| **[X**]         | Quarterly report under Section 13 or 15(d)      of the Securities Exchange Act of 1934  |
|-----------------|-----------------------------------------------------------------------------------------|
|            |                                                                                    |
|            | For the quarterly period ended December 31,      2007.                                  |
|            |                                                                                    |
| [   ] | Transition report under Section 13 or 15(d)      of the Securities Exchange Act of 1934 |
|            |                                                                                    |
|            | For the transition period from ______________to      ______________.                    |
|            |                                                                                    |
|            |                                                                                    |
|            | Commission File Number **000-52316**                                                    |

| **Nevada**                                                                        |   |   |   | **20-8428738**                    |
|-----------------------------------------------------------------------------------|--------|--------|--------|-----------------------------------|
| (State or other jurisdiction of incorporation                    Or organization) |   |   |   | (IRS Employer Identification No.) |
|                                                                                   |   |        |   |                                   |

|                                     Class                                     | Outstanding at January 31, 2008 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                            |
| Common Stock, par value $0.001 per share                                                                                                                                                                                                                                                                                                                                                                                                              | 79,831,310                      |

----

|   |   | Page |
|--------|--------|------|

|                            | ITEM 1-- FINANCIAL STATEMENTS                                             |   1 |
|---------------------------------|---------------------------------------------------------------------------|---------------|
|                            |                                                                      |               |
|                            | ITEM 2-- MANAGEMENT'S DISCUSSION AND ANALYSIS      OR PLAN OF OPERATION   |   8 |
|                            |                                                                      |               |
|                            | ITEM 3-- CONTROLS AND PROCEDURES                                          | 15            |
|                            |                                                                      |               |
| **PART II - OTHER INFORMATION** |                                                                           |
|                            |                                                                      |               |
|                            | ITEM 1-- LEGAL PROCEEDINGS                                                | 15            |
|                            |                                                                      |               |
|                            | ITEM 2-- UNREGISTERED SALES OF EQUITY SECURITIES      AND USE OF PROCEEDS | 15            |
|                            |                                                                      |          |
|                            | ITEM 3-- DEFAULTS UPON SENIOR SECURITIES                                  | 15            |
|                            |                                                                      |          |
|                            | ITEM 4-- SUBMISSION OF MATTERS TO A VOTE OF      SECURITY HOLDERS         | 15            |
|                            |                                                                      |          |
|                            | ITEM 5-- OTHER INFORMATION                                                | 15            |
|                            |                                                                      |          |
|                            | ITEM 6-- EXHIBITS                                                         | 15            |
|                            |                                                                      |          |
|                            | SIGNATURES                                                                | 16            |
|                            |                                                                      |          |
|                            |                                                                      |          |

