock may cause the value of our securities to decrease and/or become worthless.

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IF WE ARE LATE IN FILING OUR QUARTERLY OR ANNUAL REPORTS WITH THE SECURITIES AND EXCHANGE COMMISSION OR A MARKET MAKER FAILS TO QUOTE OUR COMMON STOCK ON THE OVER-THE-COUNTER BULLETIN BOARD FOR A PERIOD OF MORE THAN FOUR DAYS, WE MAY BE DE-LISTED FROM THE OVER-THE-COUNTER BULLETIN BOARD.

Pursuant to Over-The-Counter Bulletin Board ("OTCBB") rules relating to the timely filing of periodic reports with the Securities and Exchange Commission (“SEC”), any OTCBB issuer which fails to file a periodic report (Form 10-Q or 10-K) by the due date of such report (not withstanding any extension granted to the issuer by the filing of a Form 12b-25), three times during any 24 month period is automatically de-listed from the OTCBB. Such removed issuer would not be re-eligible to be listed on the OTCBB for a period of one year, during which time any subsequent late filing would reset the one-year period of de-listing. Additionally, if a market maker fails to quote our common stock on the OTCBB for a period of more than four consecutive days, we will be automatically delisted from the OTCBB (similar as to how we were automatically delisted from the OTCBB in February 2011, which forced us to take actions to requote our common stock on the OTCBB in March 2011). If we are late in our filings three times in any 24 month and are de-listed from the OTCBB period or are automatically delisted for failure of a market maker to quote our stock our securities may become worthless and we may be forced to curtail or abandon our business plan.

WE INCUR SIGNIFICANT COSTS AS A RESULT OF OPERATING AS A FULLY REPORTING COMPANY IN CONNECTION WITH SECTION 404 OF THE SARBANES OXLEY ACT, AND OUR MANAGEMENT IS REQUIRED TO DEVOTE SUBSTANTIAL TIME TO NEW COMPLIANCE INITIATIVES.

We anticipate incurring significant legal, accounting and other expenses in connection with our status as a fully reporting public company. The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and new rules subsequently implemented by the SEC have imposed various new requirements on public companies, including requiring changes in corporate governance practices. As such, our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure of controls and procedures. Our testing may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we identify deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

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AS THERE IS CURRENTLY ONLY A LIMITED MARKET FOR OUR COMMON STOCK, THE MARKET FOR OUR COMMON STOCK MAY CONTINUE TO BE ILLIQUID, SPORADIC AND VOLATILE.

There is currently only a limited market for our common stock, and as such, we anticipate that such market will be illiquid, sporadic and subject to wide fluctuations in response to several factors moving forward, including, but not limited to:

	(1)	actual or anticipated variations in our results of operations;

	(2)	our ability or inability to generate new revenues;

	(3)	the number of shares in our public float;

	(4)	increased competition;

	(5)	the political atmosphere in Russia; and

	(6)	conditions and trends in the oil, gas, and energy industries in general.

Furthermore, because our common stock is traded on the Over-The-Counter Bulletin Board, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock. Additionally, at present, we have a limited number of shares in our public float, and as a result, there could be extreme fluctuations in the price of our common stock.

INVESTORS FACE A RISK THAT THE COMPANY WILL NOT BE SUBJECT TO REPORTING REQUIREMENTS OR WILL ENTER INTO A TRANSACTION THAT RESULTS IN SUBSTANTIAL DILUTION TO OUR EXISTING SHAREHOLDERS, NEW MANAGEMENT BEING APPOINTED TO RUN THE COMPANY AND A NEW OPERATING BUSINESS OF THE COMPANY IN THE FUTURE.

Management of the Company is analyzing steps to no longer be subject to the reporting requirements of the Securities and Exchange Commission (the “SEC”). In the event that the Company is no longer subject to the reporting requirements of the SEC, the Company’s stock would likely trade on the Pinksheets and would likely have less liquidity on such market and may trade at a lower share price than it currently trades.

