| Nevada                                                                            |   |   |   | 20-8428738                           |
|-----------------------------------------------------------------------------------|--------|--------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation          or           organization) |   |   |   | (IRS Employer Identification Number) |
|                                                                                   |   |        |   |                                      |
| 3880 Hulen St., Ste 500, Fort Worth,          TX | 76107      |
|--------------------------------------------------|------------|
| (Address of principal executive offices))        | (Zip Code) |

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| **PART I**                                                                                                                                              | **Page No.** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|
| Item 1. Description of Business                                                                                                                         | 1            |
| Item 2. Description of Properties                                                                                                                       | 13           |
| Item 3. Legal Proceedings                                                                                                                               | 16           |
| Item 4. Submission of Matters to a Vote of      Security Holders                                                                                        | 16           |
|                                                                                                                                                    |         |
| **PART II**                                                                                                                                             |         |
| Item 5. Market for Registrant's Common Equity,      Related Stockholder Matters and Small Business Issuer Purchases of Equity      Securities           | 16           |
| Item 6. Management's Discussion and Analysis      or Plan of Operation                                                                                  | 17           |
| Item 7. Financial Statements                                                                                                                            | F-1          |
| Item 8. Changes in and Disagreements with Accountants      on Accounting and Financial Disclosure                                                       | 24           |
| Item 8A(T). Controls and Procedures                                                                                                                     | 24           |
| Item 8B. Other Information                                                                                                                              | 24           |
|                                                                                                                                                    |         |
| **PART III**                                                                                                                                            |              |
| Item 9. Directors, Executive Officers, Promoters,      Control persons and Corporate Governance; Compliance with Section 16(a)      of the Exchange Act | 24           |
| Item 10. Executive Compensation                                                                                                                         | 24           |
| Item 11. Security Ownership of Certain Beneficial      Owners and Management and Related Stockholder Matters                                            | 24           |
| Item 12. Certain Relationships and Related      Transactions and Director Independence                                                                  | 25           |
| Item 13. Exhibits                                                                                                                                       | 25           |
| Item 14. Principal Accountant Fees and Services                                                                                                         | 26           |
|                                                                                                                                                    |         |
| **GLOSSARY**                                                                                                                                            |         |
|                                                                                                                                                    |         |
| **SIGNATURES**                                                                                                                                          | 27           |
| Subsidiaries of Registrant                                                                                                                              |         |
| Consent of Independent Registered Public Accounting      Firm                                                                                           |         |
| Consent of Forest Garb & Associates                                                                                                                     |         |
| Certification by the President and CEO Pursuant      to Section 302                                                                                     |         |
| Certification by the CFO Pursuant to Section      302                                                                                                   |         |
| Certification by the President and CEO Pursuant      to Section 906                                                                                     |         |
| Certification by the CFO Pursuant to Section      906                                                                                                   |         |

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| • | Barnett Shale. Our main area of interest      in the Barnett Shale play is located in the "oil window" of the Barnett      in southwest Cooke County, Texas. We sold approximately 1,475 net acres      outside our main area of interest and acquired bolt-on acreage of approximately      710 gross acres (approximately 533 net acres) contiguous to the acreage      we hold in Cooke County.       We drilled, completed, and began production in twelve wells and drilled      another seven wells that we anticipate will be completed in the first quarter      of fiscal year 2009. Additionally, we repurchased working interests in 30      wells at a cost of approximately $1.8 million.       We identified zones up-hole in most of our existing wells that show significant      hydro-carbon producing potential in addition to the proven reserves located      in the Barnett Shale interval. In February, we successfully moved up-hole      from the Barnett and re-completed one well into the Forestburg limestone      formation. The re-completed well had an IP of 40 barrels of oil and 50 mcf      gas per day at a cost of approximately $50,000. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| • | Corsicana Enhanced Oil Recovery (EOR) Project.      We began injecting surfactant polymer in our pilot project in mid-June 2007.      The initial results have been positive. Average daily production in the      pilot project increased by 50% for the fourth quarter when compared to pre-pilot      production for the first quarter of the fiscal year. We have initiated the      second phase of our polymer flood program and as of the date of this filing      have drilled 12 new wells in an area immediately south to our injection      facility adjacent to the pilot wells. To date, we have injected over 162,000      bbls of a polymer-surfactant solution into our pilot acreage and expanded      the area to include an additional 100 acres. We have also drilled 1 of 4      planned and permitted deep exploration wells with our working interest partner      and expect to drill the remaining three during the second quarter of fiscal      year 2009.                                                                                                                                                                                           |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| • | Fayetteville Shale Mineral Interests.      We have decided to sell our acreage in Fayetteville Shale as it lies outside      of our geographic area of interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| • | Tri-County Gas Gathering System. In      June 2007, we sold our interest in the Tri-County Gas Gathering System for      a gain of approximately $2.2 million. The 8-k filed on June 7, 2007 is incorporated      herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

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|   |                              |              |   | March 31, |   | December 31, |      |
|--------|-----------------------------------|-------------------|--------|-----------|--------|--------------|-----------|
|   |                              | Years      Ending |   | 2008      |   |         | 2006      |   |   | 2005 |   |
|   | Production                        |              |   |      |   |         |      |   |   |   |
|   |                              | Oil (Bbl)         |   | 33,602    |        |         | 34,607    |   |   | 8,965 |   |
|   |                              | Gas (Mcf)         |   | 351,538   |        |         | 199,282   |   |   | 94,358 |   |
|   |                              | Total (BOE)       |   | 92,192    |        |         | 67,821    |   |   | 24,691 |   |
|   |                              |              |   |      |   |         |      |   |   |   |   |
|   | Revenues                          |              |   |      |   |         |      |   |   |   |
|   |                              | Crude Oil         | $      | 2,704,468 |        | $            | 1,772,649 |   | $ | 555,097 |   |
|   |                              | Gas               |   | 2,197,604 |        |         | 1,101,642 |   |   | 554,102 |   |
|   |                              | Total             |   | 4,902,072 |        |         | 2,874,291 |   |   | 1,109,199 |   |
|   |                              |              |   |      |   |         |      |   |   |   |   |
|   | Average Sale Price      (per BOE) | $                 | 53.17  |           | $      | 42.38        |      | $ | 44.92 |   |
|   |                              |              |   |      |   |         |      |   |   |   |

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| • | the domestic and foreign supply of oil and      gas;            |
|--------|-----------------------------------------------------------------|
| • | the price and availability of alternative fuels;                |
| • | weather conditions;                                             |
| • | the level of consumer demand;                                   |
| • | the price of foreign imports;                                   |
| • | world-wide economic conditions;                                 |
| • | political conditions in oil and gas producing      regions; and |
| • | domestic and foreign governmental regulations.                  |

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| • | injury or loss of life;                                                            |
|--------|------------------------------------------------------------------------------------|
| • | severe damage to or destruction of property,      natural resources and equipment; |
| • | pollution or other environmental damage;                                           |
| • | clean-up responsibilities;                                                         |
| • | regulatory investigations and penalties; or                                        |
| • | suspension of operations                                                           |

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| • | we may be required to dedicate a substantial      portion of our cash flows from operations to the payment of our indebtedness,      reducing the funds available for our operations; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | a portion of our borrowings are at variable      rates of interest, making us vulnerable to increases in interest rates;                                                              |
| • | we may be more highly leveraged than some of      our competitors, which could place us at a competitive disadvantage;                                                                |
| • | our degree of leverage may make us more vulnerable      to a downturn in our business or the general economy;                                                                         |
| • | the terms of our credit arrangements could      contain numerous financial and other restrictive covenants;                                                                           |
| • | our debt level could limit our flexibility      in planning for, or reacting to, changes in our business and the industry      in which we operate; and                               |
| • | we may have difficulties borrowing money in      the future.                                                                                                                          |

----

| • | changes in oil and natural gas prices;                                                     |
|--------|--------------------------------------------------------------------------------------------|
| • | variations in quarterly drilling, re-completions,      acquisitions and operating results; |
| • | changes in financial estimates by securities      analysts;                                |
| • | changes in market valuations of comparable      companies;                                 |
| • | additions or departures of key personnel; or                                               |
| • | future sales of our stock.                                                                 |