----

| **ASSETS**                                                                                                                                                                                                                                                                                     |   |            |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|
| Current Assets:                                                                                                                                                                                                                                                                                |   |       |   |
|          Cash                                                                                                                                                                                                                                     | $      | 431,081    |   |
|          Accounts      Receivable:                                                                                                                                                                                                                |   |       |   |
|                   Oil      & Gas                                                                                                                                                                     |   | 1,014,129  |   |
|                   Related      Party                                                                                                                                                                 |   | 705,888    |   |
|          Hedging      Account                                                                                                                                                                                                                     |   | 23,109     |   |
|          Total      Current Assets                                                                                                                                                                                                                |   | 2,174,207  |   |
|                                                                                                                                                                                                                                                                                           |   |            |   |
| Note Receivable                                                                                                                                                                                                                                                                                |   | 1,405,313  |   |
|                                                                                                                                                                                                                                                                                           |   |       |   |
| Oil and Gas      Properties - successful efforts method                                                                                                                                                                                                                                        |   | 17,464,612 |   |
|          Less      Accumulated Depletion and Depreciation                                                                                                                                                                                         |   | (3,549,706 | )      |
|                   Oil      & Gas Properties (net)                                                                                                                                                    |   | 13,914,906 |   |
|                                                                                                                                                                                                                                                                                           |   |       |   |
| Other Depreciable      Assets:                                                                                                                                                                                                                                                                 |   | 1,475,435  |   |
|          Less      Accumulated Depreciation                                                                                                                                                                                                       |   | (63,435    | )      |
|                   Other      Depreciable Assets (net)                                                                                                                                                |   | 1,412,000  |   |
|                                                                                                                                                                                                                                                                                           |   |       |   |
| Investment in Carnegie Oil & Gas LLC                                                                                                                                                                                                                                                           |   | 175,000    |   |
| Total Assets                                                                                                                                                                                                                                                                                   | $      | 19,081,426 |   |
|                                                                                                                                                                                                                                                                                           |   |       |   |
| **LIABILITIES**                                                                                                                                                                                                                                                                                |   |       |   |
| Current Liabilities:                                                                                                                                                                                                                                                                           |   |       |   |
|          Accounts      Payable                                                                                                                                                                                                                    | $      | 292,479    |   |
|          Payable      to Related Parties                                                                                                                                                                                                          |   | 250,750    |   |
|          Royalties      Payable                                                                                                                                                                                                                   |   | 48,345     |   |
|          Accrued      Expenses                                                                                                                                                                                                                    |   | 1,040,040  |   |
|          Current      Portion of Long-Term Debt                                                                                                                                                                                                   |   | 100,000    |   |
|                   Total      Current Liabilities                                                                                                                                                     |   | 1,731,614  |   |
|                                                                                                                                                                                                                                                                                           |   |       |   |
|          Notes      Payable                                                                                                                                                                                                                       |   | 1,605,859  |   |
|          Notes      Payable - Related Parties                                                                                                                                                                                                     |   | 3,518,924  |   |
|          Less      Current Portion of Notes Payable                                                                                                                                                                                               |   | (100,000   | )      |
|                   Total      Long-Term Debt                                                                                                                                                          |   | 5,024,783  |   |
|                                                                                                                                                                                                                                                                                           |   |       |   |
|          Deferred      Tax Liability                                                                                                                                                                                                              |   | 2,486,879  |   |
|                   Total      Liabilities                                                                                                                                                             |   | 9,243,276  |   |
|                                                                                                                                                                                                                                                                                           |   |       |   |
|          Commitments      & Contingencies:                                                                                                                                                                                                        |   | -          |   |
|                   Contingent      Stock Based Compensation                                                                                                                                           |   | 464,986    |   |
|                                                                                                                                                                                                                                                                                           |   |       |   |
| **Stockholders' Equity**                                                                                                                                                                                                                                                                       |   |       |   |
|          Common      Stock, $.001 par,200,000,000 shares authorized and                         79,831,310      shares outstanding on December 31, 2007 |   | 79,831     |   |
|          Additional      Paid-In-Capital                                                                                                                                                                                                          |   | 9,147,072  |   |
|          Retained      Earnings                                                                                                                                                                                                                   |   | 146,261    |   |
|                   Total      Stockholders' Equity                                                                                                                                                    |   | 9,373,164  |   |
|                   Total      Liabilities & Stockholders' Equity                                                                                                                                      | $      | 19,081,426 |   |
|                                                                                                                                                                                                                                                                                           |   |       |   |

