**U.S. Securities and ExchangeCommissionWashington, D. C. 20549**

 

**Form10-KSB**

 

**(Mark One)**

 

**ý****  ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d)****OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year endedFebruary 28, 2006**

 

**o****  TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from                 to                 .**

 

**Commission file number 0-8532**

 

**OAKRIDGEENERGY, INC.**(Name of small businessissuer in its charter)

 

| **Utah**                                                         | ** ** | **87-0287176**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or  organization) |       | (I.R.S. Employer  Identification No.) |
|                                                             |       |                                  |
| **4613  Jacksboro Highway**                                      | ** ** | ** **                            |
| **Wichita  Falls, Texas**                                        | ** ** | **76302**                             |
| (Address of principal  executive offices)                        |       | (Zip Code)                            |

 

Issuer’stelephone number: **(940) 322-4772**

 

Securitiesregistered under Section 12(b) of the Exchange Act:

 

**None**

 

Securitiesregistered under Section 12(g) of the Exchange Act:

 

**Common Stock, $.04 par value**(Title of class)

 

Check whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. **YES  ****ý****   NO  ****o**

 

Check if there is no disclosure of delinquentfilers in response to Item 405 of Regulation S-B contained in this form, and nodisclosure will be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part IIIof this Form 10-KSB or any amendment to this Form 10-KSB. **ý**

 

Indicate by check mark whether the registrant is a Shell Company (asdefined in Rule 12b-2 of the Exchange Act).**  Yes  ****o   No  ****ý**

 

State issuer’s revenues for its most recentfiscal year. $1,561,058

 

State the aggregate market value of the votingand non-voting common equity held by nonaffiliates computed by reference to theprice at which the common equity was sold, or the average bid and asked pricesof such common equity, as of a specified date within the past 60 days.

 

$11,708,409 as of May 27,2006

 

State the number of shares outstanding of eachof the issuer’s classes of common equity, as of the latest practicable date.

 

4,266,917 as of May 27, 2006

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

None

 

Transitional Small BusinessDisclosure Format (check one):  **YES  ****o****   NO  ****ý**

 

 

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**TABLE OF CONTENTS**

 
| ** ** | ** **                                                                                                                                    |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|
| PART I     |                                                                                                                                          |
|       | ITEM 1.         DESCRIPTION  OF BUSINESS                                                              |   |
|       |                                                                                                                                          | Oil and Gas Operations |   |
|       |                                                                                                                                          | Gravel Operations |   |
|       |                                                                                                                                          | Carbon Junction Coal Mine |   |
|       |                                                                                                                                          | Real Estate Held for or Sale |   |
|       |                                                                                                                                          | Competition and Markets |   |
|       |                                                                                                                                          | Regulation |   |
|       |                                                                                                                                          | Environmental and Health Controls |   |
|       |                                                                                                                                          | Operating Hazards and  Uninsured Risks |   |
|       |                                                                                                                                          | Employees |   |
|       | ITEM 2.         DESCRIPTION  OF PROPERTY                                                              |   |
|       |                                                                                                                                          | Oil and Gas Properties |   |
|       |                                                                                                                                          | Reserves |   |
|       |                                                                                                                                          | Production |   |
|       |                                                                                                                                          | Lifting  Costs and Average Sales Prices |   |
|       |                                                                                                                                          | Sales  Contracts and Major Customers |   |
|       |                                                                                                                                          | Developed  Acreage and Productive Wells |   |
|       |                                                                                                                                          | Undeveloped Acreage |   |
|       |                                                                                                                                          | Drilling Activity |   |
|       |                                                                                                                                          | Coal and Gravel  Properties |   |
|       |                                                                                                                                          | Real Estate |   |
|       |                                                                                                                                          | Office Building |   |
|       | ITEM 3.         LEGAL  PROCEEDINGS                                                                    |   |
|       | ITEM 4.         SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  |   |
| PART II    |                                                                                                                                          |
|       | ITEM 5.         MARKET  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                             |   |
|       | ITEM 6.         MANAGEMENT’S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                       |   |
|       |                                                                                                                                          | Results of Operations |   |
|       |                                                                                                                                          | Financial  Condition and Liquidity |   |
|       |                                                                                                                                          | Critical  Accounting Policies and Estimates |   |
|       |                                                                                                                                          | Forward-Looking  Statements |   |
|       | ITEM 7.         FINANCIAL  STATEMENTS                                                                 |   |
|       | ITEM 8.         CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |   |
|            |                                                                                                                                               |  |  |  |

 

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|       | ITEM 8A.      CONTROLS  AND PROCEDURES                                                                         |                                                     |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------|
|       | ITEM 8B.      OTHER  INFORMATION                                                                               |                                                     |
| PART III   |                                                                                                                                    |
|       | ITEM 9.         DIRECTORS  AND EXECUTIVE OFFICERS OF THE REGISTRANT                             |                                                     |
|       |                                                                                                                                    | Directors and  Executive Officers                        |   |
|       |                                                                                                                                    | Section  16(a) Beneficial Ownership Reporting Compliance |   |
|       |                                                                                                                                    | Audit Committee                                          |   |
|       |                                                                                                                                    | Audit Committee  Financial Expert                        |   |
|       |                                                                                                                                    | Nomination Procedures                                    |   |
|       |                                                                                                                                    | Code of Ethics                                           |   |
|       | ITEM 10.      EXECUTIVE  COMPENSATION                                                                          |                                                     |
|       | ITEM 11.      SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS |                                                     |
|       | ITEM 12.      CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                                  |                                                     |
|       | ITEM 13.      EXHIBITS                                                                                         |                                                     |
|       | ITEM 14.      PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                          |                                                     |
|       |                                                                                                                                    | Audit Fees                                               |   |
|       |                                                                                                                                    | Audit-Related Fees                                       |   |
|       |                                                                                                                                    | Tax Fees                                                 |   |
|       |                                                                                                                                    | All Other Fees                                           |   |
|       |                                                                                                                                    | Pre-Approval  Policies and Procedures                    |   |
| SIGNATURES |                                                                                                                                    |
| EXHIBITS   |                                                                                                                                    |

 

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**PART I**

 

**ITEM 1.****                DESCRIPTIONOF BUSINESS.**

 

Oakridge Energy, Inc. (the “Company”) is engaged inthe exploration for and development, production and sale of oil and gas primarilyin Texas. The Company has also received royalty income and other fees fromgravel deposits in Colorado and holds certain real estate in Colorado for sale.

 

The Company is a Utah corporation incorporated in 1969.The Company’s executive offices are located at 4613 Jacksboro Highway, WichitaFalls, Texas 76302. The Company’s telephone number is (940) 322-4772.

 

The Company has restricted its oil and gas explorationactivities in recent fiscal years as it has conserved its limited resources forutilization on a secondary recovery waterflood project on its principal oil andgas producing property in Madison County, Texas and its proposed real estatedevelopment project adjacent to Durango, Colorado. In fiscal 2006, the Companycontinued to participate in the tightly controlled implementation of thewaterflood project started in the last quarter of fiscal 2003. See “Oil and GasOperations” and “Real Estate Held for Sale” below and “Item 6. – Management’sDiscussion and Analysis or Plan of Operation.”

 

During mid 2004, Sandra Pautsky, the Company’s ChiefExecutive Officer and principal shareholder, received treatment for cancer thatwas diagnosed in late 2003. Ms. Pautsky has responded well to treatment and hasresumed normal activities, although additional treatment will be necessary inthe future. Ms. Pautsky has been the principal force pushing the Company’sproposed real estate development project. Concerns regarding her health, theproject size, the significant financial requirement by the Company, the numberof years to complete, coupled with the risk involved to the Company incommitting so much of its limited financial resources to one project caused theCompany to decide after the end of fiscal 2004 to attempt to sell its land. TheCompany signed a contract on April 4, 2006 to sell the property. See “RealEstate – Decision to Sell Property” below and “Item 6. – Management’sDiscussion and Analysis or Plan of Operation.”

 

Oil and Gas Operations

 

For more than the last three fiscal years, the Company’soil and gas operations were primarily conducted in Madison, Freestone, RedRiver, Panola, Gregg and Smith Counties of East Texas and in various areas ofNorth Texas.

 

Due to its decision to conserve its funds forexpenditures on other projects, the Company did not participate in the drillingof any exploratory or development wells in the fiscal year ended February 28,2006. In previous periods, Sandra Pautsky, the Company’s President, and DannyCroker, the Company’s Vice President, have selected the exploration anddevelopment prospects in which the Company has participated. For some time, ithas been the Company’s practice to purchase interests of varying size inexploration prospects originated by others (i.e., independent geologists orother independent oil and gas companies). In most cases, the originator of theprospect has already assembled the oil and gas leases and performed most, ifnot all, of the necessary geological and/or geophysical work before theinterests in the prospects are offered for sale to the Company. Under suchcircumstances, the Company typically pays a percentage of the initial prospectcosts greater than the percentage of ownership interest in the prospect whichthe Company acquires.

 

The Company’s principal producing oil and gas propertyfor the past eight fiscal years has been its 25% interest in the BSR(Sub-Clarksville) Field in Madison County, Texas (the “Madison County, Texasproperty”). In fiscal 2006 the Madison County, Texas property was responsiblefor approximately 60% of the Company’s total oil and gas revenues. The propertyconsists of 25 wells with proven developed producing reserves and three waterinjection wells and one water supply well. The property is fully developed forits primary oil and gas reserves. As production declined, plans were made bythe operator of the property, the Company and the other working interest ownersto install a secondary recovery project on the property. The Company’sindependent petroleum engineers have estimated that 473,141 barrels of provenundeveloped secondary oil reserves are recoverable to the Company’s interest inthe property by waterflooding the reservoir. In fiscal 2003, final royaltyowner and Texas Railroad Commission approvals of the project were obtained, theproperty was unitized and the project commenced effective as of December 1,2002. Produced water from the property has been injected back into thereservoir since 1999

 

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through a dry hole drilled on the property in the laststage of its development and two other wells on the property have beenconverted into water injection well and one well has become a water supply well.The total flood life is expected to be approximately 18 years, and the projectmay ultimately require converting a total of 10 producing wells to waterinjection wells and converting another producing well to a water supply well. TheCompany’s investment cost for the project is estimated to be approximately anadditional $140,000, which includes its share of the cost for a proposed waterplant and water distribution system and the conversion costs mentioned above.See “Item 6. – Management’s Discussion and Analysis or Plan of Operation -Results of Operations.”

 

Gravel Operations

 

The Company’s gravel property is located onapproximately 65 acres of the 1,965 acres of land owned by the Company in feein La Plata County, Colorado. For some time, Four Corners Materials mined sand,gravel and rock products from the gravel permit area pursuant to a gravel contractand surface lease with the Company. The original permit area covered 33 acres,but, with the Company’s consent, Four Corners Materials added an adjacent 11.9acres (9.9 acres in one transaction, 2.0 in another) of the Company’s land tothe permit area in fiscal 2002 to give Four Corners Materials additional gravelreserves to mine. Four Corners Materials’ original contract and lease expiredon January 1, 2002 and it had been operating since that time under the terms ofan oral extension of such contract and lease made between the Company’s andFour Corners Materials’ managements, which was not fully implemented until thefourth quarter of fiscal 2003.

 

In consideration of the Company’s inclusion of theadditional acreage under the contract and lease, Four Corners Materials,effective as of July 1, 2001, increased the royalty paid to the Company withrespect to tonnage mined from the additional 11.9 acres and paid a road usagefee to the Company based on the tonnage mined. It also agreed to perform, at theCompany’s expense on a “cost plus” basis, the required land reclamation work onthe Company’s coal mine permit area located on other portions of the property.In August 2002, Four Corners Materials amended its gravel mining permit toinclude 97.31 acres. A portion of those acres had formerly been included in theCompany’s coal permit. In September 2003, Four Corners Materials unilaterallyamended its gravel permit to consist of 64.51 acres, including a lesser portionof acres formerly included in the Company’s coal permit. A dispute developed infiscal 2004 between the Company and Four Corners Materials, which at the timewas conducting gravel mining operations on the Company’s Colorado property.Gravel mining ceased and the only gravel sales made during fiscal 2005 werefrom stockpiles of gravel accumulated prior to the cessation of mining. TheCompany received only road usage fees and a small amount of income from gravelsales during fiscal 2005. The Company would consider leasing the property againfor gravel operations but has no intention of conducting gravel miningoperations itself on the property.

 

Approximately two days after informing Four CornersMaterials that it had violated its contractual obligation to the Company andthat Four Corners Materials was to cease operations and vacate the property,the Company had a fly-over of the property completed for an aerial record todetermine Four Corners Materials’ mining operations status, gravel minereclamation liability, remaining obligations with respect to the Company’s coalmine reclamation project, and stockpile volumes. The State of Colorado Divisionof Mining and Geology (the “DMG”) conducts monthly inspections of both thegravel mine and coal mine to monitor activities and performance of reclamationresponsibilities. The DMG also periodically conducts aerial inspections torecord observations.

 

Four Corners Materials has now reclaimed its miningoperation on the property. The Colorado Division of Minerals and Geology hasreleased a portion of Four Corners Materials financial warranty with regard toreclamation, however a portion of the bond is held subject to DMG’sconfirmation that environmental responses, vegetation and re-growth hasstabilized. The Company is awaiting conclusion of Four Corners Materialsreclamation activities on the property before it makes a final determinationregarding taking further action to enforce Four Corners Materials’ obligationsto the Company.

 

Carbon Junction Coal Mine

 

The Company owns the Carbon Junction coal mine whichis also located on its 1,965 acres of land in La Plata County, Colorado. Themine permit currently covers 192 acres of the property. Four Corners Materialshad been performing the required work at the Company’s expense to reclaim thedisturbed land under the Company’s coal mining permit. Following the disputewith Four Corners Materials reclamation activities ceased. In March of 2006,the Company put out a Final Reclamation Bid Package for its Carbon Junctioncoal mine. On April

 

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24, 2006 the Companyentered into fixed price contract in the amount of $567,000 with C&J Gravelof Durango, Colorado to accomplish the work in the Final Reclamation BidPackage. As of February 28, 2006, the Company’s reclamation reserve was raisedto approximately $567,000 to reflect the amount contracted by the Company forthe reclamation.****The full releaseof the Company’s reclamation performance bond is subject to the DMG’sconfirmation that environmental responses, ground cover, vegetative habitat andre-growth have stabilized.

 

The Company’s mine permit was renewed in July 2003 foran additional five-year term so that the reclamation work could be completed. See“Item 6. – Management’s Discussion and Analysis or Plan of Operation.”

 

Real Estate Held for Sale

 

Location:  TheCompany owns approximately 1,965 acres of land (the “Durango Property”) locatedin La Plata County, Colorado. The major highways intersecting the City ofDurango and La Plata County are US Highway 550 running north and south and USHighway 160 running east and west. The Company’s land is aligned with USHighway 160 and is located on a mesa adjacent to and above the City of Durango.The property is not currently within the City limits; however, certain portionsof the property have common boundaries to the City.

 

Background and Plan Approval Process:  In September 2000, the Company filed anannexation application and Conceptual Plan with the City of Durango, Coloradofor 1,100 acres of its property. The Company became aware that, prior to anyaction by the City regarding annexation, a plan had to be developed andapproved by the City for the area in which the Company’s property is located(an “Area Plan”). An Area Plan evaluates land uses within a specific area todetermine whether the uses will be compatible with each other. Propertiesadjacent and nearby that may be impacted by the landowner requesting annexationare studied. Impacts to resources of minerals, coal, oil and gas, as well aswildlife, archeological, geologic and environmental hazards, traffic, publicfacilities and infrastructure are reviewed. Public hearings on the Area Planprovide a forum for neighborhood discussion and comment. Public meetings wereheld in fiscal years 2001, 2002, and 2003. The ideas, issues and concerns ofthe property owners, the Durango community, and City staff were used to preparethe Area Plan. The plan provides guidance for decisions in developing landswithin the Area Plan consistent with the community’s larger vision for Durango.

 

 Significantissues that arose during the approval process were public access across andthrough the mesa, the City’s desire for greater density, and the Company’sdesire for its land to be developed at a lower density.

