| x      | Quarterly report pursuant to Section 13 or      15(d) of the Securities Exchange Act of 1934  |
|--------|-----------------------------------------------------------------------------------------------|
|   |                                                                                          |
|   | For the quarterly period ended December 31,      2008                                         |
|   |                                                                                          |
| 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 12, 2008 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                             |
| Common Stock, par value $0.001 per          share                                                                                                                                                                                                                                                                                                                                                                                                     | 80,181,310                       |

----

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

|                            | ITEM 1-- FINANCIAL STATEMENTS                                                                       |   1 |
|---------------------------------|-----------------------------------------------------------------------------------------------------|---------------|
|                            |                                                                                                |          |
|                            | ITEM 2-- MANAGEMENT'S DISCUSSION      AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |   7 |
|                            |                                                                                                |          |
|                            | ITEM 3-- QUANTITATIVE AND QUALITATIVE      DISCLOSURES ABOUT MARKET RISK                            | 13            |
|                            |                                                                                                |          |
|                            | ITEM 4T-- CONTROLS AND PROCEDURES                                                                   | 13            |
|                            |                                                                                                |          |
|                            |                                                                                                |          |
| **PART II - OTHER INFORMATION** |                                                                                                |
|                            |                                                                                                |          |
|                            | ITEM 1-- LEGAL PROCEEDINGS                                                                          | 14            |
|                            |                                                                                                |          |
|                            | ITEM 1A-- RISK FACTORS                                                                              | 14            |
|                            |                                                                                                |          |
|                            | ITEM 2-- UNREGISTERED SALES      OF EQUITY SECURITIES AND USE OF PROCEEDS                           | 14            |
|                            |                                                                                                |          |
|                            | ITEM 3-- DEFAULTS UPON SENIOR      SECURITIES                                                       | 14            |
|                            |                                                                                                |          |
|                            | ITEM 4-- SUBMISSION OF MATTERS      TO A VOTE OF SECURITY HOLDERS                                   | 14            |
|                            |                                                                                                |          |
|                            | ITEM 5-- OTHER INFORMATION                                                                          | 14            |
|                            |                                                                                                |          |
|                            | ITEM 6-- EXHIBITS                                                                                   | 14            |
|                            |                                                                                                |          |
|                            | SIGNATURES                                                                                          | 15            |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                    | **December        31, 2008        (unaudited)** |            | **March        31, 2008** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------|------------|---------------------------|--------|
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                                                                                              |                                            |            |                      |   |  |   |
| Current      Assets:                                                                                                                                                                                                                                                                                                                                                                                                                    |                                            |       |                      |   |   |   |
|          Cash                                                                                                                                                                                                                                                                                                                                                                              | $                                               | 155,279    |                      | $      | 592,665 |   |
|          Accounts      Receivable:                                                                                                                                                                                                                                                                                                                                                         |                                            |       |                      |   |   |   |
|                   Oil      & Gas - Related Party                                                                                                                                                                                                                                                                                              |                                            | 574,629    |                      |   | 868,406 |   |
|                   Other      - Related Party                                                                                                                                                                                                                                                                                                  |                                            | 740,484    |                      |   | - |   |
|          Inventory                                                                                                                                                                                                                                                                                                                                                                         |                                            | 15,814     |                      |   | 4,748 |   |
|          Hedging      Account                                                                                                                                                                                                                                                                                                                                                              |                                            | 6,316      |                      |   | 13,062 |   |
|          Total      Current Assets                                                                                                                                                                                                                                                                                                                                                         |                                            | 1,492,522  |                      |   | 1,478,881 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                            |            |                      |   |  |   |
| Note      Receivable                                                                                                                                                                                                                                                                                                                                                                                                                    |                                            | 553,537    |                      |   | 1,355,228 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                            |            |                      |   |  |   |