----

|                                                                                                                                                                                                                                                                                                                                                                         |   | **Three Months Ended**                 |   | **Nine Months           Ended** |                                    | **Twelve           Months Ended** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|---------------------------------|-----------------------------------------|-----------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                         |   | **Dec. 31, 2007          (unaudited)** |   |                            | **Sept. 30, 2007          (unaudited)** |                              |   | **Dec. 31, 2007          (unaudited)** |   |   | **Dec. 31, 2006          (audited)** |   |
| **Revenues**                                                                                                                                                                                                                                                                                                                                                                 |   |                                   |   |                            |                                    |                              |   |   |   |   |   |   |
|                  Oil & Gas Sales                                                                                                                                                                                                                                                                                                | $      | 1,597,018                              |   | $                               | 1,019,222                               |                              | $      | 3,430,164 |   | $ | 2,874,291 |   |
|          Sale        of Leases                                                                                                                                                                                                                                                                                                  |   | -                                      |   |                            | 307,028                                 |                              |   | 307,028 |   |   | 400,378 |   |
|          Other        Income                                                                                                                                                                                                                                                                                                    |   | 80,989                                 |   |                            | 79,367                                  |                              |   | 160,421 |   |   | 45,771 |   |
|                   Total        Revenue                                                                                                                                                                                                                                             |   | 1,678,007                              |   |                            | 1,405,617                               |                              |   | 3,897,613 |   |   | 3,320,440 |   |
|                                                                                                                                                                                                                                                                                                                                                                         |   |                                        |   |                            |                                         |                              |   |  |   |   |  |   |
| **Costs and Expenses**                                                                                                                                                                                                                                                                                                                                                       |   |                                        |   |                            |                                         |                              |   |  |   |   |  |   |
|          Oil        & Gas Lease Operating Expenses                                                                                                                                                                                                                                                                              |   | 667,420                                |   |                            | 469,112                                 |                              |   | 1,470,053 |   |   | 1,131,502 |   |
|          Workover        Expenses                                                                                                                                                                                                                                                                                               |   | 16,402                                 |   |                            | 22,591                                  |                              |   | 38,993 |   |   | - |   |
|          Severance        & Ad Valorem Taxes                                                                                                                                                                                                                                                                                    |   | 93,378                                 |   |                            | 59,947                                  |                              |   | 202,261 |   |   | 163,523 |   |
|          Geologic        & Geophysical                                                                                                                                                                                                                                                                                          |   | 8,993                                  |   |                            | -                                       |                              |   | 8,993 |   |   | - |   |
|          Delay        Rentals                                                                                                                                                                                                                                                                                                   |   | -                                      |   |                            | 8,571                                   |                              |   | 52,186 |   |   | - |   |
|          Depletion        & Depreciation                                                                                                                                                                                                                                                                                        |   | 254,721                                |   |                            | 332,245                                 |                              |   | 873,097 |   |   | 1,856,365 |   |
|          General        & Administrative:                                                                                                                                                                                                                                                                                       |   | -                                      |   |                            | -                                       |                              |   | - |   |   | 281,727 |   |
|                   Salaries        & Benefits                                                                                                                                                                                                                                       |   | 300,393                                |   |                            | 255,371                                 |                              |   | 796,733 |   |   | - |   |
|                   Legal        & Professional                                                                                                                                                                                                                                      |   | 210,451                                |   |                            | 121,953                                 |                              |   | 490,253 |   |   | - |   |
|                   Other        General & Administrative                                                                                                                                                                                                                            |   | 90,999                                 |   |                            | 95,913                                  |                              |   | 238,837 |   |   | - |   |
|          Interest,        net of capitalized interest of $100,403 and                             $126,676 for the three months ended 12/31/2007 and                     9/30/2007,        respectively |   | -                                      |   |                            | -                                       |                              |   | - |   |   | 13,660 |   |
|                   Total        Costs & Expenses                                                                                                                                                                                                                                    |   | 1,642,757                              |   |                            | 1,365,703                               |                              |   | 4,171,406 |   |   | 3,446,777 |   |
|                                                                                                                                                                                                                                                                                                                                                                         |   |                                        |   |                            |                                         |                              |   |  |   |   |  |   |
| Income (Loss) from continuing operations        before income taxes                                                                                                                                                                                                                                                                                                          |   | 35,250                                 |   |                            | 39,914                                  |                              |   | (273,793 | ) |   | (126,337 | ) |
|                                                                                                                                                                                                                                                                                                                                                                         |   |                                        |   |                            |                                         |                              |   |  |   |   |  |   |
| Income from discontinued operations:                                                                                                                                                                                                                                                                                                                                         |   |                                        |   |                            |                                         |                              |   |  |   |   |  |   |
|          Pipeline        Income                                                                                                                                                                                                                                                                                                 |   | -                                      |   |                            | -                                       |                              |   | 35,277 |   |   | 319,093 |   |
|          Gain        on Sale of Pipeline                                                                                                                                                                                                                                                                                        |   | (4,389                                 | )      |                            | (7,952                                  | )                                 |   | 2,232,008 |   |   | - |   |
|          Income        from discontinued operations                                                                                                                                                                                                                                                                             |   | (4,389                                 | )      |                            | (7,952                                  | )                                 |   | 2,267,285 |   |   | 319,093 |   |
|                                                                                                                                                                                                                                                                                                                                                                         |   |                                        |   |                            |                                         |                              |   |  |   |   |  |   |
| Interest Income                                                                                                                                                                                                                                                                                                                                                              |   | 61,717                                 |   |                            | 70,930                                  |                              |   | 155,979 |   |   | - |   |
| Income Tax Provision                                                                                                                                                                                                                                                                                                                                                         |   | (32,403                                | )      |                            | (36,013                                 | )                                 |   | (752,316 | ) |   | - |   |
| Net Income                                                                                                                                                                                                                                                                                                                                                                   | $      | 60,175                                 |   | $                               | 66,879                                  |                              | $      | 1,397,155 |   | $ | 192,756 |   |
|                                                                                                                                                                                                                                                                                                                                                                         |   |                                   |   |                            |                                    |                              |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                         |   |                                   |   |                            |                                    |                              |   |   |   |   |   |   |
| **Basic and Diluted Loss per Common        Share**                                                                                                                                                                                                                                                                                                                           | $      | 0.00                                   |   | $                               | 0.00                                    |                              | $      | 0.02 |   |   |   |   |
| **Weighted Average        Common Shares Outstanding**                                                                                                                                                                                                                                                                                                                        |   | 79,831,310                             |   |                            | 79,711,310                              |                              |   | 78,484,396 |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                         |   |                                   |   |                            |                                    |                              |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                         |   |                                   |   |                            |                                    |                              |   |   |   |   |   |   |
| **Pro-Forma Earnings Per Share**                                                                                                                                                                                                                                                                                                                                             |   |                                   |   |                            |                                    |                              |   |   |   |   |   |   |
|          Net        Income                                                                                                                                                                                                                                                                                                      |   |                                   |   |                            |                                    |                              |   |   |   | $ | 192,756 |   |
|          Proforma        Income Tax Expense at Statutory Rate (35%)                                                                                                                                                                                                                                                             |   |                                   |   |                            |                                    |                              |   |   |   |   | (67,465 | ) |
|          Proforma        Net Income                                                                                                                                                                                                                                                                                             |   |                                   |   |                            |                                    |                              |   |   |   | $ | 125,291 |   |
|                                                                                                                                                                                                                                                                                                                                                                         |   |                                   |   |                            |                                    |                              |   |   |   |   |   |   |
| **Proforma Weighted        Average Shares Outstanding**                                                                                                                                                                                                                                                                                                                      |   |                                   |   |                            |                                    |                              |   |   |   |   | 68,129,310 |   |
|                                                                                                                                                                                                                                                                                                                                                                         |   |                                   |   |                            |                                    |                              |   |   |   |   |   |   |
| **Proforma Basic        & Diluted Earnings Per Share**                                                                                                                                                                                                                                                                                                                       |   |                                   |   |                            |                                    |                              |   |   |   | $ | 0.00 |   |
|                                                                                                                                                                                                                                                                                                                                                                         |   |                                   |   |                            |                                    |                              |   |   |   |   |   |   |

