UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31,September 30, 2008
 
OR
 
¨o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from: ______ to ________
 
Commission File Number 000-52272
 
ZULU ENERGY CORP.
(Exact name of registrant as specified in its charter)
 
Colorado
20-3281304
State or other jurisdiction of(I.R.S. Employer
incorporation or organizationIdentification No.)
 
122 N. Main950 17th Street, Sheridan, Wyoming 82801Suite 2300, Denver, Colorado 80202
(Address of principal Executive Offices)executive offices) (Zip Code)
 
(307) 673-0800(720) 961-3255
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)telephone number)
 
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 o¨

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 o¨
Accelerated filer o¨
  
Non-accelerated filer o¨ (Do not check if a smaller reporting company)
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o¨ No x

The number of shares of the registrant’s common stock outstanding as of May 15,November 17, 2008: 96,000,00090,000,000 shares.


TABLE OF CONTENTS

FORM 10-Q QUARTERLY REPORT

ZULU ENERGY CORP.

PART I – FINANCIAL INFORMATION
3
  
ITEM 1.
FINANCIAL STATEMENTS
3
   
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS20
ITEM 4T.CONTROLS AND PROCEDURES27
PART II – OTHER INFORMATION29
ITEM 1.
LEGAL PROCEEDINGS
29
ITEM 2.
UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
29
ITEM 3.DEFAULTS UPON SENIOR SECURITIES29
ITEM 4.
SUBMISSION OF MATTERS TO THE VOTE OF SECURITY HOLDERS
29
ITEM 5.
OTHER INFORMATION
29
ITEM 6.
EXHIBITS
30
SIGNATURES24

2

PART I -– FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ZULU ENERGY CORP. & SUBSIDIARIES
(Formerly Global Sunrise, Inc.)
(An Exploration Stage Company)
UNAUDITED CONSOLIDATED BALANCE SHEETS AS AT


 March 31, December 31,  September 30, December 31, 
 2008 2007  2008 2007 
ASSETS
ASSETS
 
ASSETS
 
Current Assets          
Cash and cash equivalents $90,572 $17,598  $837,388 $17,598 
Deposit  1,500  -   2,500  - 
Prepaid Expenses  13,930  5,468   312,810  5,468 
Total Current Assets  106,002  23,066   1,152,698  23,066 
              
Fixed Assets, net  198  216   98,215  216 
Oil and Gas Properties  27,472  29,575   26,432  29,575 
Prospecting Licenses  3,000,000  3,000,000   17,947,700  3,000,000 
Capitalized Exploratory Drilling Costs  5,956,119  - 
              
Total Assets $3,133,672 $3,052,857  $25,181,164 $3,052,857 
              
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities              
Accounts Payables $556,672 $266,380  $479,581 $266,380 
Accrued Expenses  35,000  63,333   -  63,333 
Loan payable to shareholder  255,754  252,083   6,120  252,083 
Liability - acquisition of prospecting licenses rights  3,000,000  3,000,000 
Liability – acquisition of prospecting licenses rights  1,500,000  3,000,000 
Liabilities to Government of Botswana  4,237,043  4,561,393   4,076,528  4,561,393 
Total Current Liabilities $8,084,469 $8,143,189   6,062,229  8,143,189 
              
Stockholders’ Deficit:       
Stockholders’ Equity (Deficit):       
Preferred Stock, $.001 par value; authorized 10,000,000 shares, none issued  -  -   -  - 
Common stock 100,000,000 shares authorized at $0.001 par value, 82,000,000 shares issued and outstanding at 03/31/2008 and 12/31/2007 respectively.   82,000 82,000 
Common stock, 100,000,000 shares authorized at $0.001 par value, 90,000,000 shares issued and outstanding at 09/30/2008, 82,000,000 at 12/31/2007.
  90,000  82,000 
Additional paid-in capital  (411,724) (411,724)  27,394,781  (411,724)
Deficit accumulated during the exploration stage  (5,034,529) (4,840,906)  (8,933,242) (4,840,906)
Subscription receivable  (98) (98)  (98) (98)
Accumulated other comprehensive income  413,554  80,396   567,494  80,396 
Total Stockholders’ Deficit  (4,950,797) (5,090,332)
Total Stockholders’ Equity (Deficit)  19,118,935  (5,090,332)
              
Total Liabilities and Stockholders’ Deficit $3,133,672 $3,052,857  $25,181,164 $3,052,857 
 
The accompanying notes are an integral part of these financial statements

3

ZULU ENERGY CORP. & SUBSIDIARIES
(Formerly Global Sunrise, Inc.)
(An Exploration Stage Company)

UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2008 AND 2007 AND THE PERIOD FROM AUGUST 11, 2005 (INCEPTION) TO MARCH 31, 2008

  
THREE MONTHS
ENDED
MARCH 31, 2008
 
THREE MONTHS
ENDED
MARCH 31, 2007
 
FOR THE PERIOD FROM
AUGUST 11, 2005
(INCEPTION) TO
MARCH 31, 2008
 
Revenue $- $- $- 
Operating expenses  193,623  16,775  4,973,558 
Loss from operations before Minority Interest  (193,623) (16,775) (4,973,558)
Minority Interest  0  1,549  2,303,022 
Taxes  -  -  - 
Loss for the period $(193,623)$(15,226)$(2,670,536)
Other Comprehensive Income:
Foreign currency translation
  333,158  -  413,554 
Total Comprehensive Income (Loss) $139,535 $(15,226)$(2,256,982)
           
           
Comprehensive Income (Loss) per Share:          
Primary $0.00 $(0.03)   
Weighted Average Shares Outstanding  82,000,000  600,000    

The accompanying notes are an integral part of these financial statements
4

ZULU ENERGY CORP. & SUBSIDIARIES
(Formerly Global Sunrise, Inc.)
(An Exploration Stage Company)
UNAUDITED (unaudited)
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 AND THE PERIOD FROM AUGUST 11, 2005 (INCEPTION) TO SEPTEMBER 30, 2008

   
THREE MONTHS
ENDED
SEPTEMBER 30,
2008
 
THREE MONTHS
ENDED
SEPTEMBER 30,
2007
 
NINE MONTHS
ENDED
SEPTEMBER30,
2008
 
NINE MONTHS
ENDED
SEPTEMBER 30,
2007
 
FOR THE PERIOD
FROM AUGUST 11,
2005 (INCEPTION) TO
SEPTEMBER 30, 2008
 
Revenue $- $- $- $- $- 
Operating expenses  724,588  33,288  4,092,336  60,569  8,872,271 
Loss from operations before Minority Interest  (724,588)   (33,288)   (4,092,336)   (60,569)   (8,872,271)
Minority Interest  -  9,691  -  12,101  2,303,022 
Taxes  -  -  -  -  - 
Loss for the period $(724,588)$(23,597)$(4,092,336)$(48,468)$(6,569,249)
Other Comprehensive Income:                      
Foreign currency translation  174,528  -  487,098  -  567,494 
Total Comprehensive Loss $(550,060)$(23,597)$(3,605,238)$(48,468)$(6,001,755)
                 
Comprehensive Income (Loss) per Share:                
Primary $(0.01)$(0.00)$(0.04)$(0.00)   
Weighted Average Shares Outstanding  90,000,000  29,680,435  86,291,971  10,400,000    
The accompanying notes are an integral part of these financial statements

4

ZULU ENERGY CORP. & SUBSIDIARIES
(Formerly Global Sunrise, Inc.)
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICITEQUITY (DEFICIT)
for the period from August 11, 2005 (Date of Inception) to March 31,September 30, 2008

         Deficit              Deficit     
         Accumulated              Accumulated     
 Common Stock Additional Other During the   Total  Common Stock Additional Other During the   Total 
 Number   Paid In Comprehensive Exploration Subscription Stockholders  Number   Paid In Comprehensive Exploration Subscription Stockholders 
 Shares Amount Capital Income Stage Receivable (Deficiency)  Shares Amount Capital Income Stage Receivable (Deficiency) 
                              
Balance on Date of Inception  - $- $- $- $-   $-   -   $-   $-   $-   $-   $-   $- 
Issuance of common stock-Aug. 11, 2005  600,000 600 (598) - -   2 
                
Issuance of common stock–Aug. 11, 2005  600,000 600 (598) - - - 2 
Net loss for the year 2005  -  -  -  -  (7,087) -  (7,087)  -  -  -  -  (7,087) -  (7,087)
Balance, December 31, 2005  600,000 600 (598) - (7,087)   (7,085)  600,000 600 (598) - (7,087) - (7,085)
                                
Net loss for the year 2006  -  -  -  -  (24,018) -  (24,018)  -  -  -  -  (24,018) -  (24,018)
Balance, December 31, 2006  600,000 600 (598) - (31,105)   (31,103)  600,000 600 (598) - (31,105) - (31,103)
                                
Net Loss for the year ended Dec 31, 2007  - - - 80,396 (2,445,808) - (2,365,412)  - - - 80,396 (2,445,808) - (2,365,412)
Shares Issued – Subscription receivable  29,400,000 29,400 (29,302) - - (98) -   29,400,000 29,400 (29,302) - - (98) - 
Issuance of common stock Dec 20, 2007 for Net Assets of Zulu Energy Corp.  52,000,000 52,000 (381,824) - - - (329,824)  52,000,000 52,000 (381,824) - - - (329,824)
Minority Interest Acquired  -  -  -     (2,363,993) -  (2,363,993)  -  -  -  -  (2,363,993) -  (2,363,993)
Balance, December 31, 2007  82,000,000 82000 (411,724) 80,396 (4,840,906) (98) (5,090,332)  82,000,000 82,000 (411,724) 80,396 (4,840,906) (98) (5,090,332)
Net Comprehensive Income for Three months ended March 31, 2008  - - - 333,158 (193,623) - 139,535 
Balance, March 31, 2008  82,000,000 82000 (411,724) 413,554 (5,034,529) (98) (4,950,797)
                
Shares Issued – Private Placement  8,000,000 8,000 6,942,000 - - - 6,950,000 
Warrants – Prospecting Licenses  - - 14,947,700 - - - 14,947,700 
Stock-based Compensation  - - 2,556,605 - - - 2,556,605 
Stock Options - Capitalized Exploratory Drilling Costs  - - 3,360,200 - - - 3,360,200 
Net Comprehensive Income for Nine months ended September 30, 2008  -  -  -  487,098  (4,092,336) -  (3,605,238)
Balance, September 30, 2008  90,000,000  90,000  27,394,781  567,494  (8,933,242) (98) 19,118,935 

The accompanying notes are an integral part of these financial statements

5

ZULU ENERGY CORP. & SUBSIDIARIES
(Formerly Global Sunrise, Inc.)
(An Exploration Stage Company)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREENINE MONTHS ENDED MARCH 31,SEPTEMBER 30, 2008 AND 2007 AND FOR THE PERIOD FROM AUGUST 11, 2005
(DATE (DATE OF INCEPTION) TO MARCH 31,SEPTEMBER 30, 2008
 
 Three months Ended Three months Ended 
For the
Period From
August 11, 2005 (Inception) to
  
Nine months
Ended
 
Nine months
Ended
 
For the
Period From
August 11, 2005
(Inception) to
 
 March 31, March 31, March 31,  September 30, September 30, September 30, 
 2008 2007 2008  2008 2007 2008 
              
Cash Flows from Operating Activities :              
Net loss for the period $(193,623)$(16,775)$(2,670,536) $(4,092,336)$(48,468)$(6,569,249)
Adjustments to reconcile net income to net cash provided (used) by operating activities:                    
Depreciation  18  -  100   3,719  63  3,801 
Stock-based compensation  2,556,605  -  2,556,605 
Changes in working capital balances:                    
Deposit  (1,500)    (1,500)  (2,500) -  (2,500)
Prepaid expenses  (8,462) -  (13,930)  (307,342) (10,756) (312,810)
Other liabilities, net of minority interest  -  -  2,197,400   -  -  2,197,400 
Accounts payable and accrued expenses  261,959  -  297,407   149,867  45,500  185,315 
Net cash provided (used) by operating activities  58,392  (16,775) (191,059)
Liability – acquisition of prospecting licenses rights  (1,500,000) -  (1,500,000)
Net cash used by operating activities  (3,191,987) (13,661) (3,441,438)
                    
Cash Flows used in Investing Activities:                    
Capitalized Exploratory Drilling Costs  (2,584,751) -  (2,584,751)
Cash acquired upon investment in subsidiary  -  -  17,452   -  -  17,452 
Fixed Assets  -     (298)  (112,885) (298) (113,183)
Oil and gas properties  -  -  (29,575)  -  (29,354) (29,575)
Net cash used by investing activities  -  -  (12,421)  (2,697,636) (29,652) (2,710,057)
                    
Cash Flows from Financing Activities:                    
Issuance of common stock  -  -  2   6,950,000  2  6,950,002 
Increase in shareholder loan  3,671  16,775  202,743 
Increase (decrease) in shareholder loan  (245,963) 53,724  (46,891)
Net cash provided by financing activities  3,671  16,775  202,745   6,704,037  53,726  6,903,111 
                       
Effects of exchange rates on cash  10,911  -  91,307   5,376  -  85,772 
                    
Increase in cash and cash equivalents  72,974  -  90,572   819,790  10,413  837,388 
Cash and cash equivalents, beginning of period  17,598  -  -   17,598  -  - 
                    
Cash and cash equivalents, end of the period $90,572 $0 $90,572  $837,388 $10,413 $837,388 

Supplemental Disclosures:
The Company did not pay anypaid $12,555 interest orand $NIL taxes during the above periods.nine months ended September 30, 2008.

Non-cash financing and investing activities:
The Company issued 15,000,000 warrants for prospecting licenses of $14,947,700.
The Company issued 4,500,000 stock options for capitalized exploratory drilling costs of $3,360,200.

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

6
 
Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to March 31,September 30, 2008

Note 1Significant Accounting Policies

Condensed Consolidated Financial Statements
 
The accompanying unaudited condensed consolidated financial statements of Zulu Energy Corp. and its subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the rulesinstructions to Form 10-Q and regulations for reporting on Form 10-QSB.Regulation S-X. Accordingly, they do not include certain information and disclosures required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the three and nine months ended March 31,September 30, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2008.
 
These statements should be read in conjunction with the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007.
 
Basis of Presentation
 
These consolidated financial statements include the accounts of Zulu Energy Corp. (“Zulu Energy”) and its wholly owned subsidiaries, Nyati Mauritius Limited (“Mauritius”), Nyati Resources Limited (“Resources”), and Nyati Resources Botswana (Proprietary)(“Proprietary”) Limited (“Nyati Botswana”)(Botswana). Collectively, the consolidated entities are referred to herein as the (“Company”). All significant inter-company transactions have been eliminated.
 