 

The sole current access onto the Company’s property islocated on the western end and serves incoming and outgoing traffic that in thepast has included gravel trucks. The City required that the Company’s propertybe served by two or more access roads. The City’s 1997 US Highway 160/550 AreaPlan included a bypass from Highway 160/550 across the Company’s propertyconnecting U.S. Highway 550 to Horse Gulch/Goeglein Road to the east. TheCompany advised the City that it could not support a bypass through the Company’sproperty. The issue ultimately was resolved by the Company’s agreement toaccept the minor arterial roadway concept and the City’s agreement to shift thelocation of the roadway to the perimeter of its property so that the roadwaywould not cross the planned golf course. Additional access may be required inaccordance with the Area Plan during the annexation process. However, no pavedsecondary access road serving the mesa is required until a traffic studydetermines the average daily traffic volume to and from the area will exceed5,000 vehicle trips per day.

 

With respect to the density of housing units, asissues arose during the Area Plan process, the Company proposed to build fewerresidential units than the City desired. The Durango Property has been identifiedby the community as a very desirable location for growth. The approved AreaPlan supports the construction of anywhere from approximately 1,500 to 3,000residential units.

 

Plan concept: Conceptual Plans are conceptual in nature and subject to change. Theguidelines within the Area Plan reflect the principles found in traditionalneighborhood developments. The Company’s mixed use development concept,tentatively called “Oakridge at Durango,” is a neighborhood design whereresidential villages would be within convenient walking or biking distance tonearby neighborhood squares offering life’s daily essentials. Each square wouldinclude a small neighborhood business district intended as a transitional areaof light business uses between residential areas and other features whereshopping, services or office spaces would be

 

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provided to the nearbyneighborhoods. The center of each square would include a small community parkand plaza for resting, playing or eating. Houses of worship and day care wouldbe conveniently sited. Residential densities would shift from high-density inthe center of the village to medium or less density as the golf course or rimsof the mesa are approached. The Area Plan adopted by the City of Durangoincorporates areas of open space and preserves hillsides, gulches and othernatural features of the terrain, while allowing residential, commercial andresort development opportunities around the proposed golf course and otherrecreational properties. A substantial business park is envisioned to attractcorporate home offices and local businesses to the area.

 

The mountainous acres of the Durango Property thatextend northeast would remain outside the annexed area of the Durango city limitsfor possible development into 35-acre lots in the future.

 

Approval of Area Plan: The Plan, contemplating that approximately 1,202 acres of the Company’sproperty would be annexed, was adopted by the City of Durango PlanningCommission in December 2003 and by the City Council in January 2004. TheCompany’s management believes that the approval of a final Area Planconstitutes a major step forward for the Company.

 

Annexation:  Thenext step in the process will be for the City of Durango, when requested by theCompany or any new owner (see “Decision to Sell the Durango Property,” below),to approve the Company’s annexation application. Once an Area Plan has beenadopted, then an annexation impact report is required to address the physicalanalysis of the annexation issue. The applicant will submit to the City ofDurango an annexation application, a Master Plan for infrastructure, and a planfor its initial phase of development. The City Planners will review, holdpublic hearings, and then prepare a recommendation to the City Council toapprove, approve with conditions or deny the annexation application and planfor development. At this stage, the Company is unable to estimate the timetablefor all of the foregoing to occur.

 

Decision to Sell the Durango Property:  After obtaining approval of the Area Plan,the Company concluded, during the first quarter of fiscal 2005, that it wouldbe prudent for it to attempt to sell the Durango Property. The Company’sdecision was based on several principal factors, one being the recentdevelopments with respect to the health of Sandra Pautsky, its Chief ExecutiveOfficer and principal shareholder, who has been the moving force pushing thedevelopment of the Company’s property since the death of her father, NoelPautsky, in 1998. In fiscal 2004, Ms. Pautsky was diagnosed with alife-threatening form of cancer. In mid-2004 Ms. Pautsky received specializedtreatment for her disease. She responded well and has resumed normalactivities. Additional treatment will be necessary in the future. Concernsregarding her health, the size of the proposed development, the significantfinancial requirement by the Company, the number of years to complete, coupledwith the risk involved to the Company in committing so much of its limited financialresources to one project caused the Company to decide after the end of fiscal2004 to attempt to sell its land in fiscal 2005. The Company’s officers, otherthan Ms. Pautsky, have not been actively involved with respect to the DurangoProperty; however, in the event that the Company should not sell the Durango Property,the Company anticipates that Chi Chi Ray, Ms. Pautsky’s daughter, a long-termemployee of the Company, would assume primary responsibility for the Company’sDurango development activities. Ms. Ray has been actively involved historicallyand to date with the Company’s actions in Colorado.

 

Efforts related to the Sale of the Durango Property:  In late fiscal 2005, the Company engaged inserious negotiations with two potential buyers. As negotiations progressed infiscal 2006, the Board of Directors determined it would be prudent to obtainoutside assistance in marketing the Durango Property and/or the Company and itsassets.

 

On May 16, 2005, representatives of Morgan Keegan& Co., Inc. met with certain members of the Board of Directors anddiscussed marketing the company and its assets. The Board of Directorsdetermined that the Company should solicit buyers for a sale of the Companyand/or its assets on terms and at prices that would maximize shareholder value.

 

On June 3, 2005, the Board of Directors approved theretention of Morgan Keegan to analyze the strategic alternatives for theCompany and the Durango Property. As part of its process, Morgan Keegan agreedto identify different categories of potential buyers depending on theirinterest in the Company, as a whole, its energy assets, or the Company’s realestate assets. In addition, Morgan Keegan agreed to aggressively market theCompany and its assets to a large number of potential buyers in order to ensurea competitive process.

 

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During June and July 2005, with guidance from MorganKeegan, the Company prepared an information memorandum that described theCompany, the Durango Property and the acquisition opportunity. Thereafter,Morgan Keegan began to solicit interest from potential buyers identified byboth Morgan Keegan and the Board of Directors. Morgan Keegan indicated that ithad, on a preliminary basis, identified 38 potential buyers for the Companyand/or its assets. Out of the 38 potential buyers identified, 23 parties signeda confidentiality agreement and received the information memorandum.

 

During the summer and early fall of 2005, MorganKeegan and Company representatives hosted nine site visits and received eightoffers for either the Company or its assets. All offers from potential buyerswere rejected because the offers were less than our asking price.

 

On November 7, 2005, the Company received an offerfrom the operator of the Madison County, Texas oil property under threedifferent scenarios:  oil and gas assetsonly, the Durango Property only, or the Durango Property and oil and gas assets.All options offered were rejected because the offers were less than the company’sasking price.

 

On November 30, 2005, the Board of Directors reviewedthe status of Morgan Keegan’s efforts to sell the Company and/or its assets anddecided to release Morgan Keegan from its contract. The Company continueddiscussions with offerors identified by Morgan Keegan after releasing MorganKeegan.

 

On December 13, 2005 the Company engaged a localDurango real estate brokerage company on a non-exclusive basis to market the DurangoProperty at a specified minimum price. The marketing performed by the brokeragecompany resulted in two site visits but no offers. However, one of the groupsremains interested.

 

On January 12, 2006, the Company engaged another localDurango real estate brokerage company on a non-exclusive basis to market the DurangoProperty at a specified minimum price. The second brokerage company contactedapproximately four potential buyers, which resulted in two site visits. One ofthe potential buyers performed significant due diligence on the DurangoProperty, however other offers were received by the Company prior to thecompletions of such due diligence and no offer was made. On March 21, 2006, oneof the potential buyers submitted an offer on the Durango Property and hasacknowledged a continued interest in the Durango Property.

 

On January 13, 2006, the Company contracted withanother local Durango brokerage company on a non-exclusive basis to market theDurango Property at a specified minimum price who identified six potentialbuyers, which resulted in two site visits and one offer on March 17, 2006. Theofferor remains interested. This brokerage company was also responsible foridentifying Denali Partners, LLC as a potential buyer for the Durango Propertyin November 2004. Morgan Keegan had also conducted negotiations with DenaliPartners, LLC during their marketing efforts to sell the Company and/or itsassets and received an offer from Denali Partners, LLC for less than its finaloffer. At that time a site visit was conducted and the Company provided thebrokerage firm with information about the Durango Property that could be usedto solicit buyers. The Company was later contacted by the representative forDenali Partners, LLC. and conducted serious negotiations with the group priorto the determination of the Board of Directors in mid-2005 to analyze strategicalternatives for the company and the Durango Property through the engagement ofMorgan Keegan.

 

In February, 2006, the Company renewed negotiationswith Denali Partners, LLC. On March 6, 2006, the Company received an offer fromDenali Partners, LLC of $35 million, which was later increased to approximately$40 million. Between March 6, 2006 and April 4, 2006, the Company, our legaladvisors and financial advisors engaged in conference calls and exchangedcorrespondence with Denali Partners LLC to negotiate the terms of the Contractto Buy and Sell Real Estate and ancillary documents.

 

Mutual Acceptance of Contract to Buy and Sell RealEstate:  On April 4, 2006, the Companyaccepted Denali Partners, LLC’s offer, subject to certain terms and conditions,and our Board of Directors (i) determined that the transactions contemplated bythe Contract to Buy and Sell Real Estate were advisable and in the bestinterest of the shareholders and (ii) unanimously approved the Contract to Buyand Sell Real Estate. At the request of Denali Partners, LLC, Ms. Pautskyagreed to vote the shares of common stock that she owns or has the right tovote in favor of the Asset Sale. On April 4, 2006, the Contract to Buy and SellReal Estate was executed by

 

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all parties thereto.Simultaneously with Ms. Pautsky’s execution of the contract, a press release tothe Company’s shareholders describing the sale was published.

 

Extension of Contract Term:  On May 4, 2006, the Company and the Buyerexecuted an Agreement to Amend/Extend Contract to allow 14 additional days forcompletion of the Alta survey of the Durango Property. This action lengthenedthe Contract’s extension period from June 5, 2006 to June 19, 2006.

 

Inspection Period and Earnest Money: The Buyer’sobligations under the Contract are subject to and conditioned upon the Buyer’sinvestigation and study of the Durango Property and satisfaction with allaspects deemed relevant by the Buyer in its sole and absolute discretion. TheContract provides that the inspection period will be the period that is 60 daysfrom the execution of the Contract, or any extension thereof. Prior to June 19,2006, the Buyer can for any reason in its sole discretion terminate theContract. The initial earnest money deposit of $2 million will be fullyrefundable in that event. The Buyer must deliver an additional earnest moneydeposit of $2 million on the first business day after the inspection period. Thecombined $4 million in earnest money will be applicable against the purchaseprice and will not be refundable unless the Company defaults or cannot obtainshareholder approval for the Asset Sale.

 

Shareholder Approval: The Contract is expressly contingent upon approval by our shareholderson or before September 1, 2006, which is 120 days after the mutual extension ofthe Contract on May 4, 2006. The Company may extend such date for an additional30 days upon written notice by us, if necessary, to complete the shareholderapproval process. Failure to obtain shareholder approval by such date willterminate the Contract and all earnest money and interest earned thereon willbe returned to the Buyer.

 

Brokerage Fee:  TheContract provides that the Company will pay, at closing, to Stephen C. Brinleyof Stephen C. Brinley & Associates $1 million as full satisfaction of anycommission arising from the sale of the Durango Property. Under the terms ofthe Contract, the Company and the Buyer each represents and warrants to theother that there are no other real estate agents, brokers, finder or otherpersons or entities entitled to a commission or similar fee in connection withthe sale of the Durango Property. If any claims arise for real estate brokeragecommissions, fee, or other compensation in connection with the sale of theDurango Property, then the party causing such claims, or through whom suchclaims are made, will indemnify and hold the other party harmless for any lossor damage which such other party suffers as a result.

 

Competition and Markets

 

Competitive Conditions:  Two other Durango area developments are ofsignificant size and could compete with Oakridge at Durango. Three Springs is alarge project that is being developed a few miles east of Oakridge at Duranngoon the eastern edge of the City. A new hospital is currently being built onthis project. Edgemont Ranch is another development located nearby Durango. EdgemontRanch is situated to the northeast of the City and when complete is expected toinclude approximately 1,000 homes on 1,400 acres. Because of the size and theproximity of these projects to the Durango Property, they may compete withOakridge at Durango.

 

Competition:  Alarge number of companies and individuals are engaged in the exploration foroil and gas, and most of the companies so engaged possess substantially greatertechnical and financial resources than the Company. Competition for desirableleases and suitable prospects for oil and gas drilling operations is intense,and in the past the Company has experienced significant competition inobtaining the services of drilling contractors and in purchasing tubular goodsand other materials necessary to drill and complete wells. In fiscal 2005 and2006, the Company did not experience any difficulty in obtaining services andmaterials because of its lack of exploration and development activities.

 

The gravel and coal industries are also highlycompetitive. A principal competitive factor in both industries is product price.In addition, with respect to coal, its quality and, in regard to major salesagreements, the financial and organizational ability of the selling company tomeet long-term coal delivery requirements of utility companies, are important. Withregard to quality of coal, the important criteria include BTU (heating value),sulfur and ash content.

 

Markets:  TheCompany’s ability to produce and market oil and gas profitably depends upon anumber of factors which are beyond the control of the Company, the effect ofwhich cannot be accurately predicted

 

6

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or anticipated. These factors include the availability of adequatepipeline and other transportation facilities, the marketing of competitivefuels and other factors affecting the availability of a ready market, such asfluctuating supply and demand. Additional factors affecting the marketing ofoil and gas include imports and actions by foreign producing nations.

 

Oil and gas prices have been on a generally upwardtrend since the first quarter of fiscal 2003 and such prices had a materiallypositive effect on the Company’s revenues in fiscal 2006 and on the amount andpresent value of the Company’s estimated proven oil and gas reserves at yearend. In fiscal 2006, the Company’s average oil price received increased $15.13per barrel (approximately 35.6%) from that received in fiscal 2005. TheCompany’s average gas price received for fiscal 2006 finished the year higherthan in fiscal 2005 (an increase of $1.68 per MCF, or approximately 25.7%);however, the effect of changes in gas prices on the Company’s revenues andproven reserves is not as great as changes in oil prices due to the Company’ssignificant weighting in favor of oil production.

 

While certain of the Company’s gas propertiesexperience seasonal variations in demand, the Company was not experiencing anysignificant curtailment, or an inability to sell all of its deliverable gas, onan overall basis at February 28, 2006. See “Item 6. – Management’s Discussionand Analysis or Plan of Operation - Results of Operations.”

 

Regulation

 

Oil and Gas: The production of oil and gas is subject to extensive federal and statelaws, rules, orders and regulations governing a wide variety of matters,including the drilling and spacing of wells, allowable rates of production,prevention of waste and pollution and protection of the environment. Inaddition to the direct costs borne in complying with such regulations,operations and revenues may be impacted to the extent that certain regulationslimit oil and gas production to below economic levels. The regulations aregenerally designed to ensure that oil and gas operations are carried out in asafe and efficient manner and to ensure that similarly situated operators areprovided with reasonable opportunities to produce their respective fair sharesof available oil and gas reserves. Since these regulations generally apply toall oil and gas producers, the Company believes that these regulations do notput the Company at a material disadvantage to other oil and gas producers.

 

Certain sales, transportation and resales of naturalgas by the Company are subject to both federal and state laws and regulations,including, but not limited to, the Natural Gas Act (the “NGA”), the Natural GasPolicy Act of 1978 (the “NGPA”) and regulations promulgated by the FederalEnergy Regulatory Commission (“FERC”) under the NGA, the NGPA and otherstatutes. The provisions of the NGA and the NGPA, as well as the regulationsthereunder, are complex and can affect all who produce, resell, transport,purchase or consume natural gas.

 

Although FERC transportation regulations do notdirectly apply to the Company because it is not engaged in renderingjurisdictional transportation services, these regulations do affect theoperations of the Company by virtue of the need to deliver its gas productionto markets served by interstate or intrastate pipelines.

