**Table of Contents**

| x      | Quarterly report pursuant to Section 13 or      15(d) of the Securities Exchange Act of 1934  |
|--------|-----------------------------------------------------------------------------------------------|
|   |                                                                                          |
|   | For the quarterly period ended December 31,      2009                                         |
|   |                                                                                          |
| o      | Transition report pursuant to Section 13 or      15(d) of the Securities Exchange Act of 1934 |
|   |                                                                                          |
|   | For the transition period from ______________to      ______________.                          |
|   |                                                                                          |
|   |                                                                                          |

| **Nevada**                                                              |   |   |   | **20-8428738**                       |
|-------------------------------------------------------------------------|--------|--------|--------|--------------------------------------|
| (State or other jurisdiction of          incorporation or organization) |   |   |   | (I.R.S. Employer Identification No.) |

| ****   | Large accelerated filer o                                                  |                            | Accelerated filer o**** |   |
|--------|----------------------------------------------------------------------------|---------------------------------|-------------------------|--------|
|   |                                                                       |                            | ****                    |   |
| ****   | Non-accelerated filer o      (Do not check if a smaller reporting company) | Smaller reporting company x**** |                    |

----

|                                     Class                                     | Outstanding at February 11, 2010 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                             |
| Common Stock, par value $0.001 per          share                                                                                                                                                                                                                                                                                                                                                                                                     | 81,643,912                       |

----

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

|                            | ITEM      1-- FINANCIAL STATEMENTS                                                                       |   1 |
|---------------------------------|----------------------------------------------------------------------------------------------------------|---------------|
|                            |                                                                                                     |          |
|                            | ITEM 2--      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS      OF OPERATIONS |   9 |
|                            |                                                                                                     |          |
|                            | ITEM 3-- QUANTITATIVE AND QUALITATIVE      DISCLOSURES ABOUT MARKET RISK                                 | 15            |
|                            |                                                                                                     |          |
|                            | ITEM 4T-- CONTROLS AND PROCEDURES                                                                        | 15            |
|                            |                                                                                                     |          |
|                            |                                                                                                     |          |
| **PART II - OTHER INFORMATION** |                                                                                                     |
|                            |                                                                                                     |          |
|                            | ITEM 1-- LEGAL PROCEEDINGS                                                                               | 15            |
|                            |                                                                                                     |          |
|                            | ITEM 1A-- RISK FACTORS                                                                                   | 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                                                                                        | 16            |
|                            |                                                                                                     |          |
|                            | SIGNATURES                                                                                               | 17            |