Alternatively, the management of the Company has discussed potential acquisition or merger opportunities. In the future, we may enter into mergers and/or acquisitions with separate companies, which may result in our majority shareholders changing and substantial numbers of new shares of common or preferred stock being issued, resulting in substantial dilution to our then current shareholders. As a result, if there were new majority shareholders, they will likely change the composition of our Board of Directors and replace our current management. The new management will likely change our business focus and we can make no assurances that our new management will be able to properly manage our direction or that this change in our business focus will be successful. If we do enter into a merger or acquisition transaction, and our new management fails to properly manage and direct our operations, we may be forced to scale back or abandon our operations, which will cause the value of our common stock to decline or become worthless.

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STATE SECURITIES LAWS MAY LIMIT SECONDARY TRADING, WHICH MAY RESTRICT THE STATES IN WHICH AND CONDITIONS UNDER WHICH YOU CAN SELL SHARES.

Secondary trading in our common stock may not be possible in any state until the common stock is qualified for sale under the applicable securities laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in the state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of the common stock in any particular state, the common stock cannot be offered or sold to, or purchased by, a resident of that state. In the event that we do not apply for registration in, there is not a valid exemption for, and/or a significant number of states refuse to permit secondary trading in our common stock, the liquidity for the common stock could be significantly impacted.

INVESTORS MAY FACE SIGNIFICANT RESTRICTIONS ON THE RESALE OF OUR COMMON STOCK DUE TO FEDERAL REGULATIONS OF PENNY STOCKS.

Our common stock will be subject to the requirements of Rule 15(g)9, promulgated under the Securities Exchange Act as long as the price of our common stock is below $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser's consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock.

Generally, the Commission defines a penny stock as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.

In addition, various state securities laws impose restrictions on transferring "penny stocks" and as a result, investors in the common stock may have their ability to sell their shares of the common stock impaired.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES

The Company's United States office is located at 330 Madison Ave, 6th Floor, New York, New York 10017. The lease is at a monthly rate of $250 and is on a month to month basis. This space is leased from Office Escape, an operator of business centers in New York and other United States cities. The Company is not the sole occupant of the space and consequently the cost of the rental is shared with other occupants. The Company does not use the office for any purposes falling outside of its business needs. The Chief Executive Officer has been personally paying the Company’s office space rent and not billing the Company from December 31, 2008 to November 30, 2010, which resulted in the Company having no rent or occupancy expense for the year ended December 31, 2009 and the eleven months ended November 30, 2010. The Company had rent and occupancy expense of $272 for the year ended December 31, 2010.

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ITEM 3. LEGAL PROCEEDINGS

In January 2007, we learned that certain of our former officers, Directors and shareholders, had attempted to transfer shares of our common stock, which those individuals had agreed to cancel in connection with the purchase of a majority of the Company’s outstanding shares from those individuals by our current officers, Directors and majority shareholders in April 2003. In February 2007, we filed for a Temporary Restraining Order and Motion for Preliminary Injunction against those individuals in the District Court of Clark County, Nevada.

On February 20, 2007, our Temporary Restraining Order and Motion for Preliminary Injunction was heard by the District Court of Clark County, Nevada, and we were granted an indefinite injunction without a hearing by the court. As such, those individuals who previously attempted to transfer and sell the shares which they held will be prevented from transferring or selling such shares until they can show good cause with the court why such indefinite injunction should be lifted.

From time to time, we may become party to other litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations, other than the proceeding described above. We may become involved in material legal proceedings in the future.

ITEM 4. (REMOVED AND RESERVED)

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

On March 22, 2005, the Company's common stock began trading on the Over-The-Counter Bulletin Board (the “OTCBB”) under the symbol "SIBE." Effective May 2, 2005, in connection with the Company's 1:2 reverse stock split, the Company's common stock began trading under the symbol "SIBN." On February 22, 2011, the Company was automatically delisted from the OTCBB due to the failure of a market maker to quote the Company’s common stock on the OTCBB for the time period required under FINRA rules and regulations and began trading on the OTC Pinks market (i.e., the OTCQB). The Company was requoted on the OTCBB on March 22, 2011. Effective March 15, 2011, the Company’s symbol changed to “SIBND”, which symbol will change back to “SIBN” after twenty business days.