Going Concern
 
The Company’s financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company’s net loss from operations for the three and nine months ended March 31,September 30, 2008 totaled $193,623,$724,588 and $4,092,336 and the net working capital deficit and total stockholders’ deficitequity through March 31,September 30, 2008 totaled $7,978,467$4,909,531 and $4,950,797,$19,118,935, respectively.
 
The Company’s ability to continue as a going concern will be dependent upon its ability to obtain sufficient financing to pay its existing creditors, cover its operating overhead, and fund oil and gas exploration and production projects. Other market factors such as the price of oil, gas and other natural resources upon extraction being at prices sufficient to generate profitable operations may impact the Company’s ability to continue as a going concern.
 
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

7
Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008

Exploration Stage Company 
 
The Company is in the exploration stage. The Company is in the process of acquiring oil andexploring natural gas licenses and drilling rights located in Botswana, Africa. The recoverability of the cost of capitalized oil andnatural gas properties are dependent upon the discovery of recoverable reserves, the Company’s ability to obtain the necessary funding to extract the reserves andtheand the sale of production at profitable market prices.
7
Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to March 31, 2008
 
The Company complies with Financial Accounting Standards Board Statement No.7 and SEC Guide 7 for its characterization of the Company as exploration stage.
 
Cash and Cash Equivalents
 
The Company considers all investments purchased with a maturity of three months or less to be cash equivalents.
 
Concentration of Credit Risk
 
Financial instruments which potentially subject the Company to credit risk consist principally of cash. The Company maintains its cash with a quality financial institution. The Company did not maintainhas maintained a balance in excess of the FDIC insured amount of $100,000 during the nine months ended September 30, 2008.
Oil and Gas Activities - Successful Efforts Method of Accounting
On April 4, 2005, the FASB adopted FASB Staff Position FSP FAS 19-1 that amends Statement of Financial Accounting Standards No. 19 (FAS 19), Financial Accounting and Reporting by Oil and Gas Producing Companies, to permit the continued capitalization of exploratory well costs beyond one year if (a) the well found a sufficient quantity of reserves to justify its completion as a producing well and (b) the entity is making sufficient progress assessing the reserves and the economic and operating viability of the project.
The Company accounts for its gas development activities utilizing the successful efforts method of accounting. Under this method, costs of productive exploratory wells, development dry holes and productive wells and undeveloped leases are capitalized. Gas lease acquisition costs are also capitalized. Exploration costs, including personnel costs, certain geological and geophysical expenses and daily rentals for gas leases, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate. A gain or loss is recognized for all other sales of producing properties.

8

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008
The application of the successful efforts method of accounting requires managerial judgment to determine that proper classification of wells designated as developmental or exploratory which will ultimately determine the proper accounting treatment of the costs incurred. The results from a drilling operation can take considerable time to analyze and the determination that commercial reserves have been discovered requires both judgment and industry experience. Wells may be completed that are assumed to be productive and actually deliver gas in quantities insufficient to be economic, which may result in the abandonment of the wells at a later date. Wells are drilled that have targeted geologic structures that are both developmental and exploratory in nature and an allocation of costs is required to properly account for the results. Delineation seismic incurred to select development locations within a gas field is typically considered a development cost and capitalized, but often these seismic programs extend beyond the reserve area considered proved and management must estimate the portion of the seismic costs to expense. The evaluation of gas leasehold acquisition costs requires managerial judgment to estimate the fair value of these costs with reference to drilling activity in a given area. Drilling activities in an area by other companies may also effectively condemn leasehold positions.
Revenue Recognition
The Company has not earned any revenues since its inception. Gas revenues will be recorded at such time as the Company has delivered and transferred title to a purchaser of its product and the price has been reasonably determined.
Asset Retirement Obligations
The Corporation recognizes the value of a liability for an asset retirement obligation in the year in which a reasonable estimate of value can be made.
Changes in the liability for an asset retirement obligation due to the passage of time will be measured by applying an interest method of allocation. The amount will be recognized as an increase in the liability and an accretion expense in the statement of operations. Changes resulting from revisions to the timing or the amount of the original estimate of undiscounted cash flows are recognized as an increase or a decrease in the carrying amount of the liability for an asset retirement obligation and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset. As at September 30, 2008 the value of the gas property’s site restoration costs is insignificant.
Environmental Costs
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the Company’s commitments to plan of action based on the then known facts.

9

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation and is depreciated on a straight line basis, commencing when the assets are put into use over the estimated useful lives of the assets as follows:

Property, Plant and Equipment10 years
Office Equipment3 years
Computer Hardware3 years
Vehicles5 years

In accordance with SFAS 144, “Accounting for Impairment or Disposal of Long-Lived Assets”, the Company reviews the carrying value of long-lived assets for impairment whenever events and circumstances indicate that the carrying value of the assets might be impaired and the carrying value may not be recoverable. Recoverability of these assets is measured by comparison of the carrying value of the assets to the undiscounted cash flows estimated to be generated by those assets over the remaining economic life. If the undiscounted cash flows are not sufficient to recover the carrying value of such assets, the assets are considered impaired. The impairment loss is measured by comparing the fair value of the assets to their carrying values. Fair value is determined by either a quoted market price or a value determined by a discounted cash flow technique, whichever is more appropriate under the circumstances involved. No impairment was required to be recorded during the periods presented in these consolidated financial statements.

Goodwill and Intangible Assets

The Company has adopted the provisions of the FAS No. 142, “Goodwill and Intangible Assets”. Under FAS No. 142, goodwill and intangible assets with indefinite lives are not amortized but are annually tested for impairment. The determination of any impairment includes a comparison of the estimated future operating cash flows anticipated during the remaining life for the net carrying value of the asset as well as a comparison of the fair value to the book value of the Company or the reporting unit to which the goodwill can be attributed.
Stock-based Compensation
In December 2004, the Financial Accounting Standards Board issued FAS 123R “Share-Based Payment”, a revision to FAS 123. FAS 123R replaces existing requirements under FAS 123 and APB 25, and requires public companies to recognize the cost of employee services received in exchange for equity instruments, based on the grant-date fair value of those instruments, with limited exceptions. FAS 123R also affects the pattern in which compensation cost is recognized, the accounting for employee share purchase plans, and the accounting for income tax effects of share-based payment transactions. The Company adopted FAS 123R on November 1, 2006.

10

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008

Income Taxes
The Company accounts for income taxes by the asset and liability method as mandated by Statement of Financial Standards Number 109. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognized in the current year for temporary differences between the tax and accounting basis of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes that are likely to be realized. The Company is subject to income taxes in the countries of Mauritius, Botswana and the U.S.
Financial Instruments
The carrying values of cash, accounts payable and accrued liabilities and due to related parties approximate their fair value because of the short maturity of these instruments. It is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.
Basic and Diluted Loss Per Share
The Company reports basic loss per share in accordance with the FAS No. 128, “Earnings per Share”. Basic loss per share is computed using the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the year including stock options, using the treasury stock method. The diluted EPS computation uses the average stock price for the year to determine the number of shares assumed to be purchased from the exercise of stock options or warrants. As at September 30, 2008 the Company has sustained operating losses and, accordingly, any dilutive potential common shares would have an anti-dilutive effect and are therefore not considered in computing diluted EPS.
Foreign Currency Translation
The accounts of the Company are translated in accordance with Statement of Financial Accounting Standard No. 52, which requires that foreign currency assets and liabilities be translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average rates prevailing throughout the period. The effects of unrealized exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated as the accumulated other comprehensive adjustment in shareholders’ equity.
Accounting for Derivative Instruments and Hedging Activities
We have adopted SFAS No. 133 “Accounting for Derivative and Hedging Activities”, which requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain and loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. We have not entered into derivative contracts either to hedge existing risks or for speculative purposes, but we plan to use derivative contracts in the future solely for hedging prices on production.

11

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008
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 assumptions and estimates that effect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.
Recent Accounting Pronouncements
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes–an interpretation of FASB Statement No. 109 (“FIN 48”). This interpretation clarifies the application of SFAS 109 by defining the criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements and also provides guidance on measurement, de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. FIN 48 is effective for our fiscal year commencing after November 1, 2007. The adoption of FIN 48 is not expected to have an impact on our results of operations or financial condition.
In November 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combination (FAS 141(R)) and SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (FAS 160). FAS 141(R) will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. FAS 160 will change the accounting and reporting for minority interests, which will be re-characterized as non-controlling interests and classified as a component of equity. FAS 141(R) and FAS 160 are effective for both public and private companies for fiscal years beginning on or after December 15, 2008 (fiscal 2009 for the Company). FAS 141(R) will be applied prospectively. FAS160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of FAS 160 will be applied prospectively. Early adoption is prohibited for both standards. Management is currently evaluating the requirements of FAS 141(R) and FAS 160 and has not yet determined the impact on its financial statements.
In December, 2007 the FASB issued FSAS No.157, Fair Value Measurements. This Statement does not require any new fair value measurements, but rather, it provides enhanced guidance to other pronouncements that require or permit assets or liabilities to be measured at fair value. However, the application of this Statement may change how fair value is determined. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. As of December 1, 2007 the FASB has proposed a one-year deferral for the implementation of the Statement for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. Management is currently evaluating the requirements of FAS 157 and has not yet determined the impact on its financial statements.

12

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008

In December, 2007 the FASB issued FSAS No.159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115. This Statement provides all entities with an option to report selected financial assets and liabilities at fair value. The Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007, with early adoption available in certain circumstances. Management is currently evaluating the requirements of FAS 159 and has not yet determined the impact on its financial statements.
In March 2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FAS 133, and how derivative instruments and related hedged items affect an entity’s operating results, financial position, and cash flows. FAS 161 is effective for fiscal years beginning after November 15, 2008. Early adoption is permitted. The Company is currently reviewing the provisions of FAS 161 and has not yet adopted the statement. However, as the provisions of FAS 161 are only related to disclosure of derivative and hedging activities, the Company does not believe the adoption of FAS 161 will have a material impact on its consolidated operating results, financial position, or cash flows.

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets or FSP FAS 142-3. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the intangible asset. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is assessing the potential impact that the adoption of FSP FAS 142-3 may have on its consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles or SFAS No. 162. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement shall be effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not believe that implementation of this standard will have a material impact on its consolidated financial position, results of operations or cash flows.

In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” (FSP EITF 03-6-1). FSP EITF 03-6-1 states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. Management has determined that the adoption of FSP EITF 03-6-1 will not have an impact on the Financial Statements.
13
Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008
Note 2
Nature and Continuance of Operations
Zulu Energy Corp.
Zulu Energy Corp. (“Zulu Energy” or the “Company”) was incorporated under the laws of the State of Colorado on May 6, 2005 under the name of Global Sunrise, Inc. On January 16, 2007 the Company changed its name to Zulu Energy Corp. Prior to the share exchange agreement dated December 20, 2007, as more fully explained below, Zulu Energy utilized a June 30 fiscal year-end. Zulu Energy changed its year-end to December 31 as a result of the acquisition of Nyati Mauritius Limited (“Mauritius”). The focus of Zulu Energy’s business plan is the acquisition of oil and gas properties and leasing rights and their exploration, development and production.
Effective December 20, 2007, Zulu Energy acquired 100% of the outstanding common stock of Mauritius (including the subsidiary of Mauritius named Resources) in exchange for 30,000,000 common shares of Zulu Energy. Zulu Energy’s acquisition of Mauritius (an operating company) and its subsidiary has been recorded as a recapitalization of Zulu Energy because Zulu Energy was a “shell” company, accordingly, Mauritius is deemed to be the accounting acquirer. The 30,000,000 common shares issued have been recorded as if issued by Mauritius for the net monetary assets of Zulu Energy. The statement of stockholder’s equity (deficit) reflects the accumulated deficit of Mauritius from its inception and that of Zulu Energy from December 21, 2007 through September 30, 2008 and has been restated to reflect the 10 to 1 forward stock split of January 8, 2007 (see below) as if it had occurred at inception. The prior year comparative financial statements presented are those of Mauritius and its subsidiary.
Nyati Mauritius Limited
Mauritius was incorporated under the laws of the country of Mauritius on August 11, 2005 as Nyati Mauritius Limited.
Mauritius’ share capital is comprised of authorized common stock of 50,000 shares at $1 par value. The common shareholders have a right to one vote per share held.
At inception, Mauritius issued 2 shares at $1 par value to the subscribers of the company.
Nyati Resources Limited acquired a controlling stake (90%) in Nyati Botswana (Proprietary) Limited (“Nyati Botswana”), when 90 shares of Nyati Botswana were issued to Nyati Resources on February 14, 2007 at par value i.e. Pula 1 per share. Nyati Botswana is an oil and gas exploration stage company. As on that date, the other 10% shares of Nyati Botswana were held by Swansi Holdings Corp.
On March 2, 2007 Swansi Holdings Corp. had entered into a call options agreement to buy 40 shares of Nyati Botswana from Nyati Resources Limited at $1 per share. On June 6, 2007 Nyati Resources Limited sold 40 shares of Nyati Botswana to Swansi Holdings Corp. pursuant to their exercising the call options agreement mentioned above, thus reducing the ownership of Nyati Resources Limited in Nyati Botswana from 90% to 50%. As of December 20, 2007 Mauritius’ shareholding in Nyati Botswana was 50%. Prior to the December 20, 2007 share exchange agreement referred to below, the remaining 50% stock ownership interest in Nyati Botswana was held by Swansi Holdings Corp.

14

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008
The Company issued 98 shares to its holding company LMA Hughes, LLP on July 2, 2007 at par value, thus bringing the total shares issued and outstanding of the Company to 100 shares. All shares of the Company were acquired by Zulu Energy on December 20, 2007.
Entry into a Material Definitive Agreement
On December 20, 2007, Zulu Energy entered into a Share Exchange Agreement and Plan of Reorganization (the “Exchange Agreement”), dated as of December 19, 2007, with Mauritius and LMA Hughes LLLP (“LMA Hughes”). Nyati Mauritius is the parent entity of Nyati Resources Limited, which holds 50% of the issued and outstanding capital stock of Nyati Botswana , which holds certain exploration licenses issued by the government of the Republic of Botswana.  On December 20, 2007, Zulu Energy also entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”), dated as of December 19, 2007, with Swansi Holdings Corp. (“Swansi”) to acquire the remaining 50% of the issued and outstanding common stock of Nyati Botswana. The transactions contemplated by the Exchange Agreement and the Stock Purchase agreement were consummated and all closing conditions were met on December 20, 2007.  As a result of the transactions contemplated by the Exchange Agreement and Stock Purchase Agreement, Nyati Mauritius and Nyati Botswana became the wholly-owned subsidiaries of Zulu Energy Corp.
Pursuant to the terms of the Exchange Agreement, Zulu Energy issued 30,000,000 shares of its common stock to LMA Hughes, which was the sole shareholder of Nyati Mauritius prior to the closing, in exchange for all of the issued and outstanding shares of common stock of Mauritius.  As a result of the foregoing issuance, LMA Hughes became the largest shareholder of Zulu Energy. Zulu Energy also granted LMA Hughes a 10% over-riding royalty interest in any properties that the companies acquire from LMA Hughes in the future and the Company agreed to reimburse LMA Hughes for certain expenses it incurred as part of this transaction.  
The issuances of the common stock to LMA Hughes was made pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended, as, among other things, each transaction did not involve a public offering, the investor was an accredited investor, the investor had access to information about the company and their investment, the investor took the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the common stock.