 

Coal and Gravel: The Company’s coal operations in the past have been subject to extensiveregulation under the Surface Mining Control and Reclamation Act of 1977 and theColorado law of a similar nature and the Clean Air Act of 1990. The effects ofsuch regulation have been to increase significantly the lead time to commenceactual surface coal mining operations, to make it more costly for the coal tobe marketed and effectively to limit the customers for the coal to certaintypes of power plants. The Company’s gravel operations are subject tocomparable regulation, but compliance standards are less rigid.

 

Environmental and HealthControls

 

The Company’s operations are subject to numerousfederal, state and local laws and regulations relating to environmental andhealth protection. These laws and regulations require the acquisition of apermit before drilling commences, restrict the type, quantities andconcentration of various substances that can be released into the environmentin connection with drilling and production activities, limit or prohibitdrilling activities on certain lands lying within wilderness, wetlands andother protected areas and impose substantial liabilities for pollutionresulting from oil and gas operations. These laws and regulations may alsorestrict air or other discharges

 

7

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resulting from the operation of pipeline systems and other facilitiesin which the Company may own an interest. Although the Company believes thatcompliance with environmental laws and regulations will not have a materialadverse effect on operations or earnings, risks of substantial costs and liabilitiesare inherent in oil and gas operations, and there can be no assurance thatsignificant costs and liabilities will not be incurred. Moreover, it ispossible that other developments, such as stricter environmental laws andregulations or claims for damages to property or persons resulting from theCompany’s operations, could result in substantial costs and liabilities.

 

Operating Hazards andUninsured Risks

 

The Company’s oil and gas operations are subject toall of the risks normally incident to the oil and gas exploration andproduction business, including blowouts, cratering, explosions, pollution andother environmental damage, any of which could result in substantial losses tothe Company due to injury or loss of life, damage to or destruction of wells,production facilities and other property, clean-up responsibilities, regulatoryinvestigations and penalties and suspensions of operations. As is common in theoil and gas industry, the Company is not fully insured against certain of theserisks either because insurance is not available or because the Company haselected not to insure due to high premium costs. The Company maintainscomparable insurance coverage for its coal and gravel operations.

 

Employees

 

As of April 30, 2006, the Company had five full-timeand one part-time employee. Four of the employees were located at the Company’sexecutive offices and two were field employees located in North Texas. TheCompany considers its relations with its employees to be satisfactory.

 

**ITEM 2.****                DESCRIPTION OF PROPERTY.**

 

Oil and Gas Properties.

 

Reserves

 

Reference is made to “Supplemental Oil and Gas Data(Unaudited)” included as supplemental information to the Financial Statementsfor additional information concerning: (i) certain cost and revenue information pertaining to the Company’s oiland gas producing activities; (ii) estimates of the Company’s oil and gasreserves and changes in such reserves; and (iii) a standardized measure of thediscounted future net cash flows from the Company’s oil and gas reserves andthe changes in such standardized measure. The engineering report with respectto the Company’s proved oil and gas reserves as of February 28, 2006 wasprepared by Stephens Engineering, independent petroleum engineers, WichitaFalls, Texas (“Stephens Engineering”). At such date, all of the Company’s oiland gas reserves were located in the United States and in the States of Texas,Mississippi, Colorado and Oklahoma.

 

No reserve reports pertaining to the Company’s provednet oil or gas reserves were filed with any Federal governmental authority oragency during the fiscal year ended February 28, 2006, and no major discoveryis believed to have caused a significant change in the Company’s estimates ofproved reserves since that date.

 

The following table reflects Stephens Engineering’sestimate of those quantities of oil and gas as of February 28, 2006 which canbe produced from the Company’s proved developed reserves during the fiscal yearending February 28, 2007, using equipment installed and under economic andoperating conditions existing at February 28, 2006:

 

| Oil (Bbls.) |   | 18,556 |   |
|-------------|--------|--------|--------|
| Gas (MCF)   |   | 24,511 |   |

 

The Company is not obligated to provide a fixed and determinablequantity of oil and gas in the future under any of its existing contracts or arrangements.

 

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Production

 

The following table shows for each of the three fiscalyears ended February 28, 2006 the total production attributable to theCompany’s oil and gas interests:

 
| **Fiscal Year Ended  February 28/29** | ** ** | **Oil  (Bbls.)** | ** ** | **Gas  (MCF)** | ** ** |
|------------------------------------------------------|------------|------------------|------------|----------------|------------|
| 2006                                                 |       | 21,587           |       | 38,732         |       |
| 2005                                                 |       | 23,852           |       | 41,289         |       |
| 2004                                                 |       | 25,382           |       | 36,879         |       |

 

Lifting Costs and AverageSales Prices

 

The Company’s production (lifting) costs and averagesales prices received during each of the three fiscal years ended February 28,2006 were as shown in the following table:

 
| ** **                   | ** ** | **Fiscal Year  Ended February 28,/29,** | ** ** |
|------------------------------|------------|--------------------------------------------------------|------------|
| ** **                   | ** ** | **2006**                                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Lifting Costs                |       |                                                   |       |   |   |   |   |
|                         |       |                                                   |       |   |   |   |   |
| Per Equivalent  Unit (Bbls.) |       | $                                                      | 24.30      |   | $ | 20.36 |   | $ | 17.70 |   |
|                         |       |                                                   |       |   |   |   |   |
| Average Sales  Prices        |       |                                                   |       |   |   |   |   |
|                         |       |                                                   |       |   |   |   |   |
| Oil (per Bbl.)               |       | 57.68                                                  |       | 42.54 |   | 30.22 |   |
| Gas (per MCF)                |       | 7.63                                                   |       | 5.95 |   | 5.39 |   |
|                              |            |                                                        |            |  |  |  |  |  |  |  |

 

Sales Contracts and MajorCustomers

 

The Company does not own any refining facilities andsells its oil under short-term contracts at f.o.b. field prices posted by theprincipal purchasers of oil in the areas in which the Company’s producingproperties are located. During the fiscal year ended February 28, 2006,approximately 72% of the Company’s oil sales were made to Teppco Crude Oil,L.P. (“Teppco”) and approximately 23% were made to Sunoco, Inc. During fiscal2006, approximately 62% of the Company’s gas sales were made under short-termcontracts to Orion Pipeline, L.L.C. (“Orion”) and approximately 17% were madeto Red Cedar Gathering Company.

 

Substantially all of the Company’s oil sales to Teppcoand its gas sales to Orion were from the Company’s Madison County, Texasproperty.

 

In the opinion of management, the termination of anyof the Company’s sales contracts would not adversely affect the Company’sability to sell its oil and gas production at comparable prices.

 

Developed Acreage andProductive Wells

 

As of February 28, 2006, the Company owned working andoverriding royalty interests in 8,999 gross (2,530 net) acres of developed oiland gas leases and 67 gross (21.09 net) productive oil and gas wells.

 

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The following table summarizes the Company’s developedacreage and productive wells as of February 28, 2006:

 
| ** **     | ** ** | **Developed Acreage(1)** | ** ** | **Productive Wells(1)(3)** | ** ** |
|----------------|------------|-------------------------------|------------|---------------------------------|------------|
| ** **     | ** ** | **Gross(2)**                  | ** ** | **Net(2)**                      | ** ** | **Gross(2)** | ** ** | **Net(2)** | ** ** |
| ** **     | ** ** | **Oil**                       | ** ** | **Gas**                         | ** ** | **Oil** | ** ** | **Gas** | ** ** | **Oil** | ** ** | **Gas** | ** ** | **Oil** | ** ** | **Gas** | ** ** |
| Texas:         |       |                          |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Madison Co.    |       | 4,515                         |       | —                          |       | 1,129 |   | — |   | 25 |   | — |   | 6.25 |   | — |   |
| All Other Cos. |       | 2,248                         |       | 1,914                           |       | 1,219 |   | 177 |   | 26 |   | 13 |   | 12.47 |   | 2.31 |   |
| Mississippi    |       | 40                            |       | —                          |       | — |   | — |   | 1 |   | — |   | 0.01 |   | — |   |
| Colorado       |       | —                        |       | 242                             |       | — |   | 4 |   | — |   | 1 |   | — |   | 0.02 |   |
| Oklahoma       |       | 40                            |       | —                          |       | 1 |   | — |   | 1 |   | — |   | 0.03 |   | — |   |
|           |       |                          |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total          |       | 6,843                         |       | 2,156                           |       | 2,349 |   | 181 |   | 53 |   | 14 |   | 18.76 |   | 2.33 |   |

 

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(1)           Reversionaryinterests which may increase or decrease the interest shown have beendisregarded for purposes of this table.

 

(2)           “Gross,”as it applies to acreage or wells, refers to the number of wells or acres inwhich an interest is owned by the Company. “Net,” as it applies to acreage orwells, refers to the sum of the fractional ownership interests owned by theCompany in gross wells or gross acres.

 

(3)           Includes14 gross (3.19 net) shut-in wells; excludes 8 gross (3.30 net) water injectionwells.

 

Undeveloped Acreage

 

The following table shows the gross and net acres ofundeveloped oil and gas leases held by the Company at February 28, 2006:

 

| **State** | ** ** | **Gross Acres** | ** ** | **Net Acres** | ** ** |
|-----------|------------|----------------------|------------|--------------------|------------|
| Texas     |       | 11,697               |       | 3,890              |       |
| Arkansas  |       | 2,428                |       | 1,214              |       |
|      |       |                 |       |               |       |
| Total     |       | 14,125               |       | 5,104              |       |

 

All of the Company’s undeveloped leases in the Stateof Arkansas cover lands located in Miller County. In the absence of drillingactivity which establishes commercial reserves sufficient to justify retentionor renewal of leases, the Company’s leases on approximately 68.0% of its netacres will expire in fiscal 2007, 0.84% will expire in fiscal 2008, 0.98% willexpire in fiscal 2009 and 0.35% will expire in fiscal 2010. The remainingapproximate 29.8% of the Company’s undeveloped acreage, which includes all ofsuch acreage in the State of Arkansas and a portion of such acreage in Greggand Montague Counties, Texas, is currently held in force by production. TheCompany has no ownership interest in the Miller County, Arkansas productiveacreage.

 

Drilling Activity

 

The Company did not participate in drilling anydevelopment wells during the three fiscal years ended February 28, 2006,and, as of February 28, 2006, the Company was not in the process of drilling orcompleting any wells.

 

Coal and Gravel Properties.

 

As of February 28, 2006, the Company held 1,825 (456net) acres of coal leases covering lands in La Plata County, Colorado. Theleases were acquired in October 1990 and have remaining primary terms ofapproximately 10 years.****No annualdelay rentals or advance minimum royalties are required.

 

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The Company’s Carbon Junction coal mine is locatedupon such 1,825 acres. The renewal mine permit issued by the State of Coloradofor such coal mine pertains to 192 acres out of such 1,825 acres. The Company’sleases cover a 25% interest in the coal under the 1,825 acres. The Company ownsmost of the surface estate and the other 75% interest in the coal and has theexecutive rights (i.e., the exclusive right to sign coal leases) on the 25%interest.

 

In 1991, the Company purchased the surface estate, a75% interest in the coal and the executive rights to the remaining 25% interestin the coal of 200 additional acres in La Plata County adjacent to the 1,825acre tract. The Company has not leased the remaining 25% interest in the coal.By virtue of its fee and lease ownership and the executive rights it holds, theCompany controls 100% of the above described 1,825 acre and 200 acre tracts.The Company has ended any plans to attempt to operate the Carbon Junction coalmine and renewed its mine permit in July 2003 only so that the requiredreclamation work on the land affected by its prior mining operations can becompleted. See “Item 1 - Description of Business - Carbon Junction CoalMine.”  The Company expects, however, tocontinue the coal leases as they involve no significant expense to it.

 

The Company also owns 55% of the gravel, oil, gas andother mineral rights with respect to the 1,825 acre tract in La Plata County,Colorado and has the executive rights on the remaining 45%. During fiscal 1998,the Company’s permit from the State of Colorado to mine gravel from 33 acres onsuch tract was transferred to Four Corners Materials. At this time, FourCorners Materials mining permit contains 64.51 acres. Four Corners Materials isno longer mining sand, gravel and rock products from the permit area and hasre.claimed the lands disturbed by their activities. See “Item 1. - Descriptionof Business - Gravel Operations” and “Item 6. – Management’s Discussion andAnalysis or Plan of Operation - Results of Operations.”

 

Real Estate.

 

The surface of most of the land in La Plata County,Colorado described in “Coal and Gravel Properties” above and adjacent acreagetotaling 1,965 acres is held for development or sale by the Company.Approximately 1,202 acres of such land is the subject of a planned mixed usedevelopment by the Company. See “Item 1. - Description of Business - RealEstate Held for Sale.”

 

Office Building.

 

The Company owns a one-story office building situatedat 4613 Jacksboro Highway in Wichita Falls, Texas in which its executiveoffices are located. The building is located on .519 acres of land and contains5,117 square feet of space. The building was built in 1974 and is in overallgood condition.

 

**ITEM 3.****                LEGAL PROCEEDINGS.**

 

The Company is not a party to any pending litigation.To the best knowledge of the Company, there are no legal proceedings to whichany director, officer or affiliate of the Company, any owner of record orbeneficially of more than five percent (5%) of any class of voting securitiesof the Company, or any associate of any such director, officer or securityholder is a party adverse to the Company or has a material interest adverse tothe Company.

 

**ITEM 4.****                SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS.**

 

No matter was submitted during the fourth quarter ofthe fiscal year ended February 28, 2006 to a vote of the Company’s securityholders, through the solicitation of proxies or otherwise.

 

**PART II**

 

**ITEM 5.****                MARKET FOR COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS.**

 

The Company’s common stock, $.04 par value, is tradedin the over-the-counter market. The following table shows the range of bidquotations for the common stock during the two fiscal years endedFebruary 28, 2006 by quarters. Such quotations were furnished to theCompany by the National Quotation Bureau, LLC and were supplied by The NationalAssociation of Securities Dealers (“NASD”) through the NASD OTC

 

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Bulletin Board, the NASD’s automated system for reporting NON-NASDAQquotes and the National Quotation Bureau’s Pink Sheets. The quotationsrepresent prices between dealers and do not include retail markups, markdownsor commissions and do not necessarily represent actual transactions.

 

| **Period**                            | ** ** | **High** | ** ** | **Low** | ** ** |
|---------------------------------------|------------|----------|------------|---------|------------|
|                                  |       |     |       |    |       |
| Fiscal Year  Ended February 28, 2005: |       |     |       |    |       |
| Quarter Ended  May 31, 2004           |       | $        | 5.10       |    | $          | 4.30 |   |
| Quarter Ended  August 31, 2004        |       | 6.00     |       | 4.50    |       |
| Quarter Ended  November 30, 2004      |       | 5.25     |       | 3.00    |       |
| Quarter Ended  February 28, 2005      |       | 4.25     |       | 3.00    |       |
|                                  |       |     |       |    |       |
| Fiscal Year  Ended February 28, 2006: |       |     |       |    |       |
| Quarter Ended  May 31, 2005           |       | $        | 6.00       |    | $          | 3.25 |   |
| Quarter Ended  August 31, 2005        |       | 5.00     |       | 3.25    |       |
| Quarter Ended  November 30, 2005      |       | 5.00     |       | 2.35    |       |
| Quarter Ended  February 28, 2006      |       | 5.75     |       | 3.25    |       |

 

As of May 27, 2006, the approximate number of holdersof record of the common stock of the Company was 431.

 

The Company did not pay any dividends during the twofiscal years ended February 28, 2006. There are currently no restrictions uponthe Company’s ability to pay dividends. Our Board of Directors has not approveda dividend in connection with the proposed sale of the Company’s Coloradolands. Although our Board of Directors will consider approving a dividend todistribute a portion of the net proceeds received from the Asset Sale, if thesale is accomplished, we cannot assure you that such dividend will be approvedor declared.

 

The following table shows all purchases of theCompany’s shares of common stock made by the Company during each month of thefourth quarter of the Company’s fiscal year ended February 28, 2006:

 
| **Period**                                  | ** ** | **Total Number  of Shares Purchased** | ** ** | **Average Price  Paid Per Share** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|
| December 1, 2005  through December 31, 2005 |       | 500                                                  |       | $                                                | 3.75       |   |
| January 1, 2006  through January 31, 2006   |       | 4,125                                                |       | 4.52                                             |       |
| February 1, 2006  through February 28, 2006 |       | 6,900                                                |       | 4.875                                            |       |
|                                        |       |                                                 |       |                                             |       |
| Total                                       |       | 11,525                                               |       | $                                                | 4.70       |   |

 

The Company has no publicly announced plans orprograms to purchase its shares of common stock. The purchases of shares weremade in private transactions directly with the stockholders involved.