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| ***Reserves***                                 |   | ***Barnett         Shale*** |         | ***Corsicana        Field*** |         | ***E. Texas         Field*** |         | ***Total*** |   |
|------------------------------------------------|--------|-----------------------------|--------------|------------------------------|--------------|------------------------------|--------------|-------------|--------|
| Proved Developed (MBOE)                        |   | 1,437                       |         | 430                          |         | 9                            |         | 1,876       |   |
| Proved Undeveloped (MBOE)                      |   | 2,642                       |         | 10,393                       |         | 9                            |         | 13,044      |   |
| Total Proven Reserves at March 31, 2008        |   | 4,079                       |         | 10,823                       |         | 18                           |         | 14,920      |   |
|                                           |   |                        |         |                         |         |                         |         |        |   |
| Estimated Future Net Revenues (M$)             |   | 175,177                     |         | 754,202                      |         | 669                          |         | 930,048     |   |
|                                           |   |                        |    |                         |    |                         |    |        |   |
| Present Value of Future Net Revenues      (M$) |   | 89,447                      |         | 335,509                      |         | 489                          |         | 425,445     |   |
|                                           |   |                        |         |                         |         |                         |         |        |   |
| Benchmark Pricing                              |   |                        |         |                         |         |                         |         |        |   |

|   | Natural Gas per mcf  | $9.86   |  |        |   |
|--------|----------------------|---------|--|--------|--------|
|   | Crude Oil per barrel | $101.54 |  |   |   |

----

| • | customary royalty interests; ****                                  |
|--------|--------------------------------------------------------------------|
| • | liens incident to operating agreements and      for current taxes; |
| • | obligations or duties under applicable laws;                       |
| • | development obligations under oil and gas leases;      or          |
| • | burdens such as net profit interests.                              |

| Fiscal 2008        | High   | Low    |
|--------------------|--------|--------|
| June 30, 2007      | $1.28  | $1.05  |
| September 30, 2007 | $1.30  | $1.02  |
| December 31, 2007  | $1.42  | $0.80  |
| March 31, 2008     | $1.04  | $0.62  |
|               |   |   |
| Fiscal 2007        | High   | Low    |
| June 30, 2006      | $Nil   | $Nil   |
| September 30, 2006 | $Nil   | $Nil   |
| December 31, 2006  | $1.26  | $0.05  |
| March 31, 2007     | $1.33  | $0.95  |

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|               | Discounted Cash Flows @ 10% |       | Net Reserves (MBOE) |
|--------------------|-----------------------------|------------|---------------------|
|               |                        | 2008       |                |   | 2007 |   | % Change | 2008 |   | 2007 |   | % Change |
| Proved Developed   | $                           | 37,209,260 |                | $ | 7,781,890 |   |   478.2% | 1,437 |   | 426 |   | 337.0% |
| Proved Undeveloped |                        | 52,238,110 |                |   | 2,323,380 |   | 2248.4% | 2,642 |   | 409 |   | 646.4% |
|               | $                           | 89,447,370 |                | $ | 10,105,270 |   |   885.2% | 4,079 |   | 835 |   | 488.4% |
|               |                        |       |                |   |   |   |   |   |   |   |   |   |

|               | Discounted Cash Flows @ 10% |        | Net Reserves (MBOE) |
|--------------------|-----------------------------|-------------|---------------------|
|               |                        | 2008        |                |   | 2007 |   | % Change | 2008 |   | 2007 |   | % Change |
| Proved Developed   | $                           | 14,799,080  |                | $ | 1,104,080 |   |  1340.4% | 430 |   | 106 |   | 406.4% |
| Proved Undeveloped |                        | 320,710,090 |                |   | 169,758,910 |   |   188.9% | 10,394 |   | 11,302 |   |   -8.0% |
|               | $                           | 335,509,170 |                | $ | 170,862,990 |   |   196.4% | 10,823 |   | 11,408 |   |   -5.1% |
|               |                        |        |                |   |   |   |   |   |   |   |   |   |

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|                | Fiscal Year Ending March 31 |   |
|---------------------|-----------------------------|--------|
|                | 2009                        |   | 2010 |   | 2011 |   |
| Office Lease -      | 150,000                     |        | 160,000 |  | 131,525 |   |
| Mineral Lease loans | 72,000                      |   | - |   | - |   |
| Related Party Notes | 325,000                     |   | 3,195,000 |   | - |   |
| Construction Loan   | 15,000                      |   | 16,000 |   | 16,000 |   |

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|                                                                                                                                                    | Page   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                    |   |
| Report of Independent Registered Public      Accounting Firm                                                                                            | F-2    |
|                                                                                                                                                    |   |
| Balance Sheet, March      31, 2008 and 2007                                                                                                             | F-3    |
|                                                                                                                                                    |   |
| Statements of Operations,      Three Months Ended March 31, 2008 and 2007 and Years Ended March 31, 2008      and December 31, 2006                     | F-4    |
|                                                                                                                                                    |   |
| Statements of Stockholders'      Equity (Deficit), Three Months Ended March 31, 2008 and 2007 and Years      Ended March 31, 2008 and December 31, 2006 | F-5    |
|                                                                                                                                                    |   |
| Statements of Cash Flows,      Three Months Ended March 31, 2008 and 2007 and Years      Ended March 31, 2008 and December 31, 2006                     | F-6    |
|                                                                                                                                                    |   |
| Notes to Financial Statements                                                                                                                           | F-8    |
|                                                                                                                                                    |   |

