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** **

 

** **

**UnitedStates********Securitiesand Exchange Commission**

**Washington, D. C.  20549**

 

**Form 10-K**

 

**(MarkOne)**

 
| **x  ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**                                                                                                               |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                  |
| **For the fiscal year ended February 28, 2009**                                                                                                                                                                  |
|                                                                                                                                                                                                                  |
| **o  TRANSITION  REPORT PURSUANT TO****SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**                                                                                                        |
| ** **                                                                                                                                                                                                            |
| **For the transition period from                  to                  .** |

 

**Commission file number 000-08532**

 

**OAKRIDGE ENERGY, INC.**

(Exact name of registrant asspecified in its charter)

 

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

 

Registrant’s telephonenumber, including area code: **(940) 322-4772**

 

Securities registeredpursuant to Section 12(b) of the Act:

**None**

 

Securities registeredpursuant to Section 12(g) of the Act:

 

**Common Stock, $.04 par value**

(Title of class)

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act. **Yes ****o****  No ****x**

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Exchange Act**. Yes ****o****  No ****x**

 

Indicate by****check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. **Yes****x****  No****o**

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). **Yes****o****  No****o**

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.**o**

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer or asmaller reporting company.  See thedefinitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). **Yes****o****  No****x**

 

Theaggregate market value of the voting and non-voting common equity held bynonaffiliates computed by reference to the price at which the common equity wassold, or the average bid and asked prices of such common equity, was$14,842,557 as of August 31, 2008.

 

Asof May 8, 2009, there were 4,260,242 shares of common stock outstanding.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

**None**

 

 

 

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Tableof Contents

 

**TABLE OF CONTENTS**

 
| ** **                                 | **Page**                                                                                                            |
|--------------------------------------------|---------------------------------------------------------------------------------------------------------------------|
|                                       |                                                                                                                |
| PART I                                | 3                                                                                                                   |
|                                       |                                                                                                                |
| ITEM 1.                                    | BUSINESS                                                                                                            | 3 |
|                                       |                                                                                                                |
| Oil  and Gas Operations                    | 3                                                                                                                   |
|                                       |                                                                                                                |
| Gravel  Operations                         | 9                                                                                                                   |
|                                       |                                                                                                                |
| Carbon  Junction Coal Mine                 | 9                                                                                                                   |
|                                       |                                                                                                                |
| Real  Estate Held for Sale                 | 10                                                                                                                  |
|                                       |                                                                                                                |
| Competition  and Markets                   | 12                                                                                                                  |
|                                       |                                                                                                                |
| Regulation                                 | 13                                                                                                                  |
|                                       |                                                                                                                |
| Environmental and Health Controls          | 14                                                                                                                  |
|                                       |                                                                                                                |
| Operating Hazards and Uninsured Risks      | 14                                                                                                                  |
|                                       |                                                                                                                |
| Employees                                  | 14                                                                                                                  |
|                                       |                                                                                                                |
| ITEM  2.                                   | PROPERTIES                                                                                                          | 14 |
|                                       |                                                                                                                |
| Oil  and Gas Properties                    | 14                                                                                                                  |
|                                       |                                                                                                                |
| Coal  and Gravel Properties                | 16                                                                                                                  |
|                                       |                                                                                                                |
| Real Estate                                | 17                                                                                                                  |
|                                       |                                                                                                                |
| Office  Building                           | 17                                                                                                                  |
|                                       |                                                                                                                |
| ITEM 3.                                    | LEGAL PROCEEDINGS                                                                                                   | 17 |
|                                       |                                                                                                                |
| ITEM 4.                                    | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                | 17 |
|                                       |                                                                                                                |
| PART II                               | 18                                                                                                                  |
|                                       |                                                                                                                |
| ITEM 5.                                    | MARKET FOR  REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES  OF EQUITY SECURITIES | 18 |
|                                       |                                                                                                                |
| ITEM 7.                                    | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION                          | 18 |
|                                       |                                                                                                                |
| Results  of Operations                     | 18                                                                                                                  |
|                                       |                                                                                                                |
| Financial Condition and Liquidity          | 20                                                                                                                  |
|                                       |                                                                                                                |
| Critical Accounting Policies and Estimates | 20                                                                                                                  |
|                                       |                                                                                                                |
| Forward-Looking Statements                 | 22                                                                                                                  |
|                                       |                                                                                                                |
| ITEM 8.                                    | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                        | 23 |
|                                       |                                                                                                                |
| ITEM 9.                                    | CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               | 40 |

 

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| ITEM 9A(T).                                                                   | CONTROLS AND  PROCEDURES                                                                         | 40 |
|-------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------|----|
|                                                                          |                                                                                             |
| Disclosure Controls and Procedures                                            | 40                                                                                               |
|                                                                          |                                                                                             |
| Management’s Annual Report on Internal Control Over  Financial Reporting | 40                                                                                               |
|                                                                          |                                                                                             |
| ITEM 9B.                                                                      | OTHER INFORMATION                                                                                | 41 |
|                                                                          |                                                                                             |
| PART III                                                                 | 42                                                                                               |
|                                                                          |                                                                                             |
| ITEM 10.                                                                      | DIRECTORS,  EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE                                         | 42 |
|                                                                          |                                                                                             |
| Directors and Executive Officers                                              | 42                                                                                               |
|                                                                          |                                                                                             |
| Section 16(a) Beneficial Ownership Reporting  Compliance            | 42                                                                                               |
|                                                                          |                                                                                             |
| Audit  Committee                                                              | 42                                                                                               |
|                                                                          |                                                                                             |
| Audit Committee Financial Expert                                              | 42                                                                                               |
|                                                                          |                                                                                             |
| Nomination  Procedures                                                        | 43                                                                                               |
|                                                                          |                                                                                             |
| Code of  Ethics                                                               | 43                                                                                               |
|                                                                          |                                                                                             |
| ITEM 11.                                                                      | EXECUTIVE  COMPENSATION                                                                          | 43 |
|                                                                          |                                                                                             |
| ITEM 12.                                                                      | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS | 44 |
|                                                                          |                                                                                             |
| ITEM 13.                                                                      | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE                        | 45 |
|                                                                          |                                                                                             |
| ITEM 14.                                                                      | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                          | 46 |
|                                                                          |                                                                                             |
| Audit Fees                                                                    | 46                                                                                               |
|                                                                          |                                                                                             |
| Audit-Related  Fees                                                           | 46                                                                                               |
|                                                                          |                                                                                             |
| Tax Fees                                                                      | 46                                                                                               |
|                                                                          |                                                                                             |
| All Other  Fees                                                               | 46                                                                                               |
|                                                                          |                                                                                             |
| Pre-Approval Policies and Procedures                                          | 46                                                                                               |
|                                                                          |                                                                                             |
| ITEM 15.                                                                      | EXHIBITS,  FINANCIAL STATEMENT SCHEDULES                                                         | 46 |
|                                                                          |                                                                                             |
| SIGNATURES                                                                    | 47                                                                                               |
|                                                                          |                                                                                             |
| EXHIBITS                                                                      | 48                                                                                               |

 

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**PART I**

 

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

 

OakridgeEnergy, Inc. (the “Company”) is engaged in the exploration for anddevelopment, production and sale of oil and gas primarily in Texas.  The Company also holds certain real estate inColorado for sale, which lands cover gas, coal and other mineral deposits. See “Oiland Gas Operations” and “Real Estate Held for Sale” below and “Item 7. —Management’s Discussion and Analysis of Financial Condition and Results ofOperation.”

 

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

 

TheCompany has restricted its oil and gas exploration activities in recent fiscalyears as it has conserved its limited resources for utilization on (i) asecondary recovery water-flood project on its principal oil and gas producingproperty in Madison County, Texas, (ii) its proposed real estatedevelopment project adjacent to Durango, Colorado in La Plata County (the “DurangoProperty”), and (iii) reclamation of its Carbon Junction Coal Mine in LaPlata County, Colorado.  In fiscal 2009,the Company continued its participation in the water-flood project started inthe last quarter of fiscal 2003 as well as its other oil and gas operations.See “Oil and Gas Operations” and “Real Estate Held for Sale” below and “Item 7.— Management’s Discussion and Analysis of Financial Condition and Results ofOperation.”

 

Duringmid-2004, Sandra Pautsky, the Company’s Chief Executive Officer receivedtreatment for cancer that was diagnosed in late 2003.  In late 2007, Ms. Pautsky underwent asecond major procedure for her disease, responded well to treatment and resumednormal activities.  Ms. Pautsky hasbeen the principal force pushing the Company’s proposed real estate developmentof the Durango Property.  Because ofconcerns regarding Ms. Pautsky’s health, the project size, the significantfinancial requirement by the Company, the number of years to complete, and therisk involved to the Company in committing so much of its limited financialresources to one project, the Company decided during the first quarter offiscal 2005 to attempt to sell the Company’s approximately 1,866 acres of landlocated in La Plata County, Colorado.

 

TheCompany has entered into two previous contracts to sell the Durango Propertythat were unsuccessful.  However, theCompany is actively engaged in efforts to sell the Durango Property.  See “Real Estate Held for Sale- Decision toSell the Durango Property” below and “Item 7. — Management’s Discussion andAnalysis of Financial Condition and Results of Operation.”

 

**Oil and Gas Operations**

 

TheCompany’s oil and gas operations are primarily conducted in Madison and otherNorth Texas counties and to a lesser extent, Freestone, Red River, Panola,Gregg and Smith Counties of East Texas, Oklahoma, Colorado and Mississippi,respectively. The Company is the operator of only the leases in NorthTexas.  All other oil and gas interestsowned are participation interests whereby the Company owns a working or royaltyinterest in a property that is operated and maintained by another interestowner under an operating agreement.  Forthe participation interests, the Company receives payment for its oil and gassales from the purchaser or the operator and is billed by the operator for itsownership percentage of joint expenses relative to getting the oil and/or gasfrom the wells to a sales point.

 

TheCompany did not participate in the drilling of any exploratory or developmentwells in the fiscal year ended February 28, 2009; however, when theCompany is offered a participation interest in a well or a lease, Ms. Pautskyand Danny Croker, the Company’s Vice President, select the exploration anddevelopment prospects in which the Company participates.

 

**Madison County, Texas Propertyclassified as non economic: **The Company’sprincipal producing oil and gas property for the past ten fiscal years has beenits 25% working interest in the BSR (Sub-Clarksville) Field in Madison County,Texas (the “Madison County, Texas Property”). The Madison County, Texas Property was responsible for approximately57.5% and 58.3% respectively, of the Company’s total oil and gas revenues forthe 2008 and 2009 fiscal years.  Theproperty consists of 23 producing wells, four water injection wells, includingone newly converted injection well on November 1, 2008, and one watersupply well.

 

TheMadison County, Texas Property was discovered in 1994 by Barrow ShaverResources (“BSR”), the operator of the Madison County, Texas Property.  The BSR (Sub-Clarksville) Field was reportedto be a stratigraphically trapped oil accumulation of 20MMBOIP and is fullydeveloped for its primary oil and gas reserves. As the Madison County, TexasProperty aged and production declined, a decision was made to install asecondary recovery project on the property. In 

 

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fiscal 2003, the Texas Railroad Commission approvedthe waterflooding project, the property was unitized and the water-floodingproject commenced effective as of December 1, 2002. The waterfloodingproject is ongoing.

 

Rule 4-10of Article 4 of Regulation S-X (“Regulation S-X”) promulgated by theSecurities and Exchange Commission (the “SEC”) provides that “proved oil andgas reserves are the estimated quantities of crude oil, natural gas, andnatural gas liquids which geological and engineering data demonstrate withreasonable certainty to be recoverable in future years from known reservoirsunder existing economic and operating conditions, i.e., prices and costs as ofthe date the estimate is made.”  Anindependent engineering firm provided a report to the Company of net oil andgas reserves, future net income, and total present worth values as of February 28,2009 (“the reserve report”). For the Madison County, Texas Property, thereserve report used February 2009 oil and gas prices, which were $32.82per barrel of oil and $3.26 per mcf of natural gas.  The results stated that the waterflood uniton the Madison County, Texas Property was below the economic limit, meaning nofuture primary reserves for the property were calculated or valued as of February 28,2009 in the Company’s engineering valuation of its oil and gas properties.  However, as a result of the waterfloodingproject, the reserve report stated that 599,059 barrels of proven *undeveloped*secondary oil reserves with an estimated futurelife of 20 years and 8 months were recoverable by the Company due to its 25%working interest in the property.

 

Asa result of the Madison County, Texas Property waterflood unit being below theeconomic limit, assets recorded on the Company’s balance sheet as Oil and GasProperties decreased in the amount of $491,893, following the depletion of theMadison County, Texas Property, with the exception of its leasehold cost in theamount of $95,384 and salvageable lease and well equipment in the amount of $83,475.

 

Anotherimpairment issue caused by the Madison County, Texas Property being classifiedas non economic is that all wells in the field, for accounting purposes, are nowconsidered to be at the end of their life and plugging and abandonment costsare required to be recognized in the amount of $68,935.

 

**MadisonCounty, Texas Property revenues:**  Madison County, Texas Property revenues forfiscal 2009 and 2008 were $958,054 and $938,069, respectively, which representsan increase of $19,985 (2.13%) for fiscal 2009. The average oil prices received in fiscal 2009 and 2008 were $91.80 (see“Table 1” below) and $77.19 per barrel, respectively, which represents anincrease of $14.61 (18.93%) for year 2009. This increased price for oil is the primary reason for increased revenuefrom the Madison County, Texas Property for fiscal 2009, as the volume of oilsold for fiscal 2009 decreased 1,380 barrels (12.51%) as compared to fiscal2008.  The average gas prices received infiscal 2009 and 2008 remained virtually unchanged at $6.59 per mcf ( see “Table2” below), and gas sales volumes increased slightly (198 mcf or 1.91%) infiscal 2009 as compared to fiscal 2008, causing an increase in revenue of$1,375.  Immaterial amounts of productswere also included in total revenue from the field (see “Table 3” below).

 

Theaverage price received per equivalent barrel of energy (“BOE”) for fiscal 2009was $82.91 (see “Table 4” below) as compared to $66.76 in fiscal 2008.  The Madison County, Texas Property breakevencost per equivalent BOE for operations was $72.33 in fiscal 2009 (see “Table 5”below) as compared to $49.12 in fiscal 2008. In fiscal 2009, the total breakeven cost per equivalent BOE for bothoperations and capital expenditures was $84.45 (see “Table 5” below) resultingin a negative $(1.52) net price received per BOE from the Madison County, TexasProperty.  As a consequence of increasedoperations expenditures by the operator, no cash flow was provided to theCompany for fiscal 2009 from its net reserves produced.  Considering the current declines in oil andgas prices in the marketplace, the Company expects that it will receive asignificantly lesser average price for its product in fiscal 2010 with lossesprojected from this property in the upcoming fiscal year.