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**Table of Contents**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **December 31, 2009        (unaudited)** |       | **March 31, 2009** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------|------------|--------------------|--------|
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                     |            |               |   |  |   |
| Current Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                     |       |               |   |   |   |
|          Cash                                                                                                                                                                                                                                                                                                                                                                                                                | $                                        | 619,986    |               | $      | 426,430 |   |
|          Accounts      Receivable:                                                                                                                                                                                                                                                                                                                                                                                           |                                     |       |               |   |   |   |
|                   Oil      & Gas - Related Party                                                                                                                                                                                                                                                                                                                                |                                     | 672,660    |               |   | 337,879 |   |
|                   Related      Party                                                                                                                                                                                                                                                                                                                                            |                                     | 285,397    |               |   | 1,107,854 |   |
|                   Other                                                                                                                                                                                                                                                                                                                                                         |                                     | 6,407      |               |   | 15,760 |   |
|          Inventory                                                                                                                                                                                                                                                                                                                                                                                                           |                                     | 3,397      |               |   | 7,514 |   |
|          Hedging      Account                                                                                                                                                                                                                                                                                                                                                                                                |                                     | 6,317      |               |   | 6,317 |   |
|          Total      Current Assets                                                                                                                                                                                                                                                                                                                                                                                           |                                     | 1,594,164  |               |   | 1,901,754 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |            |               |   |  |   |
| Note      Receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     | 112,991    |               |   | 553,536 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |            |               |   |  |   |
| Oil      and Gas Properties - successful efforts method                                                                                                                                                                                                                                                                                                                                                                                                                   |                                     | 26,696,331 |               |   | 25,254,777 |   |
|          Less      Accumulated Depletion and Depreciation                                                                                                                                                                                                                                                                                                                                                                    |                                     | (7,864,825 | )                  |   | (6,206,558 | ) |
|                   Oil      & Gas Properties (net)                                                                                                                                                                                                                                                                                                                               |                                     | 18,831,506 |               |   | 19,048,219 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |            |               |   |  |   |
| Other      Depreciable Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                     | 2,352,855  |               |   | 2,171,654 |   |
|          Less      Accumulated Depreciation                                                                                                                                                                                                                                                                                                                                                                                  |                                     | (483,579   | )                  |   | (315,093 | ) |
|                   Other      Depreciable Assets (net)                                                                                                                                                                                                                                                                                                                           |                                     | 1,869,276  |               |   | 1,856,561 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |            |               |   |  |   |
| Leasehold      Held for Sale                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                     | -          |               |   | 150,000 |   |
| Total Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                              | $                                        | 22,407,937 |               | $      | 23,510,070 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |       |               |   |   |   |
| **LIABILITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                     |       |               |   |   |   |
| Current      Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                     |       |               |   |   |   |
|          Accounts      Payable                                                                                                                                                                                                                                                                                                                                                                                               | $                                        | 132,317    |               | $      | 22,033 |   |
|          Payable      to Related Parties                                                                                                                                                                                                                                                                                                                                                                                     |                                     | 61,451     |               |   | 148,550 |   |
