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| 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.      Business                                                                                                               | 1            |
| Item      1A. Risk Factors                                                                                                          | 7            |
| Item      1B. Unresolved Staff Comments                                                                                             | 13           |
| Item 2.      Properties                                                                                                             | 13           |
| Item 3.      Legal Proceedings                                                                                                      | 15           |
| 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 Issuer Purchases of Equity      Securities | 16           |
| Item 6.      Selected Financial Data                                                                                                | 17           |
| Item 7.      Management's Discussion and Analysis of Financial Condition and Results      of Operations                             | 17           |
| Item      7A. Quantitative and Qualitative Disclosures About Market Risk                                                            | 23           |
| Item 8.      Financial Statements and Supplementary Data                                                                            | F-1          |
| Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial      Disclosure                              | 24           |
| Item      9A(T). Controls and Procedures                                                                                            | 24           |
| Item      9B. Other Information                                                                                                     | 24           |
|                                                                                                                                     |         |
| **PART III**                                                                                                                        |              |
| Item      10. Directors, Executive Officers and Corporate Governance                                                                | 24           |
| Item      11. Executive Compensation                                                                                                | 24           |
| Item      12. Security Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                   | 24           |
| Item      13. Certain Relationships and Related Transactions and Director Independence                                              | 25           |
| Item      14. Principal Accountant Fees and Services                                                                                | 25           |
| Item      15. Exhibits and Financial Statement Schedules                                                                            | 25           |
|                                                                                                                                |         |
| **SIGNATURES**                                                                                                                      | 28           |
|                                                                                                                                |         |
| Forrest      A. Garb & Associates Estimated Reserves Report                                                                         |         |
| 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 completed, and began production in the two wells that were in process      as of March 31, 2009.                                                                                                                                                                 |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | • | Corsicana Enhanced Oil      Recovery ("EOR") Project. We entered into negotiations to test a new      chemical foam technology that appears to have similar sweep efficiencies      as surfactant polymer but at a reduced operational cost. We expect to deploy      the technology in the wells originally drilled for our Phase II of the surfactant      polymer project.                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | • | Corsicana deeper zone      exploration. We successfully drilled and completed two deeper exploratory      wells in the Pecan Gap zone in the Corsicana acreage and expect to continue      drilling Pecan Gap on our acreage in Corsicana.                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | • | Corsicana      technology survey. The Company is currently testing a new technology      in the Corsicana field involving the detection and recording of helium atoms      through sub-surface sensors that are being placed throughout our leasehold.      This technology could assist the Company in its mapping of the Pecan Gap      reservoir could substantially affect the results of subsequent drilling      into that zone. |

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|               Years Ending |   | March 31,         2010 |   |   | March 31,         2009 |   |   | March 31,        2008 |   |   |   |   |
|--------------------------------------------------------------------|--------|------------------------|--------|--------|------------------------|--------|--------|-----------------------|--------|--------|--------|--------|
| Production                                                         |   |                   |   |   |                   |   |   |                  |   |   |   |   |
|         Oil      (Bbl)     |   | 23,949                 |   |   | 45,105                 |   |   | 33,602                |   |   |   |   |
|         Gas      (Mcf)     |   | 404,131                |   |   | 479,180                |   |   | 351,538               |   |   |   |   |
|                                                               |   |                        |   |   |                        |   |   |                       |   |   |   |   |
| Revenues                                                           |   |                        |   |   |                        |   |   |                       |   |   |   |   |
|         Crude      Oil     | $      | 1,613,235              |   | $      | 4,034,376              |   | $      | 2,704,468             |   |   |   |   |
|         Gas                |   | 1,406,275              |   |   | 2,523,693              |   |   | 2,197,604             |   |   |   |   |
|         Total              |   | 3,019,510              |   |   | 6,558,069              |   |   | 4,902,072             |   |   |   |   |
|                                                               |   |                        |   |   |                        |   |   |                       |   |   |   |   |
| Average Sale Price per      Bbl                                    |   | 67.36                  |   |   | 89.44                  |   | $      | $80.49                |   |   |   |   |
| Average Sale Price per MCF                                         |   | 3.48                   |   |   | 5.27                   |   | $      | 6.25                  |   |   |   |   |
|                                                               |   |                        |   |   |                        |   |   |                       |   |   |   |   |
| Lease Operating Costs (per BOE)                                    |   | 20.13                  |   |   | 20.79                  |   | $      | 23.05                 |   |   |   |   |
| Severance Taxes (per BOE)                                          |   | 1.71                   |   |   | 3.00                   |   | $      | 3.13                  |   |   |   |   |
|                                                               |   |                        |   |   |                        |   |   |                       |   |   |   |   |
| Average Sale Price (per      BOE)                                  |   | 33.07                  |   |   | 52.48                  |   | $      | 53.17                 |   |   |   |   |
| Average Sale Price (per MCFE)                                      |   | 5.51                   |   |   | 8.75                   |   | $      | 8.86                  |   |   |        |   |

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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.                                                                                                                          |

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|   | • | 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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| ***Estimated      Proved Reserves***                                 |   | ***Barnett         Shale*** |   | ***Corsicana        Field*** |   | ***Total*** |   |
|----------------------------------------------------------------------|--------|-----------------------------|--------|------------------------------|--------|-------------|--------|
| Proved Developed      (MBOE)                                         |   | 392                         |   | 32                           |   | 424         |   |
| Proved Undeveloped (MBOE)                                            |   | 3,446                       |   | 40                           |   | 3,486       |   |
| Total      Proven Reserves at March 31, 2010                         |   | 3,838                       |   | 72                           |   | 3,910       |   |
|                                                                 |   |                        |   |                         |   |        |   |
| Benchmark      Pricing                                               |   |                        |   |                         |   |        |   |
|        Natural      Gas per mmbtu |   | $3.99                       |   |                         |   |        |   |
|        Crude      Oil per barrel  |   | $70.03                      |   |                         |   |        |   |

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|   | • | 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.                              |

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| Fiscal 2009                             | High   |   | Low    |
|-----------------------------------------|--------|--------|--------|
|      30-Jun-09 | $0.51  |   | $0.06  |
|      30-Sep-09 | $0.50  |   | $0.10  |
|      31-Dec-09 | $0.49  |   | $0.11  |
|      31-Mar-10 | $0.39  |   | $0.08  |
|                                    |   |   |   |
| Fiscal 2009                             | High   |   | Low    |
|      30-Jun-08 | $0.95  |   | $0.20  |
|      30-Sep-08 | $0.74  |   | $0.20  |
|      31-Dec-08 | $0.50  |   | $0.10  |
|      31-Mar-09 | $0.30  |   | $0.05  |