 

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**Oil Revenues:********(Table 1)***

 
| ** **     | ** ** | **Madison County, TX Property Totals** | ** ** | **Company’s Revenue Interests** | ** ** |
|----------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **     | ** ** | **Bbls**                               | ** ** | **Price**                            | ** ** | **Total** | ** ** | **Net Revenue  Interest** | ** ** | **Overriding  Royalty Interest** | ** ** | **Total Net  Revenue Interest** | ** ** |
| ** **     | ** ** | **Sold**                               | ** ** | **Per Bbl**                          | ** ** | **Value** | ** ** | **19.831381%** | ** ** | **0.086207%** | ** ** | **19.917600%** | ** ** |
| Mar. 2008 |       | 4,383                                  |       | $                                    | 104.33     |   | $ | 457,307 |   | $ | 90,690 |   | $ | 394 |   | $ | 91,084 |   |
| Apr. 2008 |       | 4,183                                  |       | 112.65                               |       | 471,156 |   | 93,437 |   | 406 |   | 93,843 |   |
| May 2008  |       | 3,310                                  |       | 125.69                               |       | 416,100 |   | 82,518 |   | 359 |   | 82,877 |   |
| June 2008 |       | 6,123                                  |       | 134.00                               |       | 820,469 |   | 162,710 |   | 707 |   | 163,417 |   |
| July 2008 |       | 3,503                                  |       | 133.02                               |       | 466,017 |   | 92,418 |   | 402 |   | 92,820 |   |
| Aug. 2008 |       | 3,537                                  |       | 115.03                               |       | 406,919 |   | 80,698 |   | 351 |   | 81,049 |   |
| Sep. 2008 |       | 4,324                                  |       | 103.65                               |       | 448,126 |   | 88,870 |   | 386 |   | 89,256 |   |
| Oct. 2008 |       | 5,446                                  |       | 76.20                                |       | 415,036 |   | 82,307 |   | 358 |   | 82,665 |   |
| Nov. 2008 |       | 2,596                                  |       | 56.62                                |       | 146,974 |   | 29,147 |   | 127 |   | 29,274 |   |
| Dec. 2008 |       | 2,436                                  |       | 39.09                                |       | 95,197 |   | 18,879 |   | 82 |   | 18,961 |   |
| Jan. 2009 |       | 6,496                                  |       | 36.26                                |       | 235,509 |   | 46,705 |   | 203 |   | 46,908 |   |
| Feb. 2009 |       | 2,117                                  |       | 32.82                                |       | 69,483 |   | 13,779 |   | 60 |   | 13,839 |   |
|           |       | 48,454                                 |       | Avg. $91.80                          |       | $ | 4,448,293 |   | $ | 882,158 |   | $ | 3,835 |   | $ | 885,993 |   |
|                |            |                                        |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Gas Revenues: (Table 2)***

 
| ** **     | ** ** | **Madison County, TX Property Totals** | ** ** | **Company’s Revenue Interests** | ** ** |
|----------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **     | ** ** | **MCFs**                               | ** ** | **Price**                            | ** ** | **Total** | ** ** | **Net Revenue  Interest** | ** ** | **Overriding  Royalty Interest** | ** ** | **Total Net  Revenue Interest** | ** ** |
| ** **     | ** ** | **Sold**                               | ** ** | **Per MCF**                          | ** ** | **Value** | ** ** | **19.831381%** | ** ** | **0.086207%** | ** ** | **19.917600%** | ** ** |
| Mar. 2008 |       | 3,340                                  |       | $                                    | 8.44       |   | $ | 28,186 |   | $ | 5,590 |   | $ | 24 |   | $ | 5,614 |   |
| Apr. 2008 |       | 2,367                                  |       | 7.86                                 |       | 18,616 |   | 3,692 |   | 16 |   | 3,708 |   |
| May 2008  |       | 1,772                                  |       | 8.65                                 |       | 15,331 |   | 3,042 |   | 13 |   | 3,055 |   |
| June 2008 |       | 1,886                                  |       | 9.12                                 |       | 17,207 |   | 3,412 |   | 15 |   | 3,427 |   |
| July 2008 |       | 4,368                                  |       | 12.57                                |       | 54,918 |   | 10,891 |   | 47 |   | 10,938 |   |
| Aug. 2008 |       | 4,357                                  |       | 11.83                                |       | 51,526 |   | 10,218 |   | 44 |   | 10,262 |   |
| Sep. 2008 |       | 3,927                                  |       | 6.94                                 |       | 27,245 |   | 5,403 |   | 24 |   | 5,427 |   |
| Oct. 2008 |       | 5,873                                  |       | 5.08                                 |       | 29,846 |   | 5,919 |   | 26 |   | 5,945 |   |
| Nov. 2008 |       | 5,846                                  |       | 2.95                                 |       | 17,251 |   | 3,421 |   | 15 |   | 3,436 |   |
| Dec. 2008 |       | 6,135                                  |       | 4.98                                 |       | 30,536 |   | 6,056 |   | 26 |   | 6,082 |   |
| Jan. 2009 |       | 8,389                                  |       | 5.46                                 |       | 45,762 |   | 9,075 |   | 40 |   | 9,115 |   |
| Feb. 2009 |       | 4,742                                  |       | 2.73                                 |       | 12,957 |   | 2,570 |   | 11 |   | 2,581 |   |
|           |       | 53,002                                 |       | Avg. $6.59                           |       | $ | 349,381 |   | $ | 69,289 |   | $ | 301 |   | $ | 69,590 |   |
|                |            |                                        |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Product Revenues: (Table 3)***

 
| ** **     | ** ** | **Madison County, TX Property Totals** | ** ** | **Company’s Revenue Interests** | ** ** |
|----------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **     | ** ** | **MCFs**                               | ** ** | **Price**                            | ** ** | **Total** | ** ** | **Net Revenue  Interest** | ** ** | **Overriding  Royalty Interest** | ** ** | **Total Net********Revenue Interest** | ** ** |
| ** **     | ** ** | **Sold**                               | ** ** | **Per MCF**                          | ** ** | **Value** | ** ** | **19.831381%** | ** ** | **0.086207%** | ** ** | **19.917600%** | ** ** |
| Aug. 2008 |       | 4,357                                  |       | $                                    | 2.85       |   | $ | 12,417 |   | $ | 2,463 |   | $ | 11 |   | $ | 2,474 |   |
|                |            |                                        |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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*Due to the rounding of numbers in these tables, immaterialdifferences are given during recalculation.

 

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**Total Revenues: (Table 4)***

** **
| ** **     | ** ** | **Madison  County, TX Property Totals** | ** ** | **Company’s  Revenue Interests** | ** ** |
|----------------|------------|-----------------------------------------|------------|---------------------------------------|------------|
| ** **     | ** ** | **Equiv**                               | ** ** | **Price********Per**                  | ** ** | **Total** | ** ** | **Net  Revenue********Interest********19.831381%** | ** ** | **Overriding  Royalty  Interest********0.086207%** | ** ** | **Total  Net********Revenue  Interest********19.917600%** | ** ** |
| ** **     | ** ** | **Bbls********Sold**                    | ** ** | **Equiv********Bbl**                  | ** ** | **Value********100%** | ** ** | **Equiv  Bbls** | ** ** | **Value** | ** ** | **Equiv  Bbls** | ** ** | **Value** | ** ** | **Equiv  Bbls** | ** ** | **Value** | ** ** |
| Mar. 2008 |       | 4,940                                   |       | $                                     | 98.28      |   | $ | 485,493 |   | 980 |   | $ | 96,280 |   | 4 |   | $ | 418 |   | 984 |   | $ | 96,698 |   |
| Apr. 2008 |       | 4,578                                   |       | 106.98                                |       | 489,772 |   | 908 |   | 97,129 |   | 4 |   | 422 |   | 912 |   | 97,551 |   |
| May 2008  |       | 3,605                                   |       | 119.68                                |       | 431,431 |   | 715 |   | 85,560 |   | 3 |   | 372 |   | 718 |   | 85,932 |   |
| June 2008 |       | 6,437                                   |       | 130.13                                |       | 837,676 |   | 1,277 |   | 166,122 |   | 6 |   | 722 |   | 1,283 |   | 166,844 |   |
| July 2008 |       | 4,231                                   |       | 123.12                                |       | 520,935 |   | 839 |   | 103,309 |   | 4 |   | 449 |   | 843 |   | 103,758 |   |
| Aug. 2008 |       | 4,989                                   |       | 94.38                                 |       | 470,862 |   | 989 |   | 93,379 |   | 4 |   | 406 |   | 993 |   | 93,785 |   |
| Sep. 2008 |       | 4,979                                   |       | 95.48                                 |       | 475,371 |   | 987 |   | 94,273 |   | 4 |   | 410 |   | 991 |   | 94,683 |   |
| Oct. 2008 |       | 6,425                                   |       | 69.24                                 |       | 444,882 |   | 1,274 |   | 88,226 |   | 6 |   | 384 |   | 1,280 |   | 88,610 |   |
| Nov. 2008 |       | 3,570                                   |       | 46.00                                 |       | 164,225 |   | 708 |   | 32,568 |   | 3 |   | 142 |   | 711 |   | 32,710 |   |
| Dec. 2008 |       | 3,459                                   |       | 36.35                                 |       | 125,733 |   | 686 |   | 24,935 |   | 3 |   | 108 |   | 689 |   | 25,043 |   |
| Jan. 2009 |       | 7,894                                   |       | 35.63                                 |       | 281,271 |   | 1,565 |   | 55,780 |   | 7 |   | 243 |   | 1,572 |   | 56,023 |   |
| Feb. 2009 |       | 2,907                                   |       | 28.36                                 |       | 82,440 |   | 576 |   | 16,349 |   | 3 |   | 71 |   | 579 |   | 16,420 |   |
|           |       | 58,014                                  |       | Avg. $82.91                           |       | $ | 4,810,091 |   | 11,504 |   | $ | 953,910 |   | 51 |   | $ | 4,147 |   | 11,555 |   | $ | 958,057 |   |
|                |            |                                         |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Breakeven Cost: (Table 5)***

 
| ** **                                                                                                        | ** ** | **Company’s  Interests** | ** **   |
|-------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|--------------|
| ** **                                                                                                        | ** ** | **Net  Interest**             | ** **   | **Overriding********Royalty  Interest** | ** ** | ******Total  Interest** | ** ** |
| **Net  Income Before Non-Cash Items and Taxes:**                                                                  |       |                          |         |   |   |   |   |
| Oil and gas revenue                                                                                               |       | $                             | 953,910      |   | $ | 4,147 |   | $ | 958,057 |   |
| Less expenses:                                                                                                    |       |                          |         |   |   |   |   |
| Production taxes                                                                                                  |       | (45,540                       | )            | (198 | ) | (45,738 | ) |
| Ad valorem taxes                                                                                                  |       | (9,851                        | )            | (43 | ) | (9,894 | ) |
| Operating expense                                                                                                 |       | (776,712                      | )            | — |   | (776,712 | ) |
| Total expenses                                                                                                    |       | (832,103                      | )            | (241 | ) | (832,344 | ) |
| **Net income before non-cash items and taxes**                                                                    | ** ** | **$**                         | **121,807**  | ** ** | **$** | **3,906** | ** ** | **$** | **125,713** | ** ** |
|                                                                                                              |       |                          |         |   |   |   |   |
| Net revenue per equivalent barrel                                                                                 |       | $                             | 10.58        |   | $ | 76.59 |   | $ | 10.88 |   |
| **Breakeven price to recapture operations**                                                                       | ** ** | **$**                         | **72.33**    | ** ** | **$** | **4.73** | ** ** | **$** | **72.03** | ** ** |
| ** **                                                                                                        |       |                          |         |   |   |   |   |
| **Net  Cash Flow:**                                                                                               |       |                          |         |   |   |   |   |
| Net income before capital expenditures, non-cash items and tax benefit                                            |       | $                             | 121,807      |   | $ | 3,906 |   | $ | 125,713 |   |
| Capital Expenditures                                                                                              |       | (139,370                      | )            | — |   | (139,370 | ) |
| **Net cash flow**                                                                                                 | ** ** | **$**                         | **(17,563**  | **)** | **$** | **3,906** | ** ** | **$** | **(13,657** | **)** |
|                                                                                                              | ** ** | ** **                    | ** **   | ** ** | ** ** | ** ** | ** ** |
| Net cash flow per equivalent barrel                                                                               | ** ** | **$**                         | **(1.52**    | **)** | **$** | **76.59** | ** ** | **$** | **(1.18** | **)** |
| **Breakeven price to recapture operations and capital expenditures**                                              | ** ** | **$**                         | **84.45**    | ** ** | **$** | **4.73** | ** ** | **$** | **84.09** | ** ** |
| ** **                                                                                                        | ** ** | ** **                    | ** **   | ** ** | ** ** | ** ** | ** ** |
| **Company’s  Net Loss Attributable to the Madison County, TX Property Including Non-Cash  Items and Taxes:** | ** ** | ** **                    | ** **   | ** ** | ** ** | ** ** | ** ** |
| Net income before capital expense, non-cash items and taxes                                                       |       | $                             | 121,807      |   | $ | 3,906 |   | $ | 125,713 |   |
| Depletion, depreciation and amortization                                                                          |       | (560,828                      | )            | — |   | (560,828 | ) |
| Less tax effect                                                                                                   |       | 160,862                       |         | — |   | 160,862 |   |
| **Net loss**                                                                                                      | ** ** | **$**                         | **(278,159** | **)** | **$** | **3,906** | ** ** | **$** | **(274,253** | **)** |

 

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*Due to the rounding of numbers in these tables,immaterial differences are given during recalculation.

 

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Table ofContents

 

**EconomicSummary**

 

Thiseconomic summary provides a picture of field responses to the waterfloodproject on the Madison County, Texas Property.  Three injection wells are located downdip in the field. On November 1,2008 an additional water injection well was added that is more centrallylocated in the field and updip.  A watersupply well is located on the eastern perimeter of the field. Wells updip fromthe three injection wells and located more centrally in the field areeconomically productive.  Wells locatedprimarily on the western and southeastern sectors of the property areclassified as non-economic.  The operatorof the Madison County, Texas Property called a partners meeting on May 27,2009 to discuss the status of operations on the property.  The operator explained that the MadisonCounty, Texas Property had not responded to the waterflood as intended andreported that the property experiences problems with, among other things, sandand paraffin. The operator also reported that he intends to take actions in aneffort to improve expenses on the field, which include a negotiated 20%reduction in cost for contract pumping and roustabout services, reduced contractrates for compression, and changes in equipment that are intended to result infewer problems and reduced operations costs. The Company understands that the operator also intends to temporarilyabandon six non-economic wells located primarily on the western sector of theproperty, in addition to one located in the southeastern sector of the propertythat has previously been temporarily abandoned. After the abandonment, the property will consist of 17 productive wells(see “Table 6” below), 7 temporarily abandoned wells (see “Table 7” below), 4injection wells (see “Table 8” below) and 1 water supply well (see “Table 9”below). See “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operation.”

 

**RemainingProductive Wells in Fiscal 2010: (Table 6)***

 
| ** **                | ** ** | **The  Company’s Interests  For Fiscal Year Ended  February 28, 2009** | ** ** | **The  Company’s Interests  For Fiscal Year Ended  February 29, 2008** | ** ** |
|---------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                | ** ** | **BOE  Vol.**                                                                    | ** ** | **BOE  Avg.  Price**                                                             | ** ** | **Net  Revenue** | ** ** | **Expense** | ** ** | **Net  Income** | ** ** | **BOE  Vol.** | ** ** | **BOE  Avg.  Price** | ** ** | **Net  Revenue** | ** ** | **Expense** | ** ** | **Net  Income** | ** ** |
| Tract 1-Brock #1          |       | 404                                                                              |       | $                                                                                | 87.60      |   | $ | 35,361 |   | $ | 45,283 |   | $ | (9,922 | ) | 542 |   | $ | 73.60 |   | $ | 39,845 |   | $ | 28,478 |   | $ | 11,367 |   |
| Tract 2-Campbell          |       | 694                                                                              |       | 81.65                                                                            |       | 56,629 |   | 19,554 |   | 37,075 |   | 972 |   | 64.63 |   | 62,801 |   | 18,942 |   | 43,859 |   |
| Tract 4-Dean #1           |       | 591                                                                              |       | 84.91                                                                            |       | 50,247 |   | 31,707 |   | 18,540 |   | 717 |   | 70.85 |   | 50,791 |   | 18,659 |   | 32,132 |   |
| Tract 7-Hendrix  #2       |       | 1,160                                                                            |       | 70.19                                                                            |       | 81,452 |   | 22,531 |   | 58,921 |   | 1,492 |   | 56.12 |   | 83,712 |   | 16,496 |   | 67,216 |   |
| Tract 8-Hendrix  #3       |       | 632                                                                              |       | 82.79                                                                            |       | 52,327 |   | 39,544 |   | 12,783 |   | 812 |   | 65.03 |   | 52,820 |   | 15,767 |   | 37,053 |   |
| Tract 9-Hendrix  #4       |       | 298                                                                              |       | 98.67                                                                            |       | 29,445 |   | 44,920 |   | (15,475 | ) | 434 |   | 75.12 |   | 32,599 |   | 33,597 |   | (998 | ) |
| Tract 10-Johnston         |       | 879                                                                              |       | 86.25                                                                            |       | 75,856 |   | 17,199 |   | 58,657 |   | 1,050 |   | 72.22 |   | 75,868 |   | 18,178 |   | 57,690 |   |
| Tract 11-Manning  #1      |       | 609                                                                              |       | 84.29                                                                            |       | 51,353 |   | 22,303 |   | 29,050 |   | 728 |   | 68.32 |   | 49,722 |   | 28,751 |   | 20,971 |   |
| Tract 14-Parker  #1       |       | 424                                                                              |       | 71.98                                                                            |       | 30,467 |   | 15,179 |   | 15,288 |   | 498 |   | 60.88 |   | 30,272 |   | 26,028 |   | 4,244 |   |
| Tract 18-Reid #1          |       | 503                                                                              |       | 81.05                                                                            |       | 40,744 |   | 29,750 |   | 10,994 |   | 642 |   | 64.18 |   | 41,223 |   | 11,601 |   | 29,622 |   |
| Tract 19-Buster  Reid     |       | 919                                                                              |       | 78.77                                                                            |       | 72,350 |   | 60,095 |   | 12,255 |   | 593 |   | 78.00 |   | 46,229 |   | 28,590 |   | 17,639 |   |
| Tract 21-Stewart  Mineral |       | 379                                                                              |       | 84.30                                                                            |       | 31,927 |   | 15,423 |   | 16,504 |   | 368 |   | 69.45 |   | 25,544 |   | 16,546 |   | 8,998 |   |
| Tract 23-Ben  Waldrip #1  |       | 840                                                                              |       | 82.66                                                                            |       | 69,377 |   | 49,314 |   | 20,063 |   | 1,353 |   | 68.99 |   | 93,328 |   | 38,033 |   | 55,295 |   |
| Tract 24-Ben Waldrip  #2  |       | 348                                                                              |       | 81.21                                                                            |       | 28,255 |   | 17,057 |   | 11,198 |   | 353 |   | 71.27 |   | 25,215 |   | 34,818 |   | (9,603 | ) |
| Tract 25-Milton  Waldrip  |       | 428                                                                              |       | 86.09                                                                            |       | 36,862 |   | 27,125 |   | 9,737 |   | 599 |   | 67.74 |   | 40,601 |   | 42,552 |   | (1,951 | ) |
| Tract 26-T.S.  Waldrip    |       | 229                                                                              |       | 78.87                                                                            |       | 18,112 |   | 9,146 |   | 8,966 |   | 104 |   | 90.90 |   | 9,442 |   | 9,209 |   | 233 |   |
| Tract 27-Ward #1          |       | 423                                                                              |       | 84.04                                                                            |       | 35,536 |   | 29,676 |   | 5,860 |   | 436 |   | 69.08 |   | 30,080 |   | 22,182 |   | 7,898 |   |
| Tract 28-Wiseman******    |       | 519                                                                              |       | 101.08                                                                           |       | 52,500 |   | 11,124 |   | 41,376 |   | 828 |   | 66.18 |   | 54,786 |   | 20,138 |   | 34,648 |   |
| BSR Compressor  Station   |       | 95                                                                               |       | 116.13                                                                           |       | 10,997 |   | — |   | 10,997 |   | 35 |   | 94.47 |   | 3,340 |   | — |   | 3,340 |   |
|                      |       | 10,374                                                                           |       | $                                                                                | 82.88      |   | $ | 859,797 |   | $ | 506,930 |   | $ | 352,867 |   | 12,556 |   | $ | 67.55 |   | $ | 848,218 |   | $ | 428,565 |   | $ | 419,653 |   |