|          Accrued      Expenses                                                                                                                                                                                                                                                                                                                                                                                               |                                     | 114,236    |               |   | 106,141 |   |
|               Accrued Expenses - Related Party                                                                                                                                                                                                                                                                                                                                                                                    |                                     | 99,061     |               |   | 130,870 |   |
|          Hedging      Liabilities - Current                                                                                                                                                                                                                                                                                                                                                                                  |                                     | 130,958    |               |   | - |   |
|          Current      Portion of Long Term Debt                                                                                                                                                                                                                                                                                                                                                                              |                                     | 3,200,000  |               |   | - |   |
|                   Total      Current Liabilities                                                                                                                                                                                                                                                                                                                                |                                     | 3,738,023  |               |   | 407,594 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |       |               |   |  |   |
|          Notes      Payable                                                                                                                                                                                                                                                                                                                                                                                                  |                                     | 10,201,305 |               |   | 8,955,202 |   |
|          Notes      Payable - Related Parties                                                                                                                                                                                                                                                                                                                                                                                |                                     | 3,518,924  |               |   | 3,518,924 |   |
|          Less      Current Portion of Notes Payable                                                                                                                                                                                                                                                                                                                                                                          |                                     | (3,200,000 | )                  |   | - |   |
|                   Total      Long-Term Debt                                                                                                                                                                                                                                                                                                                                     |                                     | 10,520,229 |               |   | 12,474,126 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |       |               |   |   |   |
|          Asset      Retirement Obligation                                                                                                                                                                                                                                                                                                                                                                                    |                                     | 368,810    |               |   | 344,079 |   |
|          Hedging      Liability - Noncurrent                                                                                                                                                                                                                                                                                                                                                                                 |                                     | -          |               |   | - |   |
|          Deferred      Tax Liability                                                                                                                                                                                                                                                                                                                                                                                         |                                     | 703,470    |               |   | 1,702,782 |   |
|                   Total      Liabilities                                                                                                                                                                                                                                                                                                                                        |                                     | 15,330,532 |               |   | 14,928,581 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |       |               |   |   |   |
|          Commitments      & Contingencies:                                                                                                                                                                                                                                                                                                                                                                                   |                                     | -          |               |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |       |               |   |   |   |
| **Stockholders'      Equity**                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                     |       |               |   |   |   |
|          Common      Stock, $.001 par,200,000,000 shares authorized and                         81,643,912      shares outstanding on December 31, 2009                         and      80,353,912 shares outstanding on March 31, 2009 |                                     | 81,643     |               |   | 80,353 |   |
|          Additional      Paid-In-Capital                                                                                                                                                                                                                                                                                                                                                                                     |                                     | 11,812,650 |               |   | 10,959,965 |   |
|          Retained      Deficit                                                                                                                                                                                                                                                                                                                                                                                               |                                     | (4,816,888 | )                  |   | (2,458,829 | ) |
|                   Total      Stockholders' Equity                                                                                                                                                                                                                                                                                                                               |                                     | 7,077,405  |               |   | 8,581,489 |   |
|                   Total      Liabilities & Stockholders' Equity                                                                                                                                                                                                                                                                                                                 | $                                        | 22,407,937 |               | $      | 23,510,070 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |       |               |   |   |   |