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| **1931 E. 37th Street, Suite 7         Odessa, Texas 79762         (432) 363-0067         Fax (432) 363-0376** | **2626 Royal Circle         Kingwood, Texas 77339         (281) 359-7224         Fax (281) 359-7112** | **3300 N. A Street, Bldg. 4, Suite 200                Midland, Texas 79705         (432) 686-9381         Fax (432) 684-6722** |
|----------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | **March 31, 2008** |       | **March 31, 2007** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|------------|--------------------|--------|
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |               |       |               |   |   |   |
| Current Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |               |       |               |   |   |   |
|           Cash                                                                                                                                                                                                                                                                                                                                                                                                                       | $                  | 592,665    |               | $      | 212,254 |   |
|           Accounts      Receivable:                                                                                                                                                                                                                                                                                                                                                                                                  |               |       |               |   |   |   |
|                     Oil      & Gas - Related Party                                                                                                                                                                                                                                                                                                                                 |               | 868,406    |               |   | 495,200 |   |
|                     Other                                                                                                                                                                                                                                                                                                                                                          |               | -          |               |   | 63,389 |   |
|           Inventory                                                                                                                                                                                                                                                                                                                                                                                                                  |               | 4,748      |               |   | - |   |
|           Hedging      Account                                                                                                                                                                                                                                                                                                                                                                                                       |               | 13,062     |               |   | - |   |
|           Discontinued      Operations - Assets Net of Liabilities                                                                                                                                                                                                                                                                                                                                                                   |               | -          |               |   | 4,005,567 |   |
|           Total      Current Assets                                                                                                                                                                                                                                                                                                                                                                                                  |               | 1,478,881  |               |   | 4,776,410 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |               |       |               |   |  |   |
| Note Receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |               | 1,355,228  |               |   | 1,614,218 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |               |       |               |   |  |   |
| Oil and Gas Properties - successful efforts method                                                                                                                                                                                                                                                                                                                                                                                                                                     |               | 17,832,931 |               |   | 11,712,673 |   |
|           Less      Accumulated Depletion and Depreciation                                                                                                                                                                                                                                                                                                                                                                           |               | (4,139,337 | )                  |   | (2,740,044 | ) |
|                     Oil      & Gas Properties (net)                                                                                                                                                                                                                                                                                                                                |               | 13,693,594 |               |   | 8,972,629 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |               |       |               |   |  |   |
| Other Depreciable Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                              |               | 1,641,806  |               |   | - |   |
|           Less      Accumulated Depreciation                                                                                                                                                                                                                                                                                                                                                                                         |               | (121,113   | )                  |   | - |   |
|                     Other      Depreciable Assets (net)                                                                                                                                                                                                                                                                                                                            |               | 1,520,693  |               |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |               |            |               |   |  |   |
| Other Related Party Receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                         |               | 80,395     |               |   | 70,395 |   |
| Leasehold Held for Sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                |               | 1,680,813  |               |   | - |   |
| Investment in Equity Method Investment                                                                                                                                                                                                                                                                                                                                                                                                                                                 |               | 142,395    |               |   | - |   |
| Total Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $                  | 19,951,999 |               | $      | 15,433,652 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |               |       |               |   |   |   |
| **LIABILITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |               |       |               |   |   |   |
| Current Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |               |       |               |   |   |   |
|           Accounts      Payable                                                                                                                                                                                                                                                                                                                                                                                                      | $                  | 103,479    |               | $      | 509,540 |   |
|           Notes      Payable to Related Parties                                                                                                                                                                                                                                                                                                                                                                                      |               | 324,330    |               |   | 324,330 |   |
|           Payable      to Related Parties                                                                                                                                                                                                                                                                                                                                                                                            |               | 1,547,136  |               |   | 3,379,069 |   |
|           Royalties      Payable                                                                                                                                                                                                                                                                                                                                                                                                     |               | 57,485     |               |   | - |   |
|           Accrued      Expenses                                                                                                                                                                                                                                                                                                                                                                                                      |               | 857,887    |               |   | 889,857 |   |
|           Accrued      Expenses - Related Parties                                                                                                                                                                                                                                                                                                                                                                                    |               | 171,788    |               |   | 23,646 |   |
|           Current      Portion of Long-Term Debt                                                                                                                                                                                                                                                                                                                                                                                     |               | 14,960     |               |   | 5,093,864 |   |
|                     Total      Current Liabilities                                                                                                                                                                                                                                                                                                                                 |               | 3,077,065  |               |   | 10,220,306 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |               |       |               |   |  |   |
|           Notes      Payable                                                                                                                                                                                                                                                                                                                                                                                                         |               | 1,647,769  |               |   | 3,605,937 |   |
|           Notes      Payable - Related Parties                                                                                                                                                                                                                                                                                                                                                                                       |               | 3,194,594  |               |   | 3,294,594 |   |
|           Other      Related Party Payables                                                                                                                                                                                                                                                                                                                                                                                          |               | 490,840    |               |   | 880,261 |   |
|           Less      Current Portion of Notes Payable                                                                                                                                                                                                                                                                                                                                                                                 |               | (14,960    | )                  |   | (5,093,864 | ) |
|                     Total      Long-Term Debt                                                                                                                                                                                                                                                                                                                                      |               | 5,318,243  |               |   | 2,686,928 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |               |       |               |   |  |   |
|           Deferred      Tax Liability                                                                                                                                                                                                                                                                                                                                                                                                |               | 2,163,183  |               |   | 1,734,563 |   |
|                     Total      Liabilities                                                                                                                                                                                                                                                                                                                                         |               | 10,558,491 |               |   | 14,641,797 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |               |       |               |   |  |   |
|           Commitments      & Contingencies:                                                                                                                                                                                                                                                                                                                                                                                          |               |       |               |   |    |   |
|                     Contingent      Stock Based Compensation                                                                                                                                                                                                                                                                                                                       |               | 214,976    |               |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |               |       |               |   |  |   |
| **Stockholders' Equity**                                                                                                                                                                                                                                                                                                                                                                                                                                                               |               |       |               |   |  |   |
|           Common      Stock, $.001 par,200,000,000 shares authorized and                           80,181,310      and 71,954,262 shares outstanding on                           March      31, 2008 and 2007, respectively |               | 80,181     |               |   | 71,954 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |               |       |               |   |  |   |
|           Additional      Paid-In-Capital                                                                                                                                                                                                                                                                                                                                                                                            |               | 9,553,346  |               |   | 1,970,795 |   |
|           Retained      Deficit                                                                                                                                                                                                                                                                                                                                                                                                      |               | (454,995   | )                  |   | (1,250,894 | ) |
|                     Total      Stockholders' Equity                                                                                                                                                                                                                                                                                                                                |               | 9,178,532  |               |   | 791,855 |   |
|                     Total      Liabilities & Stockholders' Equity                                                                                                                                                                                                                                                                                                                  | $                  | 19,951,999 |               | $      | 15,433,652 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |               |       |               |   |   |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | **Three Months Ended**                |       | **Fiscal Year        Ended** |   | **Twelve         Months         Ended** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------|------------|------------------------------|--------|-----------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | **March 31, 2008        (unaudited)** |       | **March 31, 2007**           |   | **Mar. 31, 2008**                       |   | **Dec. 31, 2006** |   |
| **Revenues**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                  |       |                         |   |                                    |   |   |   |   |   |   |   |
|          Oil      & Gas Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | $                                     | 1,471,908  |                         | $      | 814,400                                 |   | $ | 4,902,072 |   | $ | 2,874,291 |   |
|          Sale      of Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                  | -          |                         |   | 19,431                                  |   |   | 307,028 |   |   | 400,378 |   |
|          Other      Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                  | 113,919    |                         |   | 95,388                                  |   |   | 281,231 |   |   | 45,771 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                  | 1,585,827  |                         |   | 929,219                                 |   |   | 5,490,331 |   |   | 3,320,440 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  |            |                         |   |                                    |   |   |   |   |   |   |   |
| **Costs and Expenses**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                  |            |                         |   |                                    |   |   |   |   |   |   |   |
|          Oil      & Gas Lease Operating Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                  | 655,208    |                         |   | 168,346                                 |   |   | 2,125,261 |   |   | 1,131,502 |   |
|          Workover      Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                  | 317,349    |                         |   | -                                       |   |   | 356,342 |   |   | - |   |
|          Severance      & Ad Valorem Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                  | 116,524    |                         |   | 40,962                                  |   |   | 318,785 |   |   | 163,523 |   |
|          Geologic      & Geophysical                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                  | -          |                         |   | -                                       |   |   | 8,993 |   |   | - |   |
|          Delay      Rentals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                  | -          |                         |   | -                                       |   |   | 52,186 |   |   | - |   |
|          Plugging      Costs & Expired Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                  | 290,959    |                         |   | -                                       |   |   | 290,959 |   |   | - |   |
|          Depletion      & Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                  | 647,309    |                         |   | 468,540                                 |   |   | 1,520,406 |   |   | 1,940,354 |   |
|          General      & Administrative:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  | -          |                         |   | 135,947                                 |   |   | - |   |   | 281,727 |   |
|             Salaries      & Benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                  | 308,052    |                         |   | -                                       |   |   | 1,104,785 |   |   | - |   |
|             Legal      & Professional                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                  | 86,196     |                         |   | -                                       |   |   | 584,765 |   |   | - |   |
|             Other      General & Administrative                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                  | 101,489    |                         |   | -                                       |   |   | 332,009 |   |   | - |   |
|          Interest,      net of capitalized interest of $120,208 and                $113,706 for the three      months ended March 31,                2008, and March 31,      2007, respectively and                $488,299 and $420,230      for the years ended March                31, 2008 and December      31, 2006, respectively |                                  | -          |                         |   | 63,321                                  |   |   | - |   |   | 13,660 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                  | 2,523,086  |                         |   | 877,116                                 |   |   | 6,694,491 |   |   | 3,530,766 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  |            |                         |   |                                    |   |   |   |   |   |   |   |
| Interest Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                  | 54,959     |                         |   | 55,811                                  |   |   | 210,938 |   |   | - |   |
| Hedging Loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                  | (10,047    | )                            |   | -                                       |   |   | (16,938 | ) |   | - |   |
| Loss on Equity Method Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                  | (32,605    | )                            |   | -                                       |   |   | (32,605 | ) |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  |       |                         |   |                                    |   |   |   |   |   |   |   |
| Income (Loss) from continuing operations before      income                taxes and discontinued      operations                                                                                                                                                                                                                                                                                                                                                                                                             |                                  | (924,952   | )                            |   | 107,914                                 |   |   | (1,042,765 | ) |   | (210,326 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  |            |                         |   |                                    |   |   |   |   |   |   |   |
| Income Tax Provision                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  | 323,695    |                         |   | (1,363,244                              | )      |   | 364,930 |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  |       |                         |   |                                    |   |   |   |   |   |   |   |
| Income from discontinued operations, net of      income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                  |            |                         |   |                                    |   |   |   |   |   |   |   |
|          Pipeline      Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                  | -          |                         |   | 107,536                                 |   |   | 22,930 |   |   | 403,082 |   |
|          Gain      on Sale of Pipeline                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                  | -          |                         |   | -                                       |   |   | 1,450,805 |   |   | - |   |
|          Income      from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                  | -          |                         |   | 107,536                                 |   |   | 1,473,735 |   |   | 403,082 |   |
| Net Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $                                     | (601,257   | )                            | $      | (1,147,794                              | )      | $ | 795,900 |   | $ | 192,756 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  |       |                         |   |                                    |   |   |   |   |   |   |   |
| **Basic & Diluted Loss per Common Share**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $                                     | (0.01      | )                            | $      | (0.02                                   | )      | $ | 0.01 |   |   |   |   |
| **Weighted Average      Common Shares Outstanding**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                  | 79,831,310 |                         |   | 69,616,786                              |   |   | 78,800,618 |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  |       |                         |   |                                    |   |   |   |   |   |   |   |
| **Pro-Forma Earnings Per      Share**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                  |       |                         |   |                                    |   |   |   |   |   |   |   |
|          Net      Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                  |       |                         |   |                                    |   |   |   |   | $ | 192,756 |   |
|          Proforma      Income Tax Expense at Statutory Rate (35%)                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                  |       |                         |   |                                    |   |   |   |   |   | (67,465 | ) |
|          Proforma      Net Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                  |       |                         |   |                                    |   |   |   |   | $ | 125,291 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  |       |                         |   |                                    |   |   |   |   |   |   |   |
| **Proforma Weighted      Average Shares Outstanding**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                  |       |                         |   |                                    |   |   |   |   |   | 68,129,310 |   |
| **Proforma Basic & Diluted Earnings      Per Share**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  |       |                         |   |                                    |   |   |   |   | $ | 0.00 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  |       |                         |   |                                    |   |   |   |   |   |   |   |