 

----

*Due to the rounding of numbers in these tables,immaterial differences are given during recalculation.

******Wiseman was converted to a waterinjection well in November 2008.

 

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Table of Contents

 

**Wells tobe Temporarily Abandoned During Fiscal 2010: (Table 7)***

 
| ** **             | ** ** | **The  Company’s Interests  For Fiscal Year Ended  February 28, 2009** | ** ** | **The  Company’s Interests  For Fiscal Year Ended  February 29, 2008** | ** ** |
|------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **             | ** ** | **BOE  Vol.**                                                                    | ** ** | **BOE  Avg.  Price**                                                             | ** ** | **Net  Revenue** | ** ** | **Expense** | ** ** | **Net  Income** | ** ** | **BOE  Vol.** | ** ** | **BOE  Avg.  Price** | ** ** | **Net  Revenue** | ** ** | **Expense** | ** ** | **Net  Income** | ** ** |
| Tract  6-Greenbriar    |       | 94                                                                               |       | $                                                                                | 90.05      |   | $ | 8,431 |   | $ | 22,838 |   | $ | (14,407 | ) | 100 |   | $ | 66.65 |   | $ | 6,668 |   | $ | 19,950 |   | $ | (13,282 | ) |
| Tract 12—Moore #1 |       | 134                                                                              |       | 91.62                                                                            |       | 12,230 |   | 19,359 |   | (7,129 | ) | 107 |   | 60.02 |   | 6,392 |   | 17,875 |   | (11,483 | ) |
| Tract 13-Nance ******* |       |                                                                             |       | —                                                                           |       | — |   | 2,346 |   | (2,346 | ) | — |   | — |   | — |   | 2,585 |   | (2,585 | ) |
| Tract 15-Parten  #1    |       | 240                                                                              |       | 69.80                                                                            |       | 16,790 |   | 35,236 |   | (18,446 | ) | 148 |   | 57.76 |   | 8,583 |   | 22,879 |   | (14,296 | ) |
| Tract 16-Parten  #2    |       | 181                                                                              |       | 102.50                                                                           |       | 18,560 |   | 42,186 |   | (23,626 | ) | 305 |   | 64.81 |   | 19,752 |   | 37,360 |   | (17,608 | ) |
| Tract 17-Parten  #4    |       | 202                                                                              |       | 81.47                                                                            |       | 16,491 |   | 12,019 |   | 4,472 |   | 236 |   | 67.67 |   | 15,941 |   | 11,518 |   | 4,423 |   |
| Tract 20-Risinger      |       | 330                                                                              |       | 78.08                                                                            |       | 25,758 |   | 18,820 |   | 6,938 |   | 600 |   | 54.05 |   | 32,405 |   | 42,574 |   | (10,169 | ) |
|                   |       | 1,181                                                                            |       | $                                                                                | 83.20      |   | $ | 98,260 |   | $ | 152,804 |   | $ | (54,544 | ) | 1,496 |   | $ | 59.99 |   | $ | 89,741 |   | $ | 154,741 |   | $ | (65,000 | ) |

 

----

*******The Nance has previously been temporarily abandoned.

 

**InjectionWells: (Table 8)***

 
| ** **             | ** ** | **The  Company’s Interests  For Fiscal Year Ended  February 28, 2009** | ** ** | **The  Company’s Interests  For Fiscal Year Ended  February 29, 2008** | ** ** |
|------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **             | ** ** | **BOE  Vol.**                                                                    | ** ** | **BOE  Avg.  Price**                                                             | ** ** | **Net  Revenue** | ** ** | **Expense** | ** ** | **Net  Income** | ** ** | **BOE  Vol.** | ** ** | **BOE  Avg.  Price** | ** ** | **Net  Revenue** | ** ** | **Expense** | ** ** | **Net  Income** | ** ** |
| Tract 3-Cleveland      |       | —                                                                           |       | $                                                                                | —     |   | $ | — |   | $ | 55,583 |   | $ | (55,583 | ) | — |   | $ | — |   | $ | — |   | $ | 26,246 |   | $ | (26,246 | ) |
| Tract 9-Hendrix  1R    |       | —                                                                           |       | —                                                                           |       | — |   | 42,675 |   | (42,675 | ) | — |   | — |   | — |   | 21,391 |   | (21,391 | ) |
| Tract 22-Tisdale       |       | —                                                                           |       | —                                                                           |       | — |   | 31,452 |   | (31,452 | ) | — |   | — |   | — |   | 37,004 |   | (37,004 | ) |
| Tract 28-Wiseman****** |       | —                                                                           |       | —                                                                           |       | — |   | 7,330 |   | (7,330 | ) | — |   | — |   | — |   | — |   | — |   |
|                   |       | —                                                                           |       | $                                                                                | —     |   | $ | — |   | $ | 137,040 |   | $ | (137,040 | ) | — |   | $ | — |   | $ | — |   | $ | 84,641 |   | $ | (84,641 | ) |

 

----

******Wiseman was converted to a waterinjection well in November 2008.

 

**WaterSupply Well: (Table 9)***

 
| ** **                 | ** ** | **The  Company’s Interests  For Fiscal Year Ended  February 28, 2009** | ** ** | **The  Company’s Interests  For Fiscal Year Ended  February 29, 2008** | ** ** |
|----------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                 | ** ** | **BOE  Vol.**                                                                    | ** ** | **BOE  Avg.  Price**                                                             | ** ** | **Net  Revenue** | ** ** | **Expense** | ** ** | **Net  Income** | ** ** | **BOE  Vol.** | ** ** | **BOE  Avg.  Price** | ** ** | **Net  Revenue** | ** ** | **Expense** | ** ** | **Net  Income** | ** ** |
| Tract 5-Emert  Williams    |       | —                                                                           |       | $                                                                                | —     |   | $ | — |   | $ | 35,570 |   | $ | (35,570 | ) | — |   | $ | — |   | $ | — |   | $ | 22,191 |   | $ | (22,191 | ) |
| ** **                 |       |                                                                             |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Totals  for All Tracts** |       | 11,555                                                                           |       | $                                                                                | 82.91      |   | $ | 958,057 |   | $ | 832,344 |   | $ | 125,7133 |   | 14,052 |   | $ | 66.75 |   | $ | 937,959 |   | $ | 690,138 |   | $ | 247,821 |   |
| ** **                 |       |                                                                             |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Capitalized  Costs**     |       |                                                                             |       |                                                                             |       |   |   |   |   | $ | (139,370 | ) |   |   |   |   |   |   |   |   | $ | (50,847 | ) |
| ** **                 |       |                                                                             |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Cash  Flow**             |       |                                                                             |       |                                                                             |       |   |   |   |   | $ | (13,657 | ) |   |   |   |   |   |   |   |   | $ | 196,974 |   |

 

----

*Due to the rounding of numbers in these tables,immaterial differences are given during recalculation.

 

8

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Table of Contents

 

**Gravel Operations**

 

**Surface ownership, gravel mining contract and surface lease**:  The Company’s gravel property is located onapproximately 63.5 acres of the approximately 1,865.7 acres of land owned bythe Company in fee in La Plata County, Colorado.  Pursuant to a contract and surface leaseeffective January 1, 1994, Four Corners Materials (“FCM”) mined sand,gravel and rock products from its gravel permit area, Ewing Mesa Pit #1,  for a term of eight years. After theexpiration of the contract, gravel mining continued pursuant to an oralagreement between the Company and FCM and ceased in fiscal 2004.

 

**Permit and permitted acres**: The Ewing Mesa Pit #1gravel permit area covered approximately 63.5 acres.  Aggregate gravel permits usually do not havean expiration date.

 

**Reclamation and financial warranty**: During the term of thegravel mining, FCM submitted financial warranties to the Colorado Division ofReclamation, Mining, and Safety (the “CDRMS”) for its mining permit. In fiscal2006, FCM substantially reclaimed its mining operation, at which time the CDRMSreleased a portion of FCM’s financial warranty with regard to reclamation,retaining approximately $104,000 in financial warranties awaiting CDRMSconfirmation that environmental responses, vegetation and re-growth hasstabilized. In fiscal 2009, CDRMS records indicate that FCM requested a releaseof financial warranties and termination of the gravel permit, which the CDRMSdenied. According to the CDRMS, FCM had not reclaimed its sediment pond andoverburden pile within the gravel permit area, a couple of lengths of diversionditch, nor topsoiled and seeded those areas, nor had FCM reclaimed theelectrical substation.

 

**Current activity and inspection:** Regular inspection of the mine-site and itsrecords are conducted by the CDRMS who reports to FCM regarding compliance requirementsunder the permit as a result of the inspection. Inspections and resulting compliance operations will continue until thecomplete release of the reclamation liability and warranty.  The CDRMS continues to hold $104,000 forcompletion of the gravel mine reclamation.

 

TheCompany would consider leasing the property again for gravel operations but hasno intention of conducting gravel mining operations itself on the property.

 

**Carbon Junction Coal Mine**

 

**History: **In 1979, theCompany acquired leases on the Durango Property for a term of ten years for thepurpose of conducting mining operations. No mining occurred during the term ofthese leases, although a Japanese firm tested the Company’s coal and indicatedan interest in contracting for coal purchases during the early 1980s. The minehad not been permitted at that time and two years were required for permitting.After this delay, the steel market had changed and the Japanese firm no longerhad an interest in purchasing the Company’s coal.  In 1989, the Company’s leases expired, andthe land owners decided to sell the lands that are now the DurangoProperty.  In October 1990, theCompany purchased the Durango Property for the purpose of mining coal. ** **In fiscal 1994, anappraisal by a third party engineer determined that the coal deposits under theDurango Property (the “Carbon Junction Coal Mine”) could not be mined andmarketed competitively.  Therefore, inaccordance with requirements of the SEC, the Company records no reserves oreconomic value for coal deposits.

 

**Surface ownership and coal leases: **Leases covering coal deposits beneath the Durango Property in theCarbon Junction Coal Mine were acquired in October 1990 and have primaryterms of twenty-five years, and unless renewed, expire in the year 2015. TheCompany’s leases cover a 25% interest in the coal.  The Company owns a 75% interest in the coaland the surface estate of approximately 1,640 acres.  The Company has the executive rights (i.e.,the exclusive right to sign coal leases) on the leased 25% interest.****No annual delay rentals or advance minimumroyalties are required.  In 1991, theCompany purchased the surface estate, the 75% interest in the coal and theexecutive rights to the remaining 25% interest in the coal of approximately 190additional acres in La Plata County adjacent to the approximately 1,640 acrespreviously purchased.  The Company hasnot leased the remaining 25% interest in the coal.  By virtue of its fee and lease ownership andthe executive rights it holds, the Company controls 100% of the above describedtracts.

 

**Coal mining permit approved by the CDRMS September 22, 2008:**   Coal deposits held in the Carbon JunctionCoal Mine have been minimally permitted and disturbed by miningoperations.  Of the approximately 1,830acres owned and leased, approximately 192 acres were permitted for coalmining.  On September 22, 2008, theCDRMS renewed the Company’s permit after expiration of its previous permit on July 31,2008. The term of the Company’s permit is five years and the current coalmining permit expires September 22, 2013. Of the 192 permitted acres,approximately 59 acres were disturbed, 55 acres have been reclaimed and 3.5acres remain disturbed as of fiscal year end 2009.  The current Carbon 

 

9

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Table ofContents

 

JunctionCoal Mine permit covers reclamation or disposition of existing surface coalmining related disturbance within the permit area.

 

**Reclamation liability and financial warranties of $380,527 at fiscal2009 year end:**  The Company’soriginal bond****amount for the reclamation of theCarbon Junction Coal Mine was $816,526 for a permitted area of approximately192 acres containing approximately 59 disturbed acres.  Following partial reclamation of its CarbonJunction Coal Mine, on July 8, 2005 the Company submitted TechnicalRevision No. 13 to the CDRMS to update the Reclamation LiabilityEstimate.  On September 7, 2006, theCDRMS approved Technical Revision No.13 reducing the reclamation liability by$121,090, revising the financial warranty liability for reclamation of theCarbon Junction Coal Mine to $695,436 and removing 18.34 acres from thedisturbed area of the permit.

 

OnAugust 25, 2006 the Company applied for a Phase I Bond Release of thefinancial warranty, and approval of the bond release became final on May 23,2008.  Approval criteria for a Phase IBond Release states that “up to sixty percent of the applicable bond amountshall be released when the permittee has successfully completed backfilling,regrading, and drainage control in accordance with the approved reclamationplan.”  The amount of financial warrantyapplicable to the bond release area was $524,848.  Therefore the Phase I Bond Release amount was$314,909 (60% x $524,848), requiring a remaining financial warranty  in the amount of $380,527.  A discrepancy in calculation by the CDRMSregarding the Company’s remaining financial warranty resulted in a request on December 12,2008 by the CDRMS that the Company increase its current financial warranty from$380,527 to $405,834.

 

OnNovember 19, 2007, the Company submitted Technical Revision No. 15for approval of sediment pond removal. On January 28, 2008, the sediment pond removal was approved withconditions and in December 2008, reclamation of the sediment controlsystem at the Carbon Junction Coal Mine was completed, with final revegetationof the reclaimed areas to be undertaken in May 2009.

 

OnJuly 30, 2008, the Company submitted a Phase III bond release applicationseeking a monetary release of $237,356 of the then current $380,527 financialwarranty.  As of the Company’s fiscal2009 year end, approximately 3.5 disturbed acres remained to be reclaimed;however, the acreage is contained in a topsoil pile that is in excess to therequirements of reclamation of the mine site, and CDRMS has expressed awillingness to revise the current reclamation permit requirements to excludethe topsoil stock pile from being redisturbed or reclaimed.  A Technical Revision to the current permitregarding the topsoil stock pile is currently being prepared by the Company.The CDRMS has expressed concerns than an adequate demonstration of residentialpost-mining land use has not been implemented. The full release of the Company’s financial warranty is subject to theCDRMS’s confirmation that either residential land use has been implemented orenvironmental responses, ground cover, vegetative habitat and re-growth havestabilized which may require two years or longer. On May 14, 2009, theCDRMS advised the Company that it had not demonstrated residential post-miningland use satisfactorily and its Phase III request for bond release had beendenied. Phase II and Phase III Bond Releases are eligible for complete andfinal bond release after sediment control structures are reclaimed.  The Company did not submit a Phase II BondRelease application, however, because the Phase III Bond Release was deniedbased on the Company not adequately demonstrating residential post-mining landuse, the Company expects to file a Phase II Bond Release application.