Pursuant to the terms of the Stock Purchase Agreement, the Company is obligated to pay Swansi $3 million in the aggregate in two tranches of $1.5 million each. The first tranche was payable within thirty business days of the December 20, 2007 closing date and the second tranche was payable nine months following the closing date. The first tranche of $1.5 million was paid to Swansi during the nine months ended September 30, 2008. On March 26, 2008, Swansi transferred their 50% interest in Nyati Botswana to the Company. On May 7, 2008, after the completion of the Company’s private placement, the Company issued to Swansi 15,000,000 common stock warrants expiring five years from issuance at an exercise price of $1.50 per share. The issuance of the warrant described in this paragraph is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder. An accredited investor received the warrant and Zulu Energy did not engage in any general solicitation or advertising to market the warrant.

15

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008

The fair value of these warrants was determined using the Company’s historical stock prices and the Black-Scholes option-pricing model with the following assumptions.
Risk free rate  3.09%
Dividend yield  0%
Weighted average expected volatility  90%
Weighted average expected warrant life  5 yrs 
Weighted average fair value of warrants $0.9965 
Total warrants outstanding  15,000,000 
Total fair value of warrants outstanding $14,947,700 

The fair value of these warrants were added to the asset value of ‘Prospecting Licenses’ shown in the Company’s balance sheet, as it formed part of the consideration given to acquire the licenses from Swansi.

Note 3
Common Stock

The Company issued 600,000 shares of its common stock on August 11, 2005 to its founders for $2.

On January 8, 2007, the Board of Directors of the Company authorized a ten to one (10 – 1) forward split of the Company’s issued and outstanding shares of common stock.

The Company issued 29,400,000 shares of its common stock on July 2, 2007 for a subscription receivable of $98.

The Company issued 52,000,000 shares of its common stock on December 20, 2007 for the net monetary assets of Zulu Energy.

On May 7, 2008, the Company sold 8,000,000 shares of its common stock, together with warrants to purchase up to 8,000,000 shares of common stock, to certain investors in a private placement, also referred to as the Offering. The Company received $8,000,000 in aggregate gross proceeds in the Offering. The warrants have an exercise price of $1.50 per share and are exercisable for 3 years. The warrants are not exercisable until such time as Company's shareholders approve an amendment to Company's articles of incorporation to increase Company's authorized shares of common stock. Pursuant to an Agency Agreement between the Company and First Capital Invest Corp. (the “Agent”), the Agent received a cash commission of $800,000 and an expense reimbursement of $250,000 along with agent’s warrants to purchase up to 800,000 shares of common stock.

16

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008

The fair value of these agent’s warrants was determined using the Company’s historical stock prices and the Black-Scholes option-pricing model with the following assumptions.
Risk free rate  3.56%
Dividend yield  0%
Weighted average expected volatility  90%
Weighted average expected warrant life  3 yrs 
Weighted average fair value of warrants $0.8090 
Total warrants outstanding  800,000 
Total fair value of warrants outstanding $647,200 

The agent’s warrants have an exercise price of $1.50 per share and are exercisable for 3 years. These warrants are not exercisable until such time as Zulu Energy's shareholders approve an amendment to Zulu Energy's articles of incorporation to increase Zulu Energy's authorized shares of common stock.

Pursuant to the Subscription Agreements entered into as part of the Offering, in the event Zulu Energy, in a subsequent financing, sells any of its equity securities and receives gross proceeds of $5,000,000 or more within 120 days following the closing of the Offering, the investors in the Offering have the right for 30 days following notice by Zulu Energy to them of the subsequent financing to participate in and receive the same terms as the investors in the subsequent financing. If an investor in the Offering elects to participate in the subsequent financing, (i) the subscription funds provided to Zulu Energy as part of the Offering will be allocated to the purchase price or purchase consideration, as applicable, for the securities offered in the subsequent financing, (ii) the investor will surrender to Zulu Energy for cancellation the stock certificates representing the shares of common stock and the warrant received in the Offering, and (iii) the investor will enter into the operative documents prepared in conjunction with the subsequent financing.
On April 15, 2008 pursuant to employment agreements entered into with Paul Stroud, James Hostetler and Keith Reeves the Company approved the grant of a total of 6,000,000 shares of restricted common stock, pursuant to certain vesting requirements. Following the issuance of the restricted stock, Zulu Energy held the stock and did not deliver it to the employees, consequently the shares were not considered to be outstanding. On August 14, 2008 the Company rescinded the stock issuance and the shares were cancelled and returned to the Company’s authorized capital. On August 14, 2008 the board approved the grant of a total of 7,950,000 restricted stock units to four officers pursuant to the terms of each officer’s employment agreement with the Company and pursuant to the Company’s Amended and Restated 2008 Equity Incentive Plan.

17
Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008
Note 4
Fixed Assets
All fixed assets are recorded at cost. Depreciation is provided for using the straight-line method as follows:
  September 30, December 31, 
  2008 2007 
    Accumulated     
Asset Class Cost Depreciation Net Net 
              
Property, Plant & Equipment $298 $136 $162 $216 
Office Equipment $20,629 $1,662 $18,967 $0 
Computer Hardware $19,886 $2,021 $17,865 $0 
Vehicles $72,370 $11,149 $61,221 $0 
              
Total $113,183 $14,968 $98,215 $216 

Note 5
Oil and Gas Properties
The Company had acquired nine leases in unproved oil and gas properties located in Botswana. Under the terms of the lease agreements the Company is required to pay its share of royalties and other obligations. The Company paid $7,579 and $7,996 for the lease years ended September 30, 2007 and 2006, respectively to the Government of Botswana under such lease agreements. Such leases expire in September 30, 2008.
Pursuant to such contracts, the Company was obligated to pay $5,684 on September 30, 2008 to maintain the leases. This amount does not contemplate funds required for exploration.
Pursuant to the lease agreements the Company was required to expend the following amounts during the lease period:
LeaseAmount
Period EndedDescriptionin Pulas
9/30/06Study of Data, Bore hole1,150,000
to 300m, Desorption study
for 6 months
9/30/07Data interpretation,2,000,000
Permeability study, Drill
production Bore hole,
Test CBM produced
9/30/08Full feasibility Study,3,000,000
Production and marketing
Study
18
Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008
As of September 30, 2008 the Company has not expended the full amounts required during the lease periods. Under Botswana law, amounts that were to be spent on exploration are due to the government if not spent on exploration. As at September 30, 2008, based on Botswana law, the Company was not be able to renew 50% of the lease acreage and, accordingly, the financial statements reflect a liability of $4,076,528 (P 27,675,000 converted at $.1473) to the government of Botswana representing the aggregate minimum required prospecting expenditures over the three year lease term for the 50% acreage that was not renewed.

Subsequent to September 30, 2008 the Company was granted an extension for 50% of the lease acreage consisting of six of the original leases for an additional two year period. Pursuant to such contracts, the Company paid $3,239 subsequent to September 30, 2008 for the first year of the leases extension. This amount does not contemplate funds required for exploration.
Pursuant to the extended lease agreements the Company is required to expend the following amounts on each lease during the lease extension period. These amounts include any outstanding amounts under the terms of the original lease for the retained acreage and represent the Company’s full outstanding exploration commitment:

LeaseAmount
Period EndedDescriptionin Pulas
9/30/09Study of data, complete2,000,000
bore holes, desorption test,
permeability studies, drill five
pilot holes and undertake
trial production and market
studies, carry out a prefeasibility
study
9/30/10Drill 5 further pilot holes,3,000,000
full feasibility study, trial
production and marketing,
submit a mining license
application

The Company has capitalized $26,432 spent since inception on license fees as oil and gas properties. The Company has also capitalized $5,956,119 during the nine months ended September 30, 2008 as exploratory drilling costs.

Note 6
Related Party Transactions

At September 30, 2008, $6,120 ($252,083 December 31, 2007) was due to a related party consisting of loans from LMA Hughes, LLLP which is an affiliate of a shareholder of the company. As at September 30, 2008 these loans remain payable to LMA Hughes, LLLP and are unsecured, non-interest bearing and without specific terms for repayment. At September 30, 2008, $190,784 ($Nil December 31, 2007) was due to Brian Hughes consisting of accounts payable for expenses.
19

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008
Note 7
Accounts Payable

The Company repaid advances of $825,000 received from First Capital Investment Corp. along with accrued interest of $12,555 during the nine months ended September 30, 2008.

Note 8
Stock-based Compensation

We have adopted SFAS No. 123 “Accounting for Stock Based Compensation” as amended by SFAS No. 148 "Accounting for Stock-based Compensation - Transition and Disclosure”. We recognize stock-based compensation expense using a fair value based method. We do not have a qualified stock option plan in place as of the reporting date. The Board of Directors of the Company has approved, subject to shareholder approval, an Amended and Restated 2008 Equity Incentive Plan that among other things increased the authorized shares under the Plan to 30 million shares.

On September 24, 2007, the Company granted 3,000,000 stock options exercisable at $1.81 until September 24, 2012.  All these options were fully vested on the date of the grant. These options were subsequently cancelled in April 2008 in conjunction with the execution of a new employment agreement with Mr. Stroud.

The fair value of these share purchase options was determined using the Company’s historical stock prices and the Black-Scholes option-pricing model with the following assumptions:
Risk free rate  3.875%
Dividend yield  0%
Weighted average expected volatility  90%
Weighted average expected option life  5 yrs 
Weighted average fair value of options $1.292 
Total options outstanding  3,000,000 
Total fair value of options outstanding $3,876,000 

These options were granted by the legal parent who is the accounting acquiree for financial reporting purposes. Accordingly, due to the vesting of the stock options prior to the December 20, 2007 stock exchange agreement, the year 2007 statement of operations did not reflect the effect of this transaction.

On April 15, 2008, Paul Stroud, James Hostetler and Keith Reeves were granted stock options to purchase 1,500,000 shares of common stock each as part of their employment agreements. Paul Stroud was formerly the Chief Executive Officer, James Hostetler was formerly the Executive Vice President, and Keith Reeves is the Vice President of Exploration of Zulu Energy. Under the terms of their stock option they had the option to exchange these stock options for incentive stock options following the implementation of a stock option plan by Zulu Energy. These stock options have an exercise price of $1.00 per share and are exercisable for 5 years. All these options were fully vested on the date of the grant but are not exercisable until such time as Zulu Energy's shareholders approve an amendment to Zulu Energy's articles of incorporation to increase Zulu Energy's authorized shares of common stock. On August 14, 2008 the Board approved the exchange of the above options issued to Messrs. Stroud, Hostetler and Reeves for non-incentive stock options issued under the Company’s Amended and Restated 2008 Equity Incentive Plan.
20

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008
The fair value of these share purchase options was determined using the Company’s historical stock prices and the Black-Scholes option-pricing model with the following assumptions:
Risk free rate  2.68%
Dividend yield  0%
Weighted average expected volatility  86%
Weighted average expected option life  5 yrs 
Weighted average fair value of options $0.6097 
Total options outstanding  4,500,000 
Total fair value of options outstanding $2,743,800 
On May 14, 2008, Zulu Energy entered into an employment agreement with Satyendra Deshpande, Zulu Energy’s then Chief Financial Officer and member of the Board of Directors. Mr. Desphande subsequently resigned as Zulu Energy’s Chief Financial Officer, Secretary, Treasurer and member of the Board on Friday, May 16, 2008.
Under Mr. Deshpande’s employment agreement, Mr. Deshpande was granted a stock option to purchase 1,000,000 shares of common stock with an exercise price of $1.00 per share. The options vest as follows: 500,000 shares on the date of grant; and 500,000 shares on January 1, 2009; provided, however, that no options may be exercised until Zulu Energy’s stockholders approve an increase in Zulu Energy’s authorized shares of common stock to at least 150,000,000 shares. As a result of Mr. Deshpande’s resignation from Zulu Energy, the unvested options terminated.

The fair value of these share purchase options was determined using the Company’s historical stock prices and the Black-Scholes option-pricing model with the following assumptions:
Risk free rate  3.00%
Dividend yield  0%
Weighted average expected volatility  89%
Weighted average expected option life  5 yrs 
Weighted average fair value of options $1.2268 
Total options outstanding  500,000 
Total fair value of options outstanding $613,400 
Total terminated options  500,000 
Total fair value of terminated options $12,905 

On May 21, 2008, Dave Weisgerber was granted stock options to purchase 1,500,000 shares of common stock as part of his employment agreement. Mr. Weisgerber was formerly Vice President of Operations of Zulu Energy. Mr. Weisgerber may exchange these stock options for incentive stock options following the implementation of a stock option plan by Zulu Energy. These stock options have an exercise price of $1.00 per share and are exercisable for 5 years. All these options were fully vested on the date of the grant but are not exercisable until such time as Zulu Energy's shareholders approve an amendment to Zulu Energy's articles of incorporation to increase Zulu Energy's authorized shares of common stock.
21

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008
The fair value of these share purchase options was determined using the Company’s historical stock prices and the Black-Scholes option-pricing model with the following assumptions:
Risk free rate  3.09%
Dividend yield  0%
Weighted average expected volatility  96%
Weighted average expected option life  5 yrs 
Weighted average fair value of options $1.0207 
Total options outstanding  1,500,000 
Total fair value of options outstanding $1,531,000 

On June 10, 2008, Mohamed Gova was granted stock options to purchase 1,500,000 shares of common stock as part of his employment agreement. The Board appointed Mr. Gova as Vice Chairman of the Board of Directors of Zulu Energy. These stock options have an exercise price of $1.00 per share and are exercisable for 5 years. All these options were fully vested on the date of the grant but are not exercisable until such time as Zulu Energy's shareholders approve an amendment to Zulu Energy's articles of incorporation to increase Zulu Energy's authorized shares of common stock.