----

|   | Common Stock |   |
|--------|--------------|--------|

|   | Number of        Shares |   | Amount |   | Paid-In         Capital |   | Retained         Deficit |   | Total |
|--------|-------------------------|--------|--------|--------|-------------------------|--------|--------------------------|--------|-------|

| Combined Equities      of Merged Companies           December 31, 2005 | 68,129,310 |   | $      | 68,129 |   | $      | (921,301  | )      | $      | (829,935   | )      | $      | (1,683,107 | )      |
|-------------------------------------------------------------------------------------------------|------------|--------|--------|--------|--------|--------|-----------|--------|--------|------------|--------|--------|------------|--------|
|                                                                                            |            |   |   |        |   |   |           |   |   |            |   |   |            |   |
| Net Income 2006                                                                                 | -          |   |   | -      |   |   | -         |   |   | 192,756    |   |   | 192,756    |   |
|                                                                                            |       |   |   |   |   |   |      |   |   |       |   |   |       |   |
| Balance, December      31, 2006                                                                 | 68,129,310 |   |   | 68,129 |   |   | (921,301  | )      |   | (637,179   | )      |   | (1,490,351 | )      |
|                                                                                            |            |   |   |        |   |   |           |   |   |            |   |   |            |   |
| Sale of Common Stock                                                                            | 3,824,952  |   |   | 3,825  |   |   | 3,426,175 |   |   | -          |   |   | 3,430,000  |   |
|                                                                                            |       |   |   |   |   |   |      |   |   |       |   |   |       |   |
| Change in Tax Status      of Two           Merged Companies            | -          |   |   | -      |   |   | (534,079  | )      |   | 534,079    |   |   | -          |   |
|                                                                                            |            |   |   |        |   |   |           |   |   |            |   |   |            |   |
| Net Loss 2007                                                                                   | -          |   |   | -      |   |   | -         |   |   | (1,147,794 | )      |   | (1,147,794 | )      |
|                                                                                            |            |   |   |        |   |   |           |   |   |            |   |   |            |   |
| Balance, March 31,      2007                                                                    | 71,954,262 |   |   | 71,954 |   |   | 1,970,795 |   |   | (1,250,894 | )      |   | 791,855    |   |
|                                                                                            |            |   |   |        |   |   |           |   |   |            |   |   |            |   |
| Sale of Common Stock                                                                            | 7,637,048  |   |   | 7,637  |   |   | 6,877,717 |   |   | -          |   |   | 6,885,354  |   |
|                                                                                            |       |   |   |   |   |   |      |   |   |       |   |   |       |   |
| Common Stock Issued      for             Wilson Energy Acquisition     | 240,000    |   |   | 240    |   |   | 298,560   |   |   | -          |   |   | 298,800    |   |
|                                                                                            |       |   |   |   |   |   |      |   |   |       |   |   |       |   |
| Common Stock Issued      for            Employee Compensation          | 350,000    |   |   | 350    |   |   | 406,274   |   |   | -          |   |   | 406,624    |   |
|                                                                                            |       |   |   |   |   |   |      |   |   |       |   |   |       |   |
| Net Income 2008                                                                                 | -          |   |   | -      |   |   | -         |   |   | 795,900    |   |   | 795,900    |   |
|                                                                                            |            |   |   |        |   |   |           |   |   |            |   |   |            |   |
| Balance, March 31,      2008                                                                    | 80,181,310 |   | $      | 80,181 |   | $      | 9,553,346 |   | $      | (454,994   | )      | $      | 9,178,533  |   |
|                                                                                            |       |   |   |   |   |   |      |   |   |       |   |   |       |   |

----

|                                                                                                                                                                                                                                                          | **Three Months Ended**               |     | **Fiscal Year         Ended** |   | **Year Ended**    |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|----------|-------------------------------|--------|-------------------|--------|
| **Operating Activities:**                                                                                                                                                                                                                                | **Mar. 31, 2008        (unaudited)** |     | **Mar. 31, 2007**             |   | **Mar. 31, 2008** |   | **Dec 31, 2006** |   |
|       Net      Income                                                                                                                                                                                                      | $                                    | (601,257 | )                             | $      | (1,147,794        | )      | $ | 795,900 |   | $ | 192,756 |   |
|             Adjustments      to reconcile net income to cash from                           operating activities: |                                 |          |                          |   |                   |   |   |  |   |   |  |   |
|             Deferred      Income Tax Expense                                                                                                                                                 |                                 | (323,695 | )                             |   | 1,421,148         |   |   | 428,620 |   |   | - |   |
|             Depletion,      Depreciation, & Amortization                                                                                                                                     |                                 | 647,308  |                          |   | 468,540           |   |   | 1,520,406 |   |   | 1,940,355 |   |
|             Expired      Leases                                                                                                                                                              |                                 | 280,400  |                          |   | -                 |   |   | 280,400 |   |   | - |   |
|             Note      Accretion                                                                                                                                                              |                                 | -        |                          |   | 41,487            |   |   | - |   |   | 128,334 |   |
|             Stock      based compensation                                                                                                                                                    |                                 | 156,614  |                          |   | -                 |   |   | 621,600 |   |   | - |   |
|             Loss      on Equity Method Investment                                                                                                                                            |                                 | 32,605   |                          |   | -                 |   |   | 32,605 |   |   | - |   |
|             Joint      Venture Partner Expense                                                                                                                                               |                                 | -        |                          |   | 106,276           |   |   | 3,084,789 |   |   | 332,413 |   |
|             Gain      on Sale of Pipeline                                                                                                                                                    |                                 | -        |                          |   | -                 |   |   | (5,789,382 | ) |   | - |   |
|             Cost      of Leases Sold                                                                                                                                                         |                                 | -        |                          |   | -                 |   |   | 105,885 |   |   | - |   |
|       Changes      in Operating Assets and Liabilities                                                                                                                                                                     |                                 |          |                          |   |                   |   |   |  |   |   |  |   |
|             Cash      Overdraft                                                                                                                                                              |                                 | -        |                          |   | -                 |   |   | - |   |   | 186,912 |   |
|             Changes      in Other Assets                                                                                                                                                     |                                 | -        |                          |   | 13,454            |   |   | - |   |   | (13,455 | ) |
|             Changes      in Accrued Liabilities                                                                                                                                              |                                 | (182,153 | )                             |   | -                 |   |   | (55,616 | ) |   | 86,667 |   |
|             Change      in Inventory                                                                                                                                                         |                                 | (4,748   | )                             |   | -                 |   |   | (4,748 | ) |   | - |   |
|             Change      in Related Party Receivables/Payables                                                                                                                                |                                 | 366,237  |                          |   | (516,714          | )      |   | 37,343 |   |   | (543,483 | ) |
|             Changes      in Other Receivables                                                                                                                                                |                                 | -        |                          |   | (63,389           | )      |   | 63,389 |   |   | 2,324 |   |
|             Changes      in Hedging Account                                                                                                                                                  |                                 | 10,047   |                          |   | -                 |   |   | (13,062 | ) |   | - |   |
|             Changes      in Royalties Payable                                                                                                                                                |                                 | 9,140    |                          |   | -                 |   |   | 57,485 |   |   | - |   |
|             Change      in Revenue Receivables                                                                                                                                               |                                 | 145,723  |                          |   | (495,201          | )      |   | (373,206 | ) |   | 86,762 |   |
|             Changes      in Accounts Payable                                                                                                                                                 |                                 | (80,597  | )                             |   | 704,151           |   |   | (492,906 | ) |   | - |   |
|       Net      Cash provided (used) from operating activities                                                                                                                                                              |                                 | 455,624  |                          |   | 531,958           |   |   | 299,502 |   |   | 2,399,585 |   |
|       Net      Cash provided (used) from discontinued operations                                                                                                                                                           |                                 | -        |                          |   | (1,682,199        | )      |   | 6,202,067 |   |   | (2,173,479 | ) |
|       Net      Cash provided (used) by operating activities and                  discontinued      operations                                                  |                                 | 455,624  |                          |   | (1,150,241        | )      |   | 6,501,569 |   |   | 226,106 |   |
|                                                                                                                                                                                                                                                     |                                 |          |                          |   |                   |   |   |  |   |   |  |   |
| **Investing Activities:**                                                                                                                                                                                                                                |                                 |          |                          |   |                   |   |   |  |   |   |  |   |
|       Oil      & Gas Drilling, Completing and Leasehold                   Acquisition      Costs                                                               |                                 | (219,665 | )                             |   | (2,091,787        | )      |   | (5,269,960 | ) |   | (6,371,739 | ) |
|       Change      in Drilling Reimbursements in Excess of Costs                                                                                                                                                            |                                 | -        |                          |   | (1,962,407        | )      |   | - |   |   | 492,160 |   |
|       Change      in Capitalized Note Accretion                                                                                                                                                                            |                                 | 35,000   |                          |   | -                 |   |   | 140,000 |   |   | - |   |
|       Change      in Related Party Payable related to drilling                                                                                                                                                             |                                 | -        |                          |   | -                 |   |   | (4,120,568 | ) |   | 2,220,498 |   |
|       Deposits                                                                                                                                                                                                             |                                 | -        |                          |   | -                 |   |   | - |   |   | 200,000 |   |
|       Investment      in Other Depreciable Assets                                                                                                                                                                          |                                 | (166,370 | )                             |   | -                 |   |   | (1,641,805 | ) |   | - |   |
|       Investment      in Equity Method Investment                                                                                                                                                                          |                                 | -        |                          |   | -                 |   |   | (175,000 | ) |   | - |   |
|       Note      Receivable Collections                                                                                                                                                                                     |                                 | 50,085   |                          |   |   987,022    |   |   | 258,990 |   |   | - |   |
|       Net Cash      used in investing activities                                                                                                                                                                           |                                 | (300,950 | )                             |   | (3,067,172        | )      |   | (10,808,343 | ) |   | (3,459,081 | ) |
|                                                                                                                                                                                                                                                     |                                 |          |                          |   |                   |   |   |  |   |   |  |   |
| **Financing Activities**                                                                                                                                                                                                                                 |                                 |          |                          |   |                   |   |   |  |   |   |  |   |
|       Notes      Payable (Payments) Advances                                                                                                                                                                               |                                 | 6,910    |                          |   | 999,667           |   |   | (2,098,168 | ) |   | 704,466 |   |
|       Changes      in Notes Payable Related Party                                                                                                                                                                          |                                 | -        |                          |   | -                 |   |   | (100,000 | ) |   | 1,264,957 |   |
|       Net      cash received from common stock subscriptions                                                                                                                                                               |                                 | -        |                          |   | 3,430,000         |   |   | 6,885,353 |   |   | - |   |
|       Net Cash      provided (used) from financing activities.                                                                                                                                                             |                                 | 6,910    |                          |   | 4,429,667         |   |   | 4,687,185 |   |   | 1,969,423 |   |
| Net Increase (Decrease) in      cash                                                                                                                                                                                                                     |                                 | 161,584  |                          |   | 212,254           |   |   | 380,411 |   |   | (1,263,552 | ) |
| Cash - Beginning of the period                                                                                                                                                                                                                           |                                 | 431,081  |                          |   | -                 |   |   | 212,254 |   |   | 1,263,552 |   |
| Cash - End of the period                                                                                                                                                                                                                                 | $                                    | 592,665  |                          | $      | 212,254           |   | $ | 592,665 |   | $ | - |   |
|                                                                                                                                                                                                                                                     |                                 |     |                          |   |              |   |   |   |   |   |   |   |