 

**Current mining activities and inspections:** The Companycontinued reclamation activities in fiscal 2009, and renewed its CarbonJunction Coal Mine permit, which covers reclamation or disposition of existingsurface coal mining related disturbance within the modified permit area.  Inspections are conducted regularly by theCDRMS to determine that terms and conditions of the existing permit are beingsatisfactorily met. As needed in response to the inspections, the Company thenperforms compliance operations to conform to the CDRMS requirements cited inits report. The Company expects that inspections and operations will continueuntil the complete release of the reclamation liability and warranty. See “Item7. — Management’s Discussion and Analysis of Financial Condition and Results ofOperation.”

 

**Real Estate Held for Sale**

 

**Location:**  An AltaSurvey filed January 31, 2007 described the Durango Property as approximately1,866 acres of land located in 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.  TheCompany’s land is aligned with US Highway 160 and is located on a mesa adjacentto and above the City of Durango.  TheDurango Property is not currently within the city limits; however, certainportions of the Durango Property have common boundaries to the city.

 

**Background:  **The Companyoriginally leased the Durango Property for coal mining purposes beginning in1979, and in 1989 the lease expired. In October, 1990, the Company purchasedapproximately 1,800 acres on which the 

 

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CarbonJunction Coal Mine is sited and contains 192.77 acres permitted for coal miningpurposes. See “Item 1. Description of Business.”   In fiscal 1995, following a  third party appraisal that resulted in theCompany’s coal reserves being classified as uneconomic to produce competitivelyin the marketplace, the Company, in accordance with SEC guidelines, reportedcoal reserves owned by the Company as depleted and removed the asset from theCompany’s balance sheet. The Company’s focus for the Durango Property changedfrom energy related to real estate opportunities.

 

**Area Plan and plan approval process:**  In September 2000, the Company filed anannexation application and conceptual plan with the City of Durango forapproximately 1,100 acres of its property. The Company became aware that, prior to any action by the city regardingannexation, a plan had to be developed and approved by the city for the area inwhich the Durango Property is located (the “Area Plan”).  The Area Plan evaluates land uses within aspecific area to determine whether the uses will be compatible with eachother.  Properties adjacent and nearbythat may be impacted by the landowner requesting annexation are studied.  Impacts to resources of minerals, coal, oiland gas, as well as wildlife, archeological, geologic and environmentalhazards, traffic, public facilities and infrastructure are reviewed.  Public hearings on the Area Plan provide aforum for neighborhood discussion and comment. Public meetings were held infiscal years 2001, 2002 and 2003. The ideas, issues and concerns of theproperty owners, the Durango community, and city staff were used to prepare theArea Plan.  The Area Plan provides guidancefor decisions in developing lands within the Area Plan consistent with thecommunity’s larger vision for Durango.

 

PublicAccess and density issues were the primary issues that arose during theapproval process of the Area Plan. The City Planning Department desired greaterdensity and multiple routes for public access through the Durango Property.However, no paved secondary access road serving the Durango Property isrequired in accordance with the Area Plan until a traffic study determines the averagedaily traffic volume to and from the area will exceed 5,000 vehicle trips perday. The Area Plan supports approximately 1,500 to 3,000 residential units.

 

**Approval of Area Plan:**  The Area Plan, contemplating thatapproximately 1,202 acres of the Durango Property would be annexed, was adoptedby the City of Durango’s Planning Commission in December 2003 and by theCity Council in January 2004.

 

**Annexation:**  The nextstep in the process is for the City of Durango, when requested by the Companyor any new owner (see “Decision to Sell the Durango Property,” below), toapprove the Company’s annexation application. An annexation impact report isrequired to address the physical analysis of the annexation issue.  The current requirement is for the applicantto submit to the City of Durango an annexation application, a master plan forinfrastructure, and a plan for its initial phase of development.  The city planners then  review, hold public hearings, and prepare arecommendation to the City Council to approve, approve with conditions or denythe annexation application and plan for development.   The Company is currently unable to estimatethe timetable for the annexation process.

 

**Durango Property division into thirty-five acre lots:  **The Durango Property is locatedwithin****La****Plata County.****In August 2007, the County of La Plata, Colorado (the “County”)adopted a new land use code to originally have an effective date of January 6,2008.  The new code would place seriousrestrictions within the County on the creation of new parcels, location ofbuilding envelopes, view shed protections, hillside and ridge top limits ondevelopment, and stricter standards related to roads and water availability. Inresponse to the expected changes to the County land use codes, the Companyestablished fifty-four 35 acre parcels on the Durango Property and filed theplats with the County Clerk’s office.   Although the Board of County Commissioners delayed the effective date ofthe new code, it remains likely that it will be put into effect insubstantially the same form in the future.

 

Theplatting of the parcels established building envelopes that are intended toensure the right to build in the identified areas with fewer restrictions thanthe new code will require. The platting of the Durango Property into 35 acreparcels allows the ability to build one home on each of the parcels withoutapproval of the Board of County Commissioners. In the event a decision is madeby the Company or a new owner that annexation of the lands contained with theArea Plan into the City of Durango and development under the requirements ofthe City is not advantageous, 35 acre parcels provide development options forthe Company or any purchaser of the Durango Property. In addition to butlocated outside the Area Plan, approximately 600 or more acres of the DurangoProperty are mountainous. These mountainous acres are expected to remain within La Plata Countyjurisdiction and are a part of the 35 acre lots filings.

 

**Plan concept:** Conceptual plans are subject to change. The guidelines within the Area Plan reflect the principles found intraditional neighborhood developments  aswell as  mixed-use development conceptwhere residential villages would be within convenient walking or bikingdistance to nearby neighborhood squares intended as transitional areas of lightbusiness uses where shopping, services or office spaces would be provided tothe nearby neighborhoods.  Smallcommunity parks, houses of worship and day care would be convenientlysited.  Residential densities would shiftfrom high-density 

 

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inthe center of the village to medium or less density as the golf course or rimsof the mesa are approached.  The AreaPlan approved by the City of Durango incorporates areas of open space andpreserves hillsides, gulches and other natural features of the terrain, whileallowing residential, commercial and resort development opportunities aroundthe proposed golf course and other recreational properties.  A substantial business park is envisioned toattract corporate home offices and local businesses to the area.

 

**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’s decision was based on severalprincipal factors, one being the developments with respect to the health of Ms. Pautsky,the Chief Executive Officer and principal shareholder, who is the moving forcebehind the efforts to advance the Durango Property towards development. Infiscal 2004, Ms. Pautsky was diagnosed with a life-threatening form ofcancer. In mid-2004, Ms. Pautsky received specialized treatment for herdisease.  In November 2007, Ms. Pautskyreceived a second specialized treatment for her disease, responded well totreatment, and although treatment continues she has resumed normal activities.Because of concerns regarding Ms. Pautsky’s  health, the project size, the significantfinancial requirement by the Company, the number of years to complete and therisk involved to the Company in committing so much of its limited financialresources to one project, the Company decided to attempt to sell the DurangoProperty.  The Company’s officers, otherthan Ms. Pautsky, have not been actively involved with the DurangoProperty; however, in the event that the Company should not sell the DurangoProperty, the Company anticipates that Chi Chi Ray, Ms. Pautsky’s daughterand  long-term employee of the Company,would assume primary responsibility for the Durango Property.  Ms. Ray has been actively involvedhistorically and to date with the Company’s actions in Colorado.

 

OnApril 4, 2006, the Company signed a contract to sell the Durango Propertyfor $40,000,000, which contained an election by the buyer to terminate itscontract in accordance with provisions in the agreement.  On June 12, 2006, the Company wasnotified of the buyer’s election to terminate its contract.

 

OnOctober 18, 2006, the Company entered into a contract with another buyerfor $35,000,000, with no provision to terminate the contract with the exceptionof proof of title.  On November 29,2006, the Company announced the failure of the buyer to make good delivery ofinstallment earnest money deposits following the death of the buyer’s principalthat resulted in the buyer’s contract default. During fiscal year ended February 2009,the Company learned that the value of the buyer’s estate is not sufficient forpayment of the earnest money deposits provided for in the contract.

 

Althoughdiscussions with potential buyers of the Durango Property continue, the Companyhas not entered into any further contracts to sell the Durango Property. TheCompany is not a distressed seller and continues to have strong expectationsfor the Durango Property.  However, realestate market conditions have been affected by the downturn of the real estatemarket environment created by subprime lending. See “Competitions and Markets”below.

 

**Competition and Markets**

 

**Real estate market conditions: **The economicdownturn of the real estate market arguably began as subprime mortgage lenderssubsidized by Fannie Mae and Freddie Mac made loans available to low incomehome buyers with low interest rates and low monthly payments. When thesesubprime loans began to fail as interest rates began to increase and mortgagepayment terms could not be met, this subprime environment collapsed and FannieMae and Freddie Mac began to experience financial issues as a result of theirsubsidies.  As home mortgage loanfailures began to multiply, financial institutions began to fail and thelending environment became more stringent. Approximately one in ten home ownerswere experiencing foreclosure of their homes, the residential sales marketbecame saturated, prices fell as supply increased and sellers had difficultyrealizing a price when they sold their home that would cover their remainingloan cost.  Conditions in the marketplaceas a result of subprime loans have affected all facets of real estate as buyerslook to opportunities for investment in a lower priced, encumbered and afflictedenvironment of distressed sellers.  Realestate prices have been forced downward as distressed sellers compete for thelimited buyers available as a result of stricter lending requirements, theconsequence of subprime lending.

 

**Real estate competitive conditions:**  Two other Durango area developments are ofsignificant size and could compete with the Durango Property developmentproject. Three Springs is a 681 acre development that includes approximately300 acres of open space.  It is beingdeveloped as a traditional neighborhood and its master plan provides for amulti-phase build-out that may stretch into the year 2030.  The development includes commercial space andis the home of a regional medical center and medical office complex.  Edgemont Ranch is another development locatednear Durango.  Edgemont Ranch is situatedto the northeast of Durango and is expected to include approximately 1,000homes on 1,400 acres.  Because of thesize and the proximity of these projects to the Durango Property, they maycompete with the Durango Property development project.

 

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**Oil and gas competitive conditions:**  A large number of companies and individualsare engaged in the exploration for oil and gas, and most of the companies soengaged possess substantially greater technical and financial resources thanthe Company.  Competition for desirableleases and suitable prospects, including obtaining services and materials foroil and gas operations, is weighted towards larger companies. In fiscal 2008and 2009, the Company did not experience any difficulty in obtaining servicesand materials because of its lack of exploration and development activities.

 

**Coal and gravel competitive conditions:** The coal and gravelindustries are also highly competitive. Principal competitive factors in both industries are the verticalthickness of the over-burden above and between seams, product price andtransportation costs.  In addition, withregard to coal, its quality is regulated by the Clean Air Act of 1990.   Also, the selling company must have thefinancial and organizational ability to meet long-term coal deliveryrequirements.  The Company has beenunable to market its coal competitively and in accordance with regulations ofthe SEC does not account for coal reserves in its financial records.  The Company would consider leasing theDurango Property for gravel operations but has no intention of conductinggravel mining operations itself on the Durango Property.

 

**Oil and gas market conditions:**  The Company’s ability to produce and marketoil and gas profitably depends upon a number of factors which are beyond thecontrol of the Company, the effect of which cannot be accurately predicted oranticipated.  The price of crude oilsince the advent of oil futures trading is not controlled according to thetraditional relationship between supply and demand, but by an elaboratefinancial market system primarily driven by large trader banks and hedge funds.Today, NYMEX in New York and the ICE Futures in London control global benchmarkoil prices which in turn set most of the freely traded oil cargo prices viafutures contracts on two grades of crude oil — West Texas Intermediate (“WTI”)and North Sea Brent (“Brent”).  Brent isused in spot and long-term contracts in global markets, notably, Russia,Nigeria, the European market and to some extent, Asia.  WTI historically has been the key benchmarkfor production in the United States. OPEC control of oil prices has diminishedand Wall Street now plays an important role as the consequence of its marketspeculation directs the rise or fall of oil prices. Additional factorsaffecting the marketing of oil and gas include imports, refining capacities,current worldwide events, and actions by foreign producing nations.

 

Oiland gas prices were generally on an upward trend from the first quarter offiscal 2003 until its peak in June 2008. Such prices had a materially positive effect on the Company’s revenues.   In fiscal 2008 and 2009, the Company’saverage oil price received was $76.57 and $91.17, respectively, whichrepresents an increase of $14.60 per barrel (an increase of 19.07%) as comparedto fiscal 2008.  After receiving recordbreaking prices for the first seven months of the 2009 fiscal year, prices atyear end plummeted to an average of $34.48 per barrel.  Considering the current price declines in oiland gas prices in the marketplace, the Company expects that it will receive asignificantly lesser average price for its product in fiscal 2010.  The Company’s average gas price received infiscal 2008 and 2009 changed minimally. The Company’s revenues aresignificantly weighted in favor of oil production.

 

Whilecertain of the Company’s gas properties experience seasonal variations indemand, the Company was not experiencing any significant curtailment, or aninability to sell all of its deliverable gas, on an overall basis at February 28,2009. See “Item 7. — Management’s Discussion and Analysis of FinancialCondition and Results of Operation.”

 

**Regulation**

 

**Oil and gas:**  Theproduction of oil and gas is subject to extensive federal and state laws,rules, orders and regulations governing a wide variety of matters, includingthe drilling and spacing of wells, allowable rates of production, prevention ofwaste and pollution and protection of the environment.  In addition to the direct costs borne incomplying with such regulations, operations and revenues may be impacted to theextent that certain regulations limit oil and gas production allowables tobelow economic levels.  The regulationsare generally designed to ensure that oil and gas operations are carried out ina safe 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.  Sincethese regulations generally apply to all oil and gas producers, the Companybelieves that these regulations do not put the Company at a materialdisadvantage to other oil and gas producers.

 

Certainsales, transportation and re-sales of natural gas by the Company are subject toboth federal and state laws and regulations, including, but not limited to, theNatural Gas Act (the “NGA”), the Natural Gas Policy Act of 1978 (the “NGPA”)and regulations promulgated by the Federal Energy Regulatory Commission (“FERC”)under the NGA, the NGPA and other statutes. The provisions of the NGA and the NGPA, as well as the regulationsthere-under, are complex and can affect all who produce, resell, transport,purchase or consume natural gas.

 

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AlthoughFERC transportation regulations do not directly apply to the Company because itis not engaged in rendering jurisdictional transportation services, theseregulations do affect the operations of the Company by virtue of the need todeliver its gas production to markets served by interstate or intrastatepipelines.

 

**Coal and gravel:**  TheCompany’s coal operations in the past have been subject to extensive regulationunder the Surface Mining Control and Reclamation Act of 1977 and the Coloradolaw of a similar nature and the Clean Air Act of 1990.  The effects of such regulations have been (i) tomake it more costly for the coal to be marketed, (ii) to limit thecustomers for the coal to certain types of power plants and (iii) thateconomics are determined by quality parameters for coal. As a result of theselimiting factors, the Company has been unable to market its coal competitivelyand in accordance with SEC regulations and does not account for coal reservesin its financial records. The Company’s gravel reserves are subject tocomparable regulation, but compliance standards are less rigid.

 

**Environmental and Health Controls**

 

TheCompany’s operations are subject to numerous federal, state and local laws andregulations relating to environmental and health protection.  These laws and regulations require theacquisition of a permit before drilling commences, restrict the type,quantities and concentration of various substances that can be released intothe environment in connection with drilling and production activities, limit orprohibit drilling activities on certain lands lying within wilderness, wetlandsand other protected areas and impose substantial liabilities for pollutionresulting from oil and gas operations. These laws and regulations may also restrict air or other dischargesresulting from the operation of pipeline systems and other facilities in whichthe Company may own an interest. Although the Company believes that compliance with environmental lawsand regulations will not have a material adverse effect on operations orearnings, risks of substantial costs and liabilities are inherent in oil andgas operations, and there can be no assurance that significant costs andliabilities will not be incurred. Moreover, it is possible that otherdevelopments, such as stricter environmental laws and regulations or claims fordamages to property or persons resulting from the Company’s operations, couldresult in substantial costs and liabilities.