----

|                                                                                                                                                                                                                                                                                                                                                                 |   | **Three Months Ended**               |   | **Nine Months        Ended** |                                  | **Year Ended** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|------------------------------|---------------------------------------|----------------|--------|
| **Operating Activities:**                                                                                                                                                                                                                                                                                                                                            |   | **Dec. 31, 2007        (unaudited)** |   |                         | **Sept. 30, 2007        (unaudited)** |           |   | **Dec. 31, 2007        (unaudited)** |   |   | **Dec 31, 2006         (audited)** |   |
|                Net Income                                                                                                                                                                                                                                                                                               | $      | 60,175                               |   | $                            | 66,879                                |           | $      | 1,397,155 |   | $ | 192,756 |   |
|                   Adjustments      to reconcile net income to cash from                                       operating activities: |   |                                      |   |                         |                                       |           |   |  |   |   |  |   |
|                   Deferred      Income Tax Expense                                                                                                                                                                                                                         |   | 32,403                               |   |                         | 36,013                                |           |   | 752,316 |   |   | - |   |
|                   Depletion,      Depreciation, & Amortization                                                                                                                                                                                                             |   | 254,721                              |   |                         | 332,245                               |           |   | 873,097 |   |   | 1,856,365 |   |
|                   Note      Accretion                                                                                                                                                                                                                                      |   | -                                    |   |                         | -                                     |           |   | - |   |   | 128,334 |   |
|                   Stock      based compensation                                                                                                                                                                                                                            |   | 155,535                              |   |                         | 165,381                               |           |   | 464,986 |   |   | - |   |
|                   Joint      Venture Partner Expense                                                                                                                                                                                                                       |   | 4,389                                |   |                         | 7,952                                 |           |   | 3,084,789 |   |   | 332,413 |   |
|                   Gain      on Sale of Pipeline                                                                                                                                                                                                                            |   | -                                    |   |                         | -                                     |           |   | (5,272,701 | ) |   | - |   |
|          Changes      in Operating Assets and Liabilities                                                                                                                                                                                                                                                               |   |                                 |   |                         |                                  |           |   |   |   |   |   |   |
|                   Cash      Overdraft                                                                                                                                                                                                                                      |   | -                                    |   |                         | -                                     |           |   | - |   |   | 186,912 |   |
|                   Changes      in Other Assets                                                                                                                                                                                                                             |   | -                                    |   |                         | -                                     |           |   | - |   |   | (13,455 | ) |
|                   Changes      in Accrued Liabilities                                                                                                                                                                                                                      |   | 2,170                                |   |                         | 87,339                                |           |   | (390,144 | ) |   | 86,667 |   |
|                   Change      in Related Party Receivables/Payables                                                                                                                                                                                                        |   | 63,275                               |   |                         | (418,070                              | )              |   | (328,894 | ) |   | (543,483 | ) |
|                   Changes      in Other Receivables                                                                                                                                                                                                                        |   | 737,913                              |   |                         | (737,913                              | )              |   | 63,389 |   |   | 2,324 |   |
|                   Changes      in Hedging Account                                                                                                                                                                                                                          |   | (23,109                              | )      |                         | -                                     |           |   | (23,109 | ) |   | - |   |
|                   Changes      in Royalties Payable                                                                                                                                                                                                                        |   | 34,511                               |   |                         | 13,834                                |           |   | 48,345 |   |   | - |   |
|                   Change      in Revenue Receivables                                                                                                                                                                                                                       |   | (376,830                             | )      |                         | (132,712                              | )              |   | (518,929 | ) |   | 86,762 |   |
|                   Changes      in Accounts Payable                                                                                                                                                                                                                         |   | (480,182                             | )      |                         | 261,006                               |           |   | (412,307 | ) |   | - |   |
|          Net      Cash provided (used) from operating activities                                                                                                                                                                                                                                                        |   | 464,971                              |   |                         | (318,046                              | )              |   | (262,007 | ) |   | 2,315,595 |   |
|          Net      Cash provided (used) from discontinued operations                                                                                                                                                                                                                                                     |   | (600,046                             | )      |                         | (362,292                              | )              |   | 6,202,067 |   |   | (2,103,248 | ) |
|          Net      Cash provided (used) by operating activities and                               discontinued operations                                                                                                      |   | (135,075                             | )      |                         | (680,338                              | )              |   | 5,940,060 |   |   | 212,347 |   |
|                                                                                                                                                                                                                                                                                                                                                                 |   |                                      |   |                         |                                       |           |   |  |   |   |  |   |