We had 24,828 shares of common stock subject to outstanding options and warrants to purchase, or securities convertible into, the Company's common stock as of December 31, 2010. We have no outstanding shares of preferred stock. As of April 8, 2011, there were 667,659 shares of common stock outstanding, held by approximately 125 shareholders of record, which number does not include 429 shares which the Company has agreed to issue to its President, Helen Teplitskaia for services rendered during the months of January through March 2011, which shares have not been issued to date and have not been included in the total number of outstanding shares disclosed throughout this report.

On September 17, 1999, the Company affected a 1-for-30 reverse stock split. A subsequent 3-for-1 forward split was consummated on October 2, 2000 and a further 1:2 reverse stock split was affected on May 2, 2005. As described below, effective March 15, 2011, the Company affected a 1:70 reverse stock split with the shares held by remaining shareholders rounded up to a minimum of 100 shares on a per shareholder basis (collectively the “Stock Splits”). All share amounts and trading values listed are retroactively adjusted to reflect these Stock Splits unless otherwise provided.

The following table sets forth the high and low closing prices for the Company's common stock, rounded to the nearest one cent, for the periods indicated as reported by the NASDAQ OTC-Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

Closing Prices Quarter Ended	High		Low

December 31, 2010	$	8.38	$	0.35
September 30, 2010	$	7.77	$	2.80
June 30, 2010	$	13.30	$	4.21
March 31, 2010	$	48.29	$	3.15

December 31, 2009	$	8.40	$	3.50
September 30, 2009	$	17.49	$	3.50
June 30, 2009	$	9.10	$	2.80
March 31, 2009	$	4.90	$	2.10

Dividends

We have never declared or paid any cash dividends on our common stock, and we do not anticipate paying any dividends in the foreseeable future. We intend to devote any earnings to fund the operations and the development of our business.

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Common Stock

Holders of shares of common stock are entitled to one vote per share on each matter submitted to a vote of shareholders. In the event of liquidation, holders of common stock are entitled to share pro rata in the distribution of assets remaining after payment of liabilities, if any. Holders of common stock have no cumulative voting rights, and, accordingly, the holders of a majority of the outstanding shares have the ability to elect all of the directors. Holders of common stock have no preemptive or other rights to subscribe for shares. Holders of common stock are entitled to such dividends as may be declared by the Board out of funds legally available therefore. The outstanding shares of common stock are validly issued, fully paid and non-assessable.

Preferred Stock

Shares of preferred stock may be issued from time to time in one or more series, each of which shall have such distinctive designation or title as shall be determined by our Board of Directors (“Board of Directors”) prior to the issuance of any shares thereof. Preferred stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of preferred stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof. The number of authorized shares of preferred stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all the then outstanding shares of our capital stock entitled to vote generally in the election of the directors, voting together as a single class, without a separate vote of the holders of the preferred stock, or any series thereof, unless a vote of any such holders is required pursuant to the terms of any series of preferred stock.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of December 31, 2010 regarding compensation plans (including individual compensation arrangements) under which equity securities are authorized for issuance:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities available for future issuance under equity compensation plans (excluding those in first column)
Equity compensation plans approved by the security holders	-	-	-
Equity compensation plans not approved by the security holders	20,000	$26.50	-
Total

RECENT SALES OF UNREGISTERED SECURITIES

The Company has previously agreed to pay its President, Helen Teplitskaia, 143 shares of common stock per month for her service to the Company. As such, in June 2009, the Company issued Ms. Teplitskaia an aggregate of 858 shares, 143 shares per month from January 2009 to June 2009.

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Additionally, the Company has agreed to issue 358 shares of its restricted common stock to The Investor Relations Group, Inc. (“IRG”) as contemplated by the Leakout Agreement entered into by and between the Company and IRG, dated October 20, 2007, which provided for IRG to be issued an additional 358 shares of restricted common stock in exchange for IRG’s agreeing not to sell shares of the Company’s common stock as provided in the agreement.

In November 2010, the Company issued its President, Helen Teplitskaia, an additional 2,572 shares of common stock in consideration for services rendered during the months of July, August, September, October, November and December 2009 and the months of January, February, March, April, May, June, July, August, September, October, November and December 2010. The Company owes Ms. Teplitskaia an additional 429 shares of common stock for services rendered during the months of January, February and March 2011, which shares have not been issued to date, or included in the number of issued and outstanding shares disclosed throughout this report.