 

**Operating Hazards and Uninsured Risks**

 

TheCompany’s oil and gas operations are subject to all of the risks normallyincident to the oil and gas exploration and production business, includingblowouts, cratering, explosions, pollution and other environmental damage, anyof which could result in substantial losses to the Company due to injury orloss of life, damage to or destruction of wells, production facilities andother property, clean-up responsibilities, regulatory investigations andpenalties and suspensions of operations. As is common in the oil and gas industry, the Company is not fullyinsured against certain of these risks either because insurance is notavailable or because the Company has elected not to insure due to high premiumcosts.  The Company maintains comparableinsurance coverage for its coal and gravel operations.

 

**Employees**

 

Asof May 18, 2009, the Company had four full-time employees and onepart-time employee.  Three of theemployees are located at the Company’s executive offices and two are fieldemployees located in North Texas.  TheCompany considers its relations with its employees to be satisfactory.

 

**ITEM 2.              PROPERTIES**

 

**Oil and Gas Properties**

 

**Reserves:**** **Reference is made to “Supplemental Oil and Gas Data (Unaudited)”included as supplemental information to the Financial Statements for additionalinformation concerning:  (i) certaincost and revenue information pertaining to the Company’s oil and gas producingactivities; (ii) estimates of the Company’s oil and gas reserves andchanges in such reserves; and (iii) a standardized measure of the discountedfuture net cash flows from the Company’s oil and gas reserves and the changesin such standardized measure.  Theengineering report with respect to the Company’s proved oil and gas reserves asof February 28, 2009 was prepared by Stephens Engineering, independentpetroleum engineers, Wichita Falls, Texas (“Stephens Engineering”). At suchdate, all of the Company’s oil and gas reserves were located in the UnitedStates and in the states of Texas, Mississippi, Colorado and Oklahoma.

 

Noreserve reports pertaining to the Company’s proved net oil or gas reserves werefiled with any federal governmental authority or agency during the fiscal yearended February 28, 2009, and no major discovery is believed to have causeda significant change in the Company’s estimates of proved reserves since thatdate.

 

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Thefollowing table reflects Stephens Engineering’s estimate of those quantities ofoil and gas as of February 28, 2009 which can be produced from the Company’sproved developed reserves during the fiscal year ending February 28, 2010using equipment installed and under economic and operating conditions existingat February 28, 2009:

 
| Oil  (Bbls) |   | 5,623  |   |
|-------------|--------|--------|--------|
| Gas  (MCF)  |   | 10,322 |   |

 

TheCompany is not obligated to provide a fixed and determinable quantity of oiland gas in the future under any of its existing contracts or arrangements.

 

**Production**:  Thefollowing table shows for each of the last three fiscal years the totalproduction attributable to the Company’s oil and gas interests:

 
| **Fiscal Year Ended  February 28(9),** | ** ** | **Oil  (Bbls)** | ** ** | **Gas  (MCF)** | ** ** |
|-------------------------------------------------------|------------|-----------------|------------|----------------|------------|
| 2009                                                  |       | 16,088          |       | 19,860         |       |
| 2008                                                  |       | 17,293          |       | 20,843         |       |
| 2007                                                  |       | 18,707          |       | 20,749         |       |

 

**Lifting costs and average sales prices: **The Company’s production (lifting) costs and average sales pricesreceived during each of the last three fiscal years were as shown in thefollowing table:

 
| ** **                 | ** ** | **Fiscal Year  Ended February 28(9),** | ** ** |
|----------------------------|------------|-------------------------------------------------------|------------|
| ** **                 | ** ** | **2009**                                              | ** ** | **2008** | ** ** | **2007** | ** ** |
| Lifting Costs              |       |                                                  |       |   |   |   |   |
|                       |       |                                                  |       |   |   |   |   |
| Per Equivalent Unit (Bbls) |       | $                                                     | 55.64      |   | $ | 44.20 |   | $ | 39.69 |   |
|                       |       |                                                  |       |   |   |   |   |
| Average Sales Prices       |       |                                                  |       |   |   |   |   |
|                       |       |                                                  |       |   |   |   |   |
| Oil (per Bbl)              |       | 91.17                                                 |       | 76.57 |   | 62.42 |   |
| Gas (per MCF)              |       | 7.01                                                  |       | 6.63 |   | 5.82 |   |
|                            |            |                                                       |            |  |  |  |  |  |  |  |

 

**Sales contracts and major customers**:  The Company does not own any refiningfacilities and sells its oil under short-term contracts at f.o.b. field pricesposted by the principal purchasers of oil in the areas in which the Company’sproducing properties are located.  Duringthe fiscal year ended February 28, 2009, approximately 67.5% of theCompany’s oil sales were to Teppco Crude Oil, L.P. (“Teppco”) and approximately24.8% were to Sunoco, Inc.  Duringfiscal 2009, approximately 57.8% of the Company’s gas sales were undershort-term contracts to Orion Pipeline, L.L.C. (“Orion”), approximately 18.4%were to Chevron U.S.A., Inc., and approximately 13.3% were to Targa NorthTexas LP.

 

Substantiallyall of the Company’s oil sales to Teppco and its gas sales to Orion were fromthe Company’s Madison County, Texas Property.

 

Inthe opinion of management, the termination of any of the Company’s salescontracts would not adversely affect the Company’s ability to sell its oil andgas production at comparable prices.

 

**Developed acreage and productive wells: **As of February 28, 2009, the Company owned working and overridingroyalty interests in 8,884 gross (2,812 net) acres of developed oil and gasleases and 51 gross (17 net) productive oil and gas wells.

 

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Thefollowing table summarizes the Company’s developed acreage and productive wellsas of February 28, 2009:

 
| ** **         | ** ** | **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 County     |       | 4,515                         |       | —                          |       | 1,129 |   | — |   | 23 |   | — |   | 6.00 |   | — |   |
| All Other Counties |       | 3,000                         |       | 1,047                           |       | 1,426 |   | 252 |   | 22 |   | 3 |   | 9.58 |   | 1.09 |   |
| Mississippi        |       | 40                            |       | —                          |       | .26 |   | — |   | 1 |   | — |   | 0.01 |   | — |   |
| Colorado           |       | —                        |       | 242                             |       | — |   | 4 |   | — |   | 1 |   | — |   | 0.02 |   |
| Oklahoma           |       | 40                            |       | —                          |       | 1 |   | — |   | 1 |   | — |   | 0.03 |   | — |   |
|               |       |                          |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total              |       | 7,595                         |       | 1,289                           |       | 2,556 |   | 256 |   | 47 |   | 4 |   | 15.62 |   | 1.11 |   |

 

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| (1)    |   | Reversionary  interests which may increase or decrease the interest shown have been disregarded  for purposes of this table.                                                                                                                                                                                   |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                           |
| (2)    |   | “Gross,”  as it applies to acreage or wells, refers to the number of wells or acres in  which an interest is owned by the Company. “Net,” as it applies to acreage or  wells, refers to the sum of the fractional ownership interests owned by the  Company in gross wells or gross acres. |
|   |   |                                                                                                                                                                                                                                                                                                           |
| (3)    |   | Excludes  10 gross (4.40 net) shut-in wells; excludes 8 gross (3.30 net) water  injection wells and 1 gross (.25 net) water supply well.                                                                                                                                                                       |

 

**Undeveloped acreage**:  The following table shows the gross and netacres of undeveloped oil and gas leases held by the Company at February 28,2009:

 

| **State** | ** ** | **Gross Acres (1)** | ** ** | **Net Acres(1)** | ** ** |
|-----------|------------|--------------------------|------------|-----------------------|------------|
| Texas     |       | 88                       |       | 29                    |       |

 

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| (1) |   | “Gross,”  as it applies to acreage, refers to the number of acres in which an interest  is owned by the Company. “Net,” as it applies to acreage, refers to the sum  of the fractional ownership interests owned by the Company in gross acres. |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Inthe absence of drilling activity which establishes commercial reservessufficient to justify retention or renewal of leases, approximately 11.03% ofthe Company’s leases will expire in fiscal 2010 and 88.97% will expire infiscal 2011.

 

**Drilling activity**:  TheCompany did not participate in drilling any development wells during the lastthree fiscal years and, as of February 28, 2009, the Company was not inthe process of drilling or completing any wells.

 

**Coal and Gravel Properties**

 

**Coal leases**:  Leasescovering coal deposits beneath the Durango Property in the Carbon Junction CoalMine were acquired in October 1990 and have primary terms of 25 years, andunless renewed, expire in the year 2015. The Company’s leases cover a 25%interest in the coal.  The Company owns a75% interest in the coal and the surface estate of approximately 1,640acres.  The Company has the executiverights (i.e., the exclusive right to sign coal leases) on the leased 25%interest.****No annual delay rentalsor advance minimum royalties are required.  In 1991, the Company purchased the surface estate, the 75% interest inthe coal and the executive rights to the remaining 25% interest in the coal ofapproximately 190 additional acres in La Plata County adjacent to theapproximately 1,640 acres previously purchased. The Company has not leased the remaining 25% interest in the coal.  By virtue of its fee and lease ownership andthe executive rights it holds, the Company controls 100% of the above describedtracts.

 

**Coal mining permit approved by the CDRMS on September 22, 2008:**   Coal deposits held in the Carbon JunctionCoal Mine have been minimally permitted and disturbed by miningoperations.  Of the approximately 1,830acres owned and leased, approximately 192 acres were permitted by the CDRMS on September 22,2008 for surface reclamation purposes after the expiration of its previouspermit on July 31, 2008.  The termof the Company’s permit is five 

 

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yearsand the current permit expires September 22, 2013.  The Carbon Junction Coal Mine permit coversreclamation or disposition of existing surface coal mining related disturbancewithin the permit area. See “Item 1 - Business - Carbon Junction Coal Mine.”

 

TheCompany also owns 55% of the gravel, oil, gas and other mineral rights withrespect to the approximate 1,640 acre tract in La Plata County, Colorado andhas the executive rights on the remaining 45%. The permit to mine gravel held by FCM, previous operator of the gravelmine, contains 63.5 acres.  In fiscal2006, FCM substantially reclaimed its gravel mining operation. The CDRMSreleased a portion of FCM’s financial warranty with regard to reclamationretaining approximately $104,000 in financial warranties.  In fiscal 2009, CDRMS records indicate thatFCM requested a release of financial warranty and termination of the permit,which the CDRMS denied.  According to theCDRMS, FCM had not reclaimed its sediment pond and overburden pile within thegravel pit area, reclaimed a couple of lengths of diversion ditch, nortopsoiled and seeded those areas, nor had FCM reclaimed the electricalsubstation. Aggregate permits generally do not have a termination date.   See “Item 1. Business - Gravel Operations”and “Item 7. — Management’s Discussion and Analysisof Financial Condition andResults of Operation.”

 

**Real Estate**

 

TheDurango Property held for sale by the Company contains 1,866 acres coveringcoal, gas and other minerals including gravel as described above in “Coal andGravel Properties.”  Approximately 1,202acres of such land is the subject of a planned mixed use development by theCompany.  In the opinion of management,the Durango Property is adequately covered by insurance.  See “Item 1.Business - Real Estate Held forSale.”

 

**Office Building**

 

TheCompany owns a one-story office building situated at 4613 Jacksboro Highway inWichita Falls, Texas in which its executive offices are located.  The building is located on .519 acres of landand contains 5,117 square feet of space. The building was built in 1974 and isin overall good condition.  In theopinion of management, the office building is adequately covered by insurance.

 

**ITEM 3.                LEGAL PROCEEDINGS**

 

TheCompany is not a party to any pending litigation.  To the best knowledge of the Company, thereare no legal proceedings to which any director, officer or affiliate of theCompany, any owner of record or beneficially of more than five percent (5%) ofany class of voting securities of the Company, or any associate of any suchdirector, officer or security holder is a party adverse to the Company or has amaterial interest adverse to the Company.

 

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

 

Nomatter was submitted during the fourth quarter of the fiscal year ended February 28,2009 to a vote of the Company’s security holders, through the solicitation ofproxies or otherwise.

 

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**PART II**

 

**ITEM 5.****                                                ****MARKET FOR REGISTRANT’S COMMON EQUITY RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES**

 

TheCompany’s common stock, $0.04 par value, is traded in the over-the-countermarket.  The following table shows therange of bid quotations for the common stock during the two fiscal years ended February 29,2008 and February 28, 2009 by quarters. Such quotations were furnished to the Company by the National QuotationBureau, LLC and were supplied by The National Association of Securities Dealers(“NASD”) through the NASD OTC Bulletin Board, the NASD’s automated system forreporting NON-NASDAQ quotes and the National Quotation Bureau’s PinkSheets.  The quotations represent pricesbetween dealers and do not include retail markups, markdowns or commissions anddo not necessarily represent actual transactions.

** **

| **Period**                                | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------------------------------------|------------|----------|------------|---------|------------|
|                                      |       |     |       |    |       |
| Fiscal Year Ended February 29, 2008: |       |     |       |    |       |
| Quarter Ended May 31, 2007           |       | $        | 7.00       |    | $          | 5.00 |   |
| Quarter Ended August 31, 2007        |       | 8.75     |       | 5.80    |       |
| Quarter Ended November 30, 2007      |       | 7.00     |       | 5.00    |       |
| Quarter Ended February 29, 2008      |       | 7.25     |       | 5.00    |       |
|                                      |       |     |       |    |       |
| Fiscal Year Ended February 28, 2009: |       |     |       |    |       |
| Quarter Ended May 31, 2008           |       | 10.50    |       | 6.00    |       |
| Quarter Ended August 31, 2008        |       | 10.50    |       | 7.00    |       |
| Quarter Ended November 30, 2008      |       | 7.50     |       | 4.00    |       |
| Quarter Ended February 28, 2009      |       | 4.50     |       | 2.25    |       |
|                                           |            |          |            |         |            |  |  |

 

Asof May 11, 2009, the approximate number of holders of record of the commonstock of the Company was 406.

 

TheCompany did not pay any dividends during the two fiscal years ended February 29,2008 and February 28, 2009.  Thereare currently no restrictions upon the Company’s ability to pay dividends. TheCompany’s Board of Directors has not approved a dividend in connection with theproposed sale of the Durango Property. Although the Company’s Board of Directors will consider approving adividend to distribute a portion of the net proceeds received from the sale ofthe Durango Property, if the sale is accomplished, the Company cannot assureyou that such dividend will be approved or declared.

 

TheCompany has no publicly announced plans or programs to purchase its shares ofcommon stock.

 

**ITEM 7.****                                                ****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATION**

 

Thefollowing discussion and analysis should be read in conjunction with the FinancialStatements and Notes thereto included in Item 8.

 

**Results of Operations**

 

TheCompany had a net loss of $652,703 ($0.15 per share) in the fiscal year ended February 28,2009 compared to net income of $72,544 ($0.02 per share) in the fiscal yearended February 29, 2008. The Company experienced losses from operations inboth the 2009 and 2008 fiscal periods; however, the loss from operations infiscal 2008 was minimal and was offset by other income resulting in a profit infiscal 2008.

 

Oiland gas revenues increased $12,584 (0.77%) in the fiscal year ended February 28,2009.  The average oil price receivedresulted in increased oil revenue as sales volumes decreased.  Fees in the amount of $36,600 received by theCompany both in fiscal 2009 and 2008 for serving as operator of most of theCompany’s North Texas area properties are included in oil and gas revenues.

 

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Thefollowing table compares the Company’s oil and gas revenues and average pricesreceived by the Company and its sales volumes of oil and gas during fiscal 2009with those of fiscal 2008:

 
| ** **               | ** ** | **Fiscal 2009** | ** ** | **Fiscal 2008** | ** ** | **Percentage  Difference** | ** ** |
|--------------------------|------------|----------------------|------------|----------------------|------------|----------------------------|------------|
| Oil:                     |       |                 |       |                 |       |                       |       |
|                     |       |                 |       |                 |       |                       |       |
| Revenues                 |       | $                    | 1,434,279  |                 | $          | 1,402,115                  |       | +2.29 | % |
| Volume (Bbls.)           |       | 15,732               |       | 18,312               |       | -14.09                     | %          |
| Average Price (per Bbl.) |       | $                    | 91.17      |                 | $          | 76.57                      |       | +19.07 | % |
|                     |       |                 |       |                 |       |                       |       |
| Gas:                     |       |                 |       |                 |       |                       |       |
|                     |       |                 |       |                 |       |                       |       |
| Revenues                 |       | $                    | 170,619    |                 | $          | 174,307                    |       | -2.12 | % |
| Volume (MCF)             |       | 24,345               |       | 26,306               |       | -7.45                      | %          |
| Average Price (per MCF)  |       | $                    | 7.01       |                 | $          | 6.63                       |       | +5.73 | % |

 

Non-materialamounts of natural gas liquids revenues and sales volumes for both years areexcluded from the foregoing table.