| **Investing Activities:**                                                                                                                                                                                                                                                                                                                                            |   |                                      |   |                         |                                       |           |   |  |   |   |  |   |
|          Oil      & Gas Drilling, Completing and Leasehold Acquisition Costs                                                                                                                                                                                                                                            |   | (2,647,682                           | )      |                         | (1,852,728                            | )              |   | (4,944,410 | ) |   | (6,371,739 | ) |
|          Change      in Drilling Reimbursements in Excess of Costs                                                                                                                                                                                                                                                      |   | -                                    |   |                         | -                                     |           |   | - |   |   | 492,160 |   |
|          Change      in Capitalized Note Accretion                                                                                                                                                                                                                                                                      |   | 35,000                               |   |                         | 35,000                                |           |   | 105,000 |   |   | - |   |
|          Change      in Related Party Payable related to drilling                                                                                                                                                                                                                                                       |   | -                                    |   |                         | (293,993                              | )              |   | (4,120,568 | ) |   | 2,220,498 |   |
|          Deposits                                                                                                                                                                                                                                                                                                       |   | -                                    |   |                         | -                                     |           |   | - |   |   | 200,000 |   |
|          Investment      in Other Depreciable Assets                                                                                                                                                                                                                                                                    |   | (102,718                             | )      |                         | (454,038                              | )              |   | (1,475,435 | ) |   | - |   |
|          Investment      in Carnegie Oil & Gas LLC                                                                                                                                                                                                                                                                      |   | (175,000                             | )      |                         | -                                     |           |   | (175,000 | ) |   | - |   |
|          Note      Receivable Collections                                                                                                                                                                                                                                                                               |   | 60,111                               |   |                         | 67,343                                |           |   | 208,905 |   |   | - |   |
|          Net      Cash used in investing activities                                                                                                                                                                                                                                                                     |   | (2,830,289                           | )      |                         | (2,498,416                            | )              |   | (10,401,508 | ) |   | (3,459,081 | ) |
|                                                                                                                                                                                                                                                                                                                                                                 |   |                                      |   |                         |                                       |           |   |  |   |   |  |   |
| **Financing Activities**                                                                                                                                                                                                                                                                                                                                             |   |                                      |   |                         |                                       |           |   |  |   |   |  |   |
|          Notes      Payable (Payments) Advances                                                                                                                                                                                                                                                                         |   | (75,475                              | )      |                         | (79,603                               | )              |   | (2,105,078 | ) |   | 704,466 |   |
|          Changes      in Notes Payable Related Party                                                                                                                                                                                                                                                                    |   | (100,000                             | )      |                         | -                                     |           |   | (100,000 | ) |   | 1,264,957 |   |
|          Net      cash received from common stock subscriptions                                                                                                                                                                                                                                                         |   | -                                    |   |                         | -                                     |           |   | 6,885,353 |   |   | - |   |
|          Net      Cash provided (used) from financing activities.                                                                                                                                                                                                                                                       |   | (175,475                             | )      |                         | (79,603                               | )              |   | 4,680,275 |   |   | 1,969,423 |   |
|                                                                                                                                                                                                                                                                                                                                                                 |   |                                      |   |                         |                                       |           |   |  |   |   |  |   |
| Net Increase (Decrease) in cash                                                                                                                                                                                                                                                                                                                                      |   | (3,140,839                           | )      |                         | (3,258,357                            | )              |   | 218,827 |   |   | (931,139 | ) |
| Cash - Beginning of      the period                                                                                                                                                                                                                                                                                                                                  |   | 3,571,920                            |   |                         | 6,830,277                             |           |   | 212,254 |   |   | 1,263,552 |   |
| Cash - End of the period                                                                                                                                                                                                                                                                                                                                             | $      | 431,081                              |   | $                            | 3,571,920                             |           | $      | 431,081 |   | $ | 332,413 |   |
|                                                                                                                                                                                                                                                                                                                                                                 |   |                                 |   |                         |                                  |           |   |   |   |   |   |   |