The fair value of these share purchase options was determined using the Company’s historical stock prices and the Black-Scholes option-pricing model with the following assumptions:
Risk free rate  3.54%
Dividend yield  0%
Weighted average expected volatility  92%
Weighted average expected option life  5 yrs 
Weighted average fair value of options $0.6771 
Total options outstanding  1,500,000 
Total fair value of options outstanding $1,015,700 

The fair value of the share purchase options corresponding to Paul Stroud, Keith Reeves and Dave Weisgerber were re-classed from stock-based compensation to capitalized exploratory drilling costs as their employment supports the exploratory drilling operations of the Company. The fair value of their options totaled $3,360,200.

Note 9
Accrued Expenses

There were no accrued salaries payable to the employees of the Company as at September 30, 2008 ($63,333 at December 31, 2007).

Note 10
Commitments and Contingencies

The Company is obligated to spend Pula (“P”) 6,150,000 or approximately $906,000 US as of September 30, 2008 per lease over the term of the lease (three years). If such expenditures do not occur then such amounts are payable to the government of Botswana. The total expenditure required as of September 30, 2008 is approximately $8,150,000 US for nine leases. The Company believes that it will be able to perform sufficient work on the leaseholds so that the maximum amount it will owe the government is 50% of the approximately $8,150,000 as of September 30, 2008.
22

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to September 30, 2008
The Company is also obligated to spend Pula (“P”) 5,000,000 or approximately $736,500 US as of September 30, 2008 per lease over the term of the six extended leases (two years). If such expenditures do not occur then such amounts are payable to the government of Botswana. The Company believes that it will be able to perform the required work on the leases.
Note 11
Subsequent Event

Subsequent to September 30, 2008 the Company was granted an extension for 50% of its lease acreage in Botswana, consisting of six of the original leases for an additional two year period. See Note 5.
23
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations and estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Forward-Looking Statements” set forth above.
Overview
We are a development stage independent oil and gas company focused on the exploration and development of oil and gas resources. We were incorporated on May 6, 2005. In December 2007, we acquired nine Prospecting Licenses for the exploration of coal bed methane in the Republic of Botswana in Southern Africa through our acquisition of Nyati Botswana. Our business plan is focused on discovery and production of substantial commercial quantities of coalbed methane in the Pandamatenga area of Northeastern Botswana.
Facilities Strategy

In the event that the drilling program successfully identifies commercially viable gas reserves we intend to make substantial investments in plant, buildings and equipment required to transport the gas from well head to the processing facilities that will turn the gas into marketable products such as power, urea, methanol and diesel, including living requirements needed to support the employees and contractors in the field. So far our efforts in this area have been limited to hiring consultants to identify the potential markets. We believe that until we have discovered credible gas reserves and raised sufficient funds, it would be premature to spend our limited resources in this area. We intend to work with professional institutions and consultants such as Gustavson Associates, who compiled the first Nyati Botswana feasibility study, on our facilities strategy. We also have had discussions with the U.S. Technical Development Agency for production of a bankable development and marketing study.

Marketing Strategy

Our strategy is to tailor our investment in coal bed methane production in line with market demands. As with the facilities requirements, we intend that until the gas has flowed and funds have been raised, we will utilize consultants rather than hire staff. We used Gustavson Associates to advise on a marketing strategy and are working to identify the markets for the gas and gas products we anticipate discovering and to determine the necessary investment needed for gas monetization. 
Operations Plan
Our Prospecting Licenses allowed us to explore for coalbed methane on land in the Pandamatenga area located in the northeast region of the Republic of Botswana on the southern African continent. We have previously granted overriding royalty interests in the land that is subject to the Prospecting Licenses equal to 10% in the aggregate. Our Prospecting Licenses expired on September 30, 2008. Subsequent to September 30, 2008, we were granted an extension of 50% of the lease acreage consisting of six of the original leases for an additional two year period.
24
Our goal is to discover and produce substantial commercial quantities of coalbed methane on the property under our Prospecting Licenses. No assurance can be given that commercial quantities of coalbed methane will be produced, if at all. The execution of our business plan will require additional capital which we do not now have on hand. The availability for such funding is also not assured.
Our business plan involves three phases. During the first phase we plan to drill approximately nine exploration wells to confirm the coal deposit, identify the absorption rates and gas content of the coal and identify production pilot locations. We had expected that this phase would last until the end of 2008 however, due to unanticipated equipment problems it is now expected that this phase will continue into the first quarter of 2009. The first phase has five of the nine exploration wells in progress. One of the wells has discovered a conventional natural gas discovery and has been capped until we have the necessary equipment on site to determine the extent of the natural gas find. A second well has discovered the presence of coalbed methane gas in the core samples. The remaining three wells drilling are still in progress.
Assuming we are successful in locating coalbed methane and raising the required capital, the second phase will likely involve the drilling of approximately 16 pre-collar test wells with the intent of identifying two pilot well sites to be used for demonstrating the production and viability of commercial volumes of coalbed methane. This phase will also likely include the dewatering of the coal and gas production and is expected to last approximately six months. The third phase will likely involve adding 48 more wells to the pilot wells drilled in the second phase, expanding our then existing well footprint and increasing production. We anticipate that phase three will also last approximately six months. Costs for the second and third phase are estimated at $40 million. The initiation and completion of each of the three contemplated phases will require us to raise sufficient capital. As further described below, on May 7, 2008, we raised $8 million in a private placement of shares of our common stock. At this time we have no commitments or agreements for the raising of capital.
If we conclude, based on our exploration and testing, that commercial quantities of coalbed methane can be extracted from the area to which we hold licenses we will need substantially more capital to construct required infrastructure to distribute the methane or otherwise bring the methane to market. Such financings could lie with development banks that are focused on this part of Southern Africa, including the United States Trade & Development Agency and the World Bank, or large institutional investors, but we have no commitments or arrangements in place for these financings.
Our current cash position is not sufficient to fund our cash requirements during the next twelve months, including operations and capital expenditures. We intend to seek equity and/or debt financing to support our proposed coalbed methane operations and capital expenditures. We cannot assure that continued funding will be available or available on terms acceptable to us.
Our future financial results will depend primarily on (1) our ability to discover and produce commercial quantities of coalbed methane or natural gas; (2) the market price for oil and gas; and (3) our ability to fully implement our exploration and development program with respect to these and other matters. We cannot assure that we will be successful in any of these activities or that the prices of oil and gas prevailing at the time of production will be at a level allowing for profitable production.
We have not entered into commodity swap arrangements or hedging transactions. Although we have no current plans to do so, we may enter into commodity swap and/or hedging transactions in the future in conjunction with oil and gas production. We have no off-balance sheet arrangements.
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Liquidity and Capital Resources
As of September 30, 2008, we had $837,388 in available cash, $312,810 in prepaid expenses, $479,581 in accrued expenses and accounts payables and $26,432 in capitalized oil and gas properties. As of September 30, 2008 we had $17,947,000 in prospecting licenses which consists of the nine licenses in Botswana acquired from Swansi Holdings for consideration of $3,000,000 in cash and 15,000,000 common stock warrants, recorded at the fair value of $14,947,700. As of September 30, 2008 we had $5,955,239 in capitalized exploratory drilling costs which include the fair value of stock options granted totalling $3,360,200 granted to former employees whose employment supported our exploratory drilling operations.
Investment in fixed assets during the nine months ended September 30, 2008 was $112,885 compared to $298 during the nine months ended September 30, 2007.
We intend to seek joint ventures and/or to obtain equity and/or debt financing to support our current and proposed operations and capital expenditures. We cannot assure that any such funding will be available. The included financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.
Required Expenditures Concerning our Oil & Gas Properties
The Company had acquired nine leases in unproved oil and gas properties located in Botswana. Under the terms of the lease agreements the Company is required to pay its share of royalties and other obligations. The Company paid $7,579 and $7,996 for the lease years ended September 30, 2007 and 2006, respectively to the Government of Botswana under such lease agreements. Such leases expire in September 30, 2008.
Pursuant to such contracts, the Company was obligated to pay $5,684 on September 30, 2008 to maintain the leases. This amount does not contemplate funds required for exploration.
Pursuant to the lease agreements the Company was required to expend the following amounts during the lease period:
LeaseAmount
Period EndedDescriptionin Pulas
9/30/06Study of Data, Bore hole1,150,000
to 300m, Desorption study
for 6 months
9/30/07Data interpretation,2,000,000
Permeability study, Drill
production Bore hole,
Test CBM produced
9/30/08Full feasibility Study,3,000,000
Production and marketing
Study
26
As of September 30, 2008 the Company has not expended the full amounts required during the lease periods. Under Botswana law, amounts that were to be spent on exploration are due to the government if not spent on exploration. As at September 30, 2008, based on Botswana law, the Company was not be able to renew 50% of the lease acreage and, accordingly, the financial statements reflect a liability of $4,076,528 (P 27,675,000 converted at $.1473) to the government of Botswana representing the aggregate minimum required prospecting expenditures over the three year lease term for the 50% acreage that was not renewed.

Subsequent to September 30, 2008 the Company was granted an extension for 50% of the lease acreage consisting of six of the original leases for an additional two year period. Pursuant to such contracts, the Company paid $3,239 subsequent to September 30, 2008 for the first year of the leases extension. This amount does not contemplate funds required for exploration.
Pursuant to the extended lease agreements the Company is required to expend the following amounts on each lease during the lease extension period. These amounts include any outstanding amounts under the terms of the original lease for the retained acreage and represent the Company’s full outstanding exploration commitment:

Lease
Amount
Period EndedDescriptionin Pulas
9/30/09Study of data, complete2,000,000
bore holes, desorption test,
permeability studies, drill five
pilot holes and undertake
trial production and market
studies, carry out a prefeasibility
study
9/30/10Drill 5 further pilot holes,3,000,000
full feasibility study, trial
production and marketing,
submit a mining license
application

The Company has capitalized $26,432 spent since inception on license fees as oil and gas properties. The Company has also capitalized $5,955,239 during the nine months ended September 30, 2008 as exploratory drilling costs.

Private Placement
On May 7, 2008, we sold 8,000,000 shares of our common stock, together with warrants to purchase up to 8,000,000 shares of common stock, to certain investors in a private placement, also referred to as the Offering. We received $8,000,000 in aggregate gross proceeds in the Offering. The warrants have an exercise price of $1.50 per share and are exercisable for 3 years. The warrants are not exercisable until such time as our shareholders approve an amendment to our articles of incorporation to increase our authorized shares of common stock. Pursuant to an Agency Agreement between the Company and First Capital Invest Corp. (the “Agent”), the Agent received a cash commission of $800,000 and an expense reimbursement of $250,000 along with agent’s warrants to purchase up to 800,000 shares of common stock. The warrants have an exercise price of $1.50 per share and are exercisable for 3 years. The warrants are not exercisable until such time as our shareholders approve an amendment to our articles of incorporation to increase our authorized shares of common stock.
27
Pursuant to the Subscription Agreements entered into as part of the Offering, in the event we, in a subsequent financing, sell any of its equity securities and receives gross proceeds of $5,000,000 or more within 120 days following the closing of the Offering, the investors in the Offering have the right for 30 days following notice by us to them of the subsequent financing to participate in and receive the same terms as the investors in the subsequent financing. If an investor in the Offering elects to participate in the subsequent financing, (i) the subscription funds provided to us as part of the Offering will be allocated to the purchase price or purchase consideration, as applicable, for the securities offered in the subsequent financing, (ii) the investor will surrender to us for cancellation the stock certificates representing the shares of common stock and the warrant received in the Offering, and (iii) the investor will enter into the operative documents prepared in conjunction with the subsequent financing.
Following our earlier drilling success where we have found gas at two of our five wells drilled to date, we are pursuing additional financing to enable us to continue with our drilling program. We estimate that we will need working capital totaling approximately $40 million during the next two years to take us to the stage of identifying the gas deposits within our license concession and to the pre-commercialization phase of the field development. The funds will be used to evaluate both the conventional gas discovery as well as the coal bed methane discovery. We also intend to seek out potential joint venture partners that have the financial capability to provide funds for the drilling program and monetization of the gas discoveries, and have the capabilities to complement our drilling expertise with that of constructing and commissioning facilities.

We will require additional financing in order to complete our plan of operations for the next twelve months. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms satisfactory to us. There can also be no assurance that we will be successful in identifying and reaching agreement with joint venture partners. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. We currently have no firm commitments for any additional capital.
The trading price of our shares of common stock and the downturn in the United States stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
Results of operations for the three and nine months ended September 30, 2008 compared to the three and nine months ended September 30, 2007. 
Revenues. For the three and nine months ended September 30, 2008 and September 30, 2007 there were no revenues from operating or any other activities.
Operating Expenses.
For the three months ended March 31, 2008.September 30, 2008, operating expenses of $735,756 consisted primarily of professional fees of $240,014 and general and administrative expenses of $481,266 along with depreciation of $14,476. For the three months ended September 30, 2007, operating expenses of $33,288 consisted of general and administrative expenses.
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For the nine months ended September 30, 2008, operating expenses of $4,103,504 consisted primarily of stock-based compensation expense of $2,556,605 and general and administrative expenses of $1,532,013 along with depreciation of $14,886. For the nine months ended September 30, 2007, operating expenses of $60,569 consisted of general and administrative expenses.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies
Critical accounting policies are those that management believes are both most important to the portrayal of the Company’s financial condition and results of operations and that require difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that involve uncertainty.
We believe that the “critical” accounting policies that we use in the preparation of our financial statements are as follows: 

Going Concern
The Company’s financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company’s net loss from operations for the three and nine months ended September 30, 2008 totaled $724,588 and $4,092,336 and the net working capital deficit and total stockholders’ equity through September 30, 2008 totaled $4,909,531 and $19,118,055, respectively.
The Company’s ability to continue as a going concern will be dependent upon its ability to obtain sufficient financing to pay its existing creditors, cover its operating overhead, and fund oil and gas exploration and production projects. Other market factors such as the price of oil, gas and other natural resources upon extraction being at prices sufficient to generate profitable operations may impact the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Exploration Stage Company
The Company is in the exploration stage. In December 2007, the Company acquired oil and gas licenses and drilling rights located in Botswana, Africa. The recoverability of the cost of capitalized oil and gas properties are dependent upon the discovery of recoverable reserves, the Company’s ability to obtain the necessary funding to extract the reserves and the sale of production at profitable market prices.
The Company complies with Financial Accounting Standards Board Statement No.7 and SEC Guide 7 for its characterization of the Company as exploration stage.
29
 
Oil and Gas Activities - Successful Efforts Method of Accounting
 
On April 4, 2005, the FASB adopted FASB Staff Position FSP FAS 19-1 that amends Statement of Financial Accounting Standards No. 19 (FAS 19), Financial Accounting and Reporting by Oil and Gas Producing Companies, to permit the continued capitalization of exploratory well costs beyond one year if (a) the well found a sufficient quantity of reserves to justify its completion as a producing well and (b) the entity is making sufficient progress assessing the reserves and the economic and operating viability of the project.
 