 

**ITEM 6.****                MANAGEMENT’S DISCUSSION AND ANALYSIS ORPLAN OF OPERATION.**

 

The following discussion and analysis should be readin conjunction with the Financial Statements and Notes thereto included in Item7.

 

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Results of Operations

 

The Company had a net income of $323,731 ($.08 pershare) in the fiscal year ended February 28, 2006 compared to a net loss of$250,390 ($.06 per share) in the fiscal year ended February 28, 2005. Theimprovement in the Company’s results of operations in fiscal 2006 was dueprimarily to improved oil and gas revenues accompanied by the sale of theinvestment securities available for sale.

 

Oil and gas revenues increased approximately $302,970(24.7%) in the fiscal year ended February 28, 2006 due to increases in theCompany’s average oil and gas prices received during the year as therecontinued to be a small decrease in oil and gas sales volumes. Fees in theamount of $36,600 received by the Company both in fiscal 2006 and 2005 for servingas operator of most of the Company’s North Texas area properties are includedin oil and gas revenues.

 

The following table compares the Company’s oil and gasrevenues and average prices received by the Company and its sales volumes ofoil and gas during fiscal 2006 with those of fiscal 2005:

 
| ** **                | ** ** | **Fiscal 2006** | ** ** | **Fiscal 2005** | ** ** | **Percentage  Difference** | ** ** |
|---------------------------|------------|----------------------|------------|----------------------|------------|----------------------------|------------|
| Oil:                      |       |                 |       |                 |       |                       |       |
|                      |       |                 |       |                 |       |                       |       |
| Revenues                  |       | $                    | 1,261,657  |                 | $          | 1,002,626                  |       | +25.8 | % |
| Volume (Bbls.)            |       | 21,874               |       | 23,569               |       | -7.2                       | %          |
| Average Price  (per Bbl.) |       | $                    | 57.68      |                 | $          | 42.54                      |       | +35.6 | % |
|                      |       |                 |       |                 |       |                       |       |
| Gas:                      |       |                 |       |                 |       |                       |       |
|                      |       |                 |       |                 |       |                       |       |
| Revenues                  |       | $                    | 225,490    |                 | $          | 179,326                    |       | +25.7 | % |
| Volume (MCF)              |       | 29,545               |       | 30,148               |       | -2.0                       | %          |
| Average Price  (per MCF)  |       | $                    | 7.63       |                 | $          | 5.95                       |       | +28.3 | % |

 

Non-material amounts of natural gas liquids revenues and sales volumesfor both years are excluded from the foregoing table.

 

The Company’s oil and gas revenues in fiscal 2006 fromthe Madison County, Texas property increased $178,928 (24.3%) as the higheraverage oil and gas prices received for production from the property continuedto offset the effect of lower oil and gas sales volumes. The Madison County,Texas property has been fully developed for its primary oil and gas reservesfor some time. The property was unitized in fiscal 2003 and a secondaryrecovery (waterflood) project on the property was commenced in the last quarterof that year. The secondary recovery project has been implemented in a tightlycontrolled manner by the operator of the property, which intends to completethe project out of the property’s cash flow, if possible, rather than incurringa substantial part of the project’s installation expense upfront at one time.During the first quarter of fiscal 2005, a producing well was re-completed intoa water supply well on the property. The water supply wells have addedapproximately 1,250,000 barrels of makeup water thus far and the producingwells have continued to produce approximately 1,200 to 1,500 barrels of waterper day, which are re-injected into the formation. The operator has advised theCompany that it does not expect any significant increase in oil productionvolumes from the property until the void in the producing formation from prioroil and gas production, which is the equivalent of roughly 3,000,000 barrels ofoil, has been filled. Any substantial increase in oil production volumes fromthe property are now not expected to occur until fiscal 2008 at the earliestdue to the substantial lag time for the buildup of sufficient water volumes topush the incremental secondary oil reserves to producing wells and the actualproduction of the incremental reserves. Notwithstanding the Company’s continuedstrong expectations with respect to the waterflood project, it should again beemphasized that there can be no assurance that the secondary recovery projectwill be successful.

 

The Company’s gravel revenues for fiscal 2006decreased by $20,262 (40.3%), resulting from Four Corners Materials cessationof gravel sales. The Company received only revenues from surface rental infiscal 2006.

 

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The expenses of the Company’s oil and gas operationsdecreased $3,763 (.5%) in the fiscal year ended February 28, 2006 resultingfrom an increase in lease operating expenses, despite an approximate $50,400(57.2%) decline in depletion and depreciation expense. The decline in depletionand depreciation expense was attributable to the Madison County, Texas propertyand was due to lower production volumes for the year and a lower per barrelamortization rate resulting from higher proven oil and gas reserves for theproperty at the fiscal 2006 year end as compared to the prior year. Depletionexpense should continue to reduce for this property as its depletable balancelowers. The Company incurred no exploration costs in fiscal 2006 or 2005. Therewere no dry hole costs in either fiscal 2006 or 2005 as the Company did notparticipate in the drilling of any wells in these years. The lease operatingportion of the overall oil and gas operating expenses increased by approximately$46,700 (6.4%) in fiscal 2006. Such increase was mainly attributable toworkovers in Madison County, increased production taxes due to higher revenuesand higher ad valorem taxes as a result of higher valuation of oil and gasreserves.

 

The expenses of the Company’s coal and graveloperations increased by approximately $390,500 (477.9%) in fiscal 2006,primarily as the result of the change in the estimate for the upcoming coalmine reclamation. The Company’s reclamation reserve as of the end of fiscal2006 was $567,000 compared with a reserve of $157,000 at of the end of fiscal2005. The fiscal 2006 reserve reflects the fixed price contract compensationagreed to between the Company and a third party contractor who is reclaimingthe coal mine. The other coal and gravel operating expenses decreased fromfiscal 2005, with the exception of engineering expense related to currentreclamation of the coal mine.

 

Four Corners Materials has reclaimed its gravel miningoperation on the property, which consisted of 64.51 acres. DMG released aportion of Four Corners Materials financial warranty with regard toreclamation, however a portion of the bond is held subject to DMG’sconfirmation that environmental responses, vegetation and re-growth hasstabilized. The Company is awaiting completion of Four Corners Materials’reclamation activities before it makes a final determination regarding FourCorners Materials’ obligations to the Company.

 

Real estate development expense declined approximately$788 (50.4%) in fiscal 2006 primarily due to a decrease in legal expenses dueto lessened activity as a result of the decision to attempt to sell theproperty. General and administrative expenses decreased $237,391 (29.5%) infiscal 2006 resulting from a the absence of a bonus of $315,000 which the Boardof Directors of the Company approved (with Ms. Pautsky abstaining) and theCompany paid to Sandra Pautsky, the Company’s Chief Executive Officer in 2005(See “Item 10. - Executive Compensation”) as well as increased legal and governmentreporting offset partially by decreased office maintenance and shareholderreporting.

 

Other income increased approximately $761,600(1,502.1%) in fiscal 2006 compared to fiscal 2005. Other income consists of twoprimary components - other net income and gain on sales and redemptions ofinvestment securities. Other net income consists primarily of interest anddividend income and the gain or loss on any sale of oil and gas properties orother assets and partnership income or loss. The increase in interest anddividend income was approximately $62,800 due to the rise in interest rates. Asto the remaining other net income components, the gain on sale of assets wasapproximately $5,000 and  the Company’sloss relating to its interest in the limited partnership which operates a smallgas pipeline in the East Texas area was approximately $3,300 less in fiscal2006 than in fiscal 2005.

 

The Company’s provision for income tax became anexpense in fiscal 2006 when it had been a benefit in fiscal 2005 was slightlyhigher than would be expected to be the case if such provisions were computedby applying the U.S. Federal corporate tax rate to the pretax gain in 2006 andloss in 2005 primarily due to state taxes and as the result of a revision ofprior year provision estimate.

 

The Company’s weighted average shares outstandingdecreased approximately .2% in the fiscal year ended February 28, 2006 due tothe purchase of 13,575 shares of the Company’s stock made by the Company fromother shareholders during the year. 

 

Financial Condition andLiquidity

 

During fiscal 2006, the Company did not participate inany exploratory or development drilling for the fourth straight year andgenerally tried to restrict its expenditures on operational and investingactivities. The

 

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operating activities and investing activities contributed cash withonly the financing activity being a net user of cash, resulting in an increasein the Company’s cash and cash equivalents at year end of approximately$1,073,000.

 

The Company’s operating activities providedapproximately $294,000 in cash in fiscal 2006. The Company’s investingactivities provided approximately $842,000 in funds (approximately $1,044,000more than in fiscal 2005) as the Company made small additions to oil and gasproperties, real estate held for sale, the sale of the Company’s investmentsecurities available for sale provided the large increase in cash. The Company’sfinancing activities (entirely purchases of the Company’s common stock) usedapproximately $62,800 in funds in fiscal 2006, down from approximately $105,800in fiscal 2005 due to decreases in the number of shares purchased and in theCompany’s stock price during the year. At February 28, 2006, the Company stillhad no indebtedness and cash and cash equivalents aggregated approximately$3,367,000.

 

Given the Company’s decision to attempt to sell  its Colorado real estate in fiscal 2007,which should eliminate the need for any substantial drawdown of the Company’scash reserves or the need to obtain additional debt or equity financing, theCompany expects to fund its contemplated oil and gas and coal reclamationoperations during fiscal 2007 and any purchases of the Company’s stock that itmakes from its cash and cash equivalents and any cash flow from its oil and gasproperties. The absence of revenues from gravel operations in fiscal 2007 willreduce available funds, although more than sufficient funds should be availableto the Company for operations.

 

The Company’s average oil and gas product pricesreceived increased significantly during fiscal 2006. The Company does notanticipate that its average oil and gas prices received in fiscal 2007 willexceed, or perhaps even be equivalent to, those received during fiscal 2006. TheCompany currently believes that sales and production volumes from the MadisonCounty, Texas property might be maintained at prior year levels for the firsttime in seven years. The Company’s fiscal 2007 operations should also benefitfrom the contemplated release of a portion of the Company’s $817,000 coal minereclamation bond to the State of Colorado sometime during the year, but therecan be no assurance that this will occur during fiscal 2007.

 

Critical AccountingPolicies and Estimates

 

The foregoing discussion and analysis of the Company’sresults of operations and financial condition and liquidity is based upon thefinancial statements, which have been prepared in accordance with U.S.generally accepted accounting principles. The preparation of these financialstatements requires the Company to make estimates and judgments that affect thereported amounts of assets, liabilities, revenues and expenses. The Company’ssignificant accounting policies are described in Note B to the financialstatements. In response to Securities and Exchange Commission (the “Commission”)Release No. 33-8040, “Cautionary Advice Regarding Disclosure About CriticalAccounting Policies,” the Company has identified certain of these policies asbeing of particular importance to the portrayal of the Company’s results ofoperations and financial position and which require the application ofsignificant judgment by management. The Company analyzes its estimates,including those related to oil and gas revenues, oil and gas properties, incometaxes, contingencies and litigation, and bases its estimates on historicalexperience and various other assumptions that the Company believes to bereasonable under the circumstances. Actual results may differ from theseestimates under different assumptions or conditions. The Company believes thefollowing critical accounting policies affect its more significant judgmentsand estimates used in the preparation of the Company’s financial statements:

 

**SuccessfulEfforts Method of Accounting**:**** The Company accountsfor its natural gas and crude oil exploration and development activitiesutilizing the successful efforts method of accounting. Under this method, costsof productive exploratory wells, development dry holes and productive wells,costs to acquire mineral interests and three-dimensional (3-D) seismic costsare capitalized. Exploration costs, including personnel costs, certaingeological and geophysical expenses including two-dimensional(2-D) seismic costs and delay rentals for oil and gas leases, are charged toexpense as incurred. Exploratory drilling costs are initially capitalized, butcharged to expense if and when the well is determined not to have foundreserves in commercial quantities. The sale of a partial interest in a provedproperty is accounted for as a cost recovery and no gain or loss is recognized.

 

The application of the successful efforts method ofaccounting requires managerial judgment to determine the proper classificationof wells designated as developmental or exploratory which will ultimatelydetermine the proper accounting treatment of the costs incurred. The resultsfrom a drilling operation can take

 

15

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considerable time to analyze and the determination that commercialreserves have been discovered requires both judgment and industry experience. Wellsmay be completed that are assumed to be productive but actually deliver oil andgas in quantities insufficient to be economic, which may result in the abandonmentof the wells at a later date. Wells may be drilled that target geologicstructures that are both developmental and exploratory in nature and anallocation of costs is required to properly account for the results. Theevaluation of oil and gas leasehold acquisition costs requires managerialjudgment to estimate the fair value of these costs with reference to drillingactivity in a given area. Drilling activities in an area by other companies mayalso effectively condemn leasehold positions.

 

The successful efforts method of accounting can have asignificant impact on the operational results reported when the Company isentering a new exploratory area in hopes of funding an oil and gas field thatwill be the focus of future development drilling activity. The initialexploratory wells may be unsuccessful and will be expensed.

 

**ReserveEstimates**:** **The Company’s estimates of oil andgas reserves, by necessity, are projections based on geologic and engineeringdata, and there are uncertainties inherent in the interpretation of such dataas well as the projection of future rates of production and the timing ofdevelopment expenditures. Reserve engineering is a subjective process ofestimating underground accumulations of oil and gas that are difficult tomeasure. The accuracy of any reserve estimate is a function of the quality ofavailable data, engineering and geological interpretation and judgment. Estimatesof economically recoverable oil and gas reserves and future net cash flowsnecessarily depend upon a number of variable factors and assumptions, such ashistorical production from the area compared with production from otherproducing areas, the assumed effects of regulations by governmental agenciesand assumptions governing future oil and gas prices, future operating costs,severance taxes, development costs and workover gas costs, all of which may infact vary considerably from actual results. The future drilling costsassociated with reserves assigned to proved undeveloped locations mayultimately increase to an extent that these reserves may be later determined tobe uneconomic. For these reasons, estimates of the economically recoverablequantities of oil and gas attributable to any particular group of properties,classifications of such reserves based on risk of recovery and estimates of thefuture net cash flows expected there from may vary substantially. Anysignificant variance in the assumptions could materially affect the estimatedquantity and value of the reserves, which could affect the carrying value ofthe Company’s oil and gas properties and/or the rate of depletion of the oiland gas properties. Actual production, revenues and expenditures with respectto the Company’s reserves will likely vary from estimates and such variancesmay be material.

 

**Impairmentof Oil and Gas Properties**:** **The Company reviews its oil andgas properties for impairment at least annually and whenever events andcircumstances indicate a decline in the recoverability of their carrying value.The Company estimates the expected future cash flows of its oil and gasproperties and compares such future cash flows to the carrying amount of theproperties to determine if the carrying amount is recoverable. If the carryingamount exceeds the estimated undiscounted future cash flows, the Company willadjust the carrying amount of the oil and gas properties to their fair value. Thefactors used to determine fair value include, but are not limited to, estimatesof proved reserves, future commodity pricing, future production estimates,anticipated capital expenditures and a discount rate commensurate with the riskassociated with realizing the expected cash flows projected.

 

Given the complexities associated with oil and gasreserve estimates and the history of price volatility in the oil and gasmarkets, events may arise that would require the Company to record animpairment of the recorded book values associated with oil and gas properties. TheCompany has not recognized impairments this year or in the prior year however,there can be no assurance that impairments will not be recognized in thefuture.