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|                                                                        |   | Fiscal year ended March        31 |   |   |      |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------|--------|--------|------|--------|
| In thousands                                                                |   | 2011                              |   |   | 2012 |   |   | 2013 |   |   | Thereafter |   |
|         Office      Lease           | $      | 149,270                           |   | $      | -    |   | $ | - |   | $ | - |   |
|         Senior      Credit Facility |   | 10,800,000                        |   |   | -    |   |   | - |   |   | - |   |
| Related Party Notes                                                         |   | -                                 |   |   | -    |   |   | 3,518,924 |   |   | - |   |

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|                                                                                      | Page   |
|-------------------------------------------------------------------------------------------|--------|
|                                                                                      |   |
| Report of Independent      Registered Public Accounting Firm                              | F-2    |
|                                                                                      |   |
| Consolidated Balance      Sheet, March 31, 2010                                           | F-3    |
|                                                                                      |   |
| Consolidated Statements      of Operations, Years Ended March 31, 2009 and 2010           | F-4    |
|                                                                                      |   |
| Consolidated Statements      of Stockholders' Equity, Years Ended March 31, 2000 and 2010 | F-5    |
|                                                                                      |   |
| Conolidated Statements      of Cash Flows, Years Ended March 31, 2009 and 2010            | F-6    |
|                                                                                      |   |
| Notes to Financial Statements                                                             | F-8    |
|                                                                                      |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | **March        31, 2010** |            | **March 31, 2009** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|------------|--------------------|--------|
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                      |       |               |   |   |   |   |
| Current      Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                      |       |               |   |   |   |   |
|           Cash                                                                                                                                                                                                                                                                                                                                                                                                                       | $                         | 277,307    |                    |   | $ | 426,430 |  |
|           Accounts      Receivable:                                                                                                                                                                                                                                                                                                                                                                                                  |                      |            |                    |   |  |  |  |
|                     Oil      and Gas - Related Party                                                                                                                                                                                                                                                                                                                               |                      | 639,738    |                    |   |  | 337,879 |  |
|                     Related      Party                                                                                                                                                                                                                                                                                                                                             |                      | 561,169    |                    |   |  | 1,107,854 |  |
|                     Other                                                                                                                                                                                                                                                                                                                                                          |                      | -          |                    |   |  | 15,760 |  |
|           Inventory                                                                                                                                                                                                                                                                                                                                                                                                                  |                      | 130,886    |                    |   |  | 7,514 |  |
|           Other      Current Assets                                                                                                                                                                                                                                                                                                                                                                                                  |                      | 248,759    |               |   |   | 6,317 |   |
|           Total      Current Assets                                                                                                                                                                                                                                                                                                                                                                                                  |                      | 1,857,859  |               |   |   | 1,901,754 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                      |            |                    |   |   |  |  |
| Notes Receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                      | 213,619    |               |   |   | 553,536 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                      |            |                    |   |   |  |  |
| Oil and      Gas Properties - successful efforts method                                                                                                                                                                                                                                                                                                                                                                                                                                |                      | 26,847,329 |               |   |   | 25,254,777 |   |
|           Less      Accumulated Depletion and Depreciation                                                                                                                                                                                                                                                                                                                                                                           |                      | (9,034,348 | )                  |   |   | (6,206,558 | ) |
|                     Oil      and Gas Properties (net)                                                                                                                                                                                                                                                                                                                              |                      | 17,812,981 |               |   |   | 19,048,219 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                      |            |                    |   |   |  |  |
| Other Depreciable      Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                      | 2,028,487  |               |   |   | 2,171,654 |   |
|           Less      Accumulated Depreciation                                                                                                                                                                                                                                                                                                                                                                                         |                      | (427,013   | )                  |   |   | (315,093 | ) |
|                     Other      Depreciable Assets (net)                                                                                                                                                                                                                                                                                                                            |                      | 1,601,474  |               |   |   | 1,856,561 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                      |            |                    |   |   |  |  |
| Leasehold      Held for Sale                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                      | -          |               |   |   | 150,000 |  |
| Total      Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | $                         | 21,485,933 |                    |   | $ | 23,510,070 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                      |       |               |   |   |   |   |
| **LIABILITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                      |            |               |   |   |  |   |
| Current      Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                      |            |               |   |   |  |   |
|           Accounts      Payable                                                                                                                                                                                                                                                                                                                                                                                                      | $                         | 278,233    |                    |        | $ | 22,033 |   |
|           Revenue      Payable                                                                                                                                                                                                                                                                                                                                                                                                       |                      | 20,912     |                    |        |   | - |  |
|           Payable      to Related Parties                                                                                                                                                                                                                                                                                                                                                                                            |                      | 148,550    |                    |        |   | 148,550 |  |
|           Other      Current Liabilities                                                                                                                                                                                                                                                                                                                                                                                             |                      | 93,923     |                    |        |   | - |  |
|           Accrued      Expenses                                                                                                                                                                                                                                                                                                                                                                                                      |                      | 140,390    |                    |        |   | 106,141 |  |
|           Accrued      Expenses - Related Parties                                                                                                                                                                                                                                                                                                                                                                                    |                      | 88,458     |                    |        |   | 130,870 |  |
|           Current      Portion of Long-Term Debt                                                                                                                                                                                                                                                                                                                                                                                     |                      | 10,283,339 |               |        |   | - |  |
|                     Total      Current Liabilities                                                                                                                                                                                                                                                                                                                                 |                      | 11,053,805 |               |        |   | 407,594 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                      |            |                    |        |   |  |  |
|           Notes      Payable                                                                                                                                                                                                                                                                                                                                                                                                         |                      | -          |                    |        |   | 8,955,202 |  |
|           Notes      Payable - Related Parties                                                                                                                                                                                                                                                                                                                                                                                       |                      | 3,518,924  |                    |        |   | 3,518,924 |  |
|                     Total      Long-Term Debt                                                                                                                                                                                                                                                                                                                                      |                      | 3,518,924  |               |        |   | 12,474,126 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                      |            |                    |        |   |  |  |
|           Asset      Retirment Obligation                                                                                                                                                                                                                                                                                                                                                                                            |                      | 324,773    |                    |        |   | 344,079 |  |
|           Deferred      Tax Liability                                                                                                                                                                                                                                                                                                                                                                                                |                      | 639,034    |               |        |   | 1,702,782 |   |
|                     Total      Liabilities                                                                                                                                                                                                                                                                                                                                         |                      | 15,536,536 |               |        |   | 14,928,581 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                      |            |                    |        |   |  |  |
|           Commitments      & Contingencies:                                                                                                                                                                                                                                                                                                                                                                                          |                      | -          |               |        |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                      |            |                    |        |   |  |  |
| **Stockholders'      Equity**                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                      |            |                    |        |   |  |  |
|           Common      Stock, $.001 par,200,000,000 shares authorized and                           80,743,912      and 80,353,912 shares outstanding on                           March      31, 2010 and 2009, respectively |                      | 80,743     |                    |        |   | 80,353 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                      |            |                    |        |   |  |  |
|           Additional      Paid-In-Capital                                                                                                                                                                                                                                                                                                                                                                                            |                      | 11,460,893 |                    |        |   | 10,959,965 |  |
|           Treasury      Stock, at cost                                                                                                                                                                                                                                                                                                                                                                                               |                      | (12,240    | )                  |        |   | - |  |
|           Retained      Deficit                                                                                                                                                                                                                                                                                                                                                                                                      |                      | (5,579,999 | )                  |        |   | (2,458,829 | ) |
|                     Total      Stockholders' Equity                                                                                                                                                                                                                                                                                                                                |                      | 5,949,397  |               |        |   | 8,581,489 |   |
|                     Total      Liabilities & Stockholders' Equity                                                                                                                                                                                                                                                                                                                  | $                         | 21,485,933 |                    |        | $ | 23,510,070 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                      |       |               |   |   |   |   |

