Edgar Filing: Siberian Energy Group Inc.

siberian10q063011.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2011

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

For the transition period from ____________ to ______________

Commission file number: 000-53766

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive offices)

(212) 828-3011

(Registrant's 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 [ ]

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

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

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

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

As of August 15, 2011, the issuer had 67,367,659 shares of common stock, $0.001 par value per share outstanding, which number does not include 1,144 shares which the registrant has agreed to issue to its President, Helen Teplitskaia for services rendered during the months of January through August 2011.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Siberian Energy Group Inc.

We have reviewed the condensed consolidated balance sheet of Siberian Energy Group Inc. (a development stage company) as of June 30, 2011, and the related condensed consolidated statements of operations for the three and six months ended June 30, 2011 and 2010, and the cumulative period of development stage activity (January 1, 2003 through June 30, 2011), and the condensed consolidated statements of stockholders’ equity and cash flows for the six months ended June 30, 2011 and 2010, and the cumulative period of development stage activity (January 1, 2003 through June 30, 2011). These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Siberian Energy Group Inc. as of December 31, 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated April 15, 2011, we expressed an unqualified opinion on those financial statements with an explanatory paragraph describing conditions that raised substantial doubt about the Company’s ability to continue as a going concern. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2010 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

Lumsden & McCormick, LLP

Buffalo, New York

August 11, 2011

F-1

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)

Condensed Consolidated Balance Sheets	(Unaudited)
	June 30,			December 31,
	2011			2010

Assets
Current assets:
Cash	$	1,101		$	467
Prepaid expenses and other		87,468			8,810
		88,569			9,277

Investment in ZNG, Ltd., at equity		-			-

Investment in KNG, at equity		-			-

Mineral properties		24,894,301			-

Oil and gas properties, unproved		-			-

Property and equipment, net		-			623

	$	24,982,870		$	9,900

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable:
Related party - stockholders	$	236,280		$	125,631
Related party - Baltic Petroleum, interest at 14%		77,940			74,926
Others		76,261			20,017
Accrued payroll		295,012			147,766
		685,493			368,340

Loan payable		481,329			-

Stockholders' equity:
Preferred stock - 10,000,000 shares, $.001 par value		-			-
Common stock - authorized 100,000,000 shares, $.001 par value
67,367,659 and 667,659 issued and outstanding		67,368			668
Additional paid-in capital		40,159,038			15,756,738
Accumulated deficit
Pre-development stage		(449,785	)		(449,785	)
Development stage		(15,946,507	)		(15,651,971	)
Accumulated other comprehensive loss		(14,066	)		(14,090	)
		23,816,048			(358,440	)

	$	24,982,870		$	9,900

See accompanying notes.

F-2

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)
													For the
Condensed Consolidated Statements of Operations													cumulative
													period of
													Development
													Stage Activity-
	For the three						For the six						January 1, 2003
	months ended						months ended						through
	June 30,			June 30,			June 30,			June 30,			June 30,
	2011			2010			2011			2010			2011

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

Expenses:
Salaries		73,501			82,700			146,901			164,500			4,281,759
Professional and consulting fees		65,050			58,393			137,521			118,544			5,461,292
Rent and occupancy		-			-			-			-			237,498
Depreciation and amortization		-			167			-			335			105,502
Finance charges and interest		5,895			1,661			7,394			3,420			133,499
Marketing and other		3,535			3,284			17,420			6,300			2,094,501
Total expenses		147,981			146,205			309,236			293,099			12,314,051

Foreign currency translation gain		14,700			-			14,700			-			14,700

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

Loss from sale of investment		-			-			-			-			669,570

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

Impairment charge on investment		-			-			-			-			525,947

Loss before income taxes		133,281			146,205			294,536			293,099			15,946,507

Provision for income taxes (benefit)		-			-			-			-			-

Net loss (development stage)	$	133,281		$	146,205		$	294,536		$	293,099		$	15,946,507

Basic and diluted loss per common share
after 1:70 reverse stock split	$	(0.00	)	$	(0.49	)	$	(0.02	)	$	(0.99	)	$	(12.21	)

Weighted average number of basic and diluted common
shares outstanding after 1:70 reverse stock split		37,139,881			296,418			18,803,018			296,418			1,306,334


See accompanying notes.