----

|                                                                                                                          |   | **Three Months Ended**               |   | **Nine Months         Ended** |                                  | **Year Ended** |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|-------------------------------|---------------------------------------|----------------|--------|
|                                                                                                                          |   | **Dec. 31, 2007        (unaudited)** |   |                          | **Sept. 30, 2007        (unaudited)** |           |   | **Dec. 31, 2007        (unaudited)** |   |   | **Dec 31, 2006        (audited)** |   |
| **Supplemental Disclosure      of Cash Flow Information**                                                                     |   |                                 |   |                          |                                  |           |   |   |   |   |   |   |
|          Cash      paid during period for:                                       |   |                                 |   |                          |                                  |           |   |   |   |   |   |   |
|                   Interest          | $      | 66,789                               |   | $                             | 4,337                                 |           | $      | 127,111 |   | $ | 185,284 |   |
|                                                                                                                          |   |                                 |   |                          |                                  |           |   |   |   |   |   |   |
|                   Income      Taxes | $      | -                                    |   | $                             | -                                     |           | $      | - |   | $ | - |   |
|                                                                                                                          |   |                                 |   |                          |                                  |           |   |   |   |   |   |   |
| **Non Cash Investing and Financing      Activities**                                                                          |   |                                 |   |                          |                                  |           |   |   |   |   |   |   |
|          Stock      Based Property Acquisition                                   | $      | -                                    |   | $                             | 298,800                               |           | $      | - |   | $ | - |   |
|                                                                                                                          |   |                                 |   |                          |                                  |           |   |   |   |   |   |   |