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|                                                                                                                                                                                                                                                                                                                       | **Years        Ended**   |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|------------|
|                                                                                                                                                                                                                                                                                                                       | **Mar.        31, 2010** |       | **Mar.        31, 2009** |   |
| **Revenues**                                                                                                                                                                                                                                                                                                               |                     |       |   |   |   |   |   |
|          Oil      and Gas Sales                                                                                                                                                                                                                                               | $                        | 3,019,510  |   |   | $ | 6,558,069 |  |
|          Sale      of Leases                                                                                                                                                                                                                                                  |                     | 170,174    |   |   |   | 18,005 |  |
|          Other      Income                                                                                                                                                                                                                                                    |                     | 344,038    |   |   |   | 458,365 |  |
|                                                                                                                                                                                                                                  |                     | 3,533,722  |   |   |   | 7,034,439 |  |
|                                                                                                                                                                                                                                                                                                                            |                     |            |   |   |   |  |  |
| **Costs      and Expenses**                                                                                                                                                                                                                                                                                                |                     |            |   |   |   |  |  |
|          Oil      and Gas Lease Operating Expenses                                                                                                                                                                                                                            |                     | 1,840,151  |   |   |   | 2,598,208 |  |
|          Workover      Expenses                                                                                                                                                                                                                                               |                     | 90,736     |   |   |   | 114,683 |  |
|          Severance      and Ad Valorem Taxes                                                                                                                                                                                                                                  |                     | 233,367    |   |   |   | 427,307 |  |
|          Delay      Rentals                                                                                                                                                                                                                                                   |                     | 5,000      |   |   |   | 2,975 |  |
|          Plugging      Costs and Expired Leases                                                                                                                                                                                                                               |                     | 43,594     |   |   |   | 433,976 |  |
|          Depletion      and Depreciation                                                                                                                                                                                                                                      |                     | 3,589,316  |   |   |   | 3,487,440 |  |
|          ARO      Accretion                                                                                                                                                                                                                                                   |                     | 40,567     |   |   |   | - |  |
|          General      and Administrative:                                                                                                                                                                                                                                     |                     |            |   |   |   |  |  |
|             Salaries      and Benefits                                                                                                                                                                                                                         |                     | 840,782    |   |   |   | 874,418 |  |
|             Legal      and Professional                                                                                                                                                                                                                        |                     | 732,047    |   |   |   | 720,771 |  |
|             Other      General and Administrative                                                                                                                                                                                                              |                     | 495,967    |   |   |   | 701,687 |  |
|          Interest,      net of capitalized interest of $555,575 and                $537,024 for the years      ended March 31, 2010 and                March 31, 2009, respectively |                     | -          |   |   |   | 3,780 |  |
|                                                                                                                                                                                                                                  |                     | 7,911,527  |   |   |   | 9,365,245 |  |
|                                                                                                                                                                                                                                                                                                                            |                     |            |   |   |   |  |  |
| Other Income      (Expense)                                                                                                                                                                                                                                                                                                |                     |            |   |   |   |  |  |
|          Interest      Income                                                                                                                                                                                                                                                 |                     | 18,445     |   |   |   | 79,876 |  |
|          Hedging      Gains (Losses)                                                                                                                                                                                                                                          |                     | 174,442    |   |   |   | (6,745 | ) |
|          Loss      on Equity Method Investments                                                                                                                                                                                                                               |                     | -          |   |   |   | (206,561 | ) |
|                                                                                                                                                                                                                                                                                                                            |                     |            |   |   |   |  |  |
| Loss      from operations before income taxes                                                                                                                                                                                                                                                                              |                     | (4,184,918 | ) |   |   | (2,464,236 | ) |
|                                                                                                                                                                                                                                                                                                                            |                     |            |   |   |   |  |  |
| Income      Tax Benefit                                                                                                                                                                                                                                                                                                    |                     | 1,063,748  |   |   |   | 460,402 |  |
|                                                                                                                                                                                                                                                                                                                            |                     |            |   |   |  |  |  |
| Net      Loss                                                                                                                                                                                                                                                                                                              | $                        | (3,121,170 | ) |   | $ | (2,003,834 | ) |
|                                                                                                                                                                                                                                                                                                                            |                     |       |   |   |   |   |   |
| **Basic      and Diluted Loss per Common Share:**                                                                                                                                                                                                                                                                          |                     |       |   |   |   |   |   |
|          Net      Loss per Common Share                                                                                                                                                                                                                                       | $                        | (0.04      | ) |   | $ | (0.02 | ) |
|                                                                                                                                                                                                                                                                                                                            |                     |       |   |   |   |   |   |
| **Weighted      Average Common Shares Outstanding**                                                                                                                                                                                                                                                                        |                     | 80,593,912 |   |   |   | 80,300,804 |   |
|                                                                                                                                                                                                                                                                                                                       |                     |       |   |   |   |   |   |