----

|                                                                                           | **Three Months Ended**               |    | **Fiscal Year         Ended** |   | **Year Ended**    |   |
|-------------------------------------------------------------------------------------------|--------------------------------------|---------|-------------------------------|--------|-------------------|--------|
|                                                                                      | **Mar. 31, 2008        (unaudited)** |    | **Mar. 31, 2007**             |   | **Mar. 31, 2008** |   | **Dec 31, 2006** |   |
| Supplemental Disclosure of      Cash Flow Information                                     |                                 |    |                          |   |              |   |   |   |   |   |   |   |
|       Cash      paid during period for:                     |                                 |         |                          |   |                   |   |   |  |   |   |  |   |
|             Interest          | $                                    | 81,482  |                          | $      | 73,234            |   | $ | 204,217 |   | $ | 185,284 |   |
|                                                                                      |                                 |    |                          |   |              |   |   |   |   |   |   |   |
|             Income      Taxes | $                                    | -       |                          | $      | -                 |   | $ | - |   | $ | - |   |
|                               |                                 |    |                          |   |              |   |   |   |   |   |   |   |
| Non Cash Investing and Financing Activities                                               |                                 |    |                          |   |              |   |   |   |   |   |   |   |
|                                    |                                 |         |                          |   |                   |   |   |  |   |   |  |   |
|       Stock Based      Property Acquisition                 | $                                    | -       |                          | $      | -                 |   | $ | 298,800 |   | $ | - |   |
|                                                        |                                 |    |                          |   |              |   |   |   |   |   |   |   |
|       Contribution      of Note Receivable                  | $                                    | -       |                          | $      | 2,601,240         |   | $ | - |   | $ | - |   |
|                                                                                      |                                 |    |                          |   |              |   |   |   |   |   |   |   |
|       Contribution      of Note Payable                     | $                                    | -       |                          | $      | (1,950,000        | )      | $ | - |   | $ | - |   |
|                                                                                      |                                 |    |                          |   |              |   |   |   |   |   |   |   |
|       Conversion      of Note Payable to Minority Interest  | $                                    | -       |                          | $      | (1,490,000        | )      | $ | - |   | $ | - |   |
|                               |                                 |    |                          |   |              |   |   |   |   |   |   |   |
|       Contribution      of Related Party Receivable/Payable | $                                    | -       |                          | $      | 651,240           |   | $ | - |   | $ | - |   |
|                                    |                                 |    |                          |   |              |   |   |   |   |   |   |   |
|       Vested      Stock Based Compensation                  | $                                    | 406,624 |                          | $      | -                 |   | $ | 406,624 |   | $ | - |   |
|                                                                                      |                                 |    |                          |   |              |   |   |   |   |   |   |   |

----

----

----

----

| • | Approximately 8,800 acres of proven producing,      proven undeveloped, and unproven reserves located in the "oil window" of      the Barnett Shale in North Central Texas;                                                               |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Approximately 6,000 acres of undeveloped leasehold      in the Fayetteville shale prospect in central Arkansas; and                                                                                                                       |
| • | A note and option receivable. The outstanding      principal of the note receivable was $2,614,246. The note was secured by      a drilling rig. The face value of the option receivable was $300,000 and      the carrying value was $0. |

----

| • | An undivided 44.44% interest in a joint venture      that owned 30% of the Tri-County Gas Gathering System, a pipeline servicing      the section of the Barnett Shale where REO's leasehold is located and a      100% working interest in one lease located in the oil window of the Barnett      Shale. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Deferred tax liabilities of $313,414.                                                                                                                                                                                                                                                                      |

| • | 95% working interest in approximately 4,000      acres in leasehold in East Central Texas. The majority of the property was      classified as proven undeveloped and is the subject of an ASP flood pilot.      JMT's cost basis in the leasehold was zero due to an impairment write-down      taken on the property several years ago. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                      |   | March 31         2008                         |   |   | March 31        2007                          |   |
|--------------------------------------|--------|-----------------------------------------------|--------|--------|-----------------------------------------------|--------|
| Federal Statutory Tax Rate           |   | 34%        |   |   | 34%        |   |
| State                                |   | 1%              |   |   | 1%         |   |
| Consolidated Effective Tax      Rate |   | 35%        |   |   | 35%        |   |
|                                 |   |                                          |   |   |                                          |   |

|                                                        |   | March 31         2008 |   |   | March 31        2007 |   |
|--------------------------------------------------------|--------|-----------------------|--------|--------|----------------------|--------|
| Expected Tax Benefit      from Continuing Operations   |   | (364,930              | )      | $      | 74,966               |   |
| Expected Tax Expense from Discontinued      Operations |   | 793,550               |   | $      | 57,904               |   |
| Tax Expense related      to change in tax status       |   |                  |   |   | 1,288,278            |   |
| Income Tax Provision                                   | $      | 428,620               |   | $      | 1,421,148            |   |
|                                                   |   |                  |   |   |                 |   |