F-3

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)

Condensed Consolidated Statements of Stockholders' Equity

For the cumulative period of Development Stage Activity - January 1, 2003 through June 30, 2011

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

Balance, January 1, 2003 (pre-development stage)		135,801		$	136		$	434,962		$	(449,785	)	$	-		$	(14,687	)

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

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

Balance, December 31, 2003		150,087		$	150		$	434,948		$	(872,301	)	$	-		$	(437,203	)

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

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

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

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

Other		-			-			34,426			-			-			34,426

Balance, December 31, 2004		200,088		$	200		$	1,229,324		$	(1,705,868	)	$	(53,120	)	$	(529,464	)

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

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

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

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

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

Balance, December 31, 2005		229,874		$	230		$	2,041,079		$	(2,859,554	)	$	(2,506	)	$	(820,751	)

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

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

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

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

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

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

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

Balance, December 31, 2006		267,375		$	267		$	8,734,962		$	(6,932,342	)	$	(4,445	)	$	1,798,442

See accompanying notes.

F-4

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)

Condensed Consolidated Statements of Stockholders' Equity

For the cumulative period of Development Stage Activity - January 1, 2003 through June 30, 2011

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


Balance, December 31, 2006		267,375	$	267	$	8,734,962		$	(6,932,342	)	$	(4,445	)	$	1,798,442

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

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

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

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

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

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

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

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

Balance, December 31, 2007		328,375	$	328	$	13,071,811		$	(8,992,829	)	$	(14,249	)	$	4,065,061

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

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

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

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

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

Balance, December 31, 2008		332,124	$	332	$	13,130,613		$	(14,856,389	)	$	12,770		$	(1,712,674	)

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

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

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

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

Balance, December 31, 2009		332,982	$	333	$	13,180,064		$	(15,522,505	)	$	(6,944	)	$	(2,349,052	)

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

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

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

Shares issued for accounts payable and accrued salaries		2,929		3		22,547			-			-			22,550

Balance, December 31, 2010		667,659	$	668	$	15,756,738		$	(16,101,756	)	$	(14,090	)	$	(358,440	)

See accompanying notes.

F-5

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)

Condensed Consolidated Statements of Stockholders' Equity

For the cumulative period of Development Stage Activity - January 1, 2003 through June 30, 2011

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


Balance, December 31, 2010		667,659	$	668	$	15,756,738	$	(16,101,756	)	$	(14,090	)	$	(358,440	)

Loss for six months - 2011		-		-		-		(294,536	)		-			(294,536	)

Foreign currency translation adjustment		-		-		-		-			24			24		$	(294,512	)

Shares issued in acquisition (RMC)		65,200,000		65,200		24,058,800		-			-			24,124,000

Shares issued for geological data		1,500,000		1,500		343,500		-			-			345,000

Balance, June 30, 2011		67,367,659	$	67,368	$	40,159,038	$	(16,396,292	)	$	(14,066	)	$	23,816,048

See accompanying notes.

F-6

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)
							For the
Condensed Consolidated Statements of Cash Flows							cumulative
							period of
							Development
							Stage Activity-
							January 1, 2003
							through
							June 30,
For the six months ended June 30,	2011			2010			2011

Operating activities:
Net loss (development stage)	$	(294,536	)	$	(293,099	)	$	(15,946,507	)
Depreciation and amortization		-			335			105,397
Common stock and warrants issued
for professional services and salaries and geological data		-			-			7,231,933
Gain from entrance into joint venture		-			-			(364,479	)
Loss on disposition of office furniture		623			-			1,652
Loss on sale of investment, including deconsolidation of subsidiary		-			-			823,692
Loss on deemed disposition of oil and gas properties, unproved		-			-			3,928,000
Impairment charge on investment		-			-			525,947
Changes in other current assets and
current liabilities:
Management fee receivable		-			-			110,000
Prepaid expenses and other assets		8,544			(17	)		(263,658	)
Accounts payable and accrued expenses		284,324			299,708			4,869,451
Net operating activities		(1,045	)		6,927			1,021,428

Investing activities:
Expenditures for licenses and related		-			-			(528,961	)
Expenditures for oil and gas properties		-			-			(770,750	)
Expenditures for property and equipment		-			-			(6,244	)
Proceeds of disposition of office furniture		-			-			107
Loan to affiliate		-			-			(29,500	)
Cash received in acquisition		1,655			-			1,661
Cash received from entrance into joint venture		-			-			175,000
Net investing activities		1,655			-			(1,158,687	)

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

Effect of exchange rates on cash		24			(7,173	)		(14,066	)

Net change in cash		634			(246	)		1,101

Cash - beginning		467			751			-

Cash - ending	$	1,101		$	505		$	1,101

See accompanying notes.