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|                                                                                            | Common        Stock            |   |   |   |   |   |   |   |                   |   |   |   |                   |   |   |   |                            |   |
|-------------------------------------------------------------------------------------------------|--------------------------------|--------|--------|--------|--------|--------|--------|--------|------------------------|--------|--------|--------|------------------------|--------|--------|--------|---------------------------------|--------|
|                                                                                            | Number        of        Shares |   |        |   | Amount |   |        |   | Paid-In        Capital |   |   |   | Treasury         Stock |   |        |   | Retained                Deficit |   |  |   | Total |   |
| Balance,      March 31, 2008                                                                    | 80,181,310                     |   |   | $      | 80,181 |   |   | $      | 9,553,346              |   |   | $      | -                      |   |   | $      | (454,995                        | )      |   | $ | 9,178,532 |   |
|                                                                                            |                                |   |   |        |        |   |   |   |                        |   |   |   |                        |   |   |   |                                 |   |   |   |  |   |
| Common      Stock Issued for      Penalty Shares                                                | 172,602                        |   |   |        | 172    |   |   |   | 172,430                |   |   |   | -                      |   |   |   | -                               |   |   |   | 172,602 |   |
|                                                                                            |                                |   |   |        |        |   |   |   |                        |   |   |   |                        |   |   |   |                                 |   |   |   |  |   |
| Warrants      Issued for short-term      note payable                                           | -                              |   |   |        | -      |   |   |   | 36,967                 |   |   |   | -                      |   |   |   | -                               |   |   |   | 36,967 |   |
|                                                                                            |                                |   |   |        |        |   |   |   |                        |   |   |   |                        |   |   |   |                                 |   |   |   |  |   |
| Warrants      Issued in connection      with consulting contract                                | -                              |   |   |        | -      |   |   |   | 300,000                |   |   |   | -                      |   |   |   | -                               |   |   |   | 300,000 |   |
|                                                                                            |                                |   |   |        |        |   |   |   |                        |   |   |   |                        |   |   |   |                                 |   |   |   |  |   |
| Warrants      Issued for success       fee related to senior secured       credit facility | -                              |   |   |        | -      |   |   |   | 375,000                |   |   |   |                        |   |   |   | -                               |   |   |   | 375,000 |   |
|                                                                                            |                                |   |   |        |        |   |   |   |                        |   |   |   |                        |   |   |   |                                 |   |   |   |  |   |
| Employee      and director      stock options granted                                           | -                              |   |   |        | -      |   |   |   | 522,222                |   |   |   | -                      |   |   |   | -                               |   |   |   | 522,222 |   |
|                                                                                            |                                |   |   |        |        |   |   |   |                        |   |   |   |                        |   |   |   |                                 |   |   |   |  |   |
| Net      Loss 2009                                                                              | -                              |   |   |   | -      |   |   |   | -                      |   |   |   | -                      |   |   |   | (2,003,834                      | )      |   |   | (2,003,834 | ) |
|                                                                                            |                                |   |   |        |        |   |   |   |                        |   |   |   |                        |   |   |   |                                 |   |   |   |  |   |
| Balance,      March 31, 2009                                                                    | 80,353,912                     |   |   |        | 80,353 |   |   |   | 10,959,965             |   |   |   | -                      |   |   |   | (2,458,829                      | )      |   |   | 8,581,489 |   |
|                                                                                            |                                |   |   |        |        |   |   |   |                        |   |   |   |                        |   |   |   |                                 |   |   |   |  |   |
| Common      Stock Issued with      consulting contracts                                         | 390,000                        |   |   |        | 390    |   |   |   | 175,110                |   |   |   | -                      |   |   |   | -                               |   |   |   | 175,500 |   |
|                                                                                            |                                |   |   |        |        |   |   |   |                        |   |   |   |                        |   |   |   |                                 |   |   |   |  |   |
| Treasury      Stock                                                                             | -                              |   |   |        | -      |   |   |   | -                      |   |   |   | (12,240                | )      |   |   | -                               |   |   |   | (12,240 | ) |
|                                                                                            |                                |   |   |        |        |   |   |   |                        |   |   |   |                        |   |   |   |                                 |   |   |   |  |   |
| Employee      and director stock      options granted                                           | -                              |   |   |        | -      |   |   |   | 325,818                |   |   |   | -                      |   |   |   | -                               |   |   |   | 325,818 |   |
|                                                                                            |                                |   |   |        |        |   |   |   |                        |   |   |   |                        |   |   |   |                                 |   |   |   |  |   |
| Net      Loss 2009                                                                              | -                              |   |   |        | -      |   |   |   | -                      |   |   |   | -                      |   |   |   | (3,121,170                      | )      |   |   | (3,121,170 | ) |
|                                                                                            |                                |   |   |        |        |   |   |   |                        |   |   |   |                        |   |   |   |                                 |   |   |   |  |   |
| Balance,      March 31, 2009                                                                    | 80,743,912                     |   |   | $      | 80,743 |   |   | $      | 11,460,893             |   |   | $      | (12,240                | )      |   | $      | (5,579,999                      | )      |   | $ | 5,949,397 |   |
|                                                                                            |                           |   |   |   |   |   |   |   |                   |   |   |   |                   |   |   |   |                            |   |   |   |   |   |