----

|                                                                                                                                            |   | March 31         2008 |   |   | March 31        2007 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|--------|----------------------|--------|
| Deferred Tax Assets:                                                                                                                       |   |                  |   |   |                 |   |
|          Net      Operating Loss Carryforward                                                 | $      | 1,208,164             |   | $      | 952,916              |   |
|          Stock      Based Compensation                                                        |   | 31,221                |   |   | -                    |   |
|          Other      Deferred Tax Assets                                                       |   | 2,032                 |   |   | -                    |   |
|                   Total      Deferred Tax Assets |   | 1,241,417             |   |   | 952,916              |   |
|                                                                                                                                       |   |                  |   |   |                 |   |
| Deferred Tax Liabilities                                                                                                                   |   |                  |   |   |                 |   |
|          Oil      & Gas Properties Basis                                                      |   | 3,375,513             |   |   | 1,956,886            |   |
|          Other      Deferred Tax Liabilities                                                  |   | 29,087                |   |   | 730,593              |   |
|                   Total      Deferred Liabilites |   | 3,404,600             |   |   | 2,687,479            |   |
| Net Deferred Tax Liability                                                                                                                 | $      | 2,163,183             |   | $      | 1,734,563            |   |
|                                                                                                                                       |   |                  |   |   |                 |   |

|                                                                                                   |   | March 31         2008 |   |   | March 31        2007 |   |
|--------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|--------|----------------------|--------|
| Numerator                                                                                              |   |                  |   |   |                 |   |
|          Net      Income (Loss)                           | $      | 795,900               |   | $      | (1,147,794           | )      |
|                                                                                                   |   |                  |   |   |                 |   |
| Denominator                                                                                            |   |                  |   |   |                 |   |
|          Weighted      Average Shares Outstanding - Basic |   | 78,800,618            |   |   | 69,616,786           |   |
|                                                                                                   |   |                  |   |   |                 |   |
| Basic - Net Income                                                                                     | $      | 0.01                  |   | $      | (0.02                | )      |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 3/31/2008 | 3/31/2007     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|---------------|
| **Frost National Bank Line of Credit.**On      January 24, 2008, ReoStar opened a line of credit with Frost National Bank.      The line of credit is secured by the workover rig, service rig, swab rig      and other equipment. The credit line is $550,000, bears interest at prime      rate, and matures January 15, 2009. As of March 31, 2008, the line of credit      balance was $0.                                                                                                                                                                                                                                                                                        | $ -       | $ -           |
| **Construction Loan.** On October 2, 2007,      ReoStar secured a $245,000 construction loan from Texas Capital Bank to      partially finance the construction of a field office on a 10 acre parcel      in Corsicana, Texas. The terms of the loan provide for 6 months of interest      payments beginning November 1, 2007. Beginning May 1, 2008, the loan provides      for 60 months payments equal to $1,360 plus interest. The loan provides      for interest equal to the Wall Street Journal Prime Rate. A balloon payment      of $164,455 plus interest will be due May 1, 2013. As of March 31, 2008,      the outstanding principal balance of the note was $59,335. | 59,335    |   - |

----

| **Note Payable to Frost National Bank.**      On March 31, 2007, the note had a principal balance of $1,950,000, carried      an annual interest rate of 5.65% and matured on April 11, 2007. As of March      31, 2007, interest totaling $63,091 was accrued. The note was paid in full      on April 10, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                    | -       | 1,950,000 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|-----------|
| **Note Payable to 1st State Bank of Texas.**      The note had a principal balance of $79,603 on March 31, 2007. The note      was originated on March 24, 2004, carried a variable interest rate equal      to Wall Street Journal prime plus 1%, and matured on August 1, 2008. The      note was paid in full in July 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                       | -       | 79,603    |
| **Lease Notes Payable.**ReoStar has several      notes payables to various private investors that were used by a predecessor      company for leasehold acquisitions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |    |      |
| The first originated December 1, 2005 and bears      interest of 20% on the principal balance outstanding on the anniversary      date. Principal balance of $100,000 was outstanding on March 31, 2007. The      note was paid in full in October, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | -       | 100,000   |
| The second note, originated April 30, 2004,      and the third note, originated December 12, 2005, are due to the same individual.      Both notes were in the amount of $100,000. The notes provide a 1⁄2% carried      working interest on each well drilled on certain Arkansas acreage and as      certain Arkansas acreage is drilled, the original proceeds shall be repaid      at the rate of $2 for each $1 invested on a per acre basis. The Arkansas      leasehold has a five year term. In order to make a provision for the $2      for $1 repayment, we accrete interest at a 20% rate. None of the acreage      has been drilled, and the balance of the notes was $278,334 and $238,334      on March 31, 2008 and March 31, 2007, respectively. | 278,334 | 238,334   |
| The fourth note originated on December 19,      2005 in the amount of $500,000. The note provides a 1⁄2% carried working interest      on each well drilled on certain Arkansas acreage and as certain Arkansas      acreage is drilled, the original proceeds shall be repaid at the rate of      $2 for each $1 invested on a per acre basis. The leasehold has a five year      term. In order to make a provision for the $2 for $1 repayment, we accrete      interest at a 20% rate. None of the acreage has been drilled, and the balance      of the note was $725,000 and $625,000 on March 31, 2008 and March 31, 2007,      respectively.                                                                                                              | 725,000 | 625,000   |
| The fifth note in the amount of $100,000 originated      on May 15, 2006 and bears interest of 10% due annually. The note matures      June 1, 2008. The balance of the note was $72,100 and $100,000 on March      31, 2008 and March 31, 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 72,100  | 100,000   |
| The last note originated May 3, 2006 in the      amount of $513,000. The note provides that as certain Arkansas acreage is      drilled, the original proceeds shall be repaid at the rate of $257 for each      $385 invested on a per acre basis. Additionally, the note provides for the      conveyance of a .6666% working interest carried to the tanks on 1,333 of      certain Arkansas acreage. The note provides the lender the option to return      any interest assigned to ReoStar in exchange for payment of $513,000 plus      10% interest per annum. The option is valid only from May 3, 2007 through      November 3, 2007. ReoStar will accrue interest at 10%. The note had a balance      of $513,000 at March 31, 2008 and March 31, 2007.   | 513,000 | 513,000   |

----

| **Notes Payable to Shareholder.**ReoStar      has notes payable totaling $324,330 to ReoStar's President and CEO. The      note matures on September 30, 2008 and bears interest of 8%.                                                                                                                                                                    | 324,330    | 324,330    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| ReoStar has notes payables to a limited partnership      owned by the Chairman of the Board. On March 31, 2008, the notes totaled      $3,194,594. The note matures on December 31, 2009 and provides for an interest      rate of 7.6%. On March 31, 2007, the note totaled $3,294,594, matured on      12/31/2007, and carried an interest rate of 7.6%. | 3,194,594  | 3,294,594  |
| Total                                                                                                                                                                                                                                                                                                                                                      | $5,166,693 | $7,224,861 |

|                       | Fiscal Years Ending March 31, |    |   |   |      |   |   |
|----------------------------|-------------------------------|---------|--------|--------|-----------|--------|--------|
|                            |                          | 2009    |   |   | 2010      |   |   | 2011 |   |   | 2012 |   |   | Thereafter |   |   | Total |
| Construction Loan          | $                             | 14,960  |   | $      | 16,320    |   | $      | 16,320 |   | $ | 11,735 |   | $ | - |   | $ | 59,335 |
| Note Payable - Shareholder |                          | 324,330 |   |   | -         |   |   | - |   |   | - |   |   | - |   |   | 324,330 |
| Note Payable - Shareholder |                          | -       |   |   | 3,194,594 |   |   | - |   |   | - |   |   | - |   |   | 3,194,594 |
| Lease Notes Payable        |                          | -       |   |   | -         |   |   | - |   |   | - |   |   | 1,588,434 |   |   | 1,588,434 |
|                       | $                             | 339,290 |   | $      | 3,210,914 |   | $      | 16,320 |   | $ | 11,735 |   | $ | 1,588,434 |   | $ | 5,166,693 |
|                       |                          |    |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                             | Shares Outstanding |   |
|--------------------------------------------------|--------------------|--------|
| Shares Outstanding December 31, 2006             | 13,379,310         |   |
| Shares issued in connection with reverse merger  | 54,750,000         |   |
| Private Placement shares      issued             | 3,824,952          |   |
| Balance at March 31, 2007                        | 71,954,262         |   |
| Private Placement shares      issued             | 7,637,048          |   |
| Shares issued for Vern Wilson Energy acquisition | 240,000            |   |
| Shares issued for employment      compensation   | 350,000            |   |
| Balance at March 31, 2008                        | 80,181,310         |   |
|                                             |               |   |

|              | Fiscal Year Ending March 31, |    |
|-------------------|------------------------------|---------|
|              |                         | 2009    |   |   | 2010 |   |
| Minimum Base Rent | $                            | 152,210 |   | $ | 131,525 |   |

----

| Total Proceeds                              | $      | 15,000,000 |   |   |
|---------------------------------------------|--------|------------|--------|--------|
| Closing adjustment for unpaid capital calls |   | (900,000   | )      |   |
| Net Proceeds                                |   | 14,100,000 |   |   |
| Basis in the pipeline                       |   | (8,827,299 | )      |   |
| Total Gain on sale                          |   | 5,272,701  |   |   |
| Less Allocations to Minority Interest       |   | (3,040,693 | )      |   |
| Less Income Tax on Gain                     |   | (781,203   | )      |   |
| Net Gain on Sale of Pipeline                | $      | 1,450,805  |   |   |
|                                        |   |       |   |   |

|                                              | Year Ended        March 31, 2008 |    | Three Months        Ended        March 31, 2007 |   | Year Ended        December 31, 2006 |   |   |
|----------------------------------------------|----------------------------------|---------|-------------------------------------------------|--------|-------------------------------------|--------|--------|
| Pipeline Revenue                             | $                                | 125,801 |                                            | $      | 424,257                             |   | $      | 1,162,790 |   |   |
| Pipeline Operating Expenses                  |                             | (46,428 | )                                               |   | (152,541                            | )      |   | (427,295 | ) |   |
| Minority Interest Expense                    |                             | (44,096 | )                                               |   | (106,276                            | )      |   | (332,413 | ) |   |
| Income Tax Expense                           |                             | (12,347 | )                                               |   | (57,904                             | )      |   | - |   |   |
| Net Income from Discontinued      Operations | $                                | 22,930  |                                            | $      | 107,536                             |   | $      | 403,082 |   |   |
|                                         |                             |    |                                            |   |                                |   |   |   |   |   |