| Oil      and Gas Properties - successful efforts method                                                                                                                                                                                                                                                                                                                                                                                 |                                            | 24,805,078 |                      |   | 17,832,931 |   |
|          Less      Accumulated Depletion and Depreciation                                                                                                                                                                                                                                                                                                                                  |                                            | (4,355,967 | )                         |   | (4,139,337 | ) |
|                   Oil      & Gas Properties (net)                                                                                                                                                                                                                                                                                             |                                            | 20,449,111 |                      |   | 13,693,594 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                            |            |                      |   |  |   |
| Other      Depreciable Assets:                                                                                                                                                                                                                                                                                                                                                                                                          |                                            | 2,603,714  |                      |   | 1,641,806 |   |
|          Less      Accumulated Depreciation                                                                                                                                                                                                                                                                                                                                                |                                            | (300,945   | )                         |   | (121,113 | ) |
|                   Other      Depreciable Assets (net)                                                                                                                                                                                                                                                                                         |                                            | 2,302,769  |                      |   | 1,520,693 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                            |            |                      |   |  |   |
| Other      Related Party Receivable                                                                                                                                                                                                                                                                                                                                                                                                     |                                            | 81,771     |                      |   | 80,395 |   |
| Leasehold      Held for Sale                                                                                                                                                                                                                                                                                                                                                                                                            |                                            | 1,680,813  |                      |   | 1,680,813 |   |
| Investment      in Equity Method Investment                                                                                                                                                                                                                                                                                                                                                                                             |                                            | -          |                      |   | 142,395 |   |
| Total Assets                                                                                                                                                                                                                                                                                                                                                                                                                            | $                                               | 26,560,523 |                      | $      | 19,951,999 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                            |       |                      |   |   |   |
| **LIABILITIES**                                                                                                                                                                                                                                                                                                                                                                                                                         |                                            |       |                      |   |   |   |
| Current      Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                               |                                            |       |                      |   |   |   |
|          Accounts      Payable                                                                                                                                                                                                                                                                                                                                                             | $                                               | 44,946     |                      | $      | 103,479 |   |
|          Notes      Payable to Related Party                                                                                                                                                                                                                                                                                                                                               |                                            | -          |                      |   | 324,330 |   |
|          Payable      to Related Parties                                                                                                                                                                                                                                                                                                                                                   |                                            | -          |                      |   | 1,547,136 |   |
|          Royalties      Payable                                                                                                                                                                                                                                                                                                                                                            |                                            | 65,587     |                      |   | 57,485 |   |
|          Accrued      Expenses                                                                                                                                                                                                                                                                                                                                                             |                                            | 609,691    |                      |   | 857,887 |   |
|          Accrued      Expenses - Related Party                                                                                                                                                                                                                                                                                                                                             |                                            | 141,473    |                      |   | 171,788 |   |
|          Short      Term Notes Payable                                                                                                                                                                                                                                                                                                                                                     |                                            | -          |                      |   | - |   |
|          Current      Portion of Long-Term Debt                                                                                                                                                                                                                                                                                                                                            |                                            | -          |                      |   | 14,960 |   |