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**Table of Contents**

|                                                                                                                              | **Fiscal        Year Ended** |       |
|------------------------------------------------------------------------------------------------------------------------------|------------------------------|------------|
| **Operating      Activities:**                                                                                               | **Mar.        31, 2010**     |       | **Mar.        31, 2009** |   |
|             Net Loss                                                                           | $                            | (3,121,170 | ) |   | $ | (2,003,834 | ) |
|             Adjustments to reconcile net loss to net cash from operating activities:           |                         |            |   |   |   |  |   |
|             Deferred      Income Tax Benefit                     |                         | (1,063,748 | ) |   |   | (460,402 | ) |
|             Depletion,      Depreciation, & Amortization         |                         | 3,589,316  |   |   |   | 3,487,440 |   |
|             Expired      Leases                                  |                         | 43,594     |   |   |   | 433,976 |   |
|             Non-employee      stock based compensation           |                         | 175,500    |   |   |   | 300,000 |   |
|             Stock      based compensation                        |                         | 325,818    |   |   |   | 307,240 |   |
|             Penalty      shares                                  |                         | -          |   |   |   | 172,602 |   |
|             Loss      on Equity Method Investment                |                         | -          |   |   |   | 206,561 |   |
|             ARO      Accretion                                   |                         | 40,567     |   |   |   | - |   |
|             ARO      on Sold Properties                          |                         | (87,516    | ) |   |   | - |   |
|             Treasury      Stock Received for Asset Sale Proceeds |                         | (12,240    | ) |   |   | - |   |
|       Changes      in Operating Assets and Liabilities                                         |                         |            |   |   |   |  |   |
|             Changes      in Accrued Liabilities                  |                         | (8,163     | ) |   |   | (685,671 | ) |
|             Change      in Inventory                             |                         | (123,372   | ) |   |   | (2,766 | ) |
|             Change      in Related Party Receivables/Payables    |                         | (56,143    | ) |   |   | (1,369,752 | ) |
|             Changes      in Other Receivables                    |                         | 15,760     |   |   |   | (15,760 | ) |
|             Changes      in Other Current Assets                 |                         | -          |   |   |   | 6,745 |   |
|             Changes      in Hedging Activity                     |                         | (148,519   | ) |   |   | - |   |
|             Change      in Revenue Receivables                   |                         | (301,859   | ) |   |   | 530,527 |   |
|             Change      in Revenue Payable                       |                         | 20,912     |   |   |   | - |   |
|             Changes      in Accounts Payable                     |                         | 256,200    |   |   |   | (81,446 | ) |
|       Net      Cash provided (used) from operating activities                                  |                         | (455,063   | ) |   |   | 825,460 |   |
|                                                                                                                              |                         |            |   |   |   |  |   |
| **Investing      Activities:**                                                                                               |                         |            |   |   |   |  |   |
|       Oil      & Gas Drilling, Completing and Leasehold Acquisition Costs                      |                         | (2,024,820 | ) |   |   | (8,706,952 | ) |
|       Change      in Related Party Payable related to drilling                                 |                         | 602,828    |   |   |   | (1,547,136 | ) |
|       Net      Investment in Leasehold Sold                                                    |                         | 350,690    |   |   |   | - |   |
|       Investment      in Other Depreciable Assets                                              |                         | (184,633   | ) |   |   | (534,287 | ) |
|       Net      Investment in Other Depreciable Assets Sold                                     |                         | 221,957    |   |   |   | - |   |
|       Investment      in Equity Method Investment                                              |                         | -          |   |   |   | (64,166 | ) |
|       Note      Receivable (Advances)                                                          |                         | (213,619   | ) |   |   | - |   |
|       Note      Receivable Collections                                                         |                         | 553,537    |   |   |   | 801,692 |   |
|       Net      Cash used in continuing activities                                              |                         | (694,060   | ) |   |   | (10,050,849 | ) |
|                                                                                                                              |                         |            |   |   |   |  |   |
| **Financing      Activities:**                                                                                               |                         |            |   |   |   |  |   |
|       Notes      Payable Advances Net of Loan Fees                                             |                         | 1,000,000  |   |   |   | 10,401,254 |   |
|       Notes      Payable Principal Payments                                                    |                         | -          |   |   |   | (1,342,100 | ) |
|       Related      Party Note (Payments)                                                       |                         | (200,000   | ) |   |   | - |   |
|       Related      Party Note Advances                                                         |                         | 200,000    |   |   |   | - |   |
|       Net      Cash provided by continuing activities                                          |                         | 1,000,000  |   |   |   | 9,059,154 |   |
| Net Decrease      in cash                                                                                                    |                         | (149,123   | ) |   |   | (166,235 | ) |
| Cash      - Beginning of the year                                                                                            |                         | 426,430    |   |   |   | 592,665 |   |
| Cash -      End of the year                                                                                                  | $                            | 277,307    |   |   | $ | 426,430 |   |
|                                                                                                                         |                         |       |   |   |   |   |   |

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|                                                                                      | **Year        Ended**    |    |
|--------------------------------------------------------------------------------------|--------------------------|---------|
|                                                                                 | **Mar.        31, 2010** |    |   | **Mar.        31, 2009** |   |
| **Supplemental      Disclosure of Cash Flow Information**                            |                     |    |   |   |   |   |   |
|       Cash      paid during period for:                |                     |         |   |   |   |  |   |
|             Interest     | $                        | 621,107 |   |   | $ | 466,792 |   |
|                                                                                 |                     |    |   |   |   |   |   |
|                  Income Taxes | $                        | -       |   |   | $ | - |   |
|                          |                     |    |   |   |   |   |   |
| **Non      Cash Investing and Financing Activities**                                 |                     |    |   |   |   |   |   |
|                               |                     |         |   |   |   |  |   |
|       Treasury      Stock Received for Asset Sale      | $                        | (12,240 | ) |   | $ | - |   |
|                                                   |                     |    |   |   |   |   |   |
|       Stock      Based Loan Costs                      | $                        | -       |   |   | $ | 375,000 |   |
|                                                                                      |                     |    |   |   |   |   |   |
|       Stock      Issued for Interest                   | $                        | -       |   |   | $ | 36,967 |   |
|                                                                                      |                     |    |   |   |   |   |   |
|       Stock      Based Compensation                    | $                        | 325,818 |   |   | $ | 522,222 |   |
|                          |                     |    |   |   |   |   |   |
|       Stock      Based Consulting Fees                 | $                        | 175,500 |   |   | $ | 300,000 |   |
|                                                                                 |                     |    |   |   |   |   |   |

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|                                                                                      |   | 2010       |   |   |   | 2009       |   |   |
|--------------------------------------------------------------------------------------|--------|------------|--------|--------|--------|------------|--------|--------|
|       Producing      Leasehold                         | $      | 23,999,312 |   |   | $      | 22,159,295 |   |   |
|       Non-Producing      Leasehold                     |   | 1,063,346  |   |   |   | 1,081,482  |   |   |
|       Well      in Process                             |   | 229,476    |   |   |   | 1,014,380  |   |   |
|       Capitalized      Interest                        |   | 1,555,195  |   |   |   | 999,620    |   |   |
|                                                        |   | 26,847,329 |   |   |   | 25,254,777 |   |   |
|                                                                                 |   |            |   |   |   |       |   |   |
|       Less      accumulated depletion and amortization |   | (9,034,348 | )      |   |   | (6,206,558 | )      |   |
|                                                                                 |   |            |   |   |   |            |   |   |
|                                                                                 | $      | 17,812,981 |   |   | $      | 19,048,219 |   |   |
|                                                                                 |   |       |   |   |   |       |   |   |

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|                                                                        |   | 2010      |   |   |   | 2009      |   |   |
|------------------------------------------------------------------------|--------|-----------|--------|--------|--------|-----------|--------|--------|
|       Buildings                          | $      | 409,764   |   |   | $      | 409,764   |   |   |
|       Office      Equipment              |   | 130,256   |   |   |   | 130,256   |   |   |
|       Property      and Equipment        |   | 1,488,467 |   |   |   | 1,631,634 |   |   |
|                                          |   | 2,028,487 |   |   |   | 2,171,654 |   |   |
|                                                                   |   |           |   |   |   |      |   |   |
|       Less      accumulated depreciation |   | (427,013  | )      |   |   | (315,093  | )      |   |
|                                                                   |   |           |   |   |   |           |   |   |
|                                                                   | $      | 1,601,474 |   |   | $      | 1,856,561 |   |   |
|                                                                   |   |      |   |   |   |      |   |   |