The Company claims an exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, since the foregoing issuances will not involve a public offering, the recipients will take the securities for investment and not resale, no general solicitation will be involved in connection with the issuances, and the Company will take appropriate measures to restrict transfer.

ITEM 6. SELECTED FINANCIAL DATA

Not required pursuant to Item 301 of Regulation S-K.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT. THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.

PLAN OF OPERATIONS FOR THE NEXT TWELVE MONTHS

Moving forward, we anticipate targeting potential long term investments in Russia and countries in the former Soviet Union, funding permitting, of which there can be no assurance. Additionally, the Company currently plans to change its business focus from targeting early stage exploration projects to acquiring assets in producing fields, funding permitting, of which there can be no assurance, in order to decrease its exploration risks.

Currently we are evaluating different business opportunities in the oil and gas industry, including advanced development stage and revenue-producing enterprises and are in preliminary discussions with a potential partner which owns several oil and gas producing properties in Western Siberia; however, as no definitive agreement has been reached, we can provide no assurances that the discussions will result in any definitive understandings or partnerships, and it is likely that any agreement would be conditioned on us raising substantial additional funding, which we can provide no assurances will be available on favorable terms, if at all.

-21-

Historically, we have obtained cash financing from organizing stockholders in the form of loans and advances. Additionally, during the fourth quarter of 2005 and the fourth quarter of 2010 (as described above), we restructured much of our debt through the issuance of shares of our common stock to our creditors and in certain cases, in 2005, obtained waiver letters, postponing certain of our liabilities until such time as we have generated sufficient profits to pay such debts.

In connection with the Joint Venture, the Company previously received monthly management fees, which varied from $25,000 to $85,000 per month. Due to the “transition period” of the Joint Venture’s exploration activities and subsequent decision of Baltic not to pursue further exploration activities through ZNG, no management fees have been paid since October 2007, and the Joint Venture will not pay any management fees in the future. As the Company will not receive any management fees moving forward, the Company believes that its organizing stockholders will continue to provide financing for the Company, of which there can be no assurance.

In the past, we have obtained cash financing from organizing stockholders in the form of loans and advances, as a result, amounts totaling $523,906 and $125,631 were payable to the stockholders as of December 31, 2009 and December 31, 2010, respectively. In October 2010, the Company entered into Debt Conversion Agreements with nine (9) creditors of the Company (the majority of which were shareholders and related parties of the Company), pursuant to which such creditors agreed to convert an aggregate of $2,554,460 of debt owed to such creditors by the Company into 331,748 shares of restricted common stock of the Company, at the rate of one share for each $7.70 of debt converted (the “Conversion”), as described in greater detail above.

There can be no certainty as to the availability of continued financing in the future. Failure to obtain sufficient financing may require us to reduce our operating activities. A failure to continue as a going concern would then require stated amounts of assets and liabilities to be reflected on a liquidation basis which could differ from the going concern basis.

COMPARISON OF OPERATING RESULTS

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2010, COMPARED TO THE YEAR ENDED DECEMBER 31, 2009

We had no revenues and other income for the years ended December 31, 2010 or 2009. Until October 2007, the Company received monthly management fees of between $25,000 and $85,000 pursuant to terms of the Joint Venture. However, the Company has not received any management fees since October 2007, and does not anticipate receiving any such fees moving forward.

We have not generated any revenues to date through the sale of oil and/or gas.

We had total expenses of $579,251 for the year ended December 31, 2010, compared to total expenses for the year ended December 31, 2009, of $636,616, which represented a decrease in total expenses from the prior period of $57,365 or 9%.

The main reasons for the decrease in total expenses for the year ended December 31, 2010, compared to the year ended December 31, 2009, were a $39,253 or 11% decrease in salaries, to $329,000 for the year ended December 30, 2010, compared to $368,253 for the year ended December 31, 2009, in connection with no options being granted to employees in 2010, compared with options granted to employees in 2009, which increased total salaries over that period, and a $17,065 or 58% decrease in marketing and other expenses to $12,504 for the year ended December 31, 2010, compared to $29,569 for the year ended December 31, 2009, in connection with a decrease in travel expenses in 2010.

