ASSET ACQUISITIONS	9 Months Ended
Sep. 30, 2011
ASSET ACQUISITIONS
ASSET ACQUISITIONS	NOTE 4 – ASSET ACQUISITIONS On June 15, 2010, the Company entered into a letter of intent to purchase for $514,000 certain oil and gas leases on 1,280 contiguous acres located in shallow waters in the Gulf of Mexico off of Jefferson County, Texas and the Company made a non-refundable deposit payment of $10,000 to the seller. In the third quarter of 2010 the Company decided not to pursue the purchase. On March 31, 2010, the Company entered into an agreement to acquire certain pipeline assets from a chapter 7 bankruptcy proceeding for $4,500,000, which required a deposit payment of $250,000 during the auction and bidding process. In April 2010, the bankruptcy court notified the Company that they needed a higher bid and the Company decided not to bid for the assets, therefore the deposit of $250,000 was returned to the Company. On May 27, 2011, the Company entered into a letter of intent (the “Letter of Intent”) with the sole shareholder of Lily Group Inc. (“Lily”) to purchase all of the stock of Lily, which currently owns a coal mining operation in Indiana. Though the terms of the Letter of Intent are non-binding (excluding customary standstill and confidentiality provisions), the Letter of Intent required the Company to loan Lily $500,000 pursuant to a convertible promissory note dated as of June 28, 2011 (the “Lily Note”). The Lily Note has a one-year term and accrues interests at a rate of 10% per annum. In addition, if the closing of the Lily transaction does not occur on or before June 28, 2012, all outstanding principal and accrued but unpaid interest under the Lily Note shall automatically convert into 2.5% of the fully diluted capital stock of Lily. The Company funded the principal under the Lily Note in multiple installments between July 1, 2011, and July 19, 2011. On August 31, 2011 the Company and Lily entered into an agreement to extend the Letter of Intent expiration date from September 1, 2011 to September 30, 2011. This letter of intent was replaced on October 2, 2011 by a second letter of intent. In relation to the May 27, 2011 Letter of intent, the Company executed an additional five convertible notes receivable with Lily in the third quarter of 2011 in the total amount of $1,125,000. The notes mature one year from the date of execution and accrue interest at 10% per annum. In the event of default, the interest rate will increase to 12% per annum. If the closing of the Lily transaction does not occur on or before September 30, 2012, all outstanding principal and accrued but unpaid interest under these Lily notes shall automatically convert into a total of 5.63% of the fully diluted capital stock of Lily. As of September 30, 2011 the balance of accrued interest receivable on these notes is $7,055. On August 15, 2011the Company (VHGI Energy) entered into an agreement with Outdoor Resources of Crossville, Tennessee to drill an initial oil well within 120 days. The well is to be located in the "Upper Cumberland Region" of north central Tennessee (Morgan, Fentress and/or Scott Counties). The plan is for a shallow drilling program with a target of the Monteagle formation (750'); traditionally Tennessee's top gas and oil producing formation. The Monteagle is the most wide spread oil and gas producing formation in the Cumberland Plateau. This is a single well "Turnkey" drilling agreement allowing VHGI Energy, LLC a 65% "Over Riding Royalty" while Outdoor Resources, Inc. and the land owners will hold the remaining interest. Outdoor Resources, Inc. will hold 100% of the "Working Interest". VHGI Energy, LLC has retained the right to acquire up to an additional four (4) wells upon completion of this initial effort. The "Turnkey" drilling costs are to be $150,000 per well. There can be no assurances as to whether or not the transactions within this agreement shall come to fruition. But if such a transaction is completed, the Company will be engaged through Outdoor Resources as the licensed operating company (in Tennessee to drill and operate oil and natural gas wells) in the oil and natural gas business in the State of Tennessee. On October 2, 2011, the Company entered into a second letter of intent (the “Second Letter of Intent”) with Lily reiterating the Company’s plans to purchase all of the stock of Lily. The second Letter of Intent, which terminates on November 15, 2011, requires the Company to provide Lily with a line of credit for working capital. The loan will be for one year and will accrue interest at 12% per annum. If for any reason the transaction does not close, the loan will be converted into 7.5% non-diluted equity in Lily. As of the date of this filing, the Company has established a $1,500,000 line of credit and has made payments to Lily in the amount of $955,000. There can be no assurances as to whether or not the transactions contemplated by the Letter of Intent will be consummated, or, if consummated, what the definitive terms of such transactions will be. But if such a transaction is consummated, the Company will be engaged through its ownership of Lily in the coal mining business.