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|                                      |   | March 31,        2010                         |   |   | March 31,        2009                         |   |
|--------------------------------------|--------|-----------------------------------------------|--------|--------|-----------------------------------------------|--------|
| Federal Statutory Tax      Rate      |   | 35%        |   |   | 35%        |   |
| State                                |   | 0%              |   |   | 0%         |   |
| Consolidated      Effective Tax Rate |   | 35%        |   |   | 35%        |   |
|                                 |   |                                          |   |   |                                          |   |

|                                                                                                               |   | Years Ended March 31, |   |   |
|--------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|--------|
|                                                                                                                    |   | 2010                  |   |   |   | 2009 |   |   |
| Current income tax expense                                                                                         |   |                  |   |   |   |   |   |   |
|        Federal                                                                  | $      | -                     |   |   | $ | - |   |   |
|        State                                                                    |   | -                     |   |   |   | - |   |   |
|               Total      current tax expense |   | -                     |   |   |   | - |   |   |
|                                                                                                                    |   |                       |   |   |   |  |   |   |
| Deferred      income tax (benefit) from continuing operations                                                      |   |                       |   |   |   |  |   |   |
|        Federal                                                                  |   | (1,063,748            | )      |   |   | (460,402 | ) |   |
|        State                                                                    |   | -                     |   |   |   | - |   |   |
| Total income tax benefit                                                                                           | $      | (1,063,748            | )      |   | $ | (460,402 | ) |   |
|                                                                                                               |   |                  |   |   |   |   |   |   |

|                                                            |   | Years Ended March 31, |   |   |
|-----------------------------------------------------------------|--------|-----------------------|--------|--------|
|                                                                 |   | 2010                  |   |   |   | 2009 |   |   |
| Rate                                                            |   | 35%                   |   |   |   | 35% |   |   |
| Tax on Income from Continuing      Operations at Statutory Rate | $      | (1,464,721            | )      |   | $ | (862,483 | ) |   |
|                                                                 |   |                       |   |   |   |  |   |   |
| Increase (decrease) resulting      from:                        |   |                       |   |   |   |  |   |   |
| Permanent differences                                           |   | 400,973               |   |   |   | 402,081 |   |   |
| Income Tax Provision                                            | $      | (1,063,748            | )      |   | $ | (460,402 | ) |   |
|                                                            |   |                  |   |   |   |   |   |   |

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|                                                                                                                                                              |   | March 31,        2010 |   |   |   | March 31,        2009 |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|--------|--------|-----------------------|--------|--------|
| Deferred Tax      Assets:                                                                                                                                    |   |                       |   |   |   |                       |   |   |
|               Net      Operating Loss Carryforward                                     | $      | 1,950,405             |   |   | $      | 751,045               |   |   |
|               Other      Deferred Tax Assets                                           |   | 146,544               |   |   |   | -                     |   |   |
|                      Total      Deferred Tax Assets |   | 2,096,949             |   |   |   | 751,045               |   |   |
|                                                                                                                                                              |   |                       |   |   |   |                       |   |   |
| Deferred Tax Liabilities                                                                                                                                     |   |                       |   |   |   |                       |   |   |
|               Oil      and Gas Properties Basis                                        |   | 2,475,875             |   |   |   | 2,086,984             |   |   |
|               Other      Deferred Tax Liabilities                                      |   | 260,108               |   |   |   | 366,843               |   |   |
|                      Total      Deferred Liabilites |   | 2,735,983             |   |   |   | 2,453,827             |   |   |
| Net Deferred Tax Liability                                                                                                                                   | $      | 639,034               |   |   | $      | 1,702,782             |   |   |
|                                                                                                                                                         |   |                  |   |   |   |                  |   |   |

|                                                                                                  |   | March 31,        2010 |   |   |   | March 31,        2009 |   |   |
|--------------------------------------------------------------------------------------------------|--------|-----------------------|--------|--------|--------|-----------------------|--------|--------|
| Numerator                                                                                        |   |                  |   |   |   |                  |   |   |
|         Net      Income (Loss)                           | $      | (3,121,170            | )      |   | $      | (2,003,834            | )      |   |
| Denominator                                                                                      |   |                  |   |   |   |                  |   |   |
|         Weighted      Average Shares Outstanding - Basic |   | 80,593,912            |   |   |   | 80,300,804            |   |   |
|                                                                                                  |   |                       |   |   |   |                       |   |   |
| Basic - Net Income                                                                               | $      | (0.04                 | )      |   | $      | (0.02                 | )      |   |

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|                                | Fiscal Years Ending March        31, |       |   |   |   |   |   |
|-------------------------------------|--------------------------------------|------------|--------|--------|--------|--------|--------|
|                                     |                                 | 2011       |   |   | 2012   |   |   | 2013 |   |   | 2014 |   |   | Thereafter |   |   | Total |
| Note Payable - Shareholder          |                                 | -          |   |   | -      |   |   | 324,330 |   |   | - |   |   | - |   |   | 324,330 |
| Note Payable - Shareholder          |                                 | -          |   |   | -      |   |   | 3,194,594 |   |   | - |   |   | - |   |   | 3,194,594 |
| Senior Secured      Credit Facility |                                 | 10,800,000 |   |   | -      |   |   | - |   |   | - |   |   | - |   |   | 10,800,000 |
|                                | $                                    | 10,800,000 |   | $      | -      |   | $      | 3,518,924 |   | $ | - |   | $ | - |   | $ | 14,318,924 |
|                                |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                                            | Shares Outstanding |   |
|---------------------------------------------------------------------------------|--------------------|--------|
| Shares Outstanding      March 31, 2008                                          | 80,181,310         |   |   |
| Shares issued as penalty      for late registration of private placement shares | 172,602            |   |   |
| Balance      at March 31, 2009                                                  | 80,353,912         |   |   |
| Shares issued as compensation      to consultants                               | 390,000            |   |   |
| Balance      at March 31, 2010                                                  | 80,743,912         |   |   |
|                                                                            |               |   |   |

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|   | • | Level 1 -      Quoted prices for identical instruments in active markets;                                                                                                                                                                                                                                  |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | Level 2 -      Quoted prices for similar instruments in active markets, quoted prices for      identical or similar instruments in markets that are not active, and model-derived      valuations in which all significant inputs and significant value drivers      are observable in active markets; and |
|   | • | Level      3 - Valuations derived from valuation techniques in which one or more significant      inputs or significant value drivers are unobservable.                                                                                                                                                    |

| Type of Contract                              |   | Balance Sheet Location             |    |   | Estimated        Fair Value |   |   |
|-----------------------------------------------|--------|------------------------------------|---------|--------|-----------------------------|--------|--------|
| Natural      Gas Swaps                        |   | Other      Current Assets          |    | $      | 98,856                      |   |   |
| Natural Gas Collars                           |   | Other Current Assets               |    |   | 143,587                     |   |   |
| Total      Current Derivative Assets          |   |                               | 242,443 |   |                        |
|                                          |   |                               |    |   |                             |   |   |
| Crude      Oil Swaps                          |   | Other      Current Liabilities     |    |   | -                           |   |   |
| Crude Oil Collars                             |   | Other Current Liabilities          |    |   | (93,923                     | )      |   |
| Total      Current Derivative Liabilities     |   |                               | (93,923 | )      |                        |
|                                          |   |                               |    |   |                             |   |   |
| Crude      Oil Collars                        |   | Other      Non-Current Liabilities |    |   | -                           |   |   |
| Natural Gas Collars                           |   | Other Non-Current Liabilities      |    |   | -                           |   |   |
| Total      Non-Current Derivative Liabilities |   |                               | -       |   |                        |
| Total      Net Derivative Assets              |   | $                                  | 148,520 |   |                        |
|                                          |   |                               |    |   |                        |   |   |