-22-

The Chief Executive Officer has been personally paying the Company’s office space rent and not billing the Company from December 31, 2008 to November 30, 2010, which resulted in the Company having no rent or occupancy expense for the year ended December 31, 2009 and the eleven months ended November 30, 2010. The Company had rent and occupancy expense of $272 for the year ended December 31, 2010, solely due to rent expense for the month of December 2010.

We had a loss from disposition of loan receivable from affiliate of $29,500 for the year ended December 31, 2009, due to the write off of a $29,500 loan owed to us from Baltic during that period.

We had a net loss of $579,251 for the year ended December 31, 2010, compared to a net loss of $666,116 for the year ended December 31, 2009, a decrease in net loss of $86,865 or 13% from the prior period.

LIQUIDITY AND CAPITAL RESOURCES

We had current assets of $9,277 as of December 31, 2010, which included cash of $467; and prepaid expenses and other current assets of $8,810.

We had total assets of $9,900 as of December 31, 2010, which included current assets of $9,277 and non-current assets of $623 representing property and equipment, net.

We had total liabilities of $368,340 as of December 31, 2010, which were solely current liabilities and which included $125,631 of accounts payable to related party stockholders in connection with those shareholders paying certain of our expenses from the period between January 1, 2003 to December 31, 2010; $74,926 of accounts payable to Baltic in connection with a $29,000 loan advanced to the Company from Baltic, interest on such loan, and certain other expenses owed to Baltic; $20,017 of accounts payable to others for advisory and professional services rendered; and $147,766 of accrued payroll, which included $45,000 payable to our Chief Executive Officer, David Zaikin, $18,774 payable to our Chief Financial Officer, Elena Pochapski, and $69,242 of accrued salary payable to our former Chief Executive Officer, Shakeel Adam.

We had negative working capital of $359,063 and a total pre-development and development stage accumulated deficit of $16,101,756 as of December 31, 2010.

Because our cumulative losses associated with the operations of ZNG exceeded our investment as of the date of the Joint Venture, ZNG, Ltd. is carried on our balance sheet at $-0- as of December 31, 2010. Our investment in ZNG, Ltd. will exceed $-0- at such time as ZNG, Ltd. has cumulative earnings sufficient to repay all loans to Baltic as provided in the Joint Venture, if ever.

As of December 31, 2010, the Company owns a 44% interest in KNG. The Company’s investment in KNG is recorded on the equity method of accounting effective October 1, 2008. After careful consideration of the current financial position of KNG, the Company applied an impairment charge to the value of the investment in KNG which resulted in carrying it at zero value.

We had $6,862 of net cash flows from operating activities for the year ended December 31, 2010, which was mainly attributable to adjustments to reconcile $579,251 of net loss, offset by a decrease of $593,710 of accounts payable and accrued expenses.

-23-

In connection with the Joint Venture (described under "Joint Venture," above), the Company historically received management fees, which varied from $25,000 to $85,000 per month. Due to the “transition period” of the Joint Venture’s exploration activities, no management fees were paid during the years ended December 31, 2009 or 2010, and the Company does not anticipate receiving any such fees moving forward. If the Company does not receive any management fees moving forward, the Company anticipates that its stockholders and management will continue to provide financing for the Company, of which there can be no assurance.

We are taking steps to raise equity capital and/or to borrow additional funds. There can be no assurance that any new capital will be available to us or that adequate funds for our operations, whether from our financial markets, or other arrangements will be available when needed or on terms satisfactory to us, if at all. We have no commitments from officers, directors or affiliates to provide funding. Our failure to obtain adequate financing may require us to delay, curtail or scale back some or all of our operations. Additionally, any additional financing may involve dilution to our then-existing shareholders.