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|                               | Year Ending March 31 |    |
|-------------------------------|----------------------|---------|
|                          |                 | 2008    |   |   | 2009 |   |   | 2010 |   |
| Restricted Stock Compensation | $                    | 581,137 |   | $ | 195,336 |   | $ | - |   |
| Stock Option Compensation     |                 | 39,382  |   |   | 21,256 |   |   | 9,232 |   |
|                          | $                    | 620,519 |   | $ | 216,592 |   | $ | 9,232 |   |
|                          |                 |    |   |   |   |   |   |   |   |

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|                                             |   | Dec. 31, 2007 |   |
|--------------------------------------------------|--------|---------------|--------|
| Total Proceeds                                   | $      | 15,000,000    |   |
| Closing adjustment for unpaid capital      calls |   | (900,000      | )      |
| Net Proceeds                                     |   | 14,100,000    |   |
| Basis in the pipeline                            |   | (8,827,299    | )      |
| Total Gain on sale                               |   | 5,272,701     |   |
| Less Allocations to Minority Interest            |   | (3,040,693    | )      |
| Gain on Sale of Pipeline                         | $      | 2,232,008     |   |
|                                             |   |          |   |

|                           |   | Dec. 31, 2007 |   |
|--------------------------------|--------|---------------|--------|
| Workover Drilling      Rig     | $      | 687,777       |   |
| Swab Rig                       |   | 175,000       |   |
| Service Rig                    |   | 200,000       |   |
| Reverse Osmosis Units          |   | 105,000       |   |
| Office Equipment & Other   |   | 307,658       |   |
| Total Other Depreciable Assets | $      | 1,475,435     |   |
|                           |   |          |   |

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|                        |   | Fiscal year ended March 31, |   |
|-----------------------------|--------|-----------------------------|--------|
|                        |   | 2008                        |   | 2009 |   | 2010 |   |
| Office Lease                | $      | 111,000                     | $      | 150,000 | $ | 132,000 |   |
| Mineral Lease Loans         | $      | 100,000                     | $      | - | $ | - |   |
| Related Party Notes Payable | $      | -                           | $      | 3,518,924 | $ | - |   |

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| EXHIBIT NUMBER |   | DESCRIPTION                                                                                                                                                                                                         |
|----------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           |   |                                                                                                                                                                                                                |
| 10.1           |   | Purchase and Sale Agreement by      and between ReoStar Energy Corporation and United Texas Petroleum, Inc.      dated December 4, 2007. (Incorporated by reference to the Form 8-K filed      on December 7, 2007) |
| 31.1           |   | CEO Certification pursuant to Section      302 of the Sarbanes-Oxley Act of 2002                                                                                                                                    |
| 31.2           |   | CFO Certification pursuant to Section 302 of      the Sarbanes-Oxley Act of 2002                                                                                                                                    |
| 32.1           |   | CEO Certification pursuant to 18 U.S.C. Section      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                     |
| 32.2           |   | CFO Certification pursuant to 18 U.S.C. Section      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                     |

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|              | REOSTAR ENERGY CORPORATION                                                                                                                                                                                                                                                  |
|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| February 14, 2007 |                                                                                                                                                                                                                                                                        |
|         | By /s/ Mark S. Zouvas                                          |
|              | Mark S. Zouvas, Chief Executive Officer                                                                                                                                                                                                                                     |
|              |                                                                                                                                                                                                                                                                        |
|              |                                                                                                                                                                                                                                                                        |

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| EXHIBIT NUMBER |   | DESCRIPTION                                                                                                                                                                                                         |
|----------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           |   |                                                                                                                                                                                                                |
| 10.1           |   | Purchase and Sale Agreement by and between      ReoStar Energy Corporation and United Texas Petroleum, Inc. dated December      4, 2007. (Incorporated by reference to the Form 8-K filed on December 7,      2007) |
| 31.1           |   | CEO Certification pursuant to Section 302 of      the Sarbanes-Oxley Act of 2002                                                                                                                                    |
| 31.2           |   | CFO Certification pursuant to Section 302 of      the Sarbanes-Oxley Act of 2002                                                                                                                                    |
| 32.1           |   | CEO Certification pursuant to 18 U.S.C. Section      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                     |
| 32.2           |   | CFO Certification pursuant to 18 U.S.C. Section      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                     |
|           |   |                                                                                                                                                                                                                |
|           |   |                                                                                                                                                                                                                |

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