 

Althoughthe Company’s revenues remained relatively stable in fiscal 2009 as compared tofiscal 2008, the Company sustained a substantial net loss as a consequence ofthe considerable decline in the price of oil experienced in latter fiscal 2009,concluding with a price received on February 28, 2009 of $32.82 for theMadison County, Texas Property.  The SECguidelines provide that reserves that are part of a natural resource occurrencewhich can be economically and legally extracted at a profit at the *time of the reserve determination*are recordable to theCompany.  As previously discussed, theCompany’s reserve report used February 28, 2009 prices of $32.82 perbarrel of oil and $3.26 per mcf of natural gas to calculate reserve value forthe Madison County, Texas Property.  Thereserve report stated that the Madison County, Texas Property waterflood unitwas below the economic limit. Therefore, no future primary reserves wererecordable by the Company for the property. However, 599,059 barrels of proven *undeveloped*secondaryoil reserves with an estimated future life of 20 years and 8 months wererecoverable to the Company’s 25% working interest in the property bywaterflooding the reservoir. See “Item 1. Business - Oil and Gas Operations.”

 

TheCompany’s revenues in fiscal 2009 from the Madison County, Texas Propertyincreased $19,985 (2.13%) as higher average oil prices of $14.61 (an increaseof 18.93%) per barrel received more than offset the decreased oil volumes of1,380 (a decrease of 12.51%) barrels from the property.

 

Thetable below shows the primary increases, by property, incurred in the Company’soil and gas operations which increased in total $814,133 (79.24%) in fiscal2009 as compared to fiscal 2008.  Thetable does not include $65,994 (8.10% of total increase in operations) inincreased write offs of expired undeveloped leases in Greg County, Texas orresults from properties where the changes were deemed to be minimal for fiscal2009 as compared to fiscal 2008.

 
| **Increases in:**                                    | ** ** | **Madison  County,  Texas*** | ** ** | **North  Texas** | ** ** | **Smith  County,  Texas** | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|------------------|------------|---------------------------|------------|
| Depletion and depreciation expense                   |       | $                            | 361,869    |             | $          | (297                      | )          | $ | 263 |   |
| Asset retirement obligation accretion and  depletion |       | 176,625                      |       | 14,914           |       | 4,487                     |       |
| Operations                                           |       | 142,197                      |       | 33,843           |       | 9,865                     |       |
| Total increases in oil and gas operations            |       | $                            | 680,691    |             | $          | 48,460                    |       | $ | 14,615 |   |
| Percentage of total increase in operations           |       | 83.61                        | %          | 5.95             | %          | 1.80                      | %          |

 

----

*See “Item 1. —Business - Oil and Gas Operations.”

 

Theexpenses of the Company’s coal and gravel operations increased $100,113(253.65%) in fiscal 2009 primarily due to $92,491 in reclamation cost and$12,537 in testing and permitting costs.

 

Realestate development expense increased $133,868 (129.63%) in fiscal 2009 ascompared to fiscal 2008 primarily due to increased ad valorem tax of $159,092(277.94 %) on the Durango Property due to a redetermination of value by the LaPlata County Tax Assessor.  All otherexpenses decreased with the exception of minimal maintenance expense on theproperty, as no such expense occurred in fiscal 2008.

 

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Generaland administrative expenses increased $62,862 (12.99%) primarily due toincreased costs for professional fees and expenses for compliance with federallaws and regulations in the amount of $27,259, increased letter of credit feesin the amount of $17,245 and increased SEC reporting fees in the amount of$16,782.

 

Otherincome decreased $8,298 (4.62%) in fiscal 2009 compared to fiscal 2008. Otherincome consists of four primary components: (i) interest and dividendincome, (ii) gains on sales of property, (iii) realized loss oninvestments and (iv) other income and expense, primarily partnership gainsand losses and changes in estimates. Lower interest rates and slightly lowerportfolio values resulted in decreased interest income in the amount ofapproximately $57,305 (42.19%) and decreased dividend income of $5,939(40.69%).  The Company experienced a gainon the sale of assets of $208,611 in fiscal 2009 due to the sale of a workoverrig and the salvage of remaining coal mining equipment with only a $18,517 gainrealized from sales of assets in fiscal 2008. The write-down of an investment security which was consideredpermanently impaired in fiscal 2009 resulted in an increase in expense in theamount of $124,143.  As to the remainingother income components, the Company’s income relating to its interest in thelimited partnership which operates a small gas pipeline in the East Texas areawas $2,541 more in fiscal 2009 than in fiscal 2008 and the Company had $13,547in increased expense for fiscal 2009 due to a change in estimate.

 

TheCompany’s provision for income tax was a benefit in fiscal 2009 of $297,086,and an expense in fiscal 2008 of $84,357, resulting in a decrease of $381,443(452.18%) in income tax expense in fiscal 2009. This provision includes U.S. federal corporate and state income taxes.

 

TheCompany made no purchases of its common stock in fiscal 2009 as compared topurchases of 2,675 shares in fiscal 2008, and there were 4,260,242 sharesoutstanding at the February 28, 2009 fiscal year end.

 

**Financial Condition and Liquidity**

 

Duringfiscal 2009, the Company did not participate in any exploratory or developmentdrilling and generally tried to restrict its expenditures. Investing activitieswere net users of cash in fiscal 2009 primarily due to purchases ofapproximately $4,476,000 in certificates of deposit with original maturities ofmore than three months, of which $1,990,000 have matured, leaving net purchasesof approximately $2,486,000.  Thesepurchases of certificates of deposit were the primary reason for theapproximate $2,102,000 decrease in cash for fiscal 2009.

 

TheCompany’s decision to attempt to sell the Durango Property should eliminate theneed for any substantial drawdown of the Company’s cash reserves or the need toobtain additional debt or equity financing. The Company expects to fund itscontemplated oil and gas plugging and abandonment operations during fiscal 2010and any purchases of the Company’s stock that it makes from its cash and cashequivalents, maturities of its certificates of deposit, any cash flow from itsoil and gas properties, and sale of salvage from the abandoned wells.

 

TheCompany’s oil product received an average price of $91.17 in fiscal 2009 forall properties.  However, at year end,the average oil price for all properties had plummeted to $34.48.   The Company expects that the average pricereceived for oil and gas in fiscal 2010 will be less than those received duringfiscal 2009.  Although the Company hassufficient funds available for its use in operations, the Company is evaluatingits options for reducing the cost required to maintain the Company’s operationsas a result of the Company’s Madison County, Texas Property reserves beingclassified as uneconomical to produce at the $32.82 oil price on February 28,2009 combined with the increasing cost of operations of the Madison County,Texas Property experienced by the Company in fiscal 2008 and 2009.

 

**Critical Accounting Policies and Estimates**

 

Theforegoing discussion and analysis of the Company’s results of operations andfinancial condition and liquidity is based upon the Company’s financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America.  The preparation of these financial statementsrequires the Company to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses.  The Company’s significant accounting policiesare described in Note B of the notes to financial statements.  In response to SEC Release No. 33-8040, “CautionaryAdvice Regarding Disclosure about Critical Accounting Policies,” the Companyhas identified certain of these policies as being of particular importance tothe portrayal of the Company’s results of operations and financial position andwhich require the application of significant judgment by management.  The Company analyzes its estimates, includingthose related to oil and gas revenues, oil and gas properties, income taxes,contingencies and litigation, and bases its estimates on historical experienceand various other assumptions that the Company believes to be reasonable underthe circumstances.  Actual results maydiffer from these estimates under different assumptions or conditions.  The 

 

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Companybelieves the following critical accounting policies affect its more significantjudgments and estimates used in the preparation of the Company’s financialstatements:

 

**Successful efforts method of accounting**:**** TheCompany accounts for its natural gas and crude oil exploration and developmentactivities utilizing the successful efforts method of accounting.  Under this method, costs of productiveexploratory wells, development dry holes and productive wells, costs to acquiremineral interests and three-dimensional (3-D) seismic costs are capitalized.  Exploration costs, including personnel costs,certain geological and geophysical expenses including two-dimensional (2-D)seismic costs and delay rentals for oil and gas leases, are charged to expenseas incurred.  Exploratory drilling costsare initially capitalized, but charged to expense if and when the well isdetermined not to have found reserves in commercial quantities.

 

Theapplication of the successful efforts method of accounting requires managerialjudgment to determine the proper classification of wells designated asdevelopmental or exploratory which will ultimately determine the properaccounting treatment of the costs incurred. The results from a drilling operation can take considerable time to analyzeand the determination that commercial reserves have been discovered requiresboth judgment and industry experience. Wells may be completed that are assumed to be productive but actuallydeliver oil and gas in quantities insufficient to be economic, which may resultin the abandonment of 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.  The evaluation of oil and gas leaseholdacquisition costs requires managerial judgment to estimate the fair value ofthese costs with reference to drilling activity in a given area.  Drilling activities in an area by othercompanies may also effectively condemn leasehold positions.

 

Thesuccessful efforts method of accounting can have a significant impact on theoperational results reported when the Company is entering a new exploratoryarea in hopes of funding an oil and gas field that will be the focus of futuredevelopment drilling activity.  The initialexploratory wells may be unsuccessful and will be expensed.

 

**Reserve estimates**:** **The Company’sestimates of oil and gas reserves, by necessity, are projections based ongeologic and engineering data, and there are uncertainties inherent in theinterpretation of such data as well as the projection of future rates ofproduction and the timing of development expenditures.  Reserve engineering is a subjective processof estimating underground accumulations of oil and gas that are difficult tomeasure.  The accuracy of any reserveestimate is a function of the quality of available data, engineering andgeological interpretation and judgment. Estimates of economically recoverable oil and gas reserves and futurenet cash flows necessarily depend upon a number of variable factors andassumptions, such as historical production from the area compared withproduction from other producing areas, the assumed effects of regulations bygovernmental agencies and assumptions governing future oil and gas prices,future operating costs, severance taxes, development costs and workover gascosts, all of which may in fact vary considerably from actual results.  The future drilling costs associated withreserves assigned to proved undeveloped locations may ultimately increase to anextent that these reserves may be later determined to be uneconomic.  For these reasons, estimates of theeconomically recoverable quantities of oil and gas attributable to anyparticular group of properties, classifications of such reserves based on riskof recovery and estimates of the future net cash flows expected there from mayvary substantially.  Any significantvariance in the assumptions could materially affect the estimated quantity andvalue of the reserves, which could affect the carrying value of the Company’soil and gas properties and/or the rate of depletion of the oil and gasproperties.  Actual production, revenuesand expenditures with respect to the Company’s reserves will likely vary fromestimates and such variances may be material.

 

**Impairment of oil and gas properties**:** **TheCompany reviews its oil and gas properties for impairment at least annually andwhenever events and circumstances indicate a decline in the recoverability oftheir carrying value.  The Companyestimates the expected future cash flows of its oil and gas properties andcompares such future cash flows to the carrying amount of the properties todetermine if the carrying amount is recoverable.  If the carrying amount exceeds the estimatedundiscounted future cash flows, the Company will adjust the carrying amount ofthe oil and gas properties to their fair value. The factors used to determine fair value include, but are not limitedto, estimates of proved reserves, future commodity pricing, future productionestimates, anticipated capital expenditures and a discount rate commensuratewith the risk associated with realizing the expected cash flows projected.

 

Giventhe complexities associated with oil and gas reserve estimates and the historyof price volatility in the oil and gas markets, events may arise that wouldrequire the Company to record an impairment of the recorded book valuesassociated with oil and gas properties. In fiscal 2009, the Company recorded an impairment and partial write offof its Madison County, Texas Property. The price of oil per barrel plummeted inFebruary 2009.  SEC S-X Rule 4-10provides that reserves that are a part of a natural resource occurrence whichcan be economically and legally extracted at a profit at the *time of the reserve determination* are recordable to theCompany. For the Madison County, Texas Property, the reserve report used 

 

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theFebruary 28, 2009 prices of $32.82 per barrel of oil and $3.26 per mcf ofgas to calculate reserve value.  Theresults were that the Madison County, Texas Property waterflood unit was belowthe economic limit; therefore, no future primary reserves were recordable bythe Company for the property.

 

**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.

 

Theestimated liability is determined using significant assumptions, includingcurrent estimates of plugging and abandonment costs, annual inflation of thesecosts, the productive lives of wells, and a risk-adjusted interest rate.Changes in any of these assumptions can result in significant revisions to theestimated asset retirement obligations. Revisions to the asset retirementobligations are recorded with an offsetting change to producing properties,resulting in prospective changes to depletion and depreciation expense andaccretion of the discount.  Because theMadison County, Texas Property was classified as non economic, the wells wereconsidered to be at the end of their useful lives for accounting purposes andthe property’s retirement liability had to be recognized in fiscal 2009.  Because of the subjectivity of assumptionsand the relatively long lives of most of the wells, the costs to ultimatelyretire the Company’s wells may vary significantly from prior estimates.

 

**Forward-Looking Statements**

 

Certaininformation included in this Annual Report on Form 10-K and othermaterials filed by the Company with the SEC contain forward-looking statementsrelating to the Company’s operations and the oil and gas industry.  Such forward-looking statements are based onmanagement’s current projections and estimates and are identified by words suchas “expects,” “intends,” “plans,” “believes,” “estimates,” “anticipates” andsimilar words.  These statements are notguarantees of future performance and involve certain risks, uncertainties andassumptions that are difficult to predict. Therefore, actual results may differ materially from what is expressedin such forward-looking statements.

 

Amongthe factors that could cause actual results to differ materially are crude oiland natural gas price fluctuations, failure to achieve expected production andthe timing of receipt of revenues from existing and future exploration anddevelopment projects (including, particularly, the secondary recovery projecton the Madison County, Texas Property), higher than estimated oil and gas andcoal reclamation costs and delays with respect to, or failure to obtain,governmental permits and approvals necessary to proceed with real estatedevelopment.  In addition, theseforward-looking statements may be affected by general domestic and internationaleconomic and political conditions.

 

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**ITEM 8.             FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

**Index toFinancial Statements**

 
| ** **                                                                                                  | **Page** |
|-------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                        |     |
| Report  of Independent Registered Public Accounting Firm                                                    | 24       |
|                                                                                                        |     |
| Balance Sheets as of  February 28(9), 2009 and 2008                                                    | 25       |
|                                                                                                        |     |
| Statements of  Operations for the years ended February 28(9), 2009 and 2008                            | 27       |
|                                                                                                        |     |
| Statements  of Changes in Stockholders’ Equity for the years ended February 28(9),  2009 and 2008 | 28       |
|                                                                                                        |     |
| Statements of  Cash Flows for the years ended February 28(9), 2009 and 2008                            | 29       |
|                                                                                                        |     |
| Notes to Financial Statements                                                                               | 30       |
|                                                                                                        |     |
| Supplemental Oil and Gas Data (Unaudited)                                                                   | 38       |

 

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#### **REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

#### ** **

Tothe Board of Directors and Stockholders of

OakridgeEnergy, Inc.

 

We have audited the accompanying balance sheets ofOakridge Energy, Inc. (the “Company”) as of February 28, 2009 and February 29,2008, and the related statements of operations, changes in stockholders’equity, and cash flows for the years then ended.  These financial statements are the responsibilityof the Company’s management.  Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In ouropinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of the Company as of February 28,2009 and February 29, 2008,and the results of its operations and its cash flows for the years then ended,in conformity with accounting principles generally accepted in the UnitedStates of America.