|                   Total      Current Liabilities                                                                                                                                                                                                                                                                                              |                                            | 861,697    |                      |   | 3,077,065 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                            |       |                      |   |  |   |
|          Notes      Payable                                                                                                                                                                                                                                                                                                                                                                |                                            | 9,213,000  |                      |   | 1,647,769 |   |
|          Notes      Payable - Related Parties                                                                                                                                                                                                                                                                                                                                              |                                            | 3,518,924  |                      |   | 3,194,594 |   |
|          Other      Related Party Payables                                                                                                                                                                                                                                                                                                                                                 |                                            | 240,090    |                      |   | 490,840 |   |
|          Less      Current Portion of Notes Payable                                                                                                                                                                                                                                                                                                                                        |                                            | -          |                      |   | (14,960 | ) |
|                   Total      Long-Term Debt                                                                                                                                                                                                                                                                                                   |                                            | 12,972,014 |                      |   | 5,318,243 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                               |                                            |       |                      |   |   |   |
|          Deferred      Tax Liability                                                                                                                                                                                                                                                                                                                                                       |                                            | 2,575,793  |                      |   | 2,163,183 |   |
|                   Total      Liabilities                                                                                                                                                                                                                                                                                                      |                                            | 16,409,504 |                      |   | 10,558,491 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                            |       |                      |   |   |   |
|          Commitments      & Contingencies:                                                                                                                                                                                                                                                                                                                                                 |                                            |       |                      |   |   |   |
|                   Contingent      Stock Based Compensation                                                                                                                                                                                                                                                                                    |                                            | 268,856    |                      |   | 214,976 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                            |       |                      |   |   |   |
| **Stockholders'      Equity**                                                                                                                                                                                                                                                                                                                                                                                                           |                                            |       |                      |   |   |   |
|          Common      Stock, $.001 par,200,000,000 shares authorized and                        80,181,310      shares outstanding on December 31, 2008                         and      March 31, 2008 |                                            | 80,181     |                      |   | 80,181 |   |
|          Additional      Paid-In-Capital                                                                                                                                                                                                                                                                                                                                                   |                                            | 9,590,313  |                      |   | 9,553,346 |   |
|          Retained      Earnings (Deficit)                                                                                                                                                                                                                                                                                                                                                  |                                            | 211,669    |                      |   | (454,995 | ) |
|                   Total      Stockholders' Equity                                                                                                                                                                                                                                                                                             |                                            | 9,882,163  |                      |   | 9,178,532 |   |
|                   Total      Liabilities & Stockholders' Equity                                                                                                                                                                                                                                                                               | $                                               | 26,560,523 |                      | $      | 19,951,999 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                            |       |                      |   |   |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | **Three          Months Ended**                     |       |                                              |   | **Nine          Months Ended** |                                          |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------|------------|---------------------------------------------------|--------|--------------------------------|-----------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | **December          31, 2008          (unaudited)** |       | **December          31, 2007****(unaudited)****** |   |                           | **December          31, 2008****(unaudited)** |   | **December 31, 2007********(unaudited)** |   |
| **Revenues**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                |       |                                              |   |                           |                                          |   |   |   |   |   |   |   |
|          Oil        & Gas Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $                                                   | 904,494    |                                              | $      | 1,597,018                      |                                          |   | $ | 5,939,289 |   | $ | 3,430,164 |   |
|          Sale        of Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                | -          |                                              |   | -                              |                                          |   |   | 18,005 |   |   | 307,028 |   |
|          Other        Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                | 124,194    |                                              |   | 80,989                         |                                          |   |   | 333,178 |   |   | 160,421 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                | 1,028,688  |                                              |   | 1,678,007                      |                                          |   |   | 6,290,472 |   |   | 3,897,613 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                |            |                                              |   |                                |                                          |   |   |  |   |   |  |   |