 

**Asset Retirement Obligations:**  The Company's recorded asset retirementobligations represent the estimated present value of the amounts expected to beincurred to plug, abandon, and remediate the producing properties at the end oftheir productive lives, in accordance with state laws, as well as the estimatedcosts associated with the reclamation of the property surrounding and includingthe Company’s previous coal mining operations. The Company determines the assetretirement obligations by calculating the present value of estimated cash flowsrelated to the liability. The asset retirement obligations are recorded as aliability at the estimated present value as of the asset’s inception, with anoffsetting increase to producing properties. Periodic accretion of the discountrelated to the estimated liability is recorded as an expense in the statementof operations.

 

16

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The estimated liability is determined usingsignificant assumptions, including current estimates of plugging andabandonment costs, annual inflation of these costs, the productive lives ofwells, and a risk-adjusted interest rate. Changes in any of these assumptionscan result in significant revisions to the estimated asset retirementobligations. Revisions to the asset retirement obligations are recorded with anoffsetting change to producing properties, resulting in prospective changes todepletion and depreciation expense and accretion of the discount. Because ofthe subjectivity of assumptions and the relatively long lives of most of thewells, the costs to ultimately retire the Company’s wells may varysignificantly from prior estimates.

 

Forward-LookingStatements

 

Certain information included in this Annual Report onForm 10-KSB and other materials filed by the Company with the Commissioncontain forward-looking statements relating to the Company’s operations and theoil and gas industry. Such forward-looking statements are based on management’scurrent projections and estimates and are identified by words such as “expects,”“intends,” “plans,” “believes,” “estimates,” “anticipates” and similar words. Thesestatements are not guarantees of future performance and involve certain risks,uncertainties and assumptions that are difficult to predict. Therefore, actualresults may differ materially from what is expressed in such forward-lookingstatements.

 

Among the factors that could cause actual results todiffer materially are crude oil and natural gas price fluctuations, failure toachieve expected production and the timing of receipt of revenues from existingand future exploration and development projects (including, particularly, thesecondary recovery project on the Madison County, Texas property), higher thanestimated oil and gas and coal reclamation costs and delays with respect to, orfailure to obtain, governmental permits and approvals necessary to proceed withreal estate development. In addition, these forward-looking statements may beaffected by general domestic and international economic and politicalconditions.

 

17

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**ITEM 7.                FINANCIALSTATEMENTS.**

 

**Index to Financial Statements**

 
| Report of Independent  Registered Public Accounting Firm                                |   |
|-----------------------------------------------------------------------------------------|--------|
|                                                                                    |   |
| Balance Sheets as of February 28, 2006 and 2005                                         |   |
|                                                                                    |   |
| Statements of Operations for the years  ended February 28, 2006 and 2005                |   |
|                                                                                    |   |
| Statements of Stockholders’  Equity for the years ended February 28, 2006 and 2005 |   |
|                                                                                    |   |
| Statements of Cash Flows for the years  ended February 28, 2006 and 2005                |   |
|                                                                                    |   |
| Notes to Financial Statements                                                           |   |
|                                                                                    |   |
| Supplemental Oil and Gas Data (Unaudited)                                               |   |

 

18

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#### **REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM**

#### ** **

To the Board of Directors and Stockholders of

Oakridge Energy,Inc.

 

We have audited the accompanying balance sheets of Oakridge Energy,Inc., a Utah corporation, as of February28, 2006 and 2005, and the related statements of operations,stockholders’ equity, and cash flows for the years then ended.  These financial statements are theresponsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of Oakridge Energy,Inc. as of February 28, 2006 and2005, and the results of its operations and its cash flows for the years thenended in conformity with accounting principles generally accepted in the UnitedStates of America.

 

 
| /s/ Whitley Penn LLP |   |
|----------------------|--------|
|                 |
|                 |
| Fort Worth, Texas    |
| April 13, 2006       |

 

19

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**OAKRIDGEENERGY, INC.**

** **

**BALANCE SHEETS**

 
| ** **                                                                                             | ** ** | **February 28,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------------|------------|
| ** **                                                                                             | ** ** | **2006**         | ** ** | **2005** | ** ** |
| **Assets**                                                                                             |       |             |       |   |   |
| Current assets:                                                                                        |       |             |       |   |   |
| Cash and cash  equivalents                                                                             |       | $                | 3,367,361  |   | $ | 2,294,548 |   |
| Trade accounts  receivable                                                                             |       | 204,137          |       | 150,459 |   |
| Investment  securities available for sale                                                              |       | —           |       | 664,199 |   |
| Prepaid expenses  and other                                                                            |       | 18,632           |       | 20,492 |   |
| Total current assets                                                                                   |       | 3,590,130        |       | 3,129,698 |   |
|                                                                                                   |       |             |       |   |   |
| Oil and gas properties, at cost, using the  successful efforts method of accounting:                   |       |             |       |   |   |
| Proved developed  properties                                                                           |       | 6,980,937        |       | 7,082,767 |   |
| Less accumulated  depletion and depreciation                                                           |       | 6,242,138        |       | 6,303,977 |   |
| Proved developed  properties, net                                                                      |       | 738,799          |       | 778,790 |   |
| Unproved  properties                                                                                   |       | 221,736          |       | 210,674 |   |
| Net oil and gas properties                                                                             |       | 960,535          |       | 989,464 |   |
|                                                                                                   |       |             |       |   |   |
| Coal and gravel properties, at cost:                                                                   |       |             |       |   |   |
| Undeveloped  properties                                                                                |       | 5,850,424        |       | 5,850,424 |   |
| Mining and  service equipment                                                                          |       | 2,461,783        |       | 2,461,783 |   |
| Total coal and  gravel properties                                                                      |       | 8,312,207        |       | 8,312,207 |   |
| Less accumulated  depletion and depreciation                                                           |       | 8,051,719        |       | 8,051,719 |   |
| Net coal and gravel properties                                                                         |       | 260,488          |       | 260,488 |   |
|                                                                                                   |       |             |       |   |   |
| Other property  and equipment, net of accumulated depreciation of $421,868 and $402,903,  respectively |       | 117,094          |       | 142,076 |   |
|                                                                                                   |       |             |       |   |   |
| Real estate held for sale                                                                              |       | 3,077,648        |       | 3,029,759 |   |
|                                                                                                   |       |             |       |   |   |
| Deferred income taxes                                                                                  |       | 18,786           |       | 198,038 |   |
|                                                                                                   |       |             |       |   |   |
| Other non-current assets                                                                               |       | 857,597          |       | 860,076 |   |
|                                                                                                   |       |             |       |   |   |
| Total assets                                                                                           |       | $                | 8,882,278  |   | $ | 8,609,599 |   |

 

See accompanying notes to financial statements.

 

20

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| ** **                                                                                       | ** ** | **February 28,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------|------------|
| ** **                                                                                       | ** ** | **2006**         | ** ** | **2005** | ** ** |
| **Liabilities and Stockholders’ Equity**                                                    |       |             |       |   |   |
| Current liabilities:                                                                             |       |             |       |   |   |
| Accounts payable                                                                                 |       | $                | 100,337    |   | $ | 58,671 |   |
| Accrued expenses                                                                                 |       | 52,611           |       | 47,048 |   |
| Deferred income  taxes                                                                           |       | —           |       | 170,715 |   |
| Current portion  of asset retirement obligations                                                 |       | 642,308          |       | 223,708 |   |
| Total current liabilities                                                                        |       | 795,256          |       | 500,142 |   |
|                                                                                             |       |             |       |   |   |
| Asset retirement obligations                                                                     |       | 415,403          |       | 407,748 |   |
| Total liabilities                                                                                |       | 1,210,659        |       | 907,890 |   |
|                                                                                             |       |             |       |   |   |
| Commitments and contingencies                                                                    |       | —           |       | — |   |
|                                                                                             |       |             |       |   |   |
| Stockholders’ equity:                                                                       |       |             |       |   |   |
| Common stock,  par value $.04 per share, 20,000,000 shares authorized, 10,157,803 shares  issued |       | 406,312          |       | 406,312 |   |
| Additional  paid-in capital                                                                      |       | 805,092          |       | 805,092 |   |
| Retained  earnings                                                                               |       | 16,757,534       |       | 16,433,803 |   |
| Accumulated  other comprehensive income                                                          |       | —           |       | 291,053 |   |
| Stockholders’ equity before treasury stock                                                  |       | 17,968,938       |       | 17,936,260 |   |
| Less treasury stock, at cost; 5,886,386 shares and  5,872,811shares, respectively                |       | 10,297,319       |       | 10,234,551 |   |
| Total stockholders’ equity                                                                  |       | 7,671,619        |       | 7,701,709 |   |
|                                                                                             |       |             |       |   |   |
| Total liabilities and stockholders’ equity                                                  |       | $                | 8,882,278  |   | $ | 8,609,599 |   |
|                                                                                             |       |             |       |   |   |

 

See accompanying notes to financial statements.

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**OAKRIDGEENERGY, INC.**

** **

**STATEMENTS OF OPERATIONS**

 
| ** **                                              | ** ** | **Year Ended February 28,** | ** ** |
|---------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                              | ** ** | **2006**                    | ** ** | **2005** | ** ** |
| Revenues:                                               |       |                        |       |   |   |
| Oil and gas                                             |       | $                           | 1,531,058  |   | $ | 1,228,088 |   |
| Gravel                                                  |       | 30,000                      |       | 50,262 |   |
| Total revenues                                          |       | 1,561,058                   |       | 1,278,350 |   |
|                                                    |       |                        |       |   |   |
| Operating expenses:                                     |       |                        |       |   |   |
| Oil and gas:                                            |       |                        |       |   |   |
| Depletion and  depreciation                             |       | 37,653                      |       | 88,073 |   |
| Lease operating                                         |       | 771,499                     |       | 724,840 |   |
| Total oil and  gas                                      |       | 809,152                     |       | 812,913 |   |
|                                                    |       |                        |       |   |   |
| Coal and gravel                                         |       | 472,244                     |       | 81,715 |   |
| Real estate  development                                |       | 775                         |       | 1,562 |   |
| General and  administrative                             |       | 567,913                     |       | 805,303 |   |
| Total operating expenses                                |       | 1,850,084                   |       | 1,701,493 |   |
|                                                    |       |                        |       |   |   |
| Loss from operations                                    |       | (289,026                    | )          | (423,143 | ) |
|                                                    |       |                        |       |   |   |
| Other income (expense):                                 |       |                        |       |   |   |
| Gain on sales and redemptions of investment  securities |       | 690,103                     |       | — |   |
| Other income                                            |       | 122,179                     |       | 50,700 |   |
| Total other income                                      |       | 812,282                     |       | 50,700 |   |
|                                                    |       |                        |       |   |   |
| Income (loss) before income taxes                       |       | 523,256                     |       | (372,443 | ) |
|                                                    |       |                        |       |   |   |
| Income tax expense (benefit)                            |       | 199,525                     |       | (122,053 | ) |
|                                                    |       |                        |       |   |   |
| Net income (loss)                                       |       | $                           | 323,731    |   | $ | (250,390 | ) |
|                                                    |       |                        |       |   |   |
| **Basic and diluted loss per common share:**            |       |                        |       |   |   |
|                                                    |       |                        |       |   |   |
| Net income  (loss)                                      |       | $                           | 0.08       |   | $ | (0.06 | ) |
|                                                    |       |                        |       |   |   |
| Weighted average common shares outstanding              |       | 4,282,713                   |       | 4,291,740 |   |

 

See accompanying notes to financial statements.

 

22

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**OAKRIDGEENERGY, INC.**

 

**STATEMENTS OF STOCKHOLDERS’ EQUITY**

** **

**YearsEnded February 28, 2006 and 2005**

 

 
| ** **                                                               | ** ** | **Common   Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained   Earnings** | ** ** | **Accumulated   Other   Comprehensive   Income** | ** ** | **Treasury   Stock** | ** ** | **Total** | ** ** | **Comprehensive   Income (Loss)** | ** **  |
|--------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------------|------------|------------------------------|------------|-----------------------------------------------------------------|------------|---------------------------|------------|-----------|------------|---------------------------------------------|-------------|
|                                                                     |       |                    |       |                             |       |                         |       |                                                            |       |                      |       |      |       |                                        |        |
| Balance at March  1, 2004                                                |       | $                       | 406,312    |                             | $          | 805,092                      |       | $                                                               | 16,684,193 |                      | $          | 147,457   |       | $                                           | (10,128,761 | ) | $ | 7,914,293 |   |   |   |
|                                                                     |       |                    |       |                             |       |                         |       |                                                            |       |                      |       |      |       |                                        |        |
| Purchases of  treasury stock                                             |       | —                  |       | —                           |       | —                       |       | —                                                          |       | (105,790                  | )          | (105,790  | )          |                                        |        |
|                                                                     |       |                    |       |                             |       |                         |       |                                                            |       |                      |       |      |       |                                        |        |
| Net loss                                                                 |       | —                  |       | —                           |       | (250,390                     | )          | —                                                          |       | —                    |       | (250,390  | )          | $                                           | (250,390    | ) |
|                                                                     |       |                    |       |                             |       |                         |       |                                                            |       |                      |       |      |       |                                        |        |
| Change in  unrealized gain on investment securities, net of income taxes |       | —                  |       | —                           |       | —                       |       | 143,596                                                         |       | —                    |       | 143,596   |       | 143,596                                     |        |
|                                                                     |       |                    |       |                             |       |                         |       |                                                            |       |                      |       |      |       |                                        |        |
| Comprehensive  loss for year                                             |       |                    |       |                             |       |                         |       |                                                            |       |                      |       |      |       | $                                           | (106,794    | ) |
|                                                                     |       |                    |       |                             |       |                         |       |                                                            |       |                      |       |      |       |                                        |        |
| Balance at  February 28, 2005                                            |       | 406,312                 |       | 805,092                          |       | 16,433,803                   |       | 291,053                                                         |       | (10,234,551               | )          | 7,701,709 |       |                                        |        |
|                                                                     |       |                    |       |                             |       |                         |       |                                                            |       |                      |       |      |       |                                        |        |
| Purchases of  treasury stock                                             |       | —                  |       | —                           |       | —                       |       | —                                                          |       | (62,768                   | )          | (62,768   | )          |                                        |        |
|                                                                     |       |                    |       |                             |       |                         |       |                                                            |       |                      |       |      |       |                                        |        |
| Net income                                                               |       | —                  |       | —                           |       | 323,731                      |       | —                                                          |       | —                    |       | 323,731   |       | $                                           | 323,731     |   |
|                                                                     |       |                    |       |                             |       |                         |       |                                                            |       |                      |       |      |       |                                        |        |
| Change in  unrealized gain on investment securities, net of income taxes |       | —                  |       | —                           |       | —                       |       | (291,053                                                        | )          | —                    |       | (291,053  | )          | (291,053                                    | )           |
|                                                                     |       |                    |       |                             |       |                         |       |                                                            |       |                      |       |      |       |                                        |        |
| Comprehensive  income for year                                           |       |                    |       |                             |       |                         |       |                                                            |       |                      |       |      |       |                                        |        |
|                                                                     |       |                    |       |                             |       |                         |       |                                                            |       |                      |       |      |       | $                                           | 32,678      |   |
| Balance at  February 28, 2006                                            |       | $                       | 406,312    |                             | $          | 805,092                      |       | $                                                               | 16,757,534 |                      | $          | —    |       | $                                           | (10,297,319 | ) | $ | 7,671,619 |   |   |   |

 

See accompanying notes to financial statements.