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**Table of Contents**

| ****                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | **Three          Months Ended**                         |       | **Nine          Months Ended**                   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------|------------|--------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ****December          31, 2009**          (unaudited)** |       | **********December 31, 2008********(unaudited)** |   | ******************December 31, 2009****************(unaudited)** |   | **************************************December 31, 2008********************(unaudited)** |
| **Revenues**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                    |       |                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|          Oil        & Gas Sales                                                                                                                                                                                                                                                                                                                                                                                                                                        | $                                                       | 975,933    |                                             |   | $ | 904,494 |   |   | $ | 2,150,145 |   |   | $ | 5,939,289 |   |
|        Sale        of Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                    | 173,420    |                                             |   |   | - |   |   |   | 311,097 |   |   |   | 18,005 |   |
|          Other        Income                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                    | 79,856     |                                             |   |   | 124,194 |   |   |   | 253,438 |   |   |   | 333,178 |   |
| ****                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                    | 1,229,209  |                                             |   |   | 1,028,688 |   |   |   | 2,714,680 |   |   |   | 6,290,472 |   |
| **Costs        and Expenses**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                         |       |                                             |   |  |   |   |   |  |   |   |   |  |   |   |
|          Oil        & Gas Lease Operating Expenses                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                    | 436,640    |                                             |   |   | 709,047 |   |   |   | 1,480,038 |   |   |   | 2,094,314 |   |
|          Workover        Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                         | 27,830     |                                             |   |  | 35,862 |   |   |  | 71,828 |   |   |  | 196,269 |   |
|          Severance        & Ad Valorem Taxes                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                    | 121,486    |                                             |   |   | 103,617 |   |   |   | 186,681 |   |   |   | 389,854 |   |
|          Expired        Leases and Abandonments                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                    | 45,348     |                                             |   |   | 9,925 |   |   |   | 45,348 |   |   |   | 9,925 |   |
|          Depletion        & Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                         | 827,021    |                                             |   |  | 453,736 |   |   |  | 2,222,948 |   |   |  | 1,236,372 |   |
|          ARO        Accretion                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                    | 10,222     |                                             |   |   | - |   |   |   | 32,003 |   |   |   | - |   |
|          General        & Administrative:                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                         |            |                                             |   |   |  |   |   |   |  |   |   |   |  |   |
|                   Salaries        & Benefits                                                                                                                                                                                                                                                                                                                                                                              |                                                    | 261,056    |                                             |   |   | 133,284 |   |   |   | 664,551 |   |   |   | 454,744 |   |
|                   Legal        & Professional                                                                                                                                                                                                                                                                                                                                                                             |                                                         | 120,921    |                                             |   |  | 44,481 |   |   |  | 897,751 |   |   |  | 358,272 |   |
|                   Other        General & Administrative                                                                                                                                                                                                                                                                                                                                                                   |                                                    | 106,019    |                                             |   |   | 173,336 |   |   |   | 378,390 |   |   |   | 384,738 |   |
|          Interest,        net of capitalized interest of $129,357 and          $170,196        for the three months ended 12/31/09 and         12/31/08,        respectively and $383,630 and $482,494         for        the nine months ended 12/31/09 and 12/31/08,          respectively |                                                    | -          |                                             |   |   | 880 |   |   |   | - |   |   |   | 3,780 |   |
| ****                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                    | 1,956,543  |                                             |   |   | 1,664,168 |   |   |   | 5,979,538 |   |   |   | 5,128,268 |   |
| Other        Income (Expense)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                         |       |                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|          Interest        Income                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                    | (9,467     | )                                                |   |   | 4,966 |   |   |   | 18,437 |   |   |   | 66,211 |   |
|          Loss        on Equity Method Investments                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                         | -          |                                             |   |  | - |   |   |  | - |   |   |  | (142,395 | ) |
|          Hedging        Gain (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                    | (7,307     | )                                                |   |   | - |   |   |   | (110,950 | ) |   |   | (6,746 | ) |
| Income        (Loss) from continuing operations before        income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                    | (744,108   | )                                                |   |   | (630,514 | ) |   |   | (3,357,371 | ) |   |   | 1,079,274 |   |
| ****                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                    |       |                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Income        Tax Benefit (Expense)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                    | 307,324    |                                             |   |   | 220,290 |   |   |   | 999,312 |   |   |   | (412,651 | ) |
| ****                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                    |       |                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Net        Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | $                                                       | (436,784   | )                                                |   | $ | (410,224 | ) |   | $ | (2,358,059 | ) |   | $ | 666,623 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                    |       |                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| **Basic        & Diluted Loss per Common Share**                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $                                                       | (0.01      | )                                                |   | $ | (0.01 | ) |   | $ | (0.03 | ) |   | $ | 0.01 |   |
| **Weighted        Average Common Shares Outstanding******                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                    | 81,643,912 |                                             |   |   | 80,181,310 |   |   |   | 80,998,912 |   |   |   | 80,181,310 |   |
| ****                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                    |       |                                             |   |   |   |   |   |   |   |   |   |   |   |   |