The Company accounts for its crude oil development and natural gas development activities utilizing the successful efforts method of accounting. Under this method, costs of productive exploratory wells, development dry holes and productive wells and undeveloped leases are capitalized. Oil and gas lease acquisition costs are also capitalized. Exploration costs, including personnel costs, certain geological and geophysical expenses and daily rentals for oil and gas leases, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate. A gain or loss is recognized for all other sales of producing properties.
 
The application of the successful efforts method of accounting requires managerial judgment to determine that proper classification of wells designated as developmental or exploratory which will ultimately determine the proper accounting treatment of the costs incurred. The results from a drilling operation can take considerable time to analyze and the determination that commercial reserves have been discovered requires both judgment and industry experience. Wells may be completed that are assumed to be productive and actually deliver oil and gas in quantities insufficient to be economic, which may result in the abandonment of the wells at a later date. Wells are drilled that have targeted geologic structures that are both developmental and exploratory in nature and an allocation of costs is required to properly account for the results. Delineation seismic incurred to select development locations within an oil and gas field is typically considered a development cost and capitalized, but often these seismic programs extend beyond the reserve area considered proved and management must estimate the portion of the seismic costs to expense. The evaluation of oil and gas leasehold acquisition costs requires managerial judgment to estimate the fair value of these costs with reference to drilling activity in a given area. Drilling activities in an area by other companies may also effectively condemn leasehold positions.

8

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to March 31, 2008
Revenue Recognition
The Company has not earned any revenues since its inception. Oil and gas revenues will be recorded at such time as the Company has delivered and transferred title to a purchaser of its product and the price has been reasonably determined.
 
Asset Retirement Obligations
 
The Corporation recognizes the value of a liability for an asset retirement obligation in the year in which a reasonable estimate of value can be made.
 
Changes in the liability for an asset retirement obligation due to the passage of time will be measured by applying an interest method of allocation. The amount will be recognized as an increase in the liability and an accretion expense in the statement of operations. Changes resulting from revisions to the timing or the amount of the original estimate of undiscounted cash flows are recognized as an increase or a decrease in the carrying amount of the liability for an asset retirement obligation and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset. As at March 31,September 30, 2008 the value of the oil and gas property’s site restoration costs is insignificant.
30
 
Environmental Costs
 
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the Company’s commitments to plan of action based on the then known facts.
 
GoodwillProperty and Intangible AssetsEquipment
 
The Company has adoptedProperty and equipment is stated at cost less accumulated depreciation and is depreciated on a straight line basis, commencing when the provisionsassets are put into use over the estimated useful lives of the FAS No. 142, “Goodwillassets as follows:

Property, Plant and Equipment10 years
Office Equipment3 years
Computer Hardware3 years
Vehicles5 years

In accordance with SFAS 144, “Accounting for Impairment or Disposal of Long-Lived Assets”, the Company reviews the carrying value of long-lived assets for impairment whenever events and Intangible Assets”. Under FAS No. 142, goodwill and intangible assets with indefinite lives are not amortized but are annually tested for impairment. The determination of any impairment includes a comparison ofcircumstances indicate that the estimated future operating cash flows anticipated during the remaining life for the net carrying value of the asset as well as aassets might be impaired and the carrying value may not be recoverable. Recoverability of these assets is measured by comparison of the fair value to the bookcarrying value of the Company or the reporting unit to which the goodwill can be attributed.

9

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notesassets to the Unaudited Consolidated Financial Statements
Forundiscounted cash flows estimated to be generated by those assets over the Period from August 11, 2005 (inception)remaining economic life. If the undiscounted cash flows are not sufficient to March 31, 2008
Stock-based Compensation
In December 2004,recover the Financial Accounting Standards Board issued FAS 123R “Share-Based Payment”, a revision to FAS 123. FAS 123R replaces existing requirements under FAS 123 and APB 25, and requires public companies to recognize the cost of employee services received in exchange for equity instruments, based on the grant-date faircarrying value of those instruments, with limited exceptions. FAS 123R also affectssuch assets, the pattern in which compensation costassets are considered impaired. The impairment loss is recognized, the accounting for employee share purchase plans, and the accounting for income tax effects of share-based payment transactions. The Company adopted FAS 123R on November 1, 2006.
Income Taxes
The Company accounts for income taxesmeasured by the asset and liability method as mandated by Statement of Financial Standards Number 109. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognized in the current year for temporary differences between the tax and accounting basis of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes that are likely to be realized. The Company is subject to income taxes in the Country of Mauritius.
Financial Instruments
The carrying values of cash, accounts payable and accrued liabilities and due to related parties approximate their fair value because of the short maturity of these instruments. It is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.
Basic and Diluted Loss Per Share
The Company reports basic loss per share in accordance with the FAS No. 128, “Earnings per Share”. Basic loss per share is computed using the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the year including stock options, using the treasury stock method. The diluted EPS computation uses the average stock price for the year to determine the number of shares assumed to be purchased from the exercise of stock options or warrants. As at March 31, 2008 the Company has sustained operating losses and, accordingly, any dilutive potential common shares would not have an anti-dilutive effect and are therefore not considered in computing diluted EPS.
Foreign Currency Translation
The accounts of the Company are translated in accordance with Statement of Financial Accounting Standard No. 52, which requires that foreign currency assets and liabilities be translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average rates prevailing throughout the period. The effects of unrealized exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated as the accumulated other comprehensive adjustment in shareholders’ equity.

10

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to March 31, 2008
Accounting for Derivative Instruments and Hedging Activities
We have adopted SFAS No. 133 “Accounting for Derivative and Hedging Activities”, which requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain and loss recognition on the hedging derivative with the recognition of (i) the changes incomparing the fair value of the hedged asset or liability that are attributableassets to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. We have not entered into derivative contracts either to hedge existing risks or for speculative purposes, but we plan to use derivative contracts in the future solely for hedging prices on production.
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 assumptions and estimates that effect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.
Recent Accounting Pronouncements
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (“FIN 48”). This interpretation clarifies the application of SFAS 109 by defining the criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements and also provides guidance on measurement, de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. FIN 48 is effective for our fiscal year commencing November 1, 2007. The adoption of FIN 48 is not expected to have an impact on our results of operations or financial condition.
In November 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combination (FAS 141(R)) and SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (FAS 160). FAS 141(R) will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. FAS 160 will change the accounting and reporting for minority interests, which will be re-characterized as non-controlling interests and classified as a component of equity. FAS 141(R) and FAS 160 are effective for both public and private companies for fiscal years beginning on or after December 15, 2008 (fiscal 2010 for the Company). FAS 141(R) will be applied prospectively. FAS160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of FAS 160 will be applied prospectively. Early adoption is prohibited for both standards. Management is currently evaluating the requirements of FAS 141(R) and FAS 160 and has not yet determined the impact on its financial statements.
In December, 2007 the FASB issued FSAS No.157,their carrying values. Fair Value Measurements. This Statement does not require any new fair value measurements, but rather, it provides enhanced guidance to other pronouncements that require or permit assets or liabilities to be measured at fair value. However, the application of this Statement may change how fair value is determined. The Statementdetermined by either a quoted market price or a value determined by a discounted cash flow technique, whichever is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. As of December 1, 2007 the FASB has proposed a one-year deferral for the implementation of the Statement for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. Management is currently evaluating the requirements of FAS 157 and has not yet determined the impact on its financial statements.

11

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to March 31, 2008

In December, 2007 the FASB issued FSAS No.159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115 . This Statement provides all entities with an option to report selected financial assets and liabilities at fair value. The Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007, with early adoption available in certain circumstances. Management is currently evaluating the requirements of FAS 159 and has not yet determined the impact on its financial statements.
Note 2
Nature and Continuance of Operations
Zulu Energy Corp.
Zulu Energy Corp. (“Zulu Energy”) was incorporatedmore appropriate under the laws of the State of Colorado on May 6, 2005 under the name of Global Sunrise, Inc. On January 16, 2007 Zulu Energy changed its name to Zulu Energy Corp. Prior to the share exchange agreement dated December 20, 2007, as more fully explained below, Zulu Energy utilized a June 30 fiscal year-end. Zulu Energy changed its year-end to December 31 as a result of the merger with Nyati Mauritius Limited (Mauritius). The focus of Zulu Energy’s business plan is the acquisition of oil and gas properties and leasing rights and their exploration, development and production.
Effective December 20, 2007, Zulu Energy acquired 100% of the outstanding common stock of Mauritius (including the subsidiary of Mauritius named Resources) in exchange for 30,000,000 common shares of Zulu Energy. Zulu Energy’s acquisition of Mauritius (an operating company) and its subsidiary has been recorded as a recapitalization of Zulu Energy because Zulu Energy was a “shell” company, accordingly, Mauritius is deemed to be the accounting acquirer. The 30,000,000 common shares issued have been recorded as if issued by Mauritius for the net monetary assets of Zulu Energy. The statement of stockholder’s deficit reflects the accumulated deficit of Mauritius from its inception and that of Zulu Energy from December 21, 2007 through March 31, 2008 and has been restated to reflect the 10 to 1 forward stock split of January 8, 2007 (see below) as if it had occurred at inception. The prior year comparative financial statements presented are those of Mauritius and its subsidiary.
Nyati Mauritius Limited
The Company was incorporated under the laws of the country of Mauritius on August 11, 2005 as Nyati Mauritius Limited.
The Company’s share capital is comprised of authorized common stock of 50,000 shares at $1 par value. The common shareholders have a right to one vote per share held.

12

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to March 31, 2008
At inception, the company issued 2 shares at $1 par value to the subscribers of the company.
Nyati Resources Limited acquired a controlling stake (90%) in a company called Nyati Resources Botswana (Proprietary) Limited (“Nyati Botswana”), when 90 shares of Nyati Botswana were issued to Nyati Resources on February 14, 2007 at par value i.e. Pula 1 per share. Nyati Botswana is an oil and gas (exploration stage) company. As on this date, the other 10% shares of Nyati Botswana were held by Swansi Holdings Corp.
On March 2, 2007 Swansi Holdings Corp. had entered into a call options agreement to buy 40 shares of Nyati Botswana from Nyati Resources Limited at $1 per share. On June 6, 2007 Nyati Resources Limited sold 40 shares of Nyati Botswana to Swansi Holdings Corp. pursuant to their exercising the call options agreement mentioned above, thus reducing the ownership of Nyati Resources Limited in Nyati Botswana from 90% to 50%. As of December 31, 2007 the Company’s shareholding in Nyati Botswana was 50%. Prior to the December 20, 2007 share exchange agreement referred to below, the remaining 50% stock ownership interest in Nyati Botswana was held by Swansi Holdings Corp.
The Company issued 98 shares to its holding company LMA Hughes, LLP on July 2, 2007 at par value, thus bringing the total shares issued and outstanding of the Company to 100 shares. All shares of the Company were acquired by Zulu Energy on December 20, 2007.
Entry into a Material Definitive Agreement
On December 20, 2007, Zulu Energy entered into a Share Exchange Agreement and Plan of Reorganization (the “Exchange Agreement”), dated as of December 19, 2007,  with Nyati Mauritius Limited (“Nyati Mauritius”) and LMA Hughes LLLP (“LMA Hughes”).  Nyati Mauritius is the parent entity of Nyati Resources Limited, which holds 50% of the issued and outstanding capital stock of Nyati Resources Botswana (Proprietary) Limited (“Nyati Botswana”), which holds certain exploration licenses issued by the government of the Republic of Botswana.  On December 20, 2007, Zulu Energy also entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”), dated as of December 19, 2007, with Swansi Holdings Corp. (“Swansi”) to acquire the remaining 50% of the issued and outstanding common stock of Nyati Botswana. The transactions contemplated by the Exchange Agreement and the Stock Purchase agreement were consummated and all closing conditions were met on December 20, 2007.  As a result of the transactions contemplated by the Exchange Agreement and Stock Purchase Agreement, Nyati Mauritius and Nyati Botswana became the wholly-owned subsidiaries of Zulu Energy Corp.
Pursuant to the terms of the Exchange Agreement, Zulu Energy Corp. issued 30,000,000 shares of its common stock to LMA Hughes, which was the sole shareholder of Nyati Mauritius prior to the closing, in exchange for all of the issued and outstanding shares of common stock of Nyati Mauritius.  As a result of the foregoing issuance, LMA Hughes became the largest shareholder of Zulu Energy.  Zulu Energy also granted LMA Hughes a 10% over-riding royalty interest in any properties that the Companies acquire from LMA Hughes in the future and the Company agreed to reimburse LMA Hughes for certain expenses it incurred as part of this transaction.  
Pursuant to the terms of the Stock Purchase Agreement, the Company is obligated to pay Swansi $3 million in the aggregate in two tranches of $1.5 million each. The first tranche is payable within thirty business days of the December 20, 2007 closing date and the second tranche is payable nine months following the closing date. The initial tranche period expired without the payment of the $1.5 million term amount. On March 26, 2008, Swansi transferred their 50% interest in Nyati Botswana to the Company. Upon the completion of a private placement and payment to Swansi of the initial $1.5 million tranche, the Company is obligated to issue to Swansi 15,000,000 common stock warrants expiring five years from issuance at an exercise price of $1.50 per share.  

13

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to March 31, 2008
The issuances of the common stock to LMA Hughes was made pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended, as, among other things, each transaction did not involve a public offering, the investor was an accredited investor, the investor had access to information about the company and their investment, the investor took the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the common stock.
Note 3
Common Stock
The Company issued 600,000 shares of its common stock on August 11, 2005 to its founders for $2.
The Company issued 29,400,000 shares of its common stock on July 2, 2007 for a subscription receivable of $98.
The Company issued 52,000,000 shares of its common stock on December 20, 2007 for the net monetary assets of Zulu Energy.
On January 8, 2007, the Board of Directors of the Company authorized a ten to one (10 - 1) forward split of the Company’s issued and outstanding shares of common stock.
Note 4
Fixed Assets
All fixed assets are recorded at cost. Depreciation is provided for using the straight-line method as follows:
  March 31, December 31, 
  2008 2007 
    Accumulated     
Asset Class Cost Depreciation Net Net 
Property, Plant & Equipment $298 $100 $198 $216 
              
Total $298 $100 $198 $216 

Estimate for the life of property, plant and equipment is 10 years and a 10% rate of depreciation is assumed fair.