 

/s/ Whitley Penn LLP

FortWorth, Texas

June 12,2009

 

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**OAKRIDGE ENERGY, INC.**

 

**BALANCESHEETS**

 
| ** **                                                                                            | ** ** | **February 28,** | ** ** | **February 29,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                            | ** ** | **2009**              | ** ** | **2008**              | ** ** |
| ** **                                                                                            | ** ** | ** **            | ** ** | ** **            | ** ** |
| **Assets**                                                                                            |       |                  |       |                  |       |
| Current assets:                                                                                       |       |                  |       |                  |       |
| Cash and cash equivalents                                                                             |       | $                     | 207,244    |                  | $          | 2,309,055 |   |
| Trade accounts receivable                                                                             |       | 131,686               |       | 277,722               |       |
| Investment securities available for sale                                                              |       | 72,992                |       | 77,252                |       |
| Prepaid expenses and other                                                                            |       | 16,851                |       | 138,689               |       |
| Certificates of deposit                                                                               |       | 2,483,931             |       | —                |       |
| Total current assets                                                                                  |       | 2,912,704             |       | 2,802,718             |       |
|                                                                                                  |       |                  |       |                  |       |
| Oil and gas properties, at cost, using the  successful efforts method of accounting:                  |       |                  |       |                  |       |
| Proved developed properties                                                                           |       | 7,280,164             |       | 7,069,215             |       |
| Less accumulated depletion and depreciation                                                           |       | 7,001,515             |       | 6,430,729             |       |
| Proved developed properties, net                                                                      |       | 278,649               |       | 638,486               |       |
| Unproved properties                                                                                   |       | 43,899                |       | 104,702               |       |
| Net oil and gas properties                                                                            |       | 322,548               |       | 743,188               |       |
|                                                                                                  |       |                  |       |                  |       |
| Coal and gravel properties, at cost:                                                                  |       |                  |       |                  |       |
| Undeveloped properties                                                                                |       | 5,850,424             |       | 5,850,424             |       |
| Mining and service equipment                                                                          |       | —                |       | 2,333,783             |       |
| Total coal and gravel properties                                                                      |       | 5,850,424             |       | 8,184,207             |       |
| Less accumulated depletion and depreciation                                                           |       | 5,589,936             |       | 7,923,719             |       |
| Net coal and gravel properties                                                                        |       | 260,488               |       | 260,488               |       |
|                                                                                                  |       |                  |       |                  |       |
| Other property and equipment, net of accumulated  depreciation of $280,337 and $415,189, respectively |       | 118,743               |       | 136,762               |       |
|                                                                                                  |       |                  |       |                  |       |
| Real estate held for sale                                                                             |       | 3,168,107             |       | 3,135,073             |       |
|                                                                                                  |       |                  |       |                  |       |
| Deferred income taxes                                                                                 |       | 670,464               |       | 382,996               |       |
|                                                                                                  |       |                  |       |                  |       |
| Other non-current assets                                                                              |       | 424,723               |       | 741,540               |       |
|                                                                                                  |       |                  |       |                  |       |
| Total assets                                                                                          |       | $                     | 7,877,777  |                  | $          | 8,202,765 |   |

 

Seeaccompanying notes to financial statements.

 

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| ** **                                                                                      | ** ** | **February 28,** | ** ** | **February 29,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                      | ** ** | **2009**              | ** ** | **2008**              | ** ** |
| ** **                                                                                      | ** ** | ** **            | ** ** | ** **            | ** ** |
| **Liabilities and Stockholders’  Equity**                                                  |       |                  |       |                  |       |
| Current liabilities:                                                                            |       |                  |       |                  |       |
| Accounts payable                                                                                |       | $                     | 381,297    |                  | $          | 184,113 |   |
| Accrued expenses                                                                                |       | 39,946                |       | 35,131                |       |
| Current portion of asset retirement obligations                                                 |       | 88,696                |       | 236,695               |       |
| Total current liabilities                                                                       |       | 509,939               |       | 455,939               |       |
|                                                                                            |       |                  |       |                  |       |
| Asset retirement obligations                                                                    |       | 505,904               |       | 264,079               |       |
| Total liabilities                                                                               |       | 1,015,843             |       | 720,018               |       |
|                                                                                            |       |                  |       |                  |       |
| 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                                                                               |       | 16,042,106            |       | 16,694,809            |       |
| Accumulated other comprehensive loss                                                            |       | (22,326               | )          | (54,216               | )          |
| Stockholders’ equity before treasury stock                                                 |       | 17,231,184            |       | 17,851,997            |       |
| Less treasury stock, at cost; 5,897,561 shares                                                  |       | 10,369,250            |       | 10,369,250            |       |
| Total stockholders’ equity                                                                 |       | 6,861,934             |       | 7,482,747             |       |
|                                                                                            |       |                  |       |                  |       |
| Total liabilities and stockholders’ equity                                                 |       | $                     | 7,877,777  |                  | $          | 8,202,765 |   |

 

See accompanying notes to financial statements.

 

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**OAKRIDGEENERGY, INC.**

 

**STATEMENTS OF OPERATIONS**

 
| ** **                                              | ** ** | **For Year Ended February 28(9),** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                              | ** ** | **2009**                                               | ** ** | **2008** | ** ** |
| Oil and gas revenues                                    |       | $                                                      | 1,643,972  |   | $ | 1,631,388 |   |
|                                                    |       |                                                   |       |   |   |
| Operating expenses:                                     |       |                                                   |       |   |   |
| Oil and gas:                                            |       |                                                   |       |   |   |
| Impairment of oil and gas properties                    |       | 558,986                                                |       | — |   |
| Depletion, depreciation and accretion                   |       | 36,690                                                 |       | 32,500 |   |
| Lease operating                                         |       | 1,245,853                                              |       | 994,896 |   |
| Total oil and gas                                       |       | 1,841,529                                              |       | 1,027,396 |   |
|                                                    |       |                                                   |       |   |   |
| Coal and gravel                                         |       | 139,582                                                |       | 39,469 |   |
| Real estate development                                 |       | 237,135                                                |       | 103,267 |   |
| General and administrative                              |       | 546,703                                                |       | 483,841 |   |
| Total operating expenses                                |       | 2,764,949                                              |       | 1,653,973 |   |
|                                                    |       |                                                   |       |   |   |
| Loss from operations                                    |       | (1,120,977                                             | )          | (22,585 | ) |
|                                                    |       |                                                   |       |   |   |
| Other income:                                           |       |                                                   |       |   |   |
| Interest and dividend income                            |       | 87,175                                                 |       | 150,419 |   |
| Gains on sale of property                               |       | 208,611                                                |       | 18,517 |   |
| Impairment of marketable securities available for  sale |       | (124,143                                               | )          | — |   |
| Other income (expense)                                  |       | (455                                                   | )          | 10,550 |   |
|                                                    |       | 171,188                                                |       | 179,486 |   |
|                                                    |       |                                                   |       |   |   |
| Income (loss) before income taxes                       |       | (949,789                                               | )          | 156,901 |   |
|                                                    |       |                                                   |       |   |   |
| Income tax expense (benefit)                            |       | (297,086                                               | )          | 84,357 |   |
|                                                    |       |                                                   |       |   |   |
| Net income (loss)                                       |       | $                                                      | (652,703   | ) | $ | 72,544 |   |
|                                                    |       |                                                   |       |   |   |
| **Basic and diluted income (loss)  per common share:**  |       |                                                   |       |   |   |
|                                                    |       |                                                   |       |   |   |
| Net income (loss)                                       |       | $                                                      | (0.15      | ) | $ | 0.02 |   |
|                                                    |       |                                                   |       |   |   |
| Weighted average shares outstanding                     |       | 4,260,242                                              |       | 4,261,718 |   |

 

See accompanying notes to financial statements.

 

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**OAKRIDGE ENERGY, INC.**

 

**STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

 

**Years Ended February 28(9), 2009 and 2008**

 
| ** **                                                               | ** ** | **Common  Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Treasury  Stock** | ** ** | **Total** | ** ** | **Comprehensive  Income (Loss)** | ** **  |
|--------------------------------------------------------------------------|------------|-------------------|------------|----------------------------------|------------|------------------------|------------|---------------------------------------------|------------|---------------------|------------|-----------|------------|---------------------------------------|-------------|
|                                                                     |       |              |       |                             |       |                   |       |                                        |       |                |       |      |       |                                  |        |
| Balance at March 1, 2007                                            |       | $                 | 406,312    |                             | $          | 805,092                |       | $                                           | 16,622,265 |                | $          | (7,753    | )          | $                                     | (10,351,194 | ) | $ | 7,474,722 |   |   |   |
|                                                                     |       |              |       |                             |       |                   |       |                                        |       |                |       |      |       |                                  |        |
| Purchases of treasury stock                                              |       | —            |       | —                           |       | —                 |       | —                                      |       | (18,056             | )          | (18,056   | )          |                                  |        |
|                                                                     |       |              |       |                             |       |                   |       |                                        |       |                |       |      |       |                                  |        |
| Net income                                                               |       | —            |       | —                           |       | 72,544                 |       | —                                      |       | —              |       | 72,544    |       | $                                     | 72,544      |   |
|                                                                     |       |              |       |                             |       |                   |       |                                        |       |                |       |      |       |                                  |        |
| Change in unrealized loss on investment  securities, net of income taxes |       | —            |       | —                           |       | —                 |       | (46,463                                     | )          | —              |       | (46,463   | )          | (46,463                               | )           |
|                                                                     |       |              |       |                             |       |                   |       |                                        |       |                |       |      |       |                                  |        |
| Comprehensive income for year                                            |       |              |       |                             |       |                   |       |                                        |       |                |       |      |       | $                                     | 26,081      |   |
|                                                                     |       |              |       |                             |       |                   |       |                                        |       |                |       |      |       |                                  |        |
| Balance at February 29, 2008                                        |       | 406,312           |       | 805,092                          |       | 16,694,809             |       | (54,216                                     | )          | (10,369,250         | )          | 7,482,747 |       |                                  |        |
|                                                                     |       |              |       |                             |       |                   |       |                                        |       |                |       |      |       |                                  |        |
| Purchases of treasury stock                                              |       | —            |       | —                           |       | —                 |       | —                                      |       | —              |       | —    |       |                                  |        |
|                                                                     |       |              |       |                             |       |                   |       |                                        |       |                |       |      |       |                                  |        |
| Net loss                                                                 |       | —            |       | —                           |       | (652,703               | )          | —                                      |       | —              |       | (652,703  | )          | $                                     | (652,703    | ) |
|                                                                     |       |              |       |                             |       |                   |       |                                        |       |                |       |      |       |                                  |        |
| Change in unrealized gain on investment  securities, net of income taxes |       | —            |       | —                           |       | —                 |       | 31,890                                      |       | —              |       | 31,890    |       | 31,890                                |        |
|                                                                     |       |              |       |                             |       |                   |       |                                        |       |                |       |      |       |                                  |        |
| Comprehensive loss for year                                              |       |              |       |                             |       |                   |       |                                        |       |                |       |      |       | $                                     | (620,813    | ) |
|                                                                     |       |              |       |                             |       |                   |       |                                        |       |                |       |      |       |                                  |        |
| Balance at February 28, 2009                                        |       | $                 | 406,312    |                             | $          | 805,092                |       | $                                           | 16,042,106 |                | $          | (22,326   | )          | $                                     | (10,369,250 | ) | $ | 6,861,934 |   |   |   |

 

See accompanying notes to financial statements.

 

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**OAKRIDGEENERGY, INC.**

 

**STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                | ** ** | **Year Ended February 28(9),** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                | ** ** | **2009**                                      | ** ** | **2008** | ** ** |
| **Operating Activities**                                                                  |       |                                          |       |   |   |
| Net income (loss)                                                                         |       | $                                             | (652,703   | ) | $ | 72,544 |   |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities: |       |                                          |       |   |   |
| Impairment of oil and gas properties                                                      |       | 558,986                                       |       | — |   |
| Depletion and depreciation                                                                |       | 28,430                                        |       | 64,471 |   |
| Accretion of discount on asset retirement  obligations                                    |       | 24,891                                        |       | 20,104 |   |
| Change in estimate of asset retirement obligation                                         |       | 13,547                                        |       | (29,317 | ) |
| Gain on sales of coal and gravel property                                                 |       | (20,000                                       | )          | (500 | ) |
| Gain on sales of other property and equipment                                             |       | (188,611                                      | )          | (18,017 | ) |
| Gain on investment in limited partnership                                                 |       | (13,092                                       | )          | (10,551 | ) |
| Deferred income taxes                                                                     |       | (303,720                                      | )          | 77,895 |   |
| Impairment of marketable securities available for  sale                                   |       | 124,143                                       |       | — |   |
| Release of reclamation bond liability                                                     |       | 435,999                                       |       | — |   |
| Abandoned leaseholds                                                                      |       | 65,994                                        |       | — |   |
| Changes in operating assets and liabilities:                                              |       |                                          |       |   |   |
| Trade accounts receivable                                                                 |       | 146,036                                       |       | (1,769 | ) |
| Prepaid expenses and other                                                                |       | 748                                           |       | 1,592 |   |
| Accounts payable and accrued expenses                                                     |       | 201,999                                       |       | (108,630 | ) |
| Asset retirement obligation                                                               |       | (13,547                                       | )          | — |   |
| Net cash provided by operating activities                                                 |       | 409,100                                       |       | 67,822 |   |
|                                                                                      |       |                                          |       |   |   |
| **Investing Activities**                                                                  |       |                                          |       |   |   |
| Additions to investment securities                                                        |       | (69,410                                       | )          | (50,506 | ) |
| Additions to oil and gas properties                                                       |       | (147,205                                      | )          | (59,316 | ) |
| Additions to real estate held for sale                                                    |       | (33,034                                       | )          | (60,216 | ) |
| Purchase of certificates of deposit                                                       |       | (4,476,262                                    | )          | — |   |
| Proceeds from maturities of certificates of  deposit                                      |       | 1,990,000                                     |       | — |   |
| Proceeds from sales of coal and gravel property  and equipment                            |       | 20,000                                        |       | 500 |   |
| Proceeds from sales of other property and equipment                                       |       | 190,000                                       |       | 18,000 |   |
| Proceeds from sales of other non-current assets                                           |       | 15,000                                        |       | — |   |
| Net cash used in investing activities                                                     |       | (2,510,911                                    | )          | (151,538 | ) |
|                                                                                      |       |                                          |       |   |   |
| **Financing Activity**                                                                    |       |                                          |       |   |   |
| Purchases of treasury stock                                                               |       | —                                        |       | (18,056 | ) |
|                                                                                      |       |                                          |       |   |   |
| Net decrease in cash and cash equivalents                                                 |       | (2,101,811                                    | )          | (101,772 | ) |
| Cash and cash equivalents at beginning of year                                            |       | 2,309,055                                     |       | 2,410,827 |   |
|                                                                                      |       |                                          |       |   |   |
| Cash and cash equivalents at end of year                                                  |       | $                                             | 207,244    |   | $ | 2,309,055 |   |
|                                                                                      |       |                                          |       |   |   |
| **Supplemental Disclosure of Cash  Flow Information**                                     |       |                                          |       |   |   |
| Income taxes paid                                                                         |       | $                                             | 6,634      |   | $ | 18,590 |   |
|                                                                                      |       |                                          |       |   |   |
| **Supplemental  Disclosure of Non-Cash Information**                                      |       |                                          |       |   |   |
| Change in unrealized gain (loss) on investment  securities, net of income taxes           |       | $                                             | 31,890     |   | $ | (46,463 | ) |
|                                                                                      |       |                                          |       |   |   |
| Additions to asset retirement obligation                                                  |       | $                                             | 68,935     |   | $ | 4,809 |   |

 

See accompanying notes to financial statements.

 

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**OAKRIDGE ENERGY, INC.**

**NOTES TO FINANCIAL STATEMENTS**

**February 28(9), 2009 and 2008**

 

**A.   Natureof Business**

 

OakridgeEnergy, Inc. (the “Company”) is engaged in the exploration for anddevelopment, 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.   Summaryof Significant Accounting Policies**

 

Asummary of the Company’s significant accounting policies consistently appliedin the preparation of the accompanying financial statements follows:

 

**(a)  Basis of Accounting**

 

Theaccounts are maintained and the financial statements have been prepared usingthe accrual basis of accounting in accordance with accounting principlesgenerally accepted in the United States of America.

 

### **(b) Use of Estimates**

### ** **

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect certain reported amounts in the financialstatements and accompanying notes. Actual results could differ from these estimates and assumptions.

 

### **(c) Comprehensive Income**

### ** **

TheCompany reports comprehensive income in accordance with the provisions ofStatement of Financial Accounting Standards (“SFAS”) No. 130, *Reporting Comprehensive Income* (“SFAS No. 130”)*.* SFAS No. 130 established standards for reporting and presentationof comprehensive income and its components in a full set of financialstatements.  Comprehensive income (loss)consists of net income (loss) and net unrealized gains (losses) on securitiesand is presented in the statements of changes in stockholders’ equity.  SFAS No. 130 requires only additionaldisclosures in the financial statements; it does not affect the Company’s financialposition or results of operations.