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**Table of Contents**

|                                                                                                                                           | **Nine        Months Ended**                |
|------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------|
|                                                                                                                                                | **December        31, 2009****(unaudited)** |   | **December 31, 2008****(unaudited)** |
| **Operating      Activities:**                                                                                                                 |                                        |   |   |   |   |   |   |
|      Net      (Loss) Income                                                                                           | $                                           | (2,358,059 | ) |   | $ | 666,623 |   |
|           Adjustments      to reconcile net (loss) income to cash from operating activities: |                                        |  |   |   |   |  |   |
|           Income      Tax (Benefit) Expense                                                  |                                        | (999,312 | ) |   |   | 412,651 |   |
|           Depletion,      Depreciation, & Amortization                                       |                                        | 2,222,948 |   |   |   | 1,236,372 |   |
|           Loss      on Equity Method Investment                                              |                                        | - |   |   |   | 142,395 |   |
|           Stock      based compensation                                                      |                                        | 273,475 |   |   |   | 53,880 |   |
|           Non-employee      stock based compensation                                         |                                        | 580,500 |   |   |   | - |   |
|           ARO      Accretion                                                                 |                                        | 32,003 |   |   |   | - |   |
|           Salvage      Proceeds in Excess of Plugging Costs                                  |                                        | - |   |   |   | (50,290 | ) |
|      Changes      in Operating Assets and Liabilities                                                                 |                                        |  |   |   |   |  |   |
|           Changes      in Accrued Liabilities                                                |                                        | 8,095 |   |   |   | (270,409 | ) |
|           Change      in Inventory                                                           |                                        | 4,117 |   |   |   | (11,066 | ) |
|           Change      in Related Party Receivables/Payables                                  |                                        | 105,781 |   |   |   | (741,859 | ) |
|           Changes      in Other Receivables                                                  |                                        | 9,353 |   |   |   | - |   |
|           Changes      in Hedging Activity                                                   |                                        | 130,958 |   |   |   | 6,746 |   |
|           Change      in Revenue Receivables                                                 |                                        | (334,781 | ) |   |   | 293,777 |   |
|           Changes      in Accounts Payable                                                   |                                        | 110,284 |   |   |   | (58,533 | ) |
|      Net      Cash provided (used) from operating activities                                                          |                                        | (214,638 | ) |   |   | 1,680,287 |   |
|                                                                                                                                           |                                        |   |   |   |   |   |   |
| **Investing      Activities:**                                                                                                                 |                                        |   |   |   |   |   |   |
|      Oil      & Gas Drilling, Completing and Leasehold Acquisition Costs                                              |                                        | (1,441,647 | ) |   |   | (7,724,800 | ) |
|      ARO      on Properties Acquired or Drilled                                                                       |                                        | 25,335 |   |   |   | - |   |
|      ARO      on Sold Properties                                                                                      |                                        | (32,607 | ) |   |   | - |   |
|      Change      in Related Party Payable related to drilling                                                         |                                        | 597,768 |   |   |   | (1,547,136 | ) |
|      Investment      in Other Depreciable Assets                                                                      |                                        | (181,201 | ) |   |   |          (458,569 | ) |
|      Note      Receivable (Advances)                                                                                  |                                        | (112,991 | ) |   |   | - |   |
|      Note      Receivable Collections                                                                                 |                                        | 553,537 |   |   |   | 801,691 |   |
|      Net      Cash used in investing activities                                                                       |                                        | (591,806 | ) |   |   | (8,928,814 | ) |
|                                                                                                                                           |                                        |   |   |   |   |   |   |
| **Financing      Activities**                                                                                                                  |                                        |   |   |   |   |   |   |
|      Notes      Payable (Payments) Advances                                                                           |                                        | 1,000,000 |   |   |   | 7,565,231 |   |
|      Loan      Costs                                                                                                  |                                        | - |   |   |   | (503,340 | ) |
|      Related      Party Note (Payments)                                                                               |                                        | (200,000 | ) |   |   | (250,750 | ) |
|      Related      Party Note Advances                                                                                 |                                        | 200,000 |   |   |   | - |   |
|      Net      Cash provided from financing activities                                                                 |                                        | 1,000,000 |   |   |   | 6,811,141 |   |
|                                                                                                                                           |                                        |   |   |   |   |   |   |
| Net Decrease      in cash                                                                                                                      |                                        | 193,556 |   |   |   | (437,386 | ) |
| Cash      - Beginning of the period                                                                                                            |                                        | 426,430 |   |   |   | 592,665 |   |
| Cash - End of the period                                                                                                                       | $                                           | 619,986 |   |   | $ | 155,279 |   |
|                                                                                                                                           |                                        |   |   |   |   |   |   |

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**Table of Contents**

|                                                                                                                          | ******Nine        Months Ended**                                    |    |
|-------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------|---------|
|                                                                                                                          | ******December        31, 2009******        (unaudited****)******** |    | ********December        31, 200**8        (unaudited)****** |   |
| **Supplemental      Disclosure of Cash Flow Information**                                                                     |                                                                |    |   |   |   |   |
|                Cash paid during period for:                                      |                                                                |    |   |   |   |   |
|                   Interest          | $                                                                   | 423,959 |   | $ | 290,898 |   |
|                                                                                                                          |                                                                |    |   |   |   |   |
|                   Income      Taxes | $                                                                   | -       |   | $ | - |   |
|                                                                                                                          |                                                                |    |   |   |   |   |
| **Non      Cash Investing and Financing Activities**                                                                          |                                                                |    |   |   |   |   |
|          Warrants      Issued                                                    | $                                                                   | -       |   | $ | 36,967 |   |
|                                                                                                                          |                                                                |    |   |   |   |   |
|          Stock      Based Consulting Fees                                        | $                                                                   | 580,500 |   | $ | - |   |
|                                                                                                                          |                                                                |    |   |   |   |   |