| **Costs        and Expenses**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                |            |                                              |   |                                |                                          |   |   |  |   |   |  |   |
|          Oil        & Gas Lease Operating Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                | 709,047    |                                              |   | 667,420                        |                                          |   |   | 2,094,314 |   |   | 1,470,053 |   |
|          Workover        Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                | 35,862     |                                              |   | 16,402                         |                                          |   |   | 196,269 |   |   | 38,993 |   |
|          Severance        & Ad Valorem Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                | 103,617    |                                              |   | 93,378                         |                                          |   |   | 389,854 |   |   | 202,261 |   |
|          Geological        & Geophysical                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                | -          |                                              |   | 8,993                          |                                          |   |   | - |   |   | 8,993 |   |
|          Delay        Rentals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                | -          |                                              |   | -                              |                                          |   |   | - |   |   | 52,186 |   |
|          Dry        Holes & Abandonments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                | 9,925      |                                                   |        | -                              |                                               |  |  | 9,925 |  |  | - |   |
|          Depletion        & Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                | 453,736    |                                                   |        | 254,721                        |                                               |  |  | 1,236,372 |  |  | 873,097 |   |
|          General        & Administrative:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                |            |                                              |   |                                |                                          |   |   |   |   |   |   |   |
|                   Salaries        & Benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                | 133,284    |                                              |   | 300,393                        |                                          |   |   | 454,744 |   |   | 796,733 |   |
|                   Legal        & Professional                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                | 44,481     |                                              |   | 210,451                        |                                          |   |   | 358,272 |   |   | 490,253 |   |
|                   Other        General & Administrative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                | 173,336    |                                              |   | 90,999                         |                                          |   |   | 384,738 |   |   | 238,837 |   |
|          Interest,        net of capitalized interest of                 $170,196        and $100,403        for the three          months        ended 12/31/08 and 12/31/07,                 respectively        and $482,494 and $368,091         for        the nine months ended 12/31/08 and          12/31/07,        respectively                  |                                                | 880        |                                              |   | -                              |                                          |   |   | 3,780 |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                | 1,664,168  |                                              |   | 1,642,757                      |                                          |   |   | 5,128,268 |   |   | 4,171,406 |   |
| Interest        Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                | 4,966      |                                              |   | 61,717                         |                                          |   |   | 66,211 |   |   | 155,979 |   |
| Loss        on Equity Method Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                | -          |                                              |   | -                              |                                          |   |   | (142,395 | ) |   | - |   |
| Hedging        Loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                | -          |                                              |   | -                              |                                          |   |   | (6,746 | ) |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                |            |                                              |   |                                |                                          |   |   |   |   |   |   |   |
| Income        (Loss) from continuing operations                    before        income        taxes and            discontinued        operations                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                | (630,514   | )                                                 |   | 96,967                         |                                          |   |   | 1,079,274 |   |   | (117,814 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                |            |                                              |   |                                |                                          |   |   |   |   |   |   |   |
| Income        Tax Provision                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                | 220,290    |                                              |   | (33,938                        | )                                             |   |   | (412,651 | ) |   | 41,235 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                |            |                                              |   |                                |                                          |   |   |   |   |   |   |   |
| Income        from discontinued operations, net of income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                     |       |                                              |   |                                |                                          |   |  |   |
|          Pipeline        Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                | -          |                                              |   | -                              |                                          |   |   | - |   |   | 22,930 |   |
|          Gain        on Sale of Pipeline                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                | -          |                                              |   | (2,854                         | )                                             |   |   | - |   |   | 1,450,804 |   |
|          Income        from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                | -          |                                              |   | (2,854                         | )                                             |   |   | - |   |   | 1,473,734 |   |
| Net        Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | $                                                   | (410,224   | )                                                 | $      | 60,175                         |                                          |   | $ | 666,623 |   | $ | 1,397,155 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                |       |                                              |   |                           |                                          |   |   |   |   |   |   |   |
| **Basic        & Diluted Loss per Common Share**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | $                                                   | (0.01      | )                                                 | $      | 0.00                           |                                          |   | $ | 0.01 |   | $ | 0.02 |   |
| **Weighted        Average Common            Shares        Outstanding**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                | 80,181,310 |                                              |   | 79,711,310                     |                                          |   |   | 80,181,310 |   |   | 78,484,396 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                |       |                                              |   |                           |                                          |   |   |   |   |   |   |   |

----

|                                                                                                                                                                                                                                                                 | **Nine Months Ended**                                   |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------|------------|
| ****                                                                                                                                                                                                                                                                 | ******December        31**, 2008**        (unaudited)** |       | ********December        31**, 2007****        (unaudited)** |   |
| **Operating      Activities:**                                                                                                                                                                                                                                       |                                                    |       |   |   |   |   |