14

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to March 31, 2008
Note 5
Oil and Gas Properties
The Company has acquired nine leases in unproved oil and gas properties located in Botswana. Under the terms of the lease agreements the Company is required to pay its share of royalties and other obligations. The Company paid $7,579 and $7,996 for the lease years ended September 30, 2007 and 2006, respectively to the Government of Botswana under such lease agreements. Such leases expire in September 30, 2008. There is no assurance that the leases will be extended by the government.
Pursuant to such contracts, as at March 31, 2008 the Company was obligated to pay $5,684 to maintain the leases. This amount does not contemplate funds required for exploration.
Pursuant to the lease agreements the Companycircumstances involved. No impairment was required to expend the following amountsbe recorded during the lease period:

Lease Period Ended
Description
Amount in Pulas
9/30/06
Study of Data,Bore hole to 300m and complete a desorption study for 6 months
1,150,000
9/30/07Data interpretation, Permeability study, Drill production Bore hole, Test CBM produced2,000,000
9/30/08Full feasibility Study, Production and marketing Study3,000,000

As of March 31, 2008 the Company has not expended the amounts required during the lease periods. Amounts that were to be spent on exploration are due to the government by Botswana law. As of March 31, 2008 and based on Botswana law, management is of the opinion that the Company will not be able to renew 50% of the lease acreage and, accordingly, theperiods presented in these consolidated financial statements reflect a liability of $4,237,043 (P 27,675,000 converted at $.1531) to the government of Botswana representing the aggregate minimum required prospecting expenditures over the three year lease term. The Company plans to accelerate the exploration activity on the properties and is of the opinion that such activity will be sufficient to enable the renewal of the remaining 50%. There is no assurance that the government will renew any of the leases.
The company has capitalized $27,472 spent since inception exploration activities as oil and gas properties.
In addition to the over-riding royalty interests granted by Nyati Botswana disclosed in Note 6 below, in February 2007 Nyati Botswana granted a 2.5% over-riding royalty interest to Paul Tromp in the oil and gas properties it has leased from the government of Botswana.
Note 6
Related Party Transactions
Amounts due to related parties consist of loan in the amount of $255,754 from LMA Hughes, which is an affiliate of a shareholder of the company. As of March 31, 2008 these loans remain payable to LMA Hughes, and are unsecured, non-interest bearing and without specific terms for repayment.

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Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to March 31, 2008
Pursuant to the Exchange Agreement described in Note 2 above, the Zulu Energy is obligated to reimburse LMA Hughes for its expenses incurred as part of the transactions contemplated by the Exchange Agreement up to $250,000. Pursuant to the Exchange Agreement, Zulu Energy granted LMA Hughes a 10% over-riding royalty interest in any properties that the Companies acquire from LMA Hughes in the future.  
In July 2007, Nyati Botswana granted a 6.5% over-riding royalty interest to LMA Hughes in the oil & gas properties it has leased from the government of Botswana further described in Note 5 above. In February 2007, Nyati Botswana granted a 1% over-riding royalty interest to Tafilani Machacha, who is a member of the board of directors of Nyati Botswana, in the oil & gas properties it has leased from the government of Botswana further described in Note 5 above.
Note 7
Accounts Payable
Accounts payable includes $450,000 of working capital advanced to the company by First Capital Investment Corp., which is unsecured and without specific terms of repayment.
Note 8
Stock-based Compensation
We have adopted SFAS No. 123 “Accounting for Stock Based Compensation” as amended by SFAS No. 148 "Accounting for Stock-based Compensation - Transition and Disclosure”. We recognize stock-based compensation expense using a fair value based method. We do not have a qualified stock option plan in place as of the reporting date.
On September 24, 2007, the Company granted 3,000,000 stock options exercisable at $1.81 until September 24, 2012.  All these options were fully vested vest on the date of the grant. These options were subsequently cancelled in April 2008 in conjunction with execution of a new employment agreement with Mr. Stroud as more fully described below under “Subsequent Events”.
The fair value of these share purchase options was determined using the Company’s historical stock prices and the Black-Scholes option-pricing model with the following assumptions:
Risk free rate
3.875%
Dividend yield0%
Weighted average expected volatility90%
Weighted average expected option life5 yrs
Weighted average fair value of options$ 1.292
Total options outstanding3,000,000
Total fair value of options outstanding$ 3,876,000

These options were granted by the legal parent who is the accounting acquiree for financial reporting purposes. Accordingly, due to the vesting of the stock options prior to the December 20, 2007 stock exchange agreement the year 2007 statement of operations did not reflect the effect of this transaction.

16
Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to March 31, 2008
Note 9
Accrued Expenses
Accrued salary payable to the employees of the Company for $35,000 has been recorded as accrued expenses as on March 31, 2008.
Note 10
Commitments and Contingencies
The Company is obligated to spend Pula (“P”) 6,150,000 or approximately $942,000 US as of March 31, 2008 per lease over the term of the lease (three years). If such expenditures do not occur then such amounts are payable to the government of Botswana. The total expenditure committed as of March 31, 2008 is approximately $8,500,000 US for nine leases. The Company believes that it will be able to perform sufficient work on the leaseholds so that the maximum amount it will owe the government is 50% of the $8,500,000 as of March 31, 2008.
Note 12
Subsequent Events
Private Placement
On May 7, 2008, Zulu Energy sold 8,000,000 shares of its common stock, together with warrants to purchase up to 8,000,000 shares of common stock, to certain investors in a private placement, also referred to as the Offering. Zulu Energy received $8,000,000 in aggregate gross proceeds in the Offering. The warrants have an exercise price of $1.50 per share and are exercisable for 3 years. The warrants are not exercisable until such time as Zulu Energy's shareholders approve an amendment to Zulu Energy's articles of incorporation to increase Zulu Energy's authorized shares of common stock.
Pursuant to the Subscription Agreements entered into as part of the Offering, in the event Zulu Energy, in a subsequent financing, sells any of its equity securities and receives gross proceeds of $5,000,000 or more within 120 days following the closing of the Offering, the investors in the Offering have the right for 30 days following notice by Zulu Energy to them of the subsequent financing to participate in and receive the same terms as the investors in the subsequent financing. If an investor in the Offering elects to participate in the subsequent financing, (i) the subscription funds provided to Zulu Energy as part of the Offering will be allocated to the purchase price or purchase consideration, as applicable, for the securities offered in the subsequent financing, (ii) the investor will surrender to Zulu Energy for cancellation the stock certificates representing the shares of common stock and the warrant received in the Offering, and (iii) the investor will enter into the operative documents prepared in conjunction with the subsequent financing.
Pursuant to the Swansi Stock Purchase Agreement, on May 7, 2008 we issued to Swansi Holdings Corp. a warrant to acquire 15,000,000 shares of our common stock at an exercise price of $1.50 per share, which is exercisable for a period of 5 years. The warrant is not exercisable until such time as Zulu Energy's shareholders approve an amendment in Zulu Energy's articles of incorporation to increase Zulu Energy's authorized shares of common stock. The issuance of the warrant described in this paragraph is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) and Rule 506 of Regulation D premulgated thereunder. An accredited investor received the warrant and Zulu Energy did not engage in any general solicitation or advertising to market the warrant.
17

Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to March 31, 2008
In conjunction with the Offering, the Company issued a 3 year warrant to exercise 800,000 shares of common stock at $1.50 as a placement fee for the Offering.
Employment Agreement with Mr. Paul Stroud
On April 15, 2008, Zulu Energy’s Board of Directors approved an employment agreement with Paul Stroud, Zulu Energy's Chief Executive Officer, to be effective March 1, 2008 that supersedes and replaces the employment agreement entered into between Zulu Energy and Mr. Stroud on September 24, 2007.
Under Mr. Stroud's new employment agreement, Mr. Stroud will receive an annual salary based on certain financings achieved by Zulu Energy. If Zulu Energy consummates a financing less than $5 million, he will receive an annual salary of $180,000. If Zulu Energy consummates a financing between $5 million and $10 million, Mr. Stroud's annual salary will be $240,000. If Zulu Energy consummates a financing in excess of $10 million, Mr. Stroud's annual salary will be $300,000. Mr. Stroud will receive a signing bonus of $100,000 following the consummation by Zulu Energy of a $5 million financing. Mr. Stroud is also eligible to receive an annual bonus at the discretion of the Board. Mr. Stroud was also granted stock options to purchase 1,500,000 shares of common stock with an exercise price of $1.00 per share. Mr. Stroud may exchange these stock options for incentive stock options following the implementation of a stock option plan by Zulu Energy. Pursuant to his employment agreement, the Board also approved the grant to Mr. Stroud of 2,000,000 shares of common stock and subsequently approved a grant of 50,000 shares of restricted stock that are be subject to restrictions outlined in a restricted stock agreement and will vest as follows: 820,000 shares (40%) on January 1, 2009 so long as Mr. Stroud still is in service with the Company and the Company has successfully drilled three stratigraphic test wells before that date; 615,000 shares (30%) on January 1, 2010 so long as Mr. Stroud still is in service with the Company and the Company shall have successfully located and tested a potentially viable hydrocarbon reservoir prior to that date and the remaining 615,000 shares (30%) on January 1, 2011 so long as Mr. Stroud still is in service with the Company.  In addition, Mr. Stroud is entitled to the coverage or benefits under any and all employee benefits plans maintained by Zulu Energy.
Employment Agreement with Mr. James Hostetler
On April 15, 2008, the Board appointed James Hostetler as Executive Vice President of Zulu Energy and approved an employment agreement with Mr. Hostetler, to be effective March 1, 2008. Under Mr. Hostetler's employment agreement, he will receive an annual salary equal to $180,000. Mr. Hostetler is also eligible to receive an annual bonus at the discretion of the Board. Mr. Hostetler was also granted stock options to purchase 1,500,000 shares of common stock with an exercise price of $1.00 per share. Mr. Hostetler may exchange these stock options for incentive stock options following the implementation of a stock option plan by Zulu Energy. Pursuant to his employment agreement, the Board also approved the grant to Mr. Hostetler of 1,900,000 shares of common stock that are be subject to restrictions outlined in a restricted stock agreement and will vest as follows: 760,000 shares (40%) on January 1, 2009 so long as Mr. Hostetler still is in service with the Company and the Company has successfully drilled three stratigraphic test wells before that date; 570,000 shares (30%) on January 1, 2010 so long as Mr. Hostetler still is in service with the Company and the Company shall have successfully located and tested a potentially viable hydrocarbon reservoir prior to that date and the remaining 570,000 shares (30%) on January 1, 2011 so long as Mr. Hostetler still is in service with the Company. In addition, Mr. Hostetler is entitled to the coverage or benefits under any and all employee benefits plans maintained by Zulu Energy.

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Zulu Energy Corp. & Subsidiaries
(An Exploration Stage Company)
Notes to the Unaudited Consolidated Financial Statements
For the Period from August 11, 2005 (inception) to March 31, 2008
Employment Agreement with Mr. Keith Reeves
On April 15, 2008, the Board appointed Keith Reeves as Vice President, Exploration of Zulu Energy and approved an employment agreement with Mr. Reeves, to be effective March 1, 2008. Under Mr. Reeves's employment agreement, he will receive an annual salary based on certain financings achieved by Zulu Energy. If Zulu Energy consummates a financing less than $5 million, Mr. Reeves will receive an annual salary of $180,000. If Zulu Energy consummates a financing between $5 million and $10 million, Mr. Reeves' annual salary will be $240,000. If Zulu Energy consummates a financing in excess of $10 million, Mr. Reeves' annual salary will be $300,000. Mr. Reeves will receive a signing bonus of $100,000 following the consummation by Zulu Energy of a $5 million financing. Mr. Reeves is also eligible to receive an annual bonus at the discretion of the Board. Mr. Reeves was also granted stock options to purchase 1,500,000 shares of common stock with an exercise price of $1.00 per share. Mr. Reeves may exchange these stock options for incentive stock options following the implementation of a stock option plan by Zulu Energy. Pursuant to his employment agreement, the Board also approved the grant to Mr. Reeves of 2,050,000 shares of common stock that that are be subject to restrictions outlined in a restricted stock agreement and will vest as follows: 820,000 shares (40%) on January 1, 2009 so long as Mr. Reeves still is in service with the Company and the Company has successfully drilled three stratigraphic test wells before that date; 615,000 shares (30%) on January 1, 2010 so long as Mr. Reeves still is in service with the Company and the Company shall have successfully located and tested a potentially viable hydrocarbon reservoir prior to that date and the remaining 615,000 shares (30%) on January 1, 2011 so long as Mr. Reeves still is in service with the Company. In addition, Mr. Reeves is entitled to the coverage or benefits under any and all employee benefits plans maintained by Zulu Energy.

Terminationstatements.

Under each of the foregoing employment agreements, each of Messrs. Stroud, Hostetler and Reeves may terminate their employment agreements with the Company upon thirty days’ notice. Upon such termination any unvested common stock or options to purchase common stock become immediately vested. The foregoing employees are also eligible to receive twelve months severance, full vesting of any unvested options or stock and registration of any shares of common stock (if such shares have not been previously registered) granted under their respective employment agreement in the event the employee is terminated without cause. Additionally, any stock options held by the employee will be exercisable for three additional years following termination without cause. Each employment agreement also contains a restrictive covenant.
Employment Agreement with Mr. Satyen Deshpande
On May 14, 2008, Zulu Energy entered into an employment agreement with Satyendra Deshpande, Zulu Energy’s then Chief Financial Officer and then member of the Board of Directors. Mr. Desphande subsequently resigned as Zulu Energy’s Chief Financial Officer, Secretary, Treasurer and member of the Board on Friday, May 16, 2008.
Under Mr. Deshpande’s employment agreement, Mr. Desphande was to receive an annual salary of $150,000 per annum. Pursuant to the terms of the employment agreement, Mr. Deshpande was granted a stock option to purchase 1,000,000 shares of common stock with an exercise price of $1.00 per share pursuant to Zulu Energy’s 2008 Equity Incentive Plan. The options vest as follows: 500,000 shares on the date of grant; and 500,000 shares on January 1, 2009; provided, however, that no options may be exercised until Zulu Energy’s stockholders approve an increase in Zulu Energy’s authorized shares of common stock to at least 150,000,000 shares. As a result of Mr. Deshpande’s resignation from Zulu Energy, the unvested options terminated.
During his period of employment, Mr. Desphande was entitled to the coverage or benefits under any and all employee benefits plans maintained by Zulu Energy.