 

23

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**OAKRIDGEENERGY, INC.**

 

**STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                           | ** ** | **Year Ended February 28,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                           | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| **Operating  Activities**                                                                            |       |                                       |       |   |   |
| Net income  (loss)                                                                                   |       | $                                          | 323,731    |   | $ | (250,390 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |                                       |       |   |   |
| Depletion and  depreciation                                                                          |       | 61,800                                     |       | 119,941 |   |
| Accretion of  discount on asset retirement obligations                                               |       | 18,410                                     |       | 27,189 |   |
| Gain on sales  and redemptions of investment securities                                              |       | (690,103                                   | )          | — |   |
| Gain on sales of  oil and gas properties                                                             |       | (3,583                                     | )          | — |   |
| Gain on sales of  property and equipment                                                             |       | (1,572                                     | )          | — |   |
| Loss on  investment in limited partnership                                                           |       | 2,479                                      |       | 5,733 |   |
| Deferred income  taxes                                                                               |       | 179,252                                    |       | (141,389 | ) |
| Changes in  operating assets and liabilities:                                                        |       |                                       |       |   |   |
| Trade accounts  receivable                                                                           |       | (53,678                                    | )          | 105 |   |
| Prepaid expenses  and other                                                                          |       | 1,860                                      |       | 206 |   |
| Accounts payable  and accrued expenses                                                               |       | 47,229                                     |       | (11,246 | ) |
| Asset retirement  obligations                                                                        |       | 407,845                                    |       | (1,838 | ) |
| Net cash  provided by (used in) operating activities                                                 |       | 293,670                                    |       | (251,689 | ) |
|                                                                                                 |       |                                       |       |   |   |
| **Investing  Activities**                                                                            |       |                                       |       |   |   |
| Additions to oil  and gas properties                                                                 |       | (9,243                                     | )          | (128,637 | ) |
| Additions to  real estate held for sale                                                              |       | (47,889                                    | )          | (43,101 | ) |
| Additions to  other property and equipment                                                           |       | —                                     |       | (30,033 | ) |
| Proceeds from  sales of investment securities                                                        |       | 892,534                                    |       | — |   |
| Proceeds from  sales of oil and gas properties                                                       |       | 4,102                                      |       | — |   |
| Proceeds from  sales of property and equipment                                                       |       | 2,407                                      |       | — |   |
| Net cash  provided by (used in) investing activities                                                 |       | 841,911                                    |       | (201,771 | ) |
|                                                                                                 |       |                                       |       |   |   |
| **Financing  Activity**                                                                              |       |                                       |       |   |   |
| Purchases of  treasury stock                                                                         |       | (62,768                                    | )          | (105,790 | ) |
|                                                                                                 |       |                                       |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                                                |       | 1,072,813                                  |       | (559,250 | ) |
| Cash and cash  equivalents at beginning of year                                                      |       | 2,294,548                                  |       | 2,853,798 |   |
|                                                                                                 |       |                                       |       |   |   |
| Cash and cash  equivalents at end of year                                                            |       | $                                          | 3,367,361  |   | $ | 2,294,548 |   |
|                                                                                                 |       |                                       |       |   |   |
| **Supplemental  Disclosure of Cash Flow Information**                                                |       |                                       |       |   |   |
| Income taxes  paid                                                                                   |       | $                                          | 16,593     |   | $ | 16,253 |   |
|                                                                                                 |       |                                       |       |   |   |
| **Supplemental  Disclosure of Non-Cash Information**                                                 |       |                                       |       |   |   |
| Change in  unrealized gain on investment                                                             |       |                                       |       |   |   |
| securities, net  of income taxes                                                                     |       | $                                          | (291,053   | ) | $ | 143,596 |   |

 

See accompanying notes to financial statements.

24

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**OAKRIDGEENERGY, INC.**

 

**NOTES TOFINANCIAL STATEMENTS**

 

**February 28, 2006 and 2005**

 

**A.****            Nature of Business**

 

Oakridge Energy, Inc. (the “Company”) is engaged in the exploration forand development, production, and sale of oil and gas primarily in Texas.  The Company has received lease and royaltyincome from gravel deposits in Colorado and holds certain real estate inColorado for sale.  The Company wasincorporated in Utah in 1969 and its executive offices are located in WichitaFalls, Texas.

 

**B.****            Summary of SignificantAccounting Policies**

 

A summary of the Company’s significant accounting policies consistentlyapplied in the preparation of the accompanying financial statements follows.

 

**Basis of Accounting**

** **

The accounts are maintained and the financial statements have beenprepared using the accrual basis of accounting in accordance with accountingprinciples generally accepted in the United States of America.

 

**Use of Estimates**

** **

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect certain reportedamounts in the financial statements and accompanying notes.  Actual results could differ from theseestimates and assumptions.

 

**Comprehensive Income**

** **

The Companyreports comprehensive income in accordance with the provisions of Statement ofFinancial Accounting Standards (“SFAS”) No. 130, *Reporting Comprehensive Income.*  SFAS No. 130 established standards forreporting and presentation of comprehensive income and its components in a fullset of financial statements. Comprehensive income (loss) consists of net income (loss) and netunrealized gains (losses) on securities and is presented in the statements ofstockholders’ equity.  SFAS No. 130requires only additional disclosures in the financial statements; it does notaffect the Company’s financial position or results of operations.

 

**Fair Value of Financial Instruments**

** **

In accordance withthe reporting requirements of SFAS No. 107, *Disclosuresabout Fair Value of Financial Instruments*, the Company calculates thefair value of its assets and liabilities which qualify as financial instrumentsunder this statement and includes this additional information in the notes tofinancial statements when the fair value is different than the carrying valueof those financial instruments.  Theestimated fair value of cash equivalents, accounts receivable, and accountspayable approximates their carrying amounts due to the relatively shortmaturity of these instruments.

 

25

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**Cash and Cash Equivalents**

** **

The Company considers all cash and highly liquid investments withoriginal maturities of three months or less to be cash equivalents.

 

**TradeAccounts Receivable**

** **

The Companyperforms ongoing credit evaluations of its customers’ financial condition andextends credit to virtually all of its customers.  Credit losses to date have not beensignificant and have been within management’s expectations.  In the event of complete non-performance bythe Company’s customers, the maximum exposure to the Company is the outstandingaccounts receivable balance at the date of non-performance.

 

**Investment Securities**

** **

The Company reportsinvestments in accordance with SFAS No. 115, *Accountingfor Certain Investments in Debt and Equity Securities*.  The Company’s investments are classified atthe time of purchase into one of three categories as follows:

 

•                  Held to Maturity Securities - Debtsecurities that the Company has the positive intent and ability to hold tomaturity are reported at amortized cost, adjusted for the amortization oraccretion of premiums and discounts.

 

•                  TradingSecurities - Debt and equity securities that are bought and held principallyfor the purpose of selling them in the near term are reported at fair value,with unrealized gains and losses included in earnings.

 

•                  Available forSale Securities - Debt and equity securities not classified as held to maturitysecurities or trading securities are reported at fair value, with unrealizedgains and losses excluded from earnings and reported as a separate component ofstockholders’ equity (net of tax effects).

 

The Company didnot have any securities classified as held to maturity or trading as of February 28, 2006 and 2005.

 

A decline in themarket value of any available for sale security below cost that is deemed to beother than temporary results in a reduction of the carrying amount to fairvalue.  The impairment is charged toearnings and a new cost basis for the security is established.  No impairment charges were recorded during2006 or 2005.

 

Dividend and interest income are recognized whenearned.  Gains and losses on securitiessold are computed under the specific identification method.

 

26

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**Oil and Gas Properties**

** **

The Company uses the successful efforts method ofaccounting for oil and gas producing activities.  Costs to acquire mineral interests in oil andgas properties, to drill exploratory wells that find proved reserves, and todrill and equip development wells are capitalized.  Geological and geophysical costs, costs todrill exploratory wells that do not find proved reserves, and non-producingleasehold abandonments are expensed as incurred.

 

Unproved oil and gas properties are periodicallyassessed for impairment of value and a loss is recognized at the time ofimpairment by providing an impairment allowance.  Capitalized costs of producing oil and gasproperties are depleted and depreciated by the units-of-production method basedon proved oil and gas reserves as estimated by an independent petroleumreservoir engineering firm.

 

Upon sale or retirement of a proved property, the costand related accumulated depletion and depreciation are eliminated from theproperty accounts, and any resulting gain or loss is recognized.

 

**Coal and Gravel Properties**

 

Costs attributable to the acquisition and development of coal andgravel properties are capitalized, while costs incurred to maintain theproperties are expensed.  Undevelopedcoal and gravel properties, which are individually significant, areperiodically assessed for impairment of value and a loss is recognized at thetime of impairment by providing an impairment allowance. Capitalized costs ofproducing properties are depleted on a property-by-property basis using theunits-of-production method.

 

Depreciation on mining and service equipment iscalculated using accelerated and straight-line methods over the estimateduseful lives of the assets. Upon sale or abandonment, the cost of the equipmentand related accumulated depreciation are removed from the accounts and anygains or losses thereon are recognized.

 

**Other Property and Equipment**

** **

Depreciation on other property and equipment iscalculated using accelerated and straight-line methods over the estimateduseful lives of the assets. Upon sale or abandonment, the cost of the equipmentand related accumulated depreciation are removed from the accounts and anygains or losses thereon are recognized.

 

**Real Estate Held for Development or Sale**

** **

Real estate held for development or sale is carried atcost, which does not exceed net realizable value. Real estate development andconstruction costs directly identifiable with such property arecapitalized.  The cost of the propertyremains as a non-current asset since the Company may proceed with thedevelopment if it is unable to complete a sales transaction.

 

27

----

 

**Impairment of Long-Lived Assets**

** **

The carrying value of property and equipment isperiodically evaluated under the provisions of SFAS No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets.*  SFAS No.144 requires long-lived assets and certain identifiable intangibles to bereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable.  When it is determined that the estimatedfuture net cash flows of an asset will not be sufficient to recover itscarrying amount, an impairment loss must be recorded to reduce the carryingamount to its estimated fair value.

 

Under SFAS No. 144, the Company evaluates impairmentof proved oil and gas properties on a field-by-field basis.  On this basis, certain fields may be impairedbecause they are not expected to recover their entire carrying value fromfuture net cash flows.  During 2006 and2005, the Company recorded no impairment losses related to its proved oil andgas properties.  If estimated future cashflows are not achieved with respect to certain fields, further write-downs maybe required.

 

**Investment in Partnership**

** **

The Company uses the equity method of accounting forits investment in partnership.  Theinvestment in partnership of approximately $41,000 and $44,000 at February 28, 2006 and 2005,respectively, are included in other non-current assets in the accompanyingbalance sheets.  The Company recognizedlosses pertaining to its interest in the partnership of approximately $3,000and $6,000 during 2006 and 2005, respectively, which are included in otherincome in the accompanying statements of operations.

 

**Asset Retirement Obligations**

** **

The Company accounts for asset retirement obligations under SFAS No.143, *Accounting for Asset RetirementObligations*.  SFAS No. 143requires legal obligations associated with the retirement of long-lived assetsto be recognized at their fair value at the time that the obligations areincurred.  Oil and gas producingcompanies incur this liability upon acquiring or drilling a well.  Under SFAS No. 143, an asset retirementobligation is recorded as a liability at its estimated present value at theasset’s inception, with an offsetting increase to producing properties on theaccompanying balance sheet which is allocated to expense over the useful lifeof the asset.

 

Periodic accretion of the discount on asset retirement obligations isrecorded as an expense in the accompanying statement of operations.  Prior to adoption of SFAS No. 143, theCompany accrued for any estimated asset retirement obligations, net ofestimated salvage value, as part of the calculation of depletion and depreciation.  This method resulted in recognition of theobligation over the life of the property on a unit-of-production basis, withthe estimated obligation netted in property costs as part of the accumulateddepletion and depreciation balance.  SeeNote D.

 

28

----

 

**Revenue Recognition**

** **

The Company recognizes revenue as oil and gas are produced based oncontracted or estimated sales prices. Estimated revenue is subject to adjustments based on finalsettlement.  Such adjustments arereflected in revenue when received.

 

**Income Taxes**

** **

Deferred income taxes are determined using the liability method inaccordance with SFAS No. 109, *Accounting forIncome Taxes*.  Deferred taxassets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases.

 

Deferred tax assets and liabilities are measured using enacted taxrates expected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled.  The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income in the period thatincludes the enactment date. In addition, a valuation allowance is establishedto reduce any deferred tax asset for which it is determined that it is morelikely than not that some portion of the deferred tax asset will not berealized.

 

**Earnings or Loss Per Common Share**

** **

Basic earnings (loss) per common share is calculated by dividing netincome (loss) (available to common stockholders) by the weighted average numberof common shares outstanding for the period. Diluted earnings (loss) per common share reflects the potential dilutionthat could occur if accounts or other contracts to issue common stock wereexercised or converted into common stock or resulted in the issuance of commonstock that then shared in the earnings of the Company.  For the years and quarters presented herein,basic and diluted earnings (loss) per common share are the same.

 

**C.****            Investment Securities**

** **

The amortized cost and fair value of the Company’s investmentsecurities available for sale, as of February 28, 2005 was approximately$202,000 and $664,000, respectively.  Theinvestment securities were sold during fiscal 2006.

 

29

----

 

**D.    AssetRetirement Obligations**

 

Pursuant to SFAS No. 143, *Accountingfor Asset Retirement Obligations*, the Company has recognized thefair value of its asset retirement obligations related to the plugging,abandonment, and remediation of oil and gas producing properties as well as thereclamation of the property surrounding the Company’s previous coal miningoperations.  The present value of theestimated asset retirement costs has been capitalized as part of the carryingamount of the related long-lived assets, which approximated $283,000.

 

The liability has been accreted to its present value as of the end ofeach year.  The Company evaluated 82wells, and has determined a range of abandonment dates through August2024.  The following represents areconciliation of the asset retirement obligations for the years ended February28, 2006 and 2005:

 

| ** **                                         | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|
|                                               |       |     |       |     |       |
| Asset retirement  obligations at beginning of year |       | $        | 631,456    |     | $          | 606,105 |   |
| Revision to  estimate                              |       | 418,600  |       | —   |       |
| Liabilities  settled during the year               |       | (10,755  | )          | (1,838   | )          |
| Accretion of  discount                             |       | 18,410   |       | 27,189   |       |
| Asset retirement  obligations at end of year       |       | $        | 1,057,711  |     | $          | 631,456 |   |

 

**E.****            Income Taxes**

** **

The Company’s income tax expense (benefit) attributable to income(loss) from continuing operations consists of the following:

 
| ** **                     | ** ** | **Current** | ** ** | **Deferred** | ** ** | **Total** | ** ** |
|--------------------------------|------------|-------------|------------|--------------|------------|-----------|------------|
| Year ended  February 28, 2006: |       |        |       |         |       |      |       |
| U.S. Federal                   |       | $           | 1,745      |         | $          | 173,874   |       | $ | 175,619 |   |
| State and local                |       | 18,528      |       | 5,378        |       | 23,906    |       |
| Income tax  expense            |       | $           | 20,273     |         | $          | 179,252   |       | $ | 199,525 |   |
|                           |       |        |       |         |       |      |       |
| Year ended  February 28, 2005: |       |        |       |         |       |      |       |
| U.S. Federal                   |       | $           | 2,754      |         | $          | (137,349  | )          | $ | (134,595 | ) |
| State and local                |       | 16,582      |       | (4,040       | )          | 12,542    |       |
| Income tax  expense (benefit)  |       | $           | 19,336     |         | $          | (141,389  | )          | $ | (122,053 | ) |

 

30

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Income tax expense (benefit) for the years presenteddiffers from the “expected” federal income tax benefit for those years,computed by applying the statutory U.S. Federal corporate tax rate of 34% topre-tax income (loss), as a result of the following:

 
| ** **                                                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                             |       |     |       |     |       |
| Computed “expected” tax expense (benefit)              |       | $        | 177,929    |     | $          | (126,631 | ) |
| State and local income taxes, net of federal income  tax benefit |       | 15,778   |       | 8,182    |       |
| Other, primarily revision of prior year provision  estimate      |       | 5,818    |       | (3,604   | )          |
| Income tax expenses (benefit)                                    |       | $        | 199,525    |     | $          | (122,053 | ) |

 

Thetax effects of temporary differences that give rise to significant portions ofthe deferred tax assets and deferred tax liabilities, at February 28, 2006 and 2005are presented below:

 
| ** **                                                                                               | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax  assets:                                                                                    |       |     |       |     |       |
| Net operating  loss carryforward                                                                         |       | $        | —     |     | $          | 326,632 |   |
| Alternative  minimum tax credit carryforward                                                             |       | 102,149  |       | 99,293   |       |
| Asset retirement  obligations                                                                            |       | 391,803  |       | 233,449  |       |
| Total deferred  tax assets                                                                               |       | 493,952  |       | 659,374  |       |
|                                                                                                     |       |     |       |     |       |
| Deferred tax  liabilities:                                                                               |       |     |       |     |       |
| Oil and gas  properties and other property and equipment, principally due to depletion and  depreciation |       | (429,971 | )          | (416,141 | )          |
| Coal properties,  principally due to differences in depletion                                            |       | (45,195  | )          | (45,195  | )          |
| Unrealized gain  on investment securities available for sale                                             |       | —   |       | (170,715 | )          |
| Total deferred  tax liabilities                                                                          |       | 475,166  |       | (632,051 | )          |
| Net deferred tax  asset                                                                                  |       | $        | 18,786     |     | $          | 27,323 |   |
|                                                                                                     |       |     |       |     |       |   |   |
| Included in the  balance sheet as:                                                                       |       |     |       |     |       |
| Deferred income  taxes, current                                                                          |       | $        | —     |     | $          | (170,715 | ) |
| Deferred income  taxes, non-current                                                                      |       | 18,786   |       | 198,038  |       |
| Net deferred tax asset                                                                                   |       | $        | 18,786     |     | $          | 27,323 |   |
|                                                                                                          |            |          |            |          |            |  |  |  |  |

 

31

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Based on the futurereversal of existing taxable temporary differences and future earningsexpectations, management of the Company believes it is more likely than notthat deferred tax assets will be realized or settled, and accordingly, novaluation allowance has been recorded.