ASSET ACQUISITIONS

9 Months Ended

Sep. 30, 2011

NOTE 4 – ASSET ACQUISITIONS

On June 15, 2010, the Company entered into a letter of intent to purchase for $514,000 certain oil and gas leases on 1,280 contiguous acres located in shallow waters in the Gulf of Mexico off of Jefferson County, Texas and the Company made a non-refundable deposit payment of $10,000 to the seller. In the third quarter of 2010 the Company decided not to pursue the purchase.

On March 31, 2010, the Company entered into an agreement to acquire certain pipeline assets from a chapter 7 bankruptcy proceeding for $4,500,000, which required a deposit payment of $250,000 during the auction and bidding process. In April 2010, the bankruptcy court notified the Company that they needed a higher bid and the Company decided not to bid for the assets, therefore the deposit of $250,000 was returned to the Company.

On May 27, 2011, the Company entered into a letter of intent (the “Letter of Intent”) with the sole shareholder of Lily Group Inc. (“Lily”) to purchase all of the stock of Lily, which currently owns a coal mining operation in Indiana. Though the terms of the Letter of Intent are non-binding (excluding customary standstill and confidentiality provisions), the Letter of Intent required the Company to loan Lily $500,000 pursuant to a convertible promissory note dated as of June 28, 2011 (the “Lily Note”). The Lily Note has a one-year term and accrues interests at a rate of 10% per annum. In addition, if the closing of the Lily transaction does not occur on or before June 28, 2012, all outstanding principal and accrued but unpaid interest under the Lily Note shall automatically convert into 2.5% of the fully diluted capital stock of Lily. The Company funded the principal under the Lily Note in multiple installments between July 1, 2011, and July 19, 2011. On August 31, 2011 the Company and Lily entered into an agreement to extend the Letter of Intent expiration date from September 1, 2011 to September 30, 2011. This letter of intent was replaced on October 2, 2011 by a second letter of intent.

In relation to the May 27, 2011 Letter of intent, the Company executed an additional five convertible notes receivable with Lily in the third quarter of 2011 in the total amount of $1,125,000. The notes mature one year from the date of execution and accrue interest at 10% per annum. In the event of default, the interest rate will increase to 12% per annum. If the closing of the Lily transaction does not occur on or before September 30, 2012, all outstanding principal and accrued but unpaid interest under these Lily notes shall automatically convert into a total of 5.63% of the fully diluted capital stock of Lily. As of September 30, 2011 the balance of accrued interest receivable on these notes is $7,055.

On August 15, 2011the Company (VHGI Energy) entered into an agreement with Outdoor Resources of Crossville, Tennessee to drill an initial oil well within 120 days. The well is to be located in the "Upper Cumberland Region" of north central Tennessee (Morgan, Fentress and/or Scott Counties). The plan is for a shallow drilling program with a target of the Monteagle formation (750'); traditionally Tennessee's top gas and oil producing formation. The Monteagle is the most wide spread oil and gas producing formation in the Cumberland Plateau. This is a single well "Turnkey" drilling agreement allowing VHGI Energy, LLC a 65% "Over Riding Royalty" while Outdoor Resources, Inc. and the land owners will hold the remaining interest. Outdoor Resources, Inc. will hold 100% of the "Working Interest". VHGI Energy, LLC has retained the right to acquire up to an additional four (4) wells upon completion of this initial effort. The "Turnkey" drilling costs are to be $150,000 per well. There can be no assurances as to whether or not the transactions within this agreement shall come to fruition. But if such a transaction is completed, the Company will be engaged through Outdoor Resources as the licensed operating company (in Tennessee to drill and operate oil and natural gas wells) in the oil and natural gas business in the State of Tennessee.

On October 2, 2011, the Company entered into a second letter of intent (the “Second Letter of Intent”) with Lily reiterating the Company’s plans to purchase all of the stock of Lily. The second Letter of Intent, which terminates on November 15, 2011, requires the Company to provide Lily with a line of credit for working capital. The loan will be for one year and will accrue interest at 12% per annum. If for any reason the transaction does not close, the loan will be converted into 7.5% non-diluted equity in Lily. As of the date of this filing, the Company has established a $1,500,000 line of credit and has made payments to Lily in the amount of $955,000. There can be no assurances as to whether or not the transactions contemplated by the Letter of Intent will be consummated, or, if consummated, what the definitive terms of such transactions will be. But if such a transaction is consummated, the Company will be engaged through its ownership of Lily in the coal mining business.