----

|                                   | Crude Oil         (MBBL) |   | Natural Gas (MMCF) |   | Crude Oil        Equivalents         (MBOE) |   |
|----------------------------------------|--------------------------|--------|--------------------|--------|---------------------------------------------|--------|
| Proved Developed Producing             | 602                      |   | 3,447              |   | 1,177                                       |   |
| Proved Developed Non-Producing         | 199                      |   | 3,051              |   | 708                                         |   |
| Proved Undeveloped                     | 10,984                   |   | 12,311             |   | 13,036                                      |   |
| Total Proved Reserves at April 1, 2008 | 11,785                   |   | 18,809             |   | 14,920                                      |   |
|                                   |                     |   |               |   |                                        |   |

|                                        | **Barnett Shale Project** |   | **Corsicana        Project** |   | **East Texas        Project**               |
|----------------------------------------|---------------------------|--------|------------------------------|--------|---------------------------------------------|
|                                        | Crude Oil        (MBBL)   |   | Natural Gas        (MMCF)    |   | Crude Oil         Equivalents        (MBOE) |   | Crude Oil        (MBBL) |   | Crude Oil         Equivalents        (MBOE) |
| Proved Developed Producing             | 164                       |   | 3,446                        |   | 738                                         |   | 430 |   | 8 |
| Proved Developed Non-Producing         | 190                       |   | 3,050                        |   | 699                                         |   | - |   | 9 |
| Proved Undeveloped                     | 590                       |   | 12,311                       |   | 2,642                                       |   | 10,393 |   | - |
| Total Proved Reserves at April 1, 2008 | 944                       |   | 18,807                       |   | 4,079                                       |   | 10,823 |   | 17 |
|                                   |                      |   |                         |   |                                        |   |   |   |   |

----

| • | Estimates are made of quantities of proved      reserves and future amounts expected to be produced based on current year-end      economic conditions.                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                     |
| • | Estimated future cash inflows are calculated      by applying current year-end prices of natural gas and oil relating to our      proved reserves to the quantities of those reserves produced in each future      year. |
|   |                                                                                                                                                                                                                     |
| • | Future cash flows are reduced by estimated      production costs, costs to develop and produce the proved reserves and abandonment      costs, all based on current year-end economic conditions.                        |
|   |                                                                                                                                                                                                                     |
| • | The resulting future net cash flows are discounted      to present value by applying a discount rate of 10%.                                                                                                             |

|                                                                                           |   | **Total**     |   |   |   | **Barnett         Project** |   |   |   | **Corsicana         Project** |   |   |   | **East Texas         Project** |   |
|-------------------------------------------------------------------------------------------|--------|---------------|--------|--------|--------|-----------------------------|--------|--------|--------|-------------------------------|--------|--------|--------|--------------------------------|--------|
|                                                                                           |   | April 1, 2008 |   |   |   | April 1, 2008               |   |   |   | April 1, 2008                 |   |   |   | April 1, 2008                  |   |
| Future Cash Inflows                                                                       | $      | 1,279,219,650 |   |   | $      | 267,363,340                 |   |   | $      | 1,010,096,790                 |   |   | $      | 1,759,520                      |   |
| Future Costs                                                                              |   |               |   |   |   |                             |   |   |   |                               |   |   |   |                                |   |
|              Production  |   | (228,721,060  | )      |   |   | (68,018,690                 | )      |   |   | (159,792,920                  | )      |   |   | (909,450                       | )      |
|              Development |   | (120,450,920  | )      |   |   | (24,167,390                 | )      |   |   | (96,102,280                   | )      |   |   | (181,250                       | )      |
| Total Undiscounted Future Net Cash Flow                                                   |   | 930,047,670   |   |   |   | 175,177,260                 |   |   |   | 754,201,590                   |   |   |   | 668,820                        |   |
| Income Taxes                                                                              |   | (325,516,685  | )      |   |   | (61,312,041                 | )      |   |   | (263,970,557                  | )      |   |   | (234,087                       | )      |
| 10% Annual Discount                                                                       |   | (334,992,861  | )      |   |   | (56,176,657                 | )      |   |   | (278,681,893                  | )      |   |   | (134,311                       | )      |
| Standardized Measure of Discounted       Future Net Cash Flow                             | $      | 269,538,124   |   |   | $      | 57,688,562                  |   |   | $      | 211,549,140                   |   |   | $      | 300,422                        |   |
|                                                                                      |   |          |   |   |   |                        |   |   |   |                          |   |   |   |                           |   |

----

| Beginning of Year                                                                           | $      | 117,629,370  |   |
|---------------------------------------------------------------------------------------------|--------|--------------|--------|
| Effect of Price Change                                                                      |   | 374,771,413  |   |
| Sales of oil      & gas produced       net of production costs                              |   | (2,458,026   | )      |
| Extensions, Discovery, and       Improved Recovery, less       related costs                |   | 98,476,109   |   |
| Development costs incurred            during the year which were       previously estimated |   | (2,187,500   | )      |
| Net Change in Estimated       Future Development Costs                                      |   | (9,480,060   | )      |
| Revisions of Previous Quantity            Estimates                                         |   | (5,525,882   | )      |
| Net Change from Purchase of       Minerals in Place                                         |   | 4,771,716    |   |
| Accretion of discount                                                                       |   | (146,030,331 | )      |
| Net Change in Income Taxes                                                                  |   | (160,428,685 | )      |
|                                                                                        |   |              |   |
| End of Year                                                                                 | $      | 269,538,124  |   |
|                                                                                        |   |         |   |

|                                                                 |   | Successful         Efforts |   |
|-----------------------------------------------------------------|--------|----------------------------|--------|
| Unproved oil and gas properties                                 | $      | 2,445,556                  |   |
| Proved oil and gas properties                                   |   | 16,137,780                 |   |
| Support Equipment and facilities                                |   | 0                          |   |
| Capitalized Interest                                            |   | 930,408                    |   |
| Less Unproved      oil and gas properties held for sale         |   | (1,680,813                 | )      |
| Total Capitalized Cost of Oil and Gas Properties                |   | 17,832,931                 |   |
| Less accumulated depletion,      depreciation, and amortization |   | (4,139,337                 | )      |
| Net Capitalized Costs                                           | $      | 13,693,594                 |   |
|                                                            |   |                       |   |

----

|                                                            |   | Fiscal Year         Ended         3/31/2008 |   |   | Three Months        Ended        3/31/2007 |   |   | Year         Ended        12/31/2006 |
|------------------------------------------------------------|--------|---------------------------------------------|--------|--------|--------------------------------------------|--------|--------|--------------------------------------|
| Property Acquisition Costs                                 |   |                                        |   |   |                                       |   |   |                                 |
|       Proved                 | $      | 1,814,718                                   |   | $      | -                                          |   | $      | -                                    |
|       Unproved               |   | 271,151                                     |   |   | 97,251                                     |   |   | 2,203,837                            |
| Exploration Costs                                          |   | 4,933,277                                   |   |   | 1,886,247                                  |   |   | 4,167,902                            |
| Development Costs                                          |   | 696,594                                     |   |   |                                       |   |   |                                 |
|                                                       |   |                                        |   |   |                                       |   |   |                                 |
| Amortization rate per equivalent barrel of      production |   | 14.42                                       |   |   | 22.52                                      |   |   | 32.46                                |
|                                                       |   |                                        |   |   |                                       |   |   |                                 |
|                                                       |   |                                        |   |   |                                       |   |   |                                 |

|                    |       | Oil & Gas Production |             |
|--------------------|------------|----------------------|------------------|
|               |       |                 | Oil        (Bbl) |   | Gas         (Mcf) |   | Total        BOE |   |
| Year Ended         | 12/31/2004 |                 | 1,721            |   | 13,587 |   | 3,986 |   |
|                    | 12/31/2005 |                 | 8,965            |   | 94,358 |   | 24,691 |   |
|               | 12/31/2006 |                 | 34,607           |   | 199,282 |   | 67,821 |   |
| Three Months Ended | 3/31/2007  |                 | 7,023            |   | 55,562 |   | 16,283 |   |
| Fiscal Year Ended  | 3/31/2008  |                 | 33,602           |   | 351,538 |   | 92,192 |   |