 

At February 28, 2006, the Company has analternative minimum tax credit carryforward of approximately $102,000, whichhas no expiration date and is available to reduce the Company’s future taxableincome.

 

# **F.**                                     Segment Information

 

The following information is presented in accordancewith SFAS No. 131, *Disclosures aboutSegments of an Enterprise and Related Information.*The Company isengaged in oil and gas, coal and gravel activities and real estate development.The Company has identified such segments based on management responsibility andthe nature of the Company’s products, services and costs. There are no majordistinctions in geographical areas served as all operations are in the UnitedStates. The Company measures segment profit (loss) as income (loss) fromoperations. Business segment assets are those assets controlled by eachreportable segment. The following table sets forth certain information aboutthe financial information of each segment for the years ended February 28, 2006and 2005:

 
| ** **                                     | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|------------------------------------------------|------------|-----------|------------|-----------|------------|
| Business segment revenue:                      |       |      |       |      |       |
| Oil and gas                                    |       | $         | 1,531,058  |      | $          | 1,228,088 |   |
| Gravel                                         |       | 30,000    |       | 50,262    |       |
| Total revenues                                 |       | $         | 1,561,058  |      | $          | 1,278,350 |   |
|                                           |       |      |       |      |       |
| Business segment profit (loss):                |       |      |       |      |       |
| Oil and gas                                    |       | $         | 721,906    |      | $          | 415,175 |   |
| Coal and gravel                                |       | (442,244  | )          | (31,453   | )          |
| Real estate  development                       |       | (775      | )          | (1,562    | )          |
| General  corporate                             |       | (567,913  | )          | (805,303  | )          |
| Loss from  operations                          |       | (289,026  | )          | (423,143  | )          |
| Other income                                   |       | 812,282   |       | 50,700    |       |
| Income (loss) before income taxes              |       | $         | 523,256    |      | $          | (372,443 | ) |
|                                           |       |      |       |      |       |
| Business segment assets:                       |       |      |       |      |       |
| Depreciation,  depletion and amortization:     |       |      |       |      |       |
| Oil and gas                                    |       | $         | 37,654     |      | $          | 88,073 |   |
| Coal and gravel                                |       | —    |       | 5,371     |       |
| Real estate  development                       |       | —    |       | —    |       |
| General  corporate                             |       | 24,146    |       | 26,497    |       |
| Total depreciation, depletion and amortization |       | $         | 61,800     |      | $          | 119,941 |   |
|                                           |       |      |       |      |       |
| Capital expenditures:                          |       |      |       |      |       |
| Oil and gas                                    |       | $         | 9,243      |      | $          | 128,637 |   |
| Real estate  development                       |       | 47,889    |       | 43,101    |       |
| General  corporate                             |       | —    |       | 30,033    |       |
| Total capital expenditures                     |       | $         | 57,132     |      | $          | 201,771 |   |
|                                           |       |      |       |      |       |
| Assets:                                        |       |      |       |      |       |
| Oil and gas                                    |       | $         | 4,591,890  |      | $          | 4,340,258 |   |
| Coal and gravel                                |       | 260,488   |       | 260,488   |       |
| Real estate  development                       |       | 3,077,648 |       | 3,029,760 |       |
| General  corporate                             |       | 952,252   |       | 979,094   |       |
| Total assets                                   |       | $         | 8,882,278  |      | $          | 8,609,599 |   |

 

32

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**G.**                                   **RelatedParty Transactions**

 

In the normal course ofbusiness, the Company owns interests in various oil and gas properties in whichcertain stockholders and related parties also own interests.

 

# **H.**                                   Commitments and Contingencies

 

The Company is subject to certain claims and litigation arising in thenormal course of business. In the opinion of management, the outcome of suchmatters will not have a materially adverse effect on the results of operationsor financial position of the Company.

 

As of February 28, 2006 and 2005, theCompany has pledged interest-bearing cash deposits approximating $817,000 tosecure letters of credit in favor of the Colorado Bureau of Land Management forstate requirements regarding land reclamation based on future operations withrespect to coal and gravel properties. These pledged cash deposits are includedin other non-current assets in the accompanying balance sheets.

 

### **I.**                                        RiskConcentrations

 

Financial instrumentsthat potentially subject the Company to concentration of credit risk consistprincipally of cash, cash equivalents, and investments. Cash equivalents ofapproximately $3,171,000 and $2,193,000 at February 28, 2006 and 2005,respectively, consisted of interest-bearing cash deposits.

 

33

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The Company maintains depositsprimarily in two financial institutions, which at times may exceed amountscovered by insurance provided by the Securities Investor Protection Corporationand the U.S. Federal Deposit Insurance Corporation, $500,000 for securities and$100,000 for cash balances. At February28, 2006, the Company had approximately $601,000 of uninsured deposits. TheCompany had approximately $164,000 of securities and $565,000 of cashequivalent balances that were uninsured at February 28, 2005. The Company hasnot experienced any losses with respect to uninsured balances.

 

Oil sales to twocustomers, which accounted for more than 10% of the Company’s total oil sales,approximated $994,000 (72%) and $311,000 (23%) for the year ended February 28, 2006. Two customers accountedfor approximately $686,000 (68%) and $247,000 (25%) of the Company’s total oilsales for the year ended February 28, 2005. Gas sales to three customersapproximated $154,000 (62%), $43,000 (17%), and $30,000 (12%) of the Company’stotal gas sales for the year ended February28, 2006. Three customers accounted for approximately $119,000 (66%),$25,000 (14%), and $23,000 (13%) of the Company’s gas sales for the year endedFebruary 28, 2005. Lease operating payments primarily made to a principaloperator on its oil and gas producing properties approximated $437,000 and$518,000 in 2006 and 2005, respectively.

 

**J.****                                     ****Quarterly Operating Results(Unaudited)**

 

Quarterly results ofoperations for 2006 and 2005 were as follows:

 
| **2006**                                         | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Full  Year** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|----------------|------------|
|                                             |       |               |       |                |       |               |       |                |       |           |       |
| Total revenues                                   |       | $                  | 375,524    |                | $          | 389,806            |       | $                   | 432,058    |           | $          | 363,670 |   | $ | 1,561,058 |   |
|                                             |       |               |       |                |       |               |       |                |       |           |       |
| Income (loss) from operations                    |       | 28,270             |       | (46,265             | )          | 93,604             |       | (364,635            | )          | (289,026       | )          |
|                                             |       |               |       |                |       |               |       |                |       |           |       |
| Net income (loss)                                |       | $                  | 31,463     |                | $          | 268,608            |       | $                   | 81,334     |           | $          | (57,674 | ) | $ | 323,731 |   |
|                                             |       |               |       |                |       |               |       |                |       |           |       |
| Basic and diluted income (loss) per common share |       | $                  | 0.01       |                | $          | 0.06               |       | $                   | 0.02       |           | $          | (0.01 | ) | $ | 0.08 |   |

 
| **2005**                                          | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Full  Year** | ** ** |
|---------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|----------------|------------|
|                                              |       |               |       |                |       |               |       |                |       |           |       |
| Total revenues                                    |       | $                  | 291,685    |                | $          | 343,254            |       | $                   | 336,492    |           | $          | 306,919 |   | $ | 1,278,350 |   |
|                                              |       |               |       |                |       |               |       |                |       |           |       |
| Income (loss) from operations                     |       | (387,193           | )          | (25,375             | )          | (29,431            | )          | 18,856              |       | (423,143       | )          |
|                                              |       |               |       |                |       |               |       |                |       |           |       |
| Net income (loss)                                 |       | $                  | (238,181   | )                   | $          | (9,428             | )          | $                   | (11,093    | )              | $          | 8,312 |   | $ | (250,390 | ) |
|                                              |       |               |       |                |       |               |       |                |       |           |       |
| Basic and  diluted income (loss) per common share |       | $                  | (0.06      | )                   | $          | (0.00              | )          | $                   | (0.00      | )              | $          | 0.00 |   | $ | (0.06 | ) |

 

34

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**K.****                                  ****Subsequent Event (Unaudited)**

 

On April 4, 2006, theCompany entered into a contract to sell its real estate held for development orsale which is comprised of approximately 1,965 acres of land it owns on EwingMesa adjacent to the City of Durango, Colorado for approximately $40 million. Theclosing of the transaction is subject to a number of conditions that must besatisfied.

 

The purchase agreementprovides for an initial refundable earnest deposit of $2 million and a 60-dayinspection and study period for the buyer to be satisfied with all aspects ofthe property. The inspection and study period has been extended to June 19,2006 by mutual agreement in order that the Alta Survey may be completed. Thebuyer can terminate the contract without any further obligation to the Companyand the initial earnest deposit is refundable. If the buyer elects to proceedat the end of the inspection period, an additional $2 million earnest depositis due and the total $4 million is non-refundable, except under limitedcircumstances. The purchase agreement is further conditioned upon the approvalof the Company’s shareholders

 

35

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**OAKRIDGE ENERGY, INC.**

 

**SUPPLEMENTALOIL AND GAS DATA (UNAUDITED)**

 

The following tables set forth supplementary disclosures for oil andgas producing activities in accordance with SFAS No. 69, *Disclosures about Oil and Gas Producing Activities*.

 

**Costs Incurred**

 

A summary of costs incurred in oil and gas property acquisition,development, and exploration activities (both capitalized and charged toexpense) for the years ended February 28, 2006 and 2005, as follows:

 
| ** **                         | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Acquisition of proved properties   |       | $        | 383        |     | $          | 103,170 |   |
| Acquisition of unproved properties |       | $        | 8,860      |     | $          | 25,467 |   |
| Exploration costs                  |       | $        | —     |     | $          | — |   |

 

### **Results of Operations forProducing Activities**

 

The following tablepresents the results of operations for the Company’s oil and gas producingactivities for the years ended February 28, 2006 and 2005:

 
| ** **                                                                                         | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Revenues                                                                                           |       | $        | 1,531,058  |     | $          | 1,228,088 |   |
| Production costs                                                                                   |       | (771,499 | )          | (724,840 | )          |
| Depletion,  depreciation, and valuation provisions                                                 |       | (37,653  | )          | (88,073  | )          |
| Exploration  costs                                                                                 |       | —   |       | —   |       |
|                                                                                               |       | 721,906  |       | 415,175  |       |
| Income tax  expense                                                                                |       | 245,448  |       | 141,160  |       |
| Results of  operations for producing activities (excluding corporate overhead and  interest costs) |       | $        | 476,458    |     | $          | 274,015 |   |

 

### **Reserve QuantityInformation**

 

The following tablepresents the Company’s estimate of its proved oil and gas reserves all of whichare located in the United States. The Company emphasizes that reserve estimatesare inherently imprecise and that estimates of reserves related to newdiscoveries are more imprecise than those for producing oil and gas properties.Accordingly, the estimates are expected to change as future information becomesavailable. The estimates have been prepared with the assistance of anindependent petroleum reservoir engineering firm. Oil reserves, which includecondensate and natural gas liquids, are stated in barrels and gas reserves arestated in thousands of cubic feet.

 

36

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| ** **                                     | ** ** | **Oil  (Bbls.)** | ** ** | **Gas  (MCF)** | ** ** |
|------------------------------------------------|------------|------------------|------------|----------------|------------|
| **Proved developed and undeveloped reserves:** | ** ** | ** **       | ** ** | ** **     | ** ** |
| Balance at March  1, 2004                      |       | 675,587          |       | 92,886         |       |
| Revisions of  previous estimates               |       | 2,855            |       | 120,658        |       |
| Production                                     |       | (23,852          | )          | (41,289        | )          |
|                                           |       |             |       |           |       |
| Balance at  February 28, 2005                  |       | 654,590          |       | 172,255        |       |
| Revisions of  previous estimates               |       | 23,145           |       | 46,523         |       |
| Production                                     |       | (21,587          | )          | (38,732        | )          |
|                                           |       |             |       |           |       |
| Balance at  February 28, 2006                  |       | 656,148          |       | 180,046        |       |
| ** **                                     | ** ** | ** **       | ** ** | ** **     | ** ** |
| **Proved  developed reserves:**                | ** ** | ** **       | ** ** | ** **     | ** ** |
| February 28,  2004                             |       | 90,226           |       | 92,886         |       |
| February 29,  2005                             |       | 99,369           |       | 172,255        |       |
| February 28,  2006                             |       | 183,007          |       | 180,046        |       |

 

**Standardized Measure of Discounted Future Net CashFlow and Changes Therein Relating to Proved Oil and Gas Reserves**

 

The following table,which presents a standardized measure of discounted future cash flows andchanges therein relating to proved oil and gas reserves, is presented pursuantto SFAS No. 69. In computing this data, assumptions other than those requiredby the Financial Accounting Standards Board could produce different results. Accordingly,the data should not be construed as being representative of the fair marketvalue of the Company’s proved oil and gas reserves.

 

Future cash inflows were computed by applying existing contract andyear-end prices of oil and gas relating to the Company’s proved reserves to theestimated year-end quantities of those reserves. Future price changes wereconsidered only to the extent provided by contractual arrangements in existenceat year end. Future development and production costs were computed byestimating the expenditures to be incurred in developing and producing theproved oil and gas reserves at the end of the year, based on year-end costs. Futureincome tax expenses were computed by applying the year-end statutory tax rate,with consideration of future tax rates already legislated, to the futurepre-tax net cash flows relating to the Company’s proved oil and gas reserves. Thestandardized measure of discounted future cash flows at February 28, 2006 and2005, which represents the present value of estimated future cash flows using adiscount rate of 10% a year, follows:

 

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| ** **                                                            | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-----------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Future cash  inflows                                                  |       | $          | 39,315,545 |       | $          | 30,652,937 |   |
| Future  production and development costs                              |       | (9,039,156 | )          | (6,706,146 | )          |
| Future income  tax expenses                                           |       | (4,354,700 | )          | (3,558,888 | )          |
|                                                                  |       |       |       |       |       |
| Future net cash  flows                                                |       | 25,921,689 |       | 20,387,903 |       |
| 10% annual  discount for estimated timing of cash flows               |       | (7,424,309 | )          | (6,067,533 | )          |
| Standardized  measure of discounted future net cash flows             |       | $          | 18,497,380 |       | $          | 14,320,370 |   |
|                                                                  |       |       |       |       |       |
| Beginning of  year                                                    |       | $          | 14,320,370 |       | $          | 9,763,090 |   |
| Sales of oil and  gas, net of production costs                        |       | (759,559   | )          | (503,248   | )          |
| Extensions,  discoveries, and improved recoveries, less related costs |       | 341,415    |       | 273,132    |       |
| Accretion of  discount                                                |       | 1,432,037  |       | 976,309    |       |
| Net change in  sales and transfer prices, net of production costs     |       | 4,030,262  |       | 4,557,731  |       |
| Changes in  estimated future development costs                        |       | (68,283    | )          | 58,817     |       |
| Net change in  income taxes                                           |       | (1,564,340 | )          | (1,686,511 | )          |
| Changes in  production rates (timing and other)                       |       | (61,391    | )          | 689,365    |       |
| Revisions of  previous quantities                                     |       | 826,869    |       | 191,685    |       |
|                                                                  |       |       |       |       |       |
| End of year                                                           |       | $          | 18,497,380 |       | $          | 14,320,370 |   |
|                                                                       |            |            |            |            |            |  |  |  |  |  |  |  |  |  |  |  |

 

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**ITEM 8.**                                                **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE.**

 

The Company did not change its independent publicaccounting firm or have any disagreements with them on accounting and financialdisclosure issues in the fiscal year ended February 28, 2006.