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**Table of Contents**

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**Table of Contents**

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**Table of Contents**

| Settlement      Period   | Monthly        Volumes |   |   | Fixed Price |   |   | Price        Floor |   |   | Price        Ceiling |   |
|--------------------------|------------------------|--------|--------|-------------|--------|--------|--------------------|--------|--------|----------------------|--------|
| Crude      Oil Swaps     |                   |   |   |        |   |   |               |   |   |                 |   |   |
| 12/01/09      - 12/31/09 | 2,000                  |   | BBLS   | $           | 70.40  |   |               | N/A    |   |                 | N/A    |   |
|                     |                        |   |   |        |   |   |               |        |   |                 |        |   |
| 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   |   |

| • | 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 |    |
|-----------------------------------------------|--------|------------------------------------|---------|-----------------------------|---------|
|                                          |   |                               |    |                        |    |   |   |
| Crude Oil Swaps                               |   | Other      Current Liabilities     |    | $                           | 8,406   |   |   |
| Natural      Gas Swaps                        |   | Other      Current Liabilities     |    |                        | 6,858   |   |   |
| Crude      Oil Collars                        |   | Other      Current Liabilities     |    |                        | 121,208 |   |   |
| Natural      Gas Collars                      |   | Other      Current Liabilities     |    |                        | (5,514  | ) |   |
| Total      Current Derivative Liabilities     |   | $                                  | 130,958 |                        |    |
|                                          |   |                               |    |                        |    |   |   |
| Crude      Oil Collars                        |   | Other      Non-Current Liabilities |    | $                           | -       |   |   |
| Natural      Gas Collars                      |   | Other      Non-Current Liabilities |    |                        | -       |   |   |
| Total      Non-Current Derivative Liabilities |   | $                                  | -       |                        |    |
| Total      Derivative Liabilities             |   |                               |    |                        | 130,958 |   |   |
|                                          |   |                               |    |                        |    |   |   |

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|   | 1) | Repay the      borrowing base deficiency;                                                                               |
|--------|----|-------------------------------------------------------------------------------------------------------------------------|
|   | 2) | Pledge      additional oil and gas properties as collateral such that the borrowing      base deficiency is cured; **** |
|   | 3) | Repay the      borrowing base deficiency in six monthly installments; or                                                |
|   | 4) | Cure the      borrowing base deficiency by a combining the second and third options.                                    |

|   | 1) | The      Company's failure to comply with leverage ratio requirements for the fiscal      quarters ended June 30, 2009 and September 30, 2009;                  |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 2) | The      Company's failure to comply with the interest coverage ratio requirements      for the fiscal quarters ended June 30, 2009 and September 30, 2009; and |

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|                                 | Fiscal        Years Ending March 31, |   |   |   |      |   |   |      |
|--------------------------------------|--------------------------------------|--------|--------|--------|-----------|--------|--------|-----------|
|                                 |                                 | 2010   |   |   | 2011      |   |   | 2012      |   |   | Thereafter |   |   | Total |   |
| Office Lease Payments                | $                                    | 13,300 |   | $      | -         |   | $      | -         |   | $ | - |   | $ | 13,300 |   |
| Notes Payable      - Related Parties |                                 | -      |   |   | -         |   |   | -         |   |   | 3,518,924 |   |   | 3,518,924 |   |
| Senior      Secured Note Payable     |                                 | -      |   |   | 3,200,000 |   |   | 7,600,000 |   |   | - |   |   | 10,800,000 |   |
|                                      | $                                    | 13,300 |   | $      | 3,200,000 |   | $      | 7,600,000 |   | $ | 3,518,924 |   | $ | 14,332,224 |   |
|                                 |                                 |   |   |   |      |   |   |      |   |   |   |   |   |   |   |

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| EXHIBIT      NUMBER |   | DESCRIPTION                                                                                                                          |
|---------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                 |
| 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      16, 2010 |                                                                                                                                                                                                                                    |
|              | By    /s/      Scott D. Allen                                 |
|                   |      Scott      D. Allen, Chief Financial Officer            (Principal Financial Officer and duly authorized      signatory)                                                         |
|                   |                                                                                                                                                                                                                                    |
|                   |                                                                                                                                                                                                                                    |

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| EXHIBIT      NUMBER |   | DESCRIPTION                                                                                                                          |
|---------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                 |
| 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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