Critical Accounting Policies

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of the Company and its then wholly-owned subsidiaries, ZNG (through October 14, 2005), Siberian Energy Group (Canada) and KNG (December 31, 2006 through September 30, 2008). All intercompany transactions and balances have been eliminated. After October 14, 2005, the Company’s investment in ZNG is accounted for on the equity method of accounting. After September 30, 2008, the Company’s investment in KNG is accounted for on the equity method of accounting. Accordingly, the assets, liabilities and equity are no longer presented on the Company’s balance sheet.

Foreign Currency Translation:

The Russian subsidiaries ZNG and KNG use the Ruble as their functional currency; Siberian Energy Group (Canada) uses the Canadian dollar as its functional currency. The books and records of ZNG, KNG and Siberian Energy Group (Canada) are kept in their functional currencies. The Company translates to U.S. dollars the assets and liabilities of ZNG, KNG, and Siberian Energy Group (Canada) at the year-end exchange rates; and income statement amounts are converted at the average rates of exchange for the year. Translation gains and losses are included within other comprehensive income (loss).

Oil and Gas Properties:

The Company follows the full cost method of accounting for oil and gas properties. Accordingly, all costs associated with acquisition, exploration, and development of oil and gas reserves, including directly related overhead costs, are capitalized.

All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, will be amortized on the unit-of production method using estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. When applicable, if the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized.

-24-

In addition, the capitalized costs are subject to a “ceiling test,” which basically limits such costs to the aggregate of the “estimated present value,” discounted at a 10-percent interest rate of future net revenues from proved reserves, based on current economic and operating conditions, plus the lower of cost or fair market value of unproved properties.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in income. Abandonments of properties are accounted for as adjustments of capitalized costs with no loss recognized.

Property and Equipment:

Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is provided using the straight-line method.

Long-Lived Assets:

Long lived assets to be held and used or disposed of other than by sale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used or disposed of other than by sale are recognized based on the fair value of the asset. Long-lived assets to be disposed of by sale are reported at the lower of its carrying amount or fair value less cost to sell.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable.

-25-

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)

Consolidated Balance Sheets

December 31,	2010			2009

Assets
Current assets:
Cash	$	467		$	751
Prepaid expenses and other		8,810			569
		9,277			1,320

Investment in ZNG, Ltd., at equity		-			-

Investment in KNG, at equity		-			-

Oil and gas properties, unproved		-			-

Property and equipment, net		623			1,267

	$	9,900		$	2,587

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable:
Related party - stockholders	$	125,631		$	523,906
Related party - Baltic Petroleum, interest at 14%		74,926			68,848
Others		20,017			606,831
Accrued payroll		147,766			1,152,054
		368,340			2,351,639

Stockholders' equity:
Preferred stock - 10,000,000 shares, $.001 par value		-			-
Common stock - authorized 100,000,000 shares, $.001 par value
667,959 and 333,282 issued and outstanding		668			333
Additional paid-in capital		15,756,738			13,180,064
Accumulated deficit
Pre-development stage		(449,785	)		(449,785	)
Development stage		(15,651,971	)		(15,072,720	)
Accumulated other comprehensive loss		(14,090	)		(6,944	)
		(358,440	)		(2,349,052	)

	$	9,900		$	2,587

See accompanying notes.

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)
							For the
Consolidated Statements of Operations							cumulative
							period of
							Development
							Stage Activity-
							January 1, 2003
							through
							December 31,
For the years ended December 31,	2010			2009			2010

Revenues and other income:
Management fees from joint venture	$	-		$	-		$	1,135,000
Gain from entrance into joint venture		-			-			364,479
Other		-			-			6,382
Total revenues and other income		-			-			1,505,861

Expenses:
Salaries		329,000			368,253			4,134,858
Professional and consulting fees		229,830			231,132			5,323,771
Rent and occupancy		272			-			237,498
Depreciation and amortization		644			621			105,502
Finance charges and interest		7,001			7,041			126,105
Marketing and other		12,504			29,569			2,077,081
Total expenses		579,251			636,616			12,004,815

Loss from disposition of loan receivable - affiliate		-			29,500			29,500

Loss from sale of investment		-			-			669,570

Loss on deemed disposition of oil and
gas properties, unproved		-			-			3,928,000

Impairment charge on investment		-			-			525,947

Loss before income taxes		579,251			666,116			15,651,971

Provision for income taxes (benefit)		-			-			-

Net loss (development stage)	$	579,251		$	666,116		$	15,651,971

Basic and diluted loss per common share
after 1:70 reverse stock split	$	(1.50	)	$	(2.25	)	$	(70.43	)

Weighted average number of basic and diluted common
shares outstanding after 1:70 reverse stock split		385,865			296,107			222,250

See accompanying notes.