 

**ITEM 8A.****                                       CONTROLSAND PROCEDURES.**

 

The term “disclosure controls and procedures” isdefined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of1934, or the Exchange Act. This term refers to the controls and procedures of acompany that are designed to ensure that information required to be disclosedby a company in the reports that it files or submits under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedby the Securities and Exchange Commission. Our management, including our ChiefExecutive Officer and Principal Financial Officer, has evaluated theeffectiveness of our disclosure controls and procedures as of the end of theperiod covered by this annual report. Based upon that evaluation, our ChiefExecutive Officer and Principal Financial Officer have concluded that ourdisclosure controls and procedures were effective as of the end of the periodcovered by this annual report.

 

There were no changes to our internal control overfinancial reporting during our last fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

 

**ITEM 8B.****                                       OTHERINFORMATION.**

 

None.

 

**PART III**

 

**ITEM 9.****                                                DIRECTORSAND EXECUTIVE OFFICERS, OF THE REGISTRANT.**

 

Directors and ExecutiveOfficers

 

The following table provides certain informationpertaining to the Company’s directors and executive officers:

 
| **Name and Age**          | ** ** | **Business Experience  and Current Positions  With Company**                                                                                                                      | ** ** | **Year First  Became Director** |
|---------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|
| ** **                | ** ** | ** **                                                                                                                                                                        | ** ** | ** **                      |
| Sandra Pautsky — 64  |       | Chairperson of the Board of Directors of the Company  since July 1998, President since June 1998 and Secretary-Treasurer since May  1992                                          |       | 1986                            |
| Danny Croker — 56    |       | Vice President and Assistant Secretary - Treasurer  of the Company since May 1992 and owner of Exlco, Inc., oil and gas  operations                                               |       | 1992                            |
| Randy Camp — 53      |       | Partner in the firm of Moore, Camp, Phillips &  Co., L.L.P. (or its predecessor firms), Certified Public Accountants, Wichita  Falls, Texas for more than the past five years |       | 1992                            |
| Carol J. Cooper — 59 |       | Certified Public Accountant, Principal Accounting  Officer of the Company since July 1998 and Principal Financial Officer of the  Company since October 2002                      |       | N/A                             |

 

Danny Croker is Sandra Pautsky’s stepbrother. Thereare no other family relationships among any of the directors or executiveofficers of the Company. Sandra Pautsky may be considered to be the controlling

 

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stockholder of the Company by virtue of her beneficial ownership ofapproximately 70% of the Company’s outstanding common stock and her positionswith the Company. See “Item 11.-Security Ownership of Certain Beneficial Ownersand Management and Related Stockholder Matters.”  Each of the directors and executive officersholds office from the date of his or her election for a period of one year oruntil his or her successor has been elected. None of the directors or executiveofficers is involved in any legal proceedings in which he or she is a partyadverse or has a material interest adverse to the Company. None of thedirectors or executive officers has been involved in any legal proceedingswhich are material to an evaluation of his or her ability or integrity.

 

Section 16(a) BeneficialOwnership Reporting Compliance

 

Section 16(a) of the Exchange Act requires theCompany’s executive officers, directors and persons who beneficially own morethan 10% of the Company’s common stock to file with the Commission initialreports of beneficial ownership and reports of changes in beneficial ownershipof the Company’s common stock. The rules promulgated by the Commission underSection 16(a) of the Exchange Act require those persons to furnish the Companywith copies of all reports filed with the Commission pursuant to Section 16(a).

 

Based solely on the Company’s review of copies offorms it received and on written representations from the foregoing persons,the Company believes that during the fiscal year ended February 28, 2006 allfiling requirements under Section 16(a) of the Exchange Act were met on atimely basis by such persons.

 

Audit Committee

 

The Company does not have a separately-designatedstanding audit committee. Instead, the entire Board of Directors acts as theaudit committee for the Company.

 

Audit Committee FinancialExpert

 

Although the Company does not have aseparately-designated audit committee, a member of the Company’s Board ofDirectors, Randy Camp, meets the requirements to be considered an auditcommittee financial expert and is independent as defined in Rule 4200(a)(15) ofthe National Association of Securities Dealers, Inc. listing standards.

 

Nomination Procedures

 

The Company has not made any changes to the proceduresby which security holders may recommend nominees to the Company’s Board ofDirectors since the Company last provided disclosure to security holders inresponse to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A of theExchange Act.

 

Code of Ethics

 

Pursuant to the requirements of Item 406 of RegulationS-B, the Company’s “Code of Ethical Conduct for Senior Officers,” which iscurrently in effect, is filed as Exhibit 14 to this report.

 

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**ITEM 10.****                                         EXECUTIVECOMPENSATION.**

 

The following table sets forth information regardingcompensation for services in all capacities to the Company for the three fiscalyears ended February 28/29, 2006 of the Company’s Chief Executive Officer. No otherexecutive officer of the Company received total annual salary and bonusexceeding $100,000 in any of such years.

 
| ** **                       | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|-------------------------|------------|------------|------------|
| **Name and  Principal Position** | ** ** | **Year**   | ** ** | **Salary**              | ** ** | **Bonus**  | ** ** | **All Other  Compensation(1)** | ** ** |
|                             |       |       |       |                    |       |       |       |   |   |
| Sandra Pautsky                   |       | 2006       |       | $                       | 85,000     |       | $          | 7,083 |   | $ | 204 |   |
| President and                    |       | 2005       |       | 85,000                  |       | 322,083    | (2)        | 204 |   |
| Principal  Executive Officer     |       | 2004       |       | 85,000                  |       | 7,083      |       | 204 |   |
|                                  |            |            |            |                         |            |            |            |  |  |  |  |  |

 

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(1)                                 Allother compensation consisted of Company paid life insurance premiums.

 

(2)                                 Inthe first quarter of fiscal 2005, the Board of Directors of the Companyapproved (with Ms. Pautsky abstaining) and the Company paidSandra Pautsky, the Company’s Chief Executive Officer, abonus of $315,000 in consideration of her extraordinaryservices over a number of years with respect tothe Company’s proposed real estate development project atDurango, Colorado, which culminated with the Area Plan approval obtained inJanuary 2004.

 

The Company does not have employment agreements withany of its executive officers, has no material bonus, profit-sharing or stockoption plans or pension or retirement benefits. The Company has a group healthinsurance plan which it makes available to all employees of the Company andtheir family members on a non-discriminatory basis. Pursuant to such plan,$25,000 in life insurance benefits are provided for all employees of theCompany, with the amount of such benefits provided decreasing as certain agelevels are reached.

 

Executive officers of the Company who are alsodirectors do not receive any fee or remuneration for services as members of theBoard of Directors. Randy Camp, the one director who is not an employee of theCompany, received an annual fee of $3,000 for serving as a director in thefiscal year ended February 28, 2006.

 

**ITEM 11.****                                         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS.**

 

The following table shows the beneficial ownership ofthe Company’s common stock as of May 27, 2006 by:  (i) each person known by the management ofthe Company to own more than 5% of the Company’s outstanding common stock; (ii)each executive officer and director; and (iii) the executive officers anddirectors of the Company as a group.

 
| **Name and Address  of  Beneficial Owner**                                       | ** ** | **Amount  Beneficially  Owned** | ** ** | **Percent  of  Class** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------|------------|------------------------|------------|
| Sandra Pautsky  4613 Jacksboro Highway  Wichita Falls, Texas 76302               |       | 2,651,864                       | (1)        | 62.15                  | %          |
| Flem Noel Pautsky, Jr. Trust  4613 Jacksboro Highway  Wichita Falls, Texas 76302 |       | 908,247                         |       | 21.29                  |       |
| Noel Pautsky Trust  4613 Jacksboro Highway  Wichita Falls, Texas 76302           |       | 680,062                         |       | 15.94                  |       |
| Robert S. Allen  125 Ashlyn Ridge  McDonough, Georgia 30252                      |       | 256,700                         |       | 6.02                   |       |
| Danny Croker                                                                     |       | —                          |       | —                 |       |
| Randy Camp                                                                       |       | 100                             |       | *                      |       |
| Carol J. Cooper                                                                  |       | —                          |       | —                 |       |
| Executive officers and directors as a group (four  persons)                      |       | 2,651,964                       | (2)        | 62.15                  |       |

 

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*                                         Representsless than 1% of outstanding common stock.

 

(1)                                 Includes:(i) 740,985 shares owned directly by Ms. Pautsky; (ii) 680,062 owned by theNoel Pautsky Trust of which Ms. Pautsky is the Trustee and one of fourbeneficiaries; (iii) 140,464 shares owned by the Noel Pautsky Marital Trust ,of which Ms. Pautsky is the Trustee; (iv) 908,247 shares owned by the Flem Noel Pautsky, Jr. Trust, of whichMs. Pautsky is the Trustee and (v) 182,106 shares owned by the Jimmy PautskyTrust, of which Ms. Pautsky is the Trustee. Ms. Pautsky disclaims anybeneficial ownership of the shares owned by the Noel Pautsky Trust in excess of175,000 shares. Ms. Pautsky also disclaims any beneficial ownership of theshares owned by the Flem Noel Pautsky, Jr. Trust, the Noel Pautsky MaritalTrust and the Jimmy Pautsky Trust.

 

(2)                                 Includesall shares beneficially owned by Sandra Pautsky, Danny Croker, Randy Camp andCarol J. Cooper.

The Company does not have any securities authorized for issuance underequity compensation plans.

 

**ITEM 12.****                                         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS.**

 

Sandra Pautsky is an executive officer, director andbeneficial owner of in excess of 5% of the Company’s outstanding common stock.In addition, the Flem Noel Pautsky, Jr. Trust and the Noel Pautsky Trust arethe beneficial owners of in excess of 5% of the Company’s outstanding commonstock.

 

Ms. Pautsky is the trustee of the Flem Noel Pautsky,Jr. Trust, the Noel Pautsky Trust, the Noel Pautsky Marital Trust and the JimmyPautsky Trust. Ms. Pautsky and the Flem Noel Pautsky, Jr. Trust each ownundivided working interests in certain of the oil and gas leases in the NorthTexas area in which the Company also owns an undivided working interest and ofwhich the Company serves as the operator. In accordance with standard operatingprocedures, the Company submits joint interest billings to such related partiesand the other unaffiliated working interest owners in the properties which theCompany operates on a monthly basis for their respective pro-rata shares of thecosts incurred on the properties and the Company’s fee for serving as operatorfor the preceding month. In addition, Exlco, Inc. (“Exlco”), 100% of whoseoutstanding stock is owned by Danny Croker, an executive officer and director,is allocated and bears a portion of the Company’s office rent and supplies. Ms.Pautsky, the Flem Noel Pautsky, Jr. Trust, The Noel Pautsky Marital Trust, theJimmy Pautsky Trust and Shawn Price (Ms. Pautsky’s son) are allocated and beara portion of the Company’s accounting expense.

 

At February 29, 2004, Ms. Pautsky, the Noel PautskyEstate, the Flem Noel Pautsky, Jr. Trust, the Noel Pautsky Trust and Exlco hadaccounts payable to the Company, representing their then unpaid joint interestand other billings, aggregating $1,761. During the two fiscal years endedFebruary 28, 2006, the Company submitted monthly joint interest and otherbillings to such five parties and the three new entities listed above (the NoelPautsky Marital Trust, the Jimmy Pautsky Trust and Shawn Price) totaling$48,399, and such parties paid the Company an aggregate of $47,775 with respectto such joint interest and other billings, leaving a balance of $2,385 owed tothe Company at February 28, 2006.

 

42

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**ITEM 13.****                                         EXHIBITS.**

 
| **Exhibit No.** | ** ** | **Document Description**                                                                                                                                                           |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (14)            |       | Code of Ethical Conduct of Senior Officers (Filed as  an exhibit to the Company’s Form 10-KSB for the period ending February 28,  2005 and incorporated herein by reference). |
|            |       |                                                                                                                                                                               |
| (31)(i)         |       | Certifications of Chief Executive Officer Pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                             |
|            |       |                                                                                                                                                                               |
| (31)(ii)        |       | Certifications of Principal Financial Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                         |
|            |       |                                                                                                                                                                               |
| (32)            |       | Certifications of Chief Executive Officer and  Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002 (Filed herewith).                            |

 

**ITEM 14.****                                         PRINCIPALACCOUNTANT FEES AND SERVICES.**

 

The independent registered public accounting firm ofWhitley Penn LLP ("Whitley Penn") audited the financial statements ofthe Company for the fiscal year ended February 28, 2006. Whitley Penn hasaudited the Company’s financial statements for each of the seven fiscal yearsended February 28, 2006.

 

Audit Fees

 

Fees paid to Whitley Penn for the fiscal year 2005 and2006 audits of the Company’s financial statements and the reviews of quarterlyreports on Form 10-QSB during such years were $28,056 and $8,250 to date,respectively.

 

Audit-Related Fees

 

The Company incurred $6,053 in audit-related fees fromWhitley Penn during the fiscal year ended February 28, 2005, but did not incurany audit-related fees from Whitley Penn during the fiscal year ended February28 2006.

 

Tax Fees

 

Fees paid to Whitley Penn by the Company forpreparation of the Company’s federal income tax returns for the fiscal yearsended February 28, 2005 and 2006 were $11,000 and $11,000 to date,respectively.

 

All Other Fees

 

No other services were rendered by Whitley Penn duringthe fiscal years ended February 28, 2005 and 2006.

 

Pre-Approval Policies andProcedures

 

As indicated under Item 9, the Company does not have aseparately-designated audit committee and the Board of Directors of the Companyacts in that capacity. Prior to the Company’s engagement of Whitley Penn torender the audit and non-audit services set forth above, such engagement wasapproved by the Company’s Board of Directors.

 

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**SIGNATURES**

 

In accordance with Section 13 or 15(d) of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
| OAKRIDGE ENERGY, INC. |
|-----------------------|
|                  |
| By:                   | /s/ Sandra  Pautsky |   |
|                  | Sandra Pautsky, President |

 

DATE: May 30, 2006

 

In accordance with the Exchange Act, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.

 
| By:                | /s/ Sandra Pautsky         |               | By:                        |   | /s/ Carol J. Cooper |   |
|--------------------|----------------------------|--------------------|----------------------------|--------|---------------------|--------|
|               | Sandra Pautsky, President, |               | Carol J. Cooper, Principal |
|               | Chief Executive            |               | Financial Officer and      |
|               | Officer and Director       |               | Accounting Officer         |
|               |                       |               |                       |
| DATE: May 30, 2006 |                       | DATE: May 30, 2006 |

 

 
| By:                | /s/ Danny Croker       |               | By:                  |   | /s/ Randy Camp |   |
|--------------------|------------------------|--------------------|----------------------|--------|----------------|--------|
|               | Danny Croker, Director |               | Randy Camp, Director |
|               |                   |               |                 |
| DATE: May 30, 2006 |                   | DATE: May 30, 2006 |

 

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**EXHIBITS.**

 
| **Exhibit No.** | ** ** | **Document Description**                                                                                                                                                           |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (14)            |       | Code of Ethical Conduct of Senior Officers (Filed as  an exhibit to the Company’s Form 10-KSB for the period ending February 28,  2005 and incorporated herein by reference). |
|            |       |                                                                                                                                                                               |
| (31)(i)         |       | Certifications of Chief Executive Officer Pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                             |
|            |       |                                                                                                                                                                               |
| (31)(ii)        |       | Certifications of Principal Financial Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                         |
|            |       |                                                                                                                                                                               |
| (32)            |       | Certifications of Chief Executive Officer and  Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002 (Filed herewith).                            |

 

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