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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations and estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Forward-Looking Statements” set forth above.
Overview
We are a development stage independent oil and gas company focused on the exploration and development of oil and gas resources. We were incorporated on May 6, 2005. In December 2007, we acquired nine Prospecting Licenses for the exploration of coal bed methane in the Republic of Botswana in Southern Africa through our acquisition of Nyati Resources Botswana (Proprietary) Limited, which is more fully described in our Annual Report on Form 10-KSB, as amended, filed with the Securities and Exchange Commission on May 15, 2008 in “Description of Business.” Our business plan is focused on discovery and production of substantial commercial quantities of coalbed methane in the Pandamatenga area of Northeastern Botswana.
Paul Stroud is our Chief Executive Officer. He has worked in the energy industry for over 30 years including as an employee for Royal Dutch Shell and UNOCAL and as an independent consulting engineer. Mr. Stroud has been involved in the acquisition of leases, exploration and production. He has substantial experience with coalbed methane and is in the process of assembling our development and management team.
Operations Plan
Our Prospecting Licenses allow us to explore for coalbed methane on approximately 2.2 million acres of land in the Pandamatenga area located in the northeast region of the Republic of Botswana on the southern African continent. We have previously granted overriding royalty interests in the land that is subject to the Prospecting Licenses equal to 10% in the aggregate.
Our goal is to discover and produce substantial commercial quantities of coalbed methane on the property under our Prospecting Licenses. No assurance can be given that commercial quantities of coalbed methane will be produced, if at all. The execution of our business plan will require additional capital which we do not now have on hand. The availability for such funding is also not assured.
Our business plan involves three phases. During the first phase we plan to drill approximately nine exploration wells to confirm the coal deposit, identify the absorption rates and gas content of the coal and identify production pilot locations. We anticipate that this initial exploration phase will last approximately six months. We plan to begin test drilling and initiate this first phase as soon as practicable after we have received funding. We expect that approximately $7 million of capital will be necessary for the first phase. Assuming we are successful in locating coalbed methane and raising the required capital, the second phase will likely involve the drilling of approximately 16 production test wells with the intent of demonstrating production and commercial viability or commercial volumes of coalbed methane. This phase will also likely include the dewatering of the coal and gas production and is expected to last approximately six months. The third phase will likely involve adding more wells to the pilot wells drilled in the second phase, expand our then existing well footprint and increase production. We anticipate that phase three will last approximately nine months. Costs for the second and third phase are estimated at $20 million. The initiation and completion of each of the three contemplated phases will require us to raise sufficient capital. As further described below, on May 7, 2008, we raised $8 million in a private placement of shares of our common stock. At this time we have no commitments or agreements for the raising of capital.
20
If we conclude, based on our exploration and testing, that commercial quantities of coalbed methane can be extracted from the area to which we hold licenses we will need substantially more capital to construct required infrastructure to distribute the methane or otherwise bring the methane to market. Such financings could lie with development banks that are focused on this part of Southern Africa, including the United States Trade & Development Agency and the World Bank, or large institutional investors, but we have no commitments or arrangements in place for these financings.
Our current cash position is not sufficient to fund our cash requirements during the next twelve months, including operations and capital expenditures. We intend to seek equity and/or debt financing to support our proposed coalbed methane operations and capital expenditures. We cannot assure that continued funding will be available or available on terms acceptable to us.
Our future financial results will depend primarily on (1) our ability to discover and produce commercial quantities of coalbed methane; (2) the market price for oil and gas; and (3) our ability to fully implement our exploration and development program with respect to these and other matters. We cannot assure that we will be successful in any of these activities or that the prices of oil and gas prevailing at the time of production will be at a level allowing for profitable production.
We have not entered into commodity swap arrangements or hedging transactions. Although we have no current plans to do so, we may enter into commodity swap and/or hedging transactions in the future in conjunction with oil and gas production.
Liquidity and Capital Resources
As of March 31, 2008, we had $90,572 in available cash. As of March 31, 2008, we had $591,672 in accrued expenses and accounts payables. On March 31, 2008, we had $27,472 in capitalized oil and gas properties as expenses incurred towards exploration activities since inception. We did not have any accounts payables or capitalized oil and gas properties on March 31, 2007. Investment in fixed assets during the quarter ended March 31, 2008 stood at $298 as compared to $0 during the quarter ended March 31, 2007.
We intend to seek joint ventures and/or to obtain equity and/or debt financing to support our current and proposed operations and capital expenditures. We cannot assure that any such funding will be available. The included financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.
Required Expenditures Concerning our Oil & Gas Properties
We own nine Prospecting Licenses or leases in unproved oil and gas properties located in the Republic of Botswana. Under the terms of the lease agreements we are required to pay its share of royalties and other obligations. We paid $7,579 and $7,996 for the lease years ended September 30, 2007 and 2006, respectively to the Government of Botswana under such lease agreements. Our leases expire in September 30, 2008 and there is no assurance that the leases will be extended by the government.
21
Pursuant to the terms of the leases, as of March 31, 2008 we were obligated to pay the government of Botswana $5,684 to maintain the leases. This amount does not contemplate funds required for exploration.
Under the leases we were required to expend the following amounts during the respective lease period reflected below:
Lease Period
Ended
Description
Amount in Pulas
9/30/06
Study of Data,Bore hole to 300m and complete a desorption study for 6 months
1,150,000
9/30/07Data interpretation, Permeability study, Drill production Bore hole, Test CBM produced2,000,000
9/30/08Full feasibility Study, Production and marketing Study3,000,000

As of March 31, 2008, we had not expended the amounts required during the lease periods. Amounts that were to be spent on exploration are due to the government by Botswana law. As of March 31, 2008 and based on Botswana law, management is of the opinion that we will not be able to renew 50% of the lease acreage and, accordingly, the financial statements reflect a liability of $4,561,393 (P 27,675,000 converted at $.16482) to the government of Botswana representing the aggregate minimum required prospecting expenditures over the three year lease term. We plan to accelerate the exploration activity on the properties and management is of the opinion that such activity will be sufficient to enable the renewal of the remaining 50%. There is, however, no assurance that the government will renew any of the leases.
Private Placement
On May 7, 2008, we sold 8,000,000 shares of our common stock, together with warrants to purchase up to 8,000,000 shares of common stock, to certain investors in a private placement, also referred to as the Offering. We received $8,000,000 in aggregate gross proceeds in the Offering. The warrants have an exercise price of $1.50 per share and are exercisable for 3 years. The warrants are not exercisable until such time as our shareholders approve an amendment to our articles of incorporation to increase our authorized shares of common stock.
Pursuant to the Subscription Agreements entered into as part of the Offering, in the event we, in a subsequent financing, sell any of its equity securities and receives gross proceeds of $5,000,000 or more within 120 days following the closing of the Offering, the investors in the Offering have the right for 30 days following notice by us to them of the subsequent financing to participate in and receive the same terms as the investors in the subsequent financing. If an investor in the Offering elects to participate in the subsequent financing, (i) the subscription funds provided to us as part of the Offering will be allocated to the purchase price or purchase consideration, as applicable, for the securities offered in the subsequent financing, (ii) the investor will surrender to us for cancellation the stock certificates representing the shares of common stock and the warrant received in the Offering, and (iii) the investor will enter into the operative documents prepared in conjunction with the subsequent financing.
We will require additional financing in order to complete our stated plan of operations for the next twelve months. We estimate that we will need approximately $20,000,000 to $25,000,000 for working capital and to carry out our intended objectives in Botswana during the next twelve months. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. We currently have no firm commitments for any additional capital.
22
The trading price of our shares of common stock and the downturn in the United States stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
Results of operations for the three months ended March 31, 2008 compared to the three months ended March 31, 2007.
Revenues. For the quarterly period ended March 31, 2008 and March 31, 2007 there were no revenues from operating or any other activities.
Operating Expenses. As of March 31, 2008 and based on Botswana law, management is of the opinion that the Company will not be able to renew 50% of the lease acreage and, accordingly, the financial statements reflect a liability of $4,237,043 (Pula 27,675,000 converted at $.1531) to the government of Botswana representing the aggregate minimum required prospecting expenditures over the three year lease term. The Company plans to accelerate the exploration activity on the properties and is of the opinion that such activity will be sufficient to enable the renewal of the remaining 50%. There is no assurance that the government will renew any of the leases.
For the three months ended March 31, 2008, operating expenses of $193,623 consisted primarily of general and administrative expenses. For the three months ended March 31, 2007, operating expenses of $16,775 consisted of general and administrative expenses.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Zulu Energy and its wholly owned subsidiaries, Nyati Mauritius Limited (“Mauritius”), Nyati Resources Limited (“Resources”), and Nyati Botswana (“Proprietary”) Limited (Botswana). Collectively, the consolidated entities are referred to herein as the “Company”. All significant inter-company transactions have been eliminated.
Going Concern
The Company’s financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company’s net loss for the year ended December 31, 2007 totaled $2,365,412 and accumulated losses through December 31, 2007 totaled $4,760,510. As of December 31, 2007 the Company’s working capital deficiency totaled $8,120,123 and its shareholder deficit totaled $5,090,332. The net loss for the quarter ended March 31, 2008 was $193,623. These factors raise substantial doubt the Company’s ability to continue as a going concern.
23
The Company’s ability to continue as a going concern will be dependent upon its ability to obtain sufficient financing to pay its existing creditors, cover its operating overhead, and fund oil and gas exploration and production projects. Other market factors such as the price of oil, gas and other natural resources upon extraction at prices sufficient to generate profitable operations may impact the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Exploration Stage Company
The Company is in the exploration stage. In December 2008, the Company acquired oil and gas licenses and drilling rights located in Botswana, Africa. The recoverability of the cost of capitalized oil and gas properties are dependent upon the discovery of recoverable reserves, the Company’s ability to obtain the necessary funding to extract the reserves and the sale of production at profitable market prices.
The Company complies with Financial Accounting Standards Board Statement No.7 and SEC Guide 7 for its characterization of the Company as exploration stage.
Cash and Cash Equivalents
The Company considers all investments purchased with a maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to credit risk consist principally of cash. The Company maintains its cash with a quality financial institution. The Company did not maintain a balance in excess of the FDIC insured amount of $100,000 at any time during the year ended December 31, 2007.
Oil and Gas Activities - Successful Efforts Method of Accounting
On April 4, 2005, the FASB adopted FASB Staff Position FSP FAS 19-1 that amends Statement of Financial Accounting Standards No. 19 (FAS 19), Financial Accounting and Reporting by Oil and Gas Producing Companies, to permit the continued capitalization of exploratory well costs beyond one year if (a) the well found a sufficient quantity of reserves to justify its completion as a producing well and (b) the entity is making sufficient progress assessing the reserves and the economic and operating viability of the project.
The Company accounts for its crude oil development and natural gas development activities utilizing the successful efforts method of accounting. Under this method, costs of productive exploratory wells, development dry holes and productive wells and undeveloped leases are capitalized. Oil and gas lease acquisition costs are also capitalized. Exploration costs, including personnel costs, certain geological and geophysical expenses and daily rentals for oil and gas leases, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate. A gain or loss is recognized for all other sales of producing properties.
24
The application of the successful efforts method of accounting requires managerial judgment to determine that proper classification of wells designated as developmental or exploratory which will ultimately determine the proper accounting treatment of the costs incurred. The results from a drilling operation can take considerable time to analyze and the determination that commercial reserves have been discovered requires both judgment and industry experience. Wells may be completed that are assumed to be productive and actually deliver oil and gas in quantities insufficient to be economic, which may result in the abandonment of the wells at a later date. Wells are drilled that have targeted geologic structures that are both developmental and exploratory in nature and an allocation of costs is required to properly account for the results. Delineation seismic incurred to select development locations within an oil and gas field is typically considered a development cost and capitalized, but often these seismic programs extend beyond the reserve area considered proved and management must estimate the portion of the seismic costs to expense. The evaluation of oil and gas leasehold acquisition costs requires managerial judgment to estimate the fair value of these costs with reference to drilling activity in a given area. Drilling activities in an area by other companies may also effectively condemn leasehold positions.
Revenue Recognition
The Company has not earned any revenues since its inception. Oil and gas revenues will be recorded at such time as the Company has delivered and transferred title to a purchaser of its product and the price has been reasonably determined.
Asset Retirement Obligations
The Corporation recognizes the value of a liability for an asset retirement obligation in the year in which a reasonable estimate of value can be made.
Changes in the liability for an asset retirement obligation due to the passage of time will be measured by applying an interest method of allocation. The amount will be recognized as an increase in the liability and an accretion expense in the statement of operations. Changes resulting from revisions to the timing or the amount of the original estimate of undiscounted cash flows are recognized as an increase or a decrease in the carrying amount of the liability for an asset retirement obligation and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset. As at December 31, 2007 the value of the oil and gas property’s site restoration costs is insignificant.
Environmental Costs
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the Company’s commitments to plan of action based on the then known facts.
25
Goodwill and Intangible Assets
 
The Company has adopted the provisions of the FAS No. 142, “Goodwill and Intangible Assets”. Under FAS No. 142, goodwill and intangible assets with indefinite lives are not amortized but are annually tested for impairment. The determination of any impairment includes a comparison of the estimated future operating cash flows anticipated during the remaining life for the net carrying value of the asset as well as a comparison of the fair value to the book value of the Company or the reporting unit to which the goodwill can be attributed.
 
Stock-based Compensation
 
In December 2004, the Financial Accounting Standards Board issued FAS 123R “Share-Based Payment”, a revision to FAS 123. FAS 123R replaces existing requirements under FAS 123 and APB 25, and requires public companies to recognize the cost of employee services received in exchange for equity instruments, based on the grant-date fair value of those instruments, with limited exceptions. FAS 123R also affects the pattern in which compensation cost is recognized, the accounting for employee share purchase plans, and the accounting for income tax effects of share-based payment transactions. The Company adopted FAS 123R on November 1, 2006.
 
Financial Instruments
31
The carrying values of cash, accounts payable and accrued liabilities and due to related parties approximate their fair value because of the short maturity of these instruments. It is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.
Basic and Diluted Loss Per Share
The Company reports basic loss per share in accordance with the FAS No. 128, “Earnings per Share”. Basic loss per share is computed using the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the year including stock options, using the treasury stock method. The diluted EPS computation uses the average stock price for the year to determine the number of shares assumed to be purchased from the exercise of stock options or warrants. As at March 31, 2008 the Company has sustained operating losses and, accordingly, any dilutive potential common shares would have an anti-dilutive effect and are therefore not considered in computing diluted EPS.
 