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)

Consolidated Statements of Stockholders' Equity

For the cumulative period of Development Stage Activity - January 1, 2003 through December 31, 2010

													Accumulated
	Common Stock						Additional						Other
	Number of						Paid-In			Accumulated			Comprehensive						Comprehensive
	Shares			Par Value			Capital			Deficit			Income (Loss)			Total			Loss

Balance, January 1, 2003 (pre-development stage)		136,101		$	136		$	434,962		$	(449,785	)	$	-		$	(14,687	)

Loss for the year - 2003		-			-			-			(422,516	)		-			(422,516	)	$	(422,516	)

Shares issued in acquisition (ZNG)		14,286			14			(14	)		-			-			-

Balance, December 31, 2003		150,387		$	150		$	434,948		$	(872,301	)		-		$	(437,203	)

Loss for the year - 2004		-			-			-			(833,567	)		-			(833,567	)

Foreign currency translation adjustment		-			-			-			-			(53,120	)		(53,120	)	$	(886,687	)

Shares issued in acquisition (ZNG)		49,286			49			749,951			-			-			750,000

Shares issued for professional services		715			1			9,999			-			-			10,000

Other		-			-			34,426			-			-			34,426

Balance, December 31, 2004		200,388		$	200		$	1,229,324		$	(1,705,868	)	$	(53,120	)	$	(529,464	)

Loss for the year - 2005		-			-			-			(1,153,686	)		-			(1,153,686	)

Foreign currency translation adjustment		-			-			-			-			50,614			50,614		$	(1,103,072	)

Shares issued for professional services		5,500			6			198,208			-			-			198,214

Shares issued for accrued salaries		24,286			24			303,547			-			-			303,571

Warrants granted for professional services		-			-			310,000			-			-			310,000

Balance, December 31, 2005		230,174		$	230		$	2,041,079		$	(2,859,554	)	$	(2,506	)	$	(820,751	)

Loss for the year - 2006		-			-			-			(4,072,788	)		-			(4,072,788	)

Foreign currency translation adjustment		-			-			-			-			(1,939	)		(1,939	)	$	(4,074,727	)

Shares issued for employee stock option plan and warrants		2,786			3			45,497			-			-			45,500

Shares issued for geological data		27,143			27			3,324,973			-			-			3,325,000

Shares issued for professional services		16,279			16			2,121,444			-			-			2,121,460

Warrants granted for professional services		-			-			1,201,960			-			-			1,201,960

Shares cancelled		(8,707	)		(9	)		9			-			-			-

Balance, December 31, 2006		267,675		$	267		$	8,734,962		$	(6,932,342	)	$	(4,445	)	$	1,798,442

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)

Consolidated Statements of Stockholders' Equity

For the cumulative period of Development Stage Activity - January 1, 2003 through December 31, 2010

											Accumulated
	Common Stock				Additional						Other
	Number of				Paid-In			Accumulated			Comprehensive						Comprehensive
	Shares		Par Value		Capital			Deficit			Income (Loss)			Total			Loss


Balance, December 31, 2006		267,675	$	267	$	8,734,962		$	(6,932,342	)	$	(4,445	)	$	1,798,442

Loss for the year - 2007		-		-		-			(2,060,487	)		-			(2,060,487	)

Foreign currency translation adjustment		-		-		-			-			(9,804	)		(9,804	)	$	(2,070,291	)

Shares issued for employee stock option plan and warrants		8,100		8		(8	)		-			-			-

Shares issued for geological data		2,857		3		349,997			-			-			350,000

Shares issued for accrued salaries		11,257		11		1,445,395			-			-			1,445,406

Shares issued for licenses		28,571		29		1,319,971			-			-			1,320,000

Shares issued for professional services		10,215		10		1,071,100			-			-			1,071,110