F-7

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation:

The accompanying unaudited consolidated financial statements of Siberian Energy Group Inc. (the “Company”) include the accounts of the Company and its 100% owned subsidiaries. These financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (SEC) interim reporting, and do not include all of the information and note disclosures required by generally accepted accounting principles. These consolidated financial statements and notes herein are unaudited, but in the opinion of management, include all the adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the Company’s financial positions, results of operations, and cash flows for the periods presented. Accounting policies used in fiscal 2011 are consistent with those used in the cumulative period of Development Stage Activity – January 1, 2003 through December 31, 2010. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto. Interim operating results are not necessarily indicative of operating results for any future interim period or the full year.

2. The Company and Description of Business:

The Company has been in the development stage since its inception of its current endeavors.

Rare Minerals and Koklanovskoe

On April 27, 2011, the Company entered into a Share Exchange Agreement (the “Agreement”) with Rare Minerals Corporation (“RMC”), a privately held corporation, to acquire all of the outstanding shares of RMC. This Agreement became effective on May 11, 2011, which is the date the Company took control of RMC.

RMC was formed as a Nevada corporation on December 9, 2010. RMC’s wholly-owned subsidiary is OOO Koklanovskoe (Koklanovskoe), a Russian limited liability company. Koklanovskoe holds a license (KUG00939TE) for the Koklanovskoe Molybdenum-Tungsten deposit in the Kurgan Region of the Russian Federation. Through the acquisition of this license, the Company plans to enter the market for the exploration and production of rare and semi-rare earth metals and precious minerals.

Pursuant to the Agreement, the Company acquired all of the outstanding shares of RMC by issuing 65,200,000 shares of restricted common stock (representing 99% of the Company’s then outstanding common stock) to the RMC shareholders. As a result of the Agreement, control of the Company changed to the former RMC Shareholders, subject to certain voting restrictions in relation to the appointment of the Company’s Board of Directors during the first year subsequent to the effective date of the Agreement.

The fair value of the common stock issued to RMC shareholders on May 11, 2011, the acquisition date, was $.37 per share which equates to $24,124,000 of common stock being issued.

This transaction has been accounted for using the acquisition method of accounting which requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The approximate $24,141,000 excess of the book value of the net assets acquired has been allocated to mineral properties on the condensed consolidated balance sheet.

F-8

The approximate consolidated balance sheet of RMC as of May 11, 2011 is as follows:

Balance Sheet

Assets:
Cash	$	2,000
Prepaid expenses		87,000
Mineral properties		405,000
	$	494,000

Liabilities
Loans payable and accrued interest	$	508,000
Other Liabilities		3,000
		511,000

Accumulated deficit		(17,000	)
	$	494,000

Kondaneftegaz

The Company, through its subsidiary Kondaneftegaz, LLC (KNG), has been engaged in the business of exploiting and developing certain oil and gas and other petroleum products licenses issued for a period of five years by Russia’s subsurface management authorities in October 2007. The two licensed areas lie in the Karabashsky zone in the Khanty-Mansiysk Autonomous area of the Russian Federation. KNG has its principal place of business in the city of Khanty-Mansiysk, Russia.

KNG was acquired together with the vast collection of geological information data (oil and gas properties, unproved) on the Karabashski zone of Khanty-Mansiysk Autonomous district of the Tuymen region of the Russian Federation through the issuance of shares and warrants as follows:

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

Stock warrants issued in 2006
for purchase option			3,572

As a result of the purchase, a calculated acquisition value of $3,928,000 was assigned to the oil and gas properties, unproved that considered the approximate market value of the stock issued ($122.50) on the transaction date including $3,675,000 assigned to 30,000 shares issued in 2006 and $253,000 assigned to 3,572 stock warrants issued. A value of $1,320,000 was assigned to the acquisition of licenses by KNG based on the market value of the 28,571 shares on the date of issue.

On September 30, 2008, the Company sold a 51% interest in KNG to a Russian oil and gas company, and a 5% interest to two Russian individuals for $223. This Russian company has committed to lead the exploration works on the licensed areas by accepting the operator’s role and agreeing to provide funding for KNG’s activities. Simultaneously with the sale of 56% of KNG, the Company made available all geological data to the operator to be used in the program of geological studies in the region. Since no consideration was received and the Company has no intent to further utilize this geological data, a loss on the deemed disposition of these unproven oil and gas properties of $3,928,000 has been recorded. Operations of KNG prior to September 30, 2008 are included in the consolidated accounts of the Company in the accompanying financial statements. Effective September 30, 2008, the Company's 44% investment in KNG is recorded on the equity method of accounting. At September 30, 2008, KNG’s assets were $13,572 and liabilities were $135,740. Since 56% of the Company was sold for a nominal amount, a non-cash impairment charge of $525,947 has been recorded to reduce the carrying value of the 44% investment in KNG to zero.