Foreign Currency Translation
 
The accounts of the Company are translated in accordance with Statement of Financial Accounting Standard No. 52, which requires that foreign currency assets and liabilities be translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average rates prevailing throughout the period. The effects of unrealized exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated as the accumulated other comprehensive adjustment in shareholders’ equity.
 
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 assumptions and estimates that effect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.
26
 
Recent Accounting Pronouncements
 
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (“FIN 48”). This interpretation clarifies the application of SFAS 109 by defining the criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements and also provides guidance on measurement, de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. FIN 48 is effective for our fiscal year commencing November 1, 2007. The adoption of FIN 48 is not expected to have an impact on our results of operations or financial condition.
 
In November 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combination (FAS 141(R)) and SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (FAS 160). FAS 141(R) will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. FAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as non-controlling interests and classified as a component of equity. FAS 141(R) and FAS 160 are effective for both public and private companies for fiscal years beginning on or after December 15, 2008 (fiscal 2010 for the Company). FAS 141(R) will be applied prospectively. FAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of FAS 160 will be applied prospectively. Early adoption is prohibited for both standards. Management is currently evaluating the requirements of FAS 141(R) and FAS 160 and has not yet determined the impact on its financial statements.
 
In December 2007, the FASB issued FSAS No.157, Fair Value Measurements. This Statement does not require any new fair value measurements, but rather, it provides enhanced guidance to other pronouncements that require or permit assets or liabilities to be measured at fair value. However, the application of this Statement may change how fair value is determined. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. As of December 1, 2007 the FASB has proposed a one-year deferral for the implementation of the Statement for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. Management is currently evaluating the requirements of FAS 157 and has not yet determined the impact on its financial statements.
 
32
In December 2007, the FASB issued FSAS No.159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115 . This Statement provides all entities with an option to report selected financial assets and liabilities at fair value. The Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007, with early adoption available in certain circumstances. Management is currently evaluating the requirements of FAS 159 and has not yet determined the impact on its financial statements.

In March 2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FAS 133, and how derivative instruments and related hedged items affect an entity’s operating results, financial position, and cash flows. FAS 161 is effective for fiscal years beginning after November 15, 2008. Early adoption is permitted. The Company is currently reviewing the provisions of FAS 161 and has not yet adopted the statement. However, as the provisions of FAS 161 are only related to disclosure of derivative and hedging activities, the Company does not believe the adoption of FAS 161 will have a material impact on its consolidated operating results, financial position, or cash flows.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets or FSP FAS 142-3. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the intangible asset. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is assessing the potential impact that the adoption of FSP FAS 142-3 may have on its consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles or SFAS No. 162. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement shall be effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not believe that implementation of this standard will have a material impact on its consolidated financial position, results of operations or cash flows.
In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” (FSP EITF 03-6-1). FSP EITF 03-6-1 states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. Management has determined that the adoption of FSP EITF 03-6-1 will not have an impact on the Financial Statements.
33
 
Item 4T.
CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) and pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of March 31,at September 30, 2008. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
  
27
Based on our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and were fully effective as of March 31,September 30, 2008 in providing reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
 
Changes in internal control over financial reporting.
 
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
 
There were no changes in our internal controls over financial reporting (as such term is defined under Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
 
2834

PART II – OTHER INFORMATION
 
ITEM 1.
ITEM 1.
LEGAL PROCEEDINGS
None.

ITEM 2.
UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 2.UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
As further described in Item 5 of this Quarterly Report on Form 10-Q, we granted Satyendra Deshpande, our then Chief Financial Officer, pursuant to an employment agreement we entered into with Mr. Deshpande on May 14, 2008, options to purchase 1,000,000 shares of our common stock with an exercise price of $1.00 per share pursuant to our 2008 Equity Incentive Plan. Mr. Deshpande resigned from the Company on May 16, 2008. The options were to vest under the agreement as follows: 500,000 shares on the date of grant; and 500,000 shares on January 1, 2009; provided, however, that no options may be exercised until our stockholders approve an increase in our authorized shares of common stock to at least 150,000,000 shares. As a result of Mr. Deshpande’s resignation from the Company, the unvested options terminated. The above grant of stock options made by us to Mr. Deshpande was made pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
ITEM 4.
SUBMISSION OF MATTERS TO THE VOTE OF SECURITY HOLDERS
 
None.
 
ITEM 4.
ITEM 5.
OTHER INFORMATIONSUBMISSION OF MATTERS TO THE VOTE OF SECURITY HOLDERS

None.
ITEM 5.OTHER INFORMATION
On May 14, 2008, we entered into an employment agreement with Satyendra Deshpande, our then Chief Financial Officer, Secretary and Treasurer and then member of the Board of Directors (or Board). Mr. Desphande subsequently resigned as our Chief Financial Officer, Secretary, Treasurer and member of the Board on  May 16, 2008.
Under Mr. Deshpande’s employment agreement, Mr. Desphande was to receive an annual salary of $150,000 per annum. Pursuant to the terms of the employment agreement, Mr. Deshpande was granted a stock option to purchase 1,000,000 shares of common stock with an exercise price of $1.00 per share pursuant to our 2008 Equity Incentive Plan. The options were to vest under the agreement as follows: 500,000 shares on the date of grant; and 500,000 shares on January 1, 2009; provided, however, that no options may be exercised until our stockholders approve an increase in our authorized shares of common stock to at least 150,000,000 shares. As a result of Mr. Deshpande’s resignation from the Company, the unvested options terminated.
During his period of employment, Mr. Desphande was entitled to the coverage or benefits under any and all employee benefits plans maintained by the Company.
On May 19, 2008, the Board appointed James Hostetler, our Executive Vice President, as Chief Financial Officer, Secretary, Treasurer, and Principal Accounting Officer of the Company. The information concerning Mr. Hostetler’s employment agreement, biographical information and work experience and related disclosure is available in the Company’s Form 10-KSB/A filed with the Securities and Exchange Commission on April 29, 2008.
 
2935
 
ITEM 6. EXHIBITS

Exhibit
NumberDescription
2.1
Stock Exchange Agreement and Plan of Reorganization among Zulu Energy Corp, Nyati Mauritius Limited and LMA Hughes LLLP dated December 19, 20071
3.1
Articles of Incorporation2
3.2
Articles of Amendment3
3.3
Statement of Correction3
3.4
Form of Amended and Restated Articles of Incorporation5†
3.5
Amended and Restated Bylaws6
10.1
Stock Purchase Agreement between Zulu Energy Corp. and Swansi Holdings Corp. dated as of December 19, 20071
10.2
Tax Indemnification Letter Agreement between Zulu Energy Corp. and LMA Hughes LLLP dated December 19, 20071
10.3
Employment Agreement, dated effective March 1, 2008, by and between Zulu Energy Corp. and Keith Reeves4
10.4
Employment Agreement, dated effective May 15, 2008, by and between Zulu Energy Corp. and Mohamed Gova9
10.5
Form of Option Holder Letter Agreement4
10.6
Letter Agreement dated April 25, 2008 between Zulu Energy Corp. and Swansi Holdings Corp.5
10.7
Zulu Energy Corp. Amended and Restated 2008 Equity Incentive Plan10†
10.8
Form of Restricted Stock Agreement6
10.9
Form of Stock Option Agreement6
10.10
Form of Director Stock Option Agreement10
10.11
Form of Common Stock Purchase Warrant7
10.12
Form of Subscription Agreement7
36
10.13
Form of Registration Rights Agreement7
10.14
Sublease by and between Zulu Energy Corp. and Unifi Capital Partners, LLC, dated June 25, 200810
10.15
Form of Commercial Lease by and between Zulu Energy Corp. and James W. Guercio, dated February 1, 200810
31.1*Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

1.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 27, 2007, File No. 000-52272.
2.
Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed with the Commission on September 1, 2006, File No. 333-137076.
3.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 20, 2008, File No. 000-52272.

4.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 21, 2008, File No. 000-52272.
5.
Incorporated by reference to the Company’s Annual Report on Form 10-KSB/A filed with the Commission on April 29, 2008, File No. 000-52272.
6.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on May 2, 2008, File No. 000-52272.
7.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on May 9, 2008, File No. 000-52272.
8.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on May 28, 2008, File No. 000-52272.

9.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on July 10, 2008, File No. 000-52272.

10.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 19, 2008, File No. 000-52272.

*Filed herewith.
†
The Amended and Restated Articles of Incorporation and 2008 Equity Incentive Plan was approved by the Board of Directors of Zulu Energy Corp. on August 14, 2008 and will be presented to shareholders for approval as part of the 2008 Annual Meeting of Shareholders.
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ZULU ENERGY CORP.
 Date: November 19, 2008By:/s/ Mohamed Gova
Mohamed Gova, President and Chief Executive
Officer
Date: November 19, 2008By:/s/ Mohamed Gova
Mohamed Gova, Secretary, Treasurer, Chief
Financial Officer and Principal Accounting
Officer.
38
EHIBIT INDEX

Exhibit  
Number  Description 
   
2.1 
Stock Exchange Agreement and Plan of Reorganization among Zulu Energy Corp, Nyati Mauritius Limited and LMA Hughes LLLP dated December 19, 20071
   
3.1 
Articles of Incorporation2 
   
3.2 
Articles of Amendment*3
   
3.3 
Statement of Correction*Correction3
   
3.4 
Form of Amended and Restated Articles of Incorporation4†5†
   
3.5 
Amended and Restated Bylaws56
   
10.210.1 
Stock Purchase Agreement between Zulu Energy Corp. and Swansi Holdings Corp. dated as of December 19, 20071
   
10.310.2 
Tax Indemnification Letter Agreement between Zulu Energy Corp. and LMA Hughes LLLP dated December 19, 20071
   
10.410.3 
Employment Agreement, dated effective March 1, 2008, by and between Zulu Energy Corp. and Paul StroudKeith Reeves4
10.4
Employment Agreement, dated effective May 15, 2008, by and between Zulu Energy Corp. and Mohamed Gova9
   
10.5 
EmploymentForm of Option Holder Letter Agreement dated effective March 1, 2008, by and between Zulu Energy Corp. and James Hostetler34
   
10.6
Employment Agreement, dated effective March 1, 2008, by and between Zulu Energy Corp. and Kevin Reeves3
10.7
Form of Option Holder Letter Agreement3
10.8 
Letter Agreement dated April 25, 2008 between Zulu Energy Corp. and Swansi Holdings Corp.35
10.7
Zulu Energy Corp. Amended and Restated 2008 Equity Incentive Plan10†
10.8
Form of Restricted Stock Agreement6
   
10.9 
Zulu Energy Corp. 2008 Equity Incentive PlanForm of Stock Option Agreement3†6
   
10.10 
Form of RestrictedDirector Stock Option Agreement510
   
10.11 
Form of Common Stock Option AgreementPurchase Warrant57
   
10.12 
Form of Common Stock Purchase WarrantSubscription Agreement67
   
10.13 
Form of SubscriptionRegistration Rights Agreement67
39
10.14 
Form of Registration Rights AgreementSublease by and between Zulu Energy Corp. and Unifi Capital Partners, LLC, dated June 25, 2008610
   
10.15 Employment Agreement, dated effective May 14, 2008,
Form of Commercial Lease by and between Zulu Energy Corp. and Satyendra Deshpande*James W. Guercio, dated February 1, 200810
   
31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
3040
 
32.1*Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

1.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 27, 2007, File No. 000-52272.
2.
Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed with the Commission on September 1, 2006, File No. 333-137076.
3.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 21, 2008, File No. 000-52272.
4.
Incorporated by reference to the Company’s Annual Report on Form 10-KSB/A filed with the Commission on April 29, 2008, File No. 000-52272.
5.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on May 2, 2008, File No. 000-52272.
6.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on May 9, 2008, File No. 000-52272.
*Filed herewith.
†
The form of Amended and Restated Articles of Incorporation and 2008 Equity Incentive Plan were approved by the Board of Directors of Zulu Energy Corp. on April 28, 2008 and will be presented to shareholders for approval as part of the 2008 Annual Meeting of Shareholders.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ZULU ENERGY CORP.
 Date: May 20, 2008By:/s/ Paul Stroud
Paul Stroud, President and Chief Executive
Officer
Date: May 20, 2008By:/s/ James Hostetler
James Hostetler, Secretary, Treasurer, Chief
Financial Officer and Principal Accounting
Officer.


EXHIBIT LIST

Exhibit
Number Description 
2.1
Stock Exchange Agreement and Plan of Reorganization among Zulu Energy Corp, Nyati Mauritius Limited and LMA Hughes LLLP dated December 19, 20071
3.1
Articles of Incorporation2
3.2
Articles of Amendment*
3.3Statement of Correction*
3.4
Form of Amended and Restated Articles of Incorporation4†
3.5
Amended and Restated Bylaws5
10.2
Stock Purchase Agreement between Zulu Energy Corp. and Swansi Holdings Corp. dated as of December 19, 20071
10.3
Tax Indemnification Letter Agreement between Zulu Energy Corp. and LMA Hughes LLLP dated December 19, 20071
10.4
Employment Agreement, dated effective March 1, 2008, by and between Zulu Energy Corp. and Paul Stroud4
10.5
Employment Agreement, dated effective March 1, 2008, by and between Zulu Energy Corp. and James Hostetler3
10.6
Employment Agreement, dated effective March 1, 2008, by and between Zulu Energy Corp. and Kevin Reeves3
10.7
Form of Option Holder Letter Agreement3
10.8
Letter Agreement dated April 25, 2008 between Zulu Energy Corp. and Swansi Holdings Corp.3
10.9
Zulu Energy Corp. 2008 Equity Incentive Plan3†
10.10
Form of Restricted Stock Agreement5
10.11
Form of Stock Option Agreement5
10.12
Form of Common Stock Purchase Warrant6
10.13
Form of Subscription Agreement6
10.14
Form of Registration Rights Agreement6
10.15Employment Agreement, dated effective May 14, 2008, by and between Zulu Energy Corp. and Satyendra Deshpande*
31.1*Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
1.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 27, 2007, File No. 000-52272.
2.
Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed with the Commission on September 1, 2006, File No. 333-137076.
3.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 21, 2008, File No. 000-52272.
4.
Incorporated by reference to the Company’s Annual Report on Form 10-KSB/A filed with the Commission on April 29, 2008, File No. 000-52272.
5.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on May 2, 2008, File No. 000-52272.
6.
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on May 9, 2008, File No. 000-52272.
*Filed herewith.
†
The form of Amended and Restated Articles of Incorporation and 2008 Equity Incentive Plan were approved by the Board of Directors of Zulu Energy Corp. on April 28, 2008 and will be presented to shareholders for approval as part of the 2008 Annual Meeting of Shareholders.