Warrants granted for professional services		-		-		150,394			-			-			150,394

Balance, December 31, 2007		328,675	$	328	$	13,071,811		$	(8,992,829	)	$	(14,249	)	$	4,065,061

Loss for the year - 2008		-		-		-			(5,863,560	)		-			(5,863,560	)

Foreign currency translation adjustment		-		-		-			-			27,019			27,019		$	(5,836,541	)

Shares issued for professional services and accrued salaries		2,213		2		41,748			-			-			41,750

Warrants granted for professional services		-		-		6,303			-			-			6,303

Shares issued for loan repayment and related interest		1,536		2		10,751			-			-			10,753

Balance, December 31, 2008		322,424	$	332	$	13,130,613		$	(14,856,389	)	$	12,770		$	(1,712,674	)

Loss for the year - 2009		-		-		-			(666,116	)		-			(666,116	)

Foreign currency translation adjustment		-		-		-			-			(19,714	)		(19,714	)	$	(685,830	)

Shares issued for accrued salaries		858		1		3,599			-			-			3,600

Options vested to employees and directors		-		-		45,852			-			-			45,852

Balance, December 31, 2009		333,282	$	333	$	13,180,064		$	(15,522,505	)	$	(6,944	)	$	(2,349,052	)

Loss for the year - 2010		-		-		-			(579,251	)		-			(579,251	)

Foreign currency translation adjustment		-		-		-			-			(7,146	)		(7,146	)	$	(586,397	)

Shares issued for accounts payable and accrued salaries		331,748		332		2,554,127			-			-			2,554,459

Shares issued for professional services and accrued salaries		2,929		3		22,547			-			-			22,550

Balance, December 31, 2010		667,959	$	668	$	15,756,738		$	(16,101,756	)	$	(14,090	)	$	(358,440	)

See accompanying notes.

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)
							For the
Consolidated Statements of Cash Flows							cumulative
							period of
							Development
							Stage Activity-
							January 1, 2003
							through
							December 31,
For the years ended December 31,	2010			2009			2010

Operating activities:
Net loss (development stage)	$	(579,251	)	$	(666,116	)	$	(15,651,971	)
Depreciation and amortization		644			621			105,397
Common stock and warrants issued
for professional services and salaries and geological data		-			49,452			7,231,933
Gain from entrance into joint venture		-			-			(364,479	)
Loss on disposition of office furniture		-			-			1,029
Loss on sale of investment, including deconsolidation of subsidiary		-			29,500			823,692
Loss on deemed disposition of oil and gas properties, unproved		-			-			3,928,000
Impairment charge on investment		-			-			525,947
Changes in other current assets and
current liabilities:
Management fee receivable		-			-			110,000
Prepaid expenses and other assets		(8,241	)		(48	)		(272,202	)
Accounts payable and accrued expenses		593,710			606,422			4,585,127
Net operating activities		6,862			19,831			1,022,473

Investing activities:
Expenditures for licenses and related		-			-			(528,961	)
Expenditures for oil and gas properties		-			-			(770,750	)
Expenditures for property and equipment		-			-			(6,244	)
Proceeds of disposition of office furniture		-			-			107
Loan to affiliate		-			-			(29,500	)
Cash received in acquisition		-			-			6
Cash received from entrance into joint venture		-			-			175,000
Net investing activities		-			-			(1,160,342	)

Financing activities:
Net proceeds from demand loans		-			-			72,500
Common stock issued for employee stock option plan		-			-			45,500
Additional paid-in capital		-			-			34,426
Net financing activities		-			-			152,426

Effect of exchange rates on cash		(7,146	)		(19,819	)		(14,090	)

Net change in cash		(284	)		12			467

Cash - beginning		751			739			-

Cash - ending	$	467		$	751		$	467

See accompanying notes.

Restricted common shares issued for
oil and gas properties, unproved in 2006			27,143
Restricted common shares issued in
connection with license acquisition by KNG in 2007			28,571
Restricted common shares issued in 2006			2,857
Total restricted common shares issued			58,571

Stock warrants issued in 2006
for purchase option			3,572