|                                                                                                                           |   | Fiscal Year             |   |   | Three Months            |   | Years Ended December 31, |      |
|--------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|--------|-------------------------|--------|--------------------------|-----------|
|                                                                                                                                |   | Ended         3/31/2008 |   |   | Ended         3/31/2007 |   |                     | 2006      |   |   | 2005 |   |   | 2004 |   |
| Oil & Gas Revenue                                                                                                              | $      | 4,902,072               |   | $      | 814,400                 |   | $                        | 2,874,291 |   | $ | 1,109,199 |   | $ | 144,514 |   |
| Gain on Sale of Oil & Gas Leases                                                                                               |   | 307,028                 |   |   | -                       |   |                     | -         |   |   | - |   |   | 26,474 |   |
| Production Costs                                                                                                               |   | 2,800,388               |   |   | 209,308                 |   |                     | 1,295,025 |   |   | 623,662 |   |   | 15,268 |   |
| Exploration Costs                                                                                                              |   | 61,179                  |   |   | -                       |   |                     | -         |   |   | - |   |   | 800,000 |   |
| Expired Leases and Plugging Costs                                                                                              |   | 290,959                 |   |   | -                       |   |                     | -         |   |   | - |   |   | - |   |
| Depreciation, Depletion, & Amortization                                                                                        |   | 1,399,293               |   |   | 409,376                 |   |                     | 1,869,683 |   |   | 394,217 |   |   | 96,951 |   |
|                                                                                                                           |   | 657,281                 |   |   | 195,716                 |   |                     | (290,417  | ) |   | 91,320 |   |   | (741,231 | ) |
| Income Taxes                                                                                                                   |   | (230,048                | )      |   | (68,501                 | )      |                     | -         |   |   | - |   |   | - |   |
| Results of operations for oil and gas            producing activities (excluding       corporate overhead and financing costs) | $      | 427,233                 |   | $      | 127,215                 |   | $                        | (290,417  | ) | $ | 91,320 |   | $ | (741,231 | ) |
|                                                                                                                           |   |                    |   |   |                    |   |                     |      |   |   |   |   |   |   |   |

----

----

| **Number** |   | **Exhibit      Description**                                                                                                                                                                                                                                        |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3(i).1     |   | Articles of Incorporation filed with the Nevada      Secretary of State on November 29, 2004. (Incorporated by reference from      the registrant's registration statement on Form SB-2 filed on September      8, 2005.)                                           |
|       |   |                                                                                                                                                                                                                                                                |
| 3(i).2     |   | Certificate of Change filed with the Nevada      Secretary of State on November 21, 2006. (Incorporated by reference from      the registrant's registration statement on Form 8-K filed on November 30,      2006.)                                                |
|       |   |                                                                                                                                                                                                                                                                |
| 3(i).3     |   | Certificate of Amendment filed with the Nevada      Secretary of State on February 7, 2007. (Incorporated by reference from      the registrant's registration statement on Form SB-2 filed on August 1,      2007.)                                                |
|       |   |                                                                                                                                                                                                                                                                |
| 3(ii).1    |   | Bylaws. (Incorporated by reference from the      registrant's registration statement on Form SB-2 filed on August 1, 2007.)                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                                |
| 10.1       |   | Purchase and Sale Agreement by and between      the registrant and United Texas Petroleum, Inc. dated December 4, 2007.      (Incorporated by reference from the registrant's current report on Form      8-K filed on December 7, 2007.)                           |
|       |   |                                                                                                                                                                                                                                                                |
| 10.2       |   | Contribution Agreement by and among the registrant,      JMT Resources, Ltd., REO Energy, Ltd., and Benco Operating, Inc. dated February      1, 2007. (Incorporated by reference from the registrant's current report      on Form 8-K filed on February 6, 2007.) |
|       |   |                                                                                                                                                                                                                                                                |
| 10.3       |   | Private Placement Subscription Agreement. (Incorporated      by reference from the registrant's registration statement on Form SB-2 filed      on August 1, 2007.)                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                |
| 10.4       |   | Common Stock Purchase Warrant. (Incorporated      by reference from the registrant's registration statement on Form SB-2 filed      on August 1, 2007.)                                                                                                             |
|       |   |                                                                                                                                                                                                                                                                |
| 10.5       |   | Joint Operating Agreement dated February 1,      2007 by Rife Energy Operating, Inc. and the registrant. (Incorporated by      reference from the registrant's registration statement on Form SB-2 filed      on August 1, 2007.)                                   |
|       |   |                                                                                                                                                                                                                                                                |
| 10.6       |   | Joint Operating Agreement by and between the      registrant and Texas MOR, Inc. dated February 1, 2007. (Incorporated by      reference from the registrant's registration statement on Form SB-2 filed      on August 1, 2007.)                                   |
|       |   |                                                                                                                                                                                                                                                                |
| 10.7       |   | Employee Confidentiality and Property Agreement      by and between the registrant and Scott Allen. (Incorporated by reference      from the registrant's registration statement on Form SB-2 filed on August      1, 2007.)                                        |

----

| 10.8   |   | Employee Confidentiality and Property Agreement      by and between the registrant and Mark S. Zouvas. (Incorporated by reference      from the registrant's registration statement on Form SB-2 filed on August      1, 2007.)        |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                   |
| 10.9   |   | Employee Confidentiality and Property Agreement      by and between the registrant and Brett Bennett. (Incorporated by reference      from the registrant's registration statement on Form SB-2 filed on August      1, 2007.)         |
|   |   |                                                                                                                                                                                                                                   |
| 10.10  |   | Purchase and Sale Agreement by and between      Cimmarron Gathering, LP. and the registrant dated June 6, 2007. (Incorporated      by reference from the registrant's current report on Form 8-K filed on June      7, 2007.)          |
|   |   |                                                                                                                                                                                                                                   |
| 10.11  |   | Purchase and Sale Agreement by and between      the registrant and Vern Wilson Energy, Inc. dated September 28, 2007. (Incorporated      by reference from the registrant's current report on Form 8-K filed on October      4, 2007.) |
|   |   |                                                                                                                                                                                                                                   |
| 10.12  |   | Purchase and Sale Agreement by and between      the registrant and United Texas Petroleum, Inc. dated December 4, 2007.      (Incorporated by reference from the registrant's Form 8-K filed on December      7, 2007.)                |
|   |   |                                                                                                                                                                                                                                   |
| 21.1   |   | List of Subsidiaries of the Registrant.                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                   |
| 23.1   |   | Consent of Killman, Murrell & Company, P.C.                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                   |
| 23.2   |   | Consent of Forest Garb & Associates.                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                   |
| 24.1   |   | Power of Attorney. (Incorporated by reference      to the signature page of this Annual Report on Form 10-KSB).                                                                                                                        |
|   |   |                                                                                                                                                                                                                                   |
| 31.1   |   | Certification by the CEO Pursuant to Section      302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                   |
| 31.2   |   | Certification by the CFO Pursuant to Section      302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                   |
| 32.1   |   | Certification by the CEO Pursuant to Section      906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                   |
| 32.2   |   | Certification by the CFO Pursuant to Section      906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                   |
| 99.1   |   | Estimated Reserves and Future Net Revenue Report      prepared by Forrest A. Garb & Associates, Inc.                                                                                                                               |

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|                |                  | **REOSTAR ENERGY CORPORATION**                                                                                                                                                                                                                                                                                                                                                                                                           |
|---------------------|-----------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Date: July 22, 2008 | By:    |     /s/   Mark      S. Zouvas                                                             |
|                |                  |     Mark S. Zouvas           President, Chief Executive Officer and Director                                                                                                                                                                                                                                                                                                                     |

| **SIGNATURE**                                 |   | **TITLE**                                       |   | **DATE**      |
|-----------------------------------------------|--------|-------------------------------------------------|--------|---------------|
|                                          |   |                                            |   |          |
| /s/  Mark S. Zouvas                 |   | President, Chief Executive Officer and Director |   | July 22, 2008 |
|     Mark S. Zouvas        |   | (Principal Executive Officer)                   |   |               |
|                                          |   |                                            |   |               |
| /s/      Scott Allen                          |   | Chief Financial Officer and Director            |   | July 22, 2008 |
|     Scott Allen           |   | (Principal Financial Officer)                   |   |               |
|                                          |   |                                            |   |               |
| /s/      M. O. Rife III                       |   | Chairman of the Board of Directors              |   | July 22, 2008 |
|     M. O. Rife III        |   |                                            |   |               |
|                                          |   |                                            |   |               |
| /s/      Jean-Baptiste Heinzer                |   | Director                                        |   | July 22, 2008 |
|     Jean-Baptiste Heinzer |   |                                            |   |               |
|                                          |   |                                            |   |               |
| /s/      Alan Rae                             |   | Director                                        |   | July 22, 2008 |
|     Alan Rae              |   |                                            |   |          |
|                                          |   |                                            |   |          |

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