F-9

KNG previously prepared and coordinated with the Russian authorities an exploration works program on the Karabashski-61 and Karabashski-67 license areas. Certain preliminary exploration activities were performed on the licensed areas over the past several years; however, KNG subsequently determined to cease exploration activities on the licensed areas. As such, we do not anticipate KNG generating any revenues moving forward. The Company is currently evaluating spinning or selling off its investment in KNG.

Zauralneftegaz

Zauralneftegaz Ltd. (“ZNG, Ltd.”) is the Company’s 50% owned joint venture with Baltic Petroleum Limited, UK created in 2005, which operates through its Russian subsidiary Zaural Neftegaz (“ZNG”). ZNG has been involved in oil and gas research activities in the Kurgan region of the Russian Federation. During 2003 through 2008 it has completed seismic studies and drilling programs in the Kurgan region, after which date Kurgan operations were put on hold until further economical advisability is confirmed. The Company believes ZNG, Ltd. has created value through the geological results of the two exploratory wells and other data gathered in the area, and ZNG, Ltd. is considering its options with regard to realizing this value by either a farm out or a direct sale of geophysical and seismic data to a third party operating in the area.

Activities of ZNG for the period March 2003 through October 2005 are included in the consolidated accounts of the Company in the accompanying financial statements. Effective October 14, 2005, the Company’s investment in Joint Venture has been recorded on the equity method of accounting. Since the cumulative losses of the Joint Venture exceed the Company’s investment, the investment asset is carried at zero value as of and through June 30, 2011.

Both equity investments are recorded at zero on the accompanying balance sheets. Although management is hopeful, the Company is uncertain when and if any income will be realized from these investments. On a moving forward basis, the Company anticipates further business expansion. It is constantly evaluating new mineral resource assets, both explored and unexplored, as part of its growth strategy.

The Company was incorporated in the State of Nevada on August 13, 1997, and previously provided comprehensive outpatient rehabilitation services to patients suffering from work, sports and accident related injuries. All activities related to the Company’s previous business ventures were essentially discontinued prior to January 1, 2000. Predecessor names of the Company since its inception include Trans Energy Group, Inc., Oyster King Incorporated and Advanced Rehab Technology Corporation.

3. Loan Payable:

The Company obtained a long-term loan facility from an unrelated individual with a maximum borrowing capacity of 500,000 British pounds (equivalent to $800,880 on June 30, 2011). The proceeds were used to purchase a geological license. The loan is unsecured, bears interest at 12%, and is due January 31, 2015. At June 30, 2011, there was $481,329 (300,000 British pounds) outstanding.

4. Issuance of Common Stock:

In June 2011, the Company issued 1,500,000 shares of its common stock to acquire geological data. The fair value of the common stock was $.23 per share on the date of issuance which equates to $345,000 of common stock being issued. This geological data has been classified as mineral properties on the condensed consolidated balance sheet.

F-10

5. Income Taxes:

At June 30, 2011, the Company effectively has U.S. tax net operating loss carry-forwards totaling approximately $4,547,000. These carry-forwards may be used to offset future taxable income, and expire in varying amounts through 2031. No tax benefit has been reported in the financial statements, however, because the Company believes there is at least a 50% chance that the carry-forwards will expire unused. Accordingly, the $1,592,000 estimated cumulative tax benefit of the loss carry-forwards have been offset by a valuation allowance of the same amount.

6. Loss Per Common Share:

Basic and diluted loss per common share is computed using the weighted average number of common shares outstanding during the period. Shares issuable for common stock options and warrants may have had a dilutive effect on earnings per share had the Company generated income during the periods through June 30, 2011.

7. Going Concern:

These financial statements have been prepared assuming the Company will continue as a going concern, however, since inception of its current endeavor in 2003, it has not earned substantial revenues and is considered to be in the development stage, which raises substantial doubt about its ability to continue as a going concern.

Management is of the opinion that sufficient financing will be obtained from external sources to provide the Company with the ability to continue its operations in the near term.

For the cumulative period ended June 30, 2011, the Company has obtained cash financing from organizing stockholders and employees in the form of loans, advances, and deferred salaries. However, there can be no certainty as to availability of continued financing in the future. Failure to obtain sufficient financing may require the Company to reduce its operating activities. A failure to continue as a going concern would then require stated amounts of assets and liabilities to be reflected on a liquidation basis which could differ from the going concern basis.