|                 Net Income                                                                                                                                                                                              | $                                                       | 666,623    |   | $ | 1,397,155 |   |
|                   Adjustments      to reconcile net income to cash from operating activities:                                                                              |                                                    |            |   |   |  |   |
|                   Deferred      Income Tax Expense                                                                                                                         |                                                    | 412,651    |   |   | 752,316 |   |
|                   Depletion,      Depreciation, & Amortization                                                                                                             |                                                    | 1,236,372  |   |   | 873,097 |   |
|                   Loss      on Equity Method Investment                                                                                                                    |                                                    | 142,395    |   |   | - |   |
|                   Stock      based compensation                                                                                                                            |                                                    | 53,880     |   |   | 464,986 |   |
|                   Joint      Venture Partner Expense                                                                                                                       |                                                    | -          |   |   | 3,084,789 |   |
|                   Gain      on Sale of Pipeline                                                                                                                            |                                                    | -          |   |   | (5,272,701 | ) |
|                   Salvage      in Excess of Plugging Costs                                                                                                                 |                                                    | (50,290    | ) |   | - |   |
|          Changes      in Operating Assets and Liabilities                                                                                                                                                               |                                                    |       |   |   |   |   |
|                   Changes      in Accrued Liabilities                                                                                                                      |                                                    | (278,511   | ) |   | (390,144 | ) |
|                   Change      in Inventory                                                                                                                                 |                                                    | (11,066    | ) |   | - |   |
|                   Change      in Related Party Receivables/Payables                                                                                                        |                                                    | (741,859   | ) |   | (328,894 | ) |
|                   Changes      in Other Receivables                                                                                                                        |                                                    | -          |   |   | 63,389 |   |
|                   Changes      in Hedging Account                                                                                                                          |                                                    | 6,746      |   |   | (23,109 | ) |
|                   Changes      in Royalties Payable                                                                                                                        |                                                    | 8,102      |   |   | 48,345 |   |
|                   Change      in Revenue Receivables                                                                                                                       |                                                    | 293,777    |   |   | (518,929 | ) |
|                   Changes      in Accounts Payable                                                                                                                         |                                                    | (58,533    | ) |   | (412,307 | ) |
|          Net      Cash provided (used) from operating activities                                                                                                                                                        |                                                    | 1,680,287  |   |   | (262,007 | ) |
|          Net      Cash provided (used) from discontinued operations                                                                                                                                                     |                                                    | -          |   |   | 6,202,067 |   |
|          Net      Cash provided (used) by operating activities and                               discontinued      operations |                                                    | 1,680,287  |   |   | 5,940,060 |   |
|                                                                                                                                                                                                                                                                 |                                                    |            |   |   |  |   |
| **Investing      Activities:**                                                                                                                                                                                                                                       |                                                    |            |   |   |  |   |
|          Oil      & Gas Drilling, Completing and Leasehold Acquisition Costs                                                                                                                                            |                                                    | (7,724,800 | ) |   | (4,944,410 | ) |
|          Change      in Capitalized Note Accretion                                                                                                                                                                      |                                                    | -          |   |   | 105,000 |   |
|          Change      in Related Party Payable related to drilling                                                                                                                                                       |                                                    | (1,547,136 | ) |   | (4,120,568 | ) |
|          Investment      in Other Depreciable Assets                                                                                                                                                                    |                                                    | (458,569   | ) |   | (1,475,435 | ) |
|          Investment      in Equity Method Investment                                                                                                                                                                    |                                                    | -          |   |   | (175,000 | ) |
|          Note      Receivable Collections (Advances)                                                                                                                                                                    |                                                    | 801,691    |   |   | 208,905 |   |
|          Net      Cash used in investing activities                                                                                                                                                                     |                                                    | (8,928,814 | ) |   | (10,401,508 | ) |
|                                                                                                                                                                                                                                                                 |                                                    |            |   |   |  |   |
| **Financing      Activities**                                                                                                                                                                                                                                        |                                                    |            |   |   |  |   |
|          Notes      Payable (Payments) Advances                                                                                                                                                                         |                                                    | 7,565,231  |   |   | (2,105,078 | ) |
|          Loan      Costs                                                                                                                                                                                                |                                                    | (503,340   | ) |   | - |   |
|          Related      Party Note (Payments) Advances                                                                                                                                                                    |                                                    | (250,750   | ) |   | (100,000 | ) |