|                                        |   | **Quoted         Prices in         Active         Markets for        Identical         Assets** |   |   |   | **Significant         Other****ObservableInputs** |   |        |   | **Significant****UnobservableInputs** |   |   |   |    |   |
|---------------------------------------------|--------|-------------------------------------------------------------------------------------------------|--------|--------|--------|---------------------------------------------------|--------|--------|--------|---------------------------------------|--------|--------|--------|---------|--------|
|                                        |   | (Level 1)                                                                                       |   |   |   | (Level 2)                                         |   |   |   | (Level 3)                             |   |   |   | Total   |   |
| Options                                     | $      | -                                                                                               |   |   | $      | 325,818                                           |   |   | $      | -                                     |   |   | $      | 325,818 |   |
| Derivative Assets and Liabilities,      net | $      | 148,520                                                                                         |   |   | $      | -                                                 |   |   | $      | -                                     |   |   | $      | 148,520 |   |

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|                            |   | **Quoted         Prices in         Active         Markets for        Identical         Assets** |   |   |   | **Significant         Other****ObservableInputs** |   |        |   | **Significant****UnobservableInputs** |   |   |   |      |   |
|---------------------------------|--------|-------------------------------------------------------------------------------------------------|--------|--------|--------|---------------------------------------------------|--------|--------|--------|---------------------------------------|--------|--------|--------|-----------|--------|
|                            |   | (Level 1)                                                                                       |   |   |   | (Level 2)                                         |   |   |   | (Level 3)                             |   |   |   | Total     |   |
| Options and      Warrants       | $      | -                                                                                               |   |   | $      | 1,234,189                                         |   |   | $      | -                                     |   |   | $      | 1,234,189 |   |
| Long-lived Assets Held For Sale | $      | -                                                                                               |   |   | $      | 150,000                                           |   |   | $      | -                                     |   |   | $      | 150,000   |   |

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| Settlement      Period   | Monthly        Volumes |   |   | Fixed Price |   |   | Price        Floor |   |   | Price        Ceiling |   |
|--------------------------|------------------------|--------|--------|-------------|--------|--------|--------------------|--------|--------|----------------------|--------|
|                     |                        |   |   |        |   |   |               |        |   |                 |        |   |
| Natural      Gas Swaps   |                        |   |   |        |   |   |               |        |   |                 |        |   |
| 1/01/10      - 6/30/10   | 20,000                 |   | MMBTU  | $           | 5.54   |   |               | N/A    |   |                 | N/A    |   |
|                     |                        |   |   |        |   |   |               |   |   |                 |   |   |
| Crude      Oil Collars   |                        |   |   |        |   |   |               |   |   |                 |   |   |
| 1/01/10      - 12/31/10  | 2,000                  |   | BBLS   |        | N/A    |   | $                  | 65.00  |   | $                    | 85.00  |   |
|                     |                        |   |   |        |   |   |               |   |   |                 |   |   |
| Natural      Gas Collars |                        |   |   |        |   |   |               |   |   |                 |   |   |
| 7/1/10      - 12/31/10   | 20,000                 |   | MMBTU  |        | N/A    |   | $                  | 5.50   |   | $                    | 6.50   |   |

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**Table of Contents**

|                                                            |   | Fiscal Year Ended March        31, |   |   |
|-----------------------------------------------------------------|--------|------------------------------------|--------|--------|
|                                                            |   | 2010                               |   |   |   | 2009 |   |   |
| Unproved      oil and gas properties                            | $      | 564,804                            |   |   | $ | 484,198 |   |   |
| Proved oil and gas properties                                   |   | 24,727,330                         |   |   |   | 23,770,959 |   |   |
| Support      Equipment and facilities                           |   | -                                  |   |   |   | - |   |   |
| Capitalized Interest                                            |   | 1,555,195                          |   |   |   | 999,620 |   |   |
| Total      Capitalized Cost of Oil and Gas Properties           |   | 26,847,329                         |   |   |   | 25,254,777 |   |   |
| Less accumulated depletion,      depreciation, and amortization |   | (9,034,348                         | )      |   |   | (6,206,558 | ) |   |
| Net Capitalized      Costs                                      | $      | 17,812,981                         |   |   | $ | 19,048,219 |   |   |
|                                                            |   |                               |   |   |   |   |   |   |

|                                         |   | Fiscal Year Ended March        31, |   |   |
|----------------------------------------------|--------|------------------------------------|--------|--------|
|                                         |   | 2010                               |   |   |   | 2009 |   |   |
| Property Acquisition      Costs              |   |                               |   |   |   |   |   |   |
|       Proved   | $      | 422,963                            |   |   | $ | 427,676 |   |   |
|       Unproved |   | 91,810                             |   |   |   | 15,472 |   |   |
| Exploration Costs                            |   | 235,003                            |   |   |   | 267,212 |   |   |
| Development      Costs                       |   | 719,470                            |   |   |   | 7,393,929 |   |   |
| Asset retirement costs recognized            |   | 27,643                             |   |   |   | 344,079 |   |   |
| Total Costs      Incurred                    | $      | 1,496,889                          |   |   | $ | 8,448,368 |   |   |
|                                         |   |                               |   |   |   |   |   |   |

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**Table of Contents**

|                                                                                                                           |   | Fiscal Year Ended March        31, |   |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|--------|
|                                                                                                                           |   | 2010                               |   |   |   | 2009 |   |   |
| Oil & Gas      Revenue                                                                                                         | $      | 3,019,510                          |   |   | $ | 6,558,069 |   |   |
| Gain on Sale of Oil & Gas Leases                                                                                               |   | 170,174                            |   |   |   | 18,005 |   |   |
| Production      Costs                                                                                                          |   | 2,164,254                          |   |   |   | 3,140,198 |   |   |
| Exploration Costs                                                                                                              |   | 5,000                              |   |   |   | 2,975 |   |   |
| Expired Leases      and Plugging Costs                                                                                         |   | 43,594                             |   |   |   | 433,969 |   |   |
| Depreciation, Depletion, & Amortization                                                                                        |   | 2,765,126                          |   |   |   | 2,968,429 |   |   |
|                                                                                                                           |   | (1,788,290                         | )      |   |   | 30,503 |   |   |
| Income Taxes at 35%                                                                                                            |   | 625,902                            |   |   |   | (10,676 | ) |   |
| Results of      operations for oil and gas producing       activities (excluding corporate overhead and       financing costs) | $      | (1,162,389                         | )      |   | $ | 19,827 |   |   |
|                                                                                                                           |   |                               |   |   |   |   |   |   |