8. Reverse Stock Split:

On February 28, 2011, the Company, with the consent of its stockholders, approved a 1:70 reverse stock split of the outstanding common stock effective March 15, 2011. Additionally, the Company re-authorized 100,000,000 shares of $.001 par value common stock and 10,000,000 shares of $.001 par value preferred stock. Accordingly, the consolidated financial statements have been retroactively adjusted as if these changes to the Company’s capital structure occurred on January 1, 2003.

F-11

9. Cash Flows Information:

Noncash investing and financing activities excluded from the statement of cash flows for the six months ended June 30, 2011:

RMC asset acquisition acquired through the
issuance of common stock:

Prepaid expenses and other	$	87,202
Mineral properties	$	24,549,301
Accounts payable and accrued expenses	$	32,829
Loan payable	$	481,329

Geological data acquired through the
issuance of common stock	$	345,000

F-12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q (THIS "FORM 10-Q"), CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (COLLECTIVELY, THE "REFORM ACT"). CERTAIN, BUT NOT NECESSARILY ALL, OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "SHOULD", OR "ANTICIPATES", OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF SIBERIAN ENERGY GROUP INC. AND KONDANEFTEGAZ, LLC, A RUSSIAN LIMITED LIABILITY, THE REGISTRANT’S 44% OWNED SUBSIDIARY, ZAURALNEFTEGAZ LIMITED, A COMPANY ORGANIZED UNDER THE LAWS OF THE COUNTRY OF ENGLAND, WHICH THE REGISTRANT OWNS 50% OF, AND RARE MINERALS CORPORATION, A NEVADA CORPORATION, THE COMPANY’S WHOLLY-OWNED SUBSIDIARY AS A RESULT OF THE SHARE EXCHANGE, DESCRIBED BELOW (COLLECTIVELY "SIBERIAN", THE "COMPANY", "WE", "US" OR "OUR") TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-Q, UNLESS ANOTHER DATE IS STATED, ARE TO JUNE 30, 2011.

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

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

BUSINESS DEVELOPMENT:

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

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

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

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

-2-

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

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

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

Rare Minerals Acquisition

On April 27, 2011, we entered into a Share Exchange Agreement with Rare Minerals Corporation, a Nevada corporation (“RMC” and the “Share “Exchange”) and RMC’s shareholders (the “RMC Shareholders”). Pursuant to the Share Exchange, we agreed to exchange 65,200,000 shares of newly issued common stock (representing 99% of our then outstanding common stock) with the RMC Shareholders for 100% of the outstanding shares of RMC. The Share Exchange closed effective May 11, 2011 (the “Closing”).

Pursuant to the Share Exchange, the RMC Shareholders agreed not to vote the shares which they hold in favor of removing any current Director of the Company, to vote any and all shares in favor of re-appointing all current members of the Board of Directors (subject to the terms of the Share Exchange) for a period of one year from Closing, and that they had no rights to appoint or remove Directors for a period of one year from Closing (collectively the “Voting Requirements”).

In connection with and pursuant to the Share Exchange, we agreed to issue an aggregate of 65,200,000 shares of restricted common stock (representing 99% of our then outstanding shares of common stock) to the following RMC shareholders in the amounts stated, which RMC Shareholders own percentage interests in the Company subsequent to the transaction as follows:

RMC Shareholder Name	Shares	Percentage of Company’s Outstanding Shares*
The Abner Rosen Foundation (a)	5,600,000	8.5%
Jonathan P. Rosen (a)	5,600,000	8.5%
Ferris Hill LLP (b)	1,800,000	2.7%
Mikhail Frayman	200,000	0.3%
Ilya Aharon	4,400,000	6.7%
Yohanan Aharon	3,200,000	4.9%
Ioulia Chipilevskaia	4,400,000	6.7%
Rosa Shimonov	4,000,000	6.1%

-3-

Polina Matsuleva	8,800,000	13.4%
Valeria Zagourski	7,200,000	10.9%
Liudmila Radziminskaya	3,200,000	4.9%
Olga Yulanova	6,200,000	9.4%
Yury Kolomiets	6,600,000	10.0%
Donatina Cordone	200,000	0.3%
Oksana Danylych	3,800,000	5.8%
Total	65,200,000	99.0%

* Based on 667,659 shares of common stock outstanding immediately prior to the consummation of the Share Exchange.

(a) The President of The A