|          Net      cash received from common stock subscriptions                                                                                                                                                         |                                                    | -          |   |   | 6,885,353 |   |
|          Net      Cash provided (used) from financing activities.                                                                                                                                                       |                                                    | 6,811,141  |   |   | 4,680,275 |   |
| Net      Increase (Decrease) in cash                                                                                                                                                                                                                                 |                                                    | (437,386   | ) |   | 218,827 |   |
| Cash      - Beginning of the period                                                                                                                                                                                                                                  |                                                    | 592,665    |   |   | 212,254 |   |
| Cash      - End of the period                                                                                                                                                                                                                                        | $                                                       | 155,279    |   | $ | 431,081 |   |
|                                                                                                                                                                                                                                                                 |                                                    |       |   |   |   |   |

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|                                                                                                                          | **Nine        Months Ended**                                       |    |
|-------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------|---------|
|                                                                                                                          | ********December        31******,        2008        (unaudited)** |    | **********December        31******,        2007**        (unaudited)** |   |
| **Supplemental      Disclosure of Cash Flow Information**                                                                     |                                                               |    |   |   |   |   |
|                Cash paid during period for:                                      |                                                               |    |   |   |   |   |
|                   Interest          | $                                                                  | 290,898 |   | $ | 127,111 |   |
|                                                                                                                          |                                                               |    |   |   |   |   |
|                   Income      Taxes | $                                                                  | -       |   | $ | - |   |
|                                                                                                                          |                                                               |    |   |   |   |   |
| **Non      Cash Investing and Financing Activities**                                                                          |                                                               |    |   |   |   |   |
|          Warrants      Issued                                                    | $                                                                  | 36,967  |   | $ | - |   |
|                                                                                                                          |                                                               |    |   |   |   |   |
|          Stock      Based Property Acquisition                                   | $                                                                  | -       |   | $ | 298,800 |   |
|                                                                                                                          |                                                               |    |   |   |   |   |

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|                           | Year        Ending March 31, |   |
|--------------------------------|------------------------------|--------|
|                           |                         | 2009   |   |   | 2010 |   |   | 2011 |   |
| Restricted Stock Compensation  | $                            | 48,564 |   | $ | - |   | $ | - |   |
| Stock      Option Compensation |                         | 5,316  |   |   | 186,719 |   |   | 82,423 |   |
|                                | $                            | 53,880 |   | $ | 186,719 |   | $ | 82,423 |   |

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|                                 | Fiscal        Years Ending March 31, |   |   |   |    |   |   |
|--------------------------------------|--------------------------------------|--------|--------|--------|---------|--------|--------|
|                                 |                                 | 2009   |   |   | 2010    |   |   | 2011 |   |   | 2012 |   |   | Thereafter |   |   | Total |
| Office      Lease Payments           | $                                    | 37,500 |   | $      | 160,000 |   | $      | - |   | $ | - |   | $ | - |   | $ | 197,500 |
| Notes Payable      - Related Parties |                                 | -      |   |   | -       |   |   | - |   |   | - |   |   | 3,518,924 |   |   | 3,518,924 |
| Senior      Secured Note Payable     |                                 | -      |   |   | -       |   |   | 8,000,000 |   |   | - |   |   | - |   |   | 8,000,000 |
| Lease      Notes Payable             |                                 | -      |   |   | -       |   |   | - |   |   | - |   |   | 1,213,000 |   |   | 1,213,000 |
|                                      | $                                    | 37,500 |   | $      | 160,000 |   | $      | 8,000,000 |   | $ | - |   | $ | 4,731,924 |   | $ | 12,929,424 |
|                                 |                                 |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |

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| EXHIBIT      NUMBER |   | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                |
|---------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.1                |        | Credit      Agreement, dated October 30, 2008, among ReoStar Energy Corporation, certain      lenders party thereto from time to time, and Union Bank of California, N.A.      as administrative agent and issuing lender. (Incorporated by reference from      the registrant's current report on Form 8-K filed on November 4, 2008.)                    |
| 10.2                |        | Security      Agreement, dated October 30, 2008, among ReoStar Energy Corporation, ReoStar      Gathering, Inc., ReoStar Leasing, Inc., ReoStar Operating Incorporated,      and Union Bank of California, N.A. as administrative agent. (Incorporated      by reference from the registrant's current report on Form 8-K filed on November      4, 2008.) |
| 10.3                |        | Pledge      Agreement, dated October 30, 2008, among ReoStar Energy Corporation and      Union Bank of California, N.A. as administrative agent. (Incorporated by      reference from the registrant's current report on Form 8-K filed on November      4, 2008.)                                                                                         |
| 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      12, 2009 |                                                                                                                                                                                                                                    |
|              | 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                                                                                                                                                                                                                                                                                                                                                |
|---------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.1                |        | Credit      Agreement, dated October 30, 2008, among ReoStar Energy Corporation, certain      lenders party thereto from time to time, and Union Bank of California, N.A.      as administrative agent and issuing lender. (Incorporated by reference from      the registrant's current report on Form 8-K filed on November 4, 2008.)                    |
| 10.2                |        | Security      Agreement, dated October 30, 2008, among ReoStar Energy Corporation, ReoStar      Gathering, Inc., ReoStar Leasing, Inc., ReoStar Operating Incorporated,      and Union Bank of California, N.A. as administrative agent. (Incorporated      by reference from the registrant's current report on Form 8-K filed on November      4, 2008.) |
| 10.3                |        | Pledge      Agreement, dated October 30, 2008, among ReoStar Energy Corporation and      Union Bank of California, N.A. as administrative agent. (Incorporated by      reference from the registrant's current report on Form 8-K filed on November      4, 2008.)                                                                                         |
| 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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