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**Table of Contents**

|                                 |   | Oil        (MBBL) |   |   |   | Gas        (MMCF) |   |   |
|--------------------------------------|--------|-------------------|--------|--------|--------|-------------------|--------|--------|
|                                 |   |              |   |   |   |              |   |   |
| Reserves at      March 31, 2008      |   | 1,411             |   |   |   | 18,809            |   |   |
| Revisions of previous estimates      |   | (739              | )      |   |   | (11,269           | )      |   |
| Improved recovery                    |   | -                 |   |   |   | -                 |   |   |
| Purchases of minerals in place       |   | 1                 |   |   |   | 25                |   |   |
| Extensions      and discoveries      |   | 397               |   |   |   | 4,725             |   |   |
| Production                           |   | (45               | )      |   |   | (479              | )      |   |
| Sales of minerals      in place      |   | -                 |   |   |   | -                 |   |   |
| Reserves at March 31, 2009           |   | 1,025             |   |   |   | 11,811            |   |   |
| Revisions of      previous estimates |   | (650              | )      |   |   | (3,735            | )      |   |
| Improved recovery                    |   | -                 |   |   |   | -                 |   |   |
| Purchases of      minerals in place  |   | -                 |   |   |   | -                 |   |   |
| Extensions and discoveries           |   | 442               |   |   |   | 11,101            |   |   |
| Production                           |   | (24               | )      |   |   | (404              | )      |   |
| Sales of minerals in place           |   | (12               | )      |   |   | -                 |   |   |
| Reserves at      March 31, 2010      |   | 781               |   |   |   | 18,773            |   |   |
|                                 |   |              |   |   |   |              |   |   |

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**Table of Contents**

|   | • | 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 the benchmark prices of natural      gas and oil relating to our proved reserves to the quantities of those reserves      produced in each future year. For the March 31, 2010 reserve report, SEC      guidelines required the benchmark price for both oil and gas to be based      upon the preceding 12-month average of the first trading-day of the month      spot price on the most relevant exchange. For the March 31, 2009, SEC guidelines      required the benchmark price for both oil and gas to be the closing price      on the last trading-day of the fiscal 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%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

|                                                         |   | As of March 31, |   |   |
|--------------------------------------------------------------|--------|-----------------|--------|--------|
| **In Thousands**                                             |   | 2010            |   |   |   | 2009 |   |   |
| Future Cash      Inflows                                     | $      | 127,486         |   |   | $ | 90,391 |   |   |
| Future Production and Development      Costs                 |   | (89,762         | )      |   |   | (55,865 | ) |   |
| Income Taxes                                                 |   | (13,204         | )      |   |   | (12,084 | ) |   |
| Future Net Cash Flows                                        |   | 24,520          |   |   |   | 22,442 |   |   |
| 10% Annual      Discount                                     |   | (17,359         | )      |   |   | (12,120 | ) |   |
| Standardized Measure of Discounted      Future Net Cash Flow | $      | 7,161           |   |   | $ | 10,322 |   |   |
|                                                         |   |            |   |   |   |   |   |   |

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**Table of Contents**

|                                                     |   | Year Ended March 31, |   |   |
|----------------------------------------------------------|--------|----------------------|--------|--------|
| **In Thousands**                                         |   | 2010                 |   |   |   | 2009 |   |   |
| Balance      at beginning of yea                         | $      | 10,322               |   |   | $ | 68,301 |   |   |
| Net change in prices and      production costs           |   | 11,145               |   |   |   | (194,933 | ) |   |
| Net changes      in future development costs             |   | (20,306              | )      |   |   | 6,807 |   |   |
| Sales of oil & gas produced      net of production costs |   | (452                 | )      |   |   | (3,533 | ) |   |
| Extensions      and discoveries                          |   | 20,698               |   |   |   | 23,664 |   |   |
| Previously estimated development      costs incurred     |   | 532                  |   |   |   | 8,243 |   |   |
| Revisions      of previous quantity estimates            |   | (8,419               | )      |   |   | (10,020 | ) |   |
| Purchases of reserves                                    |   | -                    |   |   |   | 427 |   |   |
| Net change      in income taxes                          |   | (1,120               | )      |   |   | 59,271 |   |   |
| Accretion of discount                                    |   | (5,239               | )      |   |   | 52,095 |   |   |
| End of      Year                                         | $      | 7,161                |   |   | $ | 10,322 |   |   |
|                                                     |   |                 |   |   |   |   |   |   |

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**Table of Contents**

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**Table of Contents**

| **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.)                                                                                                                                    |
|       |   |                                                                                                                                                                                                                                                                |
| 10.2       |   | 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.) |
|       |   |                                                                                                                                                                                                                                                                |
| 10.5       |   | 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.)                                        |

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|   |   |                                                                                                                                                                                                                            |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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  |   | Office      Lease Agreement by and between the registrant as tenant and Hulen South      Tower Limited as landlord                                                                                                              |
|   |   |                                                                                                                                                                                                                            |
| 21.1   |   | List of Subsidiaries      of the Registrant (Incorporated by reference from the registrant's Form      10-K filed on July 14, 2009).                                                                                            |
|   |   |                                                                                                                                                                                                                            |
| 23.1   |   | Forrest      A. Garb & Associates Estimated Reserves Report.                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                            |
| 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.                                                                                                                                        |
|   |   |                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                            |

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|                      |   | **REOSTAR ENERGY CORPORATION**                       |
|---------------------------|--------|------------------------------------------------------|
|                      |   |                                                 |
|                      |   |                                                 |
| Date:  June 29, 2010 | 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    |        | June 29, 2010 |
|      Mark      S. Zouvas        |        | (Principal Executive Officer)                           |        |               |
|                                                |        |                                                    |        |               |
| /s/Scott      Allen                                 |        | Chief Financial Officer and Director      July 14, 2008 |        | June 29, 2010 |
|      Scott      Allen           |        | (Principal Financial Officer)                           |        |               |
|                                                |        |                                                         |        |               |
| /s/M.      O. Rife III                              |        | Chairman of the Board of Directors                      |        | June 29, 2010 |
|      M. O.      Rife III        |        |                                                         |        |               |
|                                                |        |                                                         |        |               |
| /s/Jean-Baptiste      Heinzer                       |        | Director                                                |        | June 29, 2010 |
|      Jean-Baptiste      Heinzer |        |                                                         |        |               |
|                                                |        |                                                         |        |               |
| /s/Alan Rae                                         |        | Director                                                |        | June 29, 2010 |
|      Alan      Rae              |   |                                                    |   |          |
|                                                |   |                                                    |   |          |

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