 

### **(d) Fair Value of Financial Instruments**

### ** **

Inaccordance with the reporting requirements of SFAS No. 107, *Disclosures about Fair Value of Financial Instruments*,the Company calculates the fair value of its assets and liabilities whichqualify as financial instruments under this statement and includes thisadditional information in the notes to financial statements when the fair valueis different than the carrying value of those financial instruments.  The estimated fair value of cash equivalents,accounts receivable, and accounts payable approximates their carrying amountsdue to the relatively short maturity of these instruments.

 

### **(e) Cash and Cash Equivalents**

### ** **

TheCompany considers all cash and highly liquid investments with originalmaturities of three months or less to be cash equivalents.

 

**(f)  Trade Accounts Receivable**

 

TheCompany performs ongoing credit evaluations of its customers’ financialcondition and extends 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.

 

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### **(g) Investment Securities**

### ** **

The Companyreports investments in accordance with SFAS No. 115, *Accounting for Certain Investments in Debt and EquitySecurities*.  The Company’sinvestments are classified at the time of purchase into one of three categoriesas follows:

 

·                  Held to Maturity Securities- Debt securities that the Company has the positive intent and ability to holdto maturity are reported at amortized cost, adjusted for the amortization oraccretion of premiums and discounts.

 

·                  Trading Securities - Debtand equity securities that are bought and held principally for the purpose ofselling them in the near term are reported at fair value, with unrealized gainsand 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).

 

TheCompany did not have any securities classified as held to maturity or tradingas of February 28(9), 2009and 2008.

 

Adecline in the market value of any available for sale security below cost thatis deemed to be other than temporary results in a reduction of the carryingamount to fair value.  The impairment ischarged to earnings and a new cost basis for the security is established.  In fiscal 2009, management determined that asecurity held as available for sale had been permanently impaired.  Therefore, an impairment charge of $124,143is reflected in the accompanying statement of operations for 2009.  No such impairment charges were incurred in2008.

 

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

 

### **(h) 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 gasproperties are periodically assessed for impairment of value and a loss isrecognized at the time of impairment 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.

 

**(i)  Coal and Gravel Properties**

 

Costsattributable to the acquisition and development of coal and gravel propertiesare capitalized, while costs incurred to maintain the properties areexpensed.  Undeveloped coal and gravelproperties, which are individually significant, are periodically assessed forimpairment of value and a loss is recognized at the time of impairment byproviding an impairment allowance. Capitalized costs of producing propertiesare depleted on a property-by-property basis using the units-of-productionmethod.

 

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.

 

**(j) 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.

 

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**(k) Real Estate Held for Sale**

 

Real estate held for saleis carried at cost, which does not exceed net realizable value. Real estatedevelopment and construction 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.

 

**(l) 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”)*.* SFAS No. 144 requires long-lived assets and certain identifiableintangibles to be reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable.  When it is determined thatthe estimated future net cash flows of an asset will not be sufficient torecover its carrying amount, an impairment loss must be recorded to reduce thecarrying amount to its estimated fair value.

 

Under SFAS No. 144, the Company evaluatesimpairment of 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 fiscal2009, the Company recorded $558,986 in impairment losses related to its provedoil and gas properties, with no such losses recorded in 2008.  If estimated future cash flows are notachieved with respect to certain fields, additional write-downs may berequired.

 

### **(m) Investment in Partnership**

### ** **

The Company uses theequity method of accounting for its investment in a partnership.  The investment in partnership ofapproximately $44,000 and $46,000 at February 28(9),2009 and 2008, respectively, are included in other non-current assets inthe accompanying balance sheets.  TheCompany recognized income pertaining to its interest in the partnership ofapproximately $13,000 and $11,000 during fiscal 2009 and 2008, respectively,which are included in other income in the accompanying statements ofoperations.

 

### **(n) Asset Retirement Obligations**

### ** **

TheCompany accounts for asset retirement obligations under SFAS No. 143, *Accounting for Asset Retirement Obligations* (“SFAS No. 143”).  SFAS No. 143 requires legal obligationsassociated with the retirement of long-lived assets to be recognized at theirfair value at the time that the obligations are incurred.  Oil and gas producing companies incur thisliability upon acquiring or drilling a well. Under SFAS No. 143, an asset retirement obligation is recorded as aliability at its estimated present value at the asset’s inception, with anoffsetting increase to producing properties on the accompanying balance sheetwhich is allocated to expense over the useful life of the asset.  Periodic accretion of the discount on assetretirement obligations is recorded as an expense in the accompanying statementof operations.

 

### **(o) Revenue Recognition**

### ** **

TheCompany utilized the accrual method of accounting for natural gas and crude oilrevenues, whereby revenues are recognized based on the Company’s net revenueinterest in the wells.  Crude oilinventories are immaterial and are not recorded.  Gas imbalances are accounted for using thesales method.  Under this method,revenues are recognized based on actual volumes of oil and gas sold to purchasers.  However, the Company has no history ofsignificant gas imbalances.

 

**(p)  Income Taxes**

 

Deferredincome taxes are determined using the liability method in accordance with SFAS No. 109,*Accounting for Income Taxes*.  Deferred tax assets and liabilities arerecognized for the future tax consequences attributable to differences betweenthe financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases.

 

Deferredtax assets and liabilities are measured using enacted tax rates expected toapply to taxable income in the years in which those temporary differences areexpected to be recovered or settled.  Theeffect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date. In addition,a valuation allowance is established to reduce any deferred tax asset for whichit is determined that it is more likely than not that some portion of thedeferred tax asset will not be realized.

 

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**(q)  Earnings or Loss per Common Share**

 

Basicearnings (loss) per common share is calculated by dividing net income (loss)(available to common stockholders) by the weighted average number of commonshares 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 as the Companyhas no common stock equivalents.

 

**(r)  Impact of Recently Issued Accounting Standards**

 

OnJuly 13, 2006, the FASB released FIN 48, *Accountingfor Uncertainty in Income Taxes — an Interpretation of FASB Statement 109*(“FIN 48”)*. *FIN48 requires companies to evaluate and disclose material uncertain tax positionsit has taken with various taxing jurisdictions. Management has reviewed FIN 48 and determined the adoption of FIN 48 didnot materially affect the Company’s operating results, financial position, orfuture cash flows.  The Company adoptedFIN 48 effective January 1, 2007.

 

EffectiveJanuary 1, 2008, the Company adopted SFAS No. 157, *Fair Value Measurements* (“SFAS 157”).  In February 2008, the FASB issued FSP No. 157-2,*Effective Date of FASB Statement No. 157*,which provides a one-year deferral of the effective date of SFAS 157 fornon-financial assets and non-financial liabilities, except for those that arerecognized or disclosed in the financial statements at fair value at leastannually.  Therefore, the Company hasadopted the provisions of SFAS 157 only with respect to financial assets andliabilities, as well as any other assets and liabilities, carried at fairvalue.  The adoption of this statementdid not have a material impact on the Company’s results of operations orfinancial condition.  The Company doesnot currently expect the application of the fair value framework established bySFAS 157 to non-financial assets and liabilities measured on a non-recurringbasis to have a material impact on the consolidated financial statements.  However, the Company will continue to assessthe potential effects of SFAS 157 as additional information becomes available.

 

EffectiveJanuary 1, 2008, the Company adopted SFAS No. 159, *The Fair Value Option for Financial Assets and Financial Liabilities*(“SFAS159”).  SFAS 159 allows an entity theirrevocable option to elect fair value for the initial and subsequentmeasurement for specified financial assets and liabilities on acontract-by-contract basis.  The Companydid not elect to adopt the fair value option on any assets or liabilities notpreviously carried at fair value.

 

OnDecember 31, 2008, the SEC published the final rules andinterpretations updating its oil and gas reporting requirements. Many of therevisions are updates to definitions in the existing oil and gas rules tomake them consistent with the petroleum resource management system, which is awidely accepted standard for the management of petroleum resources that wasdeveloped by several industry organizations. Key revisions include changes tothe pricing used to estimate reserves utilizing a 12-month average price ratherthan a single day spot price which eliminates the ability to utilize subsequentprices to the end of a reporting period when the full-cost ceiling was exceededand subsequent pricing exceeds pricing at the end of a reporting period, theability to include nontraditional resources in reserves, the use of newtechnology for determining reserves, and permitting disclosure of probable andpossible reserves. The SEC will require companies to comply with the amendeddisclosure requirements for registration statements filed after January 1,2010, and for annual reports on Form 10-K for fiscal years ending on orafter December 15, 2009. Early adoption is not permitted. The Company iscurrently assessing the impact that the adoption will have on the Company’sdisclosures, operating results, financial position and cash flows.

 

**C.   Fair Value**

 

EffectiveMarch 1, 2008, the Company adopted SFAS 157, except as it applies tonon-financial assets and non-financial liabilities subject to FSP No. 157-2.  SFAS 157 clarifies that fair value is an exitprice, representing the amount that would be received to sell an asset or paidto transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-basedmeasurement that should be determined based on assumptions that marketparticipants would use in pricing an asset or a liability.

 

SFAS157 establishes a three-tier fair value hierarchy, which prioritizes the inputsused in the valuation methodologies in measuring fair value:

 

·                  Level 1 — Observable inputs that reflectquoted prices (unadjusted) for identical assets or liabilities in activemarkets.

·                  Level 2 — Include other inputs that aredirectly or indirectly observable in the marketplace.

 

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·                  Level 3 — Unobservable inputs which aresupported by little or no market activity.

 

Thefair value hierarchy also requires an entity to maximize the use of observableinputs and minimize the use of unobservable inputs when measuring fairvalue.  The Company’s cash equivalentsand marketable securities are classified within Level 1 and the Company’sinvestment in partnership is classified as Level 3. Some of the inputs to thismodel are unobservable in the market and are significant.  Assets and liabilities measured at fair valueare summarized below:

 
| ** **                               | ** ** | ** **                 | ** ** | **Fair Value Measurement at February 28, 2009 Using:**         | ** ** |
|------------------------------------------|------------|----------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                               | ** ** | **February 28, 2009** | ** ** | **Quoted Prices In ActiveMarkets  For Identical Assets  (Level 1)** | ** ** | **Significant Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
| Assets:                                  |       |                       |       |                                                                |       |   |   |   |   |
| Money market funds                       |       | $                          | 207,244    |                                                                | $          | 207,244 |   | $ | — |   | $ | — |   |
| Investment securities available for sale |       | 72,992                     |       | 72,992                                                              |       | — |   | — |   |
| Certificates of deposit                  |       | 2,483,931                  |       | 2,483,931                                                           |       | — |   | — |   |
| Non-current certificates of deposit      |       | $                          | 380,527    |                                                                | $          | 380,527 |   | — |   | — |   |
| Investment in partnership                |       | 44,196                     |       | —                                                              |       | — |   | 44,196 |   |
|                                     |       | $                          | 3,188,890  |                                                                | $          | 3,144,694 |   | $ | — |   | $ | 44,196 |   |

 

Thefollowing table is a reconciliation of financial assets measured at fair valueusing unobservable inputs (Level 3) during the year ended February 28,2009:

 
| ** **                     | ** ** | **Investment in  Partnership** | ** ** |
|--------------------------------|------------|--------------------------------|------------|
| Balance, beginning of year     |       | $                              | 46,104     |   |
| Distribution from  partnership |       | (15,000                        | )          |
| Partnership income             |       | 13,092                         |       |
| Balance, end of year           |       | $                              | 44,196     |   |

 

**D.   InvestmentSecurities**

 

Theamortized cost and fair value of the Company’s investment securities availablefor sale, as of February 28, 2009 was approximately $104,000 and $73,000,respectively.  The amortized cost andfair value of the Company’s investment securities available for sale, as of February 29,2008 was approximately $159,000 and $77,000, respectively.

 

# **E.   AssetRetirement Obligations**

# ** **

Pursuantto SFAS No. 143, *Accounting for AssetRetirement Obligations*, the Company has recognized the fair value ofits asset retirement obligations related to the plugging, abandonment, andremediation of oil and gas producing properties as well as the reclamation ofthe property surrounding the Company’s previous coal mining operations.  The present value of the estimated assetretirement costs has been capitalized as part of the carrying amount of therelated long-lived assets, which approximated $357,000.

 

Theliability has been accreted to its present value as of the end of eachyear.  The Company evaluated 83 wells,and has determined a range of abandonment dates between February 2009 and February 2038.

 

Thefollowing represents a reconciliation of the asset retirement obligations forthe years ended February 28(9), 2009 and 2008:

 
| ** **                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| Asset retirement obligations at beginning of year |       | $        | 500,774    |     | $          | 505,178 |   |
| Revision to estimate                              |       | 13,547   |       | (29,317  | )          |
| Additions to asset retirement obligation          |       | 68,935   |       | 4,809    |       |
| Liabilities settled during the year               |       | (13,547  | )          | —   |       |
| Accretion of discount                             |       | 24,891   |       | 20,104   |       |
| Asset retirement obligations at end of year       |       | $        | 594,600    |     | $          | 500,774 |   |

 

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# **F.   IncomeTaxes**

# ** **

TheCompany’s income tax expense (benefit) attributable to income (loss) fromoperations consists of the following:

 
| ** **                         | ** ** | **Current** | ** ** | **Deferred** | ** ** | **Total** | ** ** |
|------------------------------------|------------|-------------|------------|--------------|------------|-----------|------------|
| Year ended February 28, 2009: |       |        |       |         |       |      |       |
| U.S. Federal                       |       | $           | —     |         | $          | (303,720  | )          | $ | (303,720 | ) |
| State and local                    |       | 6,634       |       | —       |       | 6,634     |       |
| Income tax expense (benefit)       |       | $           | 6,634      |         | $          | (303,720  | )          | $ | (297,086 | ) |
|                               |       |        |       |         |       |      |       |
| Year ended February 29, 2008: |       |        |       |         |       |      |       |
| U.S. Federal                       |       | $           | —     |         | $          | 51,150    |       | $ | 51,150 |   |
| State and local                    |       | 6,462       |       | 26,745       |       | 33,207    |       |
| Income tax expense                 |       | $           | 6,462      |         | $          | 77,895    |       | $ | 84,357 |   |

 

Income tax expense(benefit) for the years presented differs from the “expected” federal incometax benefit for those years, computed by applying the statutory U.S. Federalcorporate tax rate of 34% to pre-tax income (loss), as a result of thefollowing:

 
| ** **                                                       | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Computed “expected” tax expense (benefit)              |       | $        | (322,928   | )        | $          | 53,346 |   |
| State and local income taxes, net of federal  income tax benefit |       | —   |       | 4,266    |       |
| Change in state tax rate                                         |       | —   |       | 26,745   |       |
| Other, primarily revision of prior year provision  estimate      |       | 25,842   |       | —   |       |
| Income tax expense (benefit)                                     |       | $        | (297,086   | )        | $          | 84,357 |   |

 

The tax effects oftemporary differences that give rise to significant portions of the deferredtax assets and deferred tax liabilities, at February 28(9), 2009 and 2008are presented below:

 
| ** **                                                                                                    | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax assets:                                                                                          |       |     |       |     |       |
| Net operating loss carryforward                                                                               |       | $        | 388,626    |     | $          | 285,695 |   |
| Alternative minimum tax credit carryforward                                                                   |       | 98,033   |       | 98,033   |       |
| Fixed assets                                                                                                  |       | —   |       | 23,712   |       |
| Marketable securities                                                                                         |       | 52,918   |       | 27,929   |       |
| Asset retirement obligations                                                                                  |       | 202,164  |       | 170,263  |       |
| Total deferred tax assets                                                                                     |       | 741,741  |       | 605,632  |       |
|                                                                                                          |       |     |       |     |       |
| Deferred tax liabilities:                                                                                     |       |     |       |     |       |
| Oil, gas and coal properties and other property  and equipment, principally due to depletion and depreciation |       | (67,709  | )          | (222,636 | )          |
| Property and equipment                                                                                        |       | (3,568   | )          | —   |       |
| Total deferred tax liabilities                                                                                |       | (71,277  | )          | (222,636 | )          |
| Net deferred tax asset                                                                                        |       | $        | 670,464    |     | $          | 382,996 |   |

 
| ** **                         | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Included in the balance sheet as:  |       |     |       |     |       |
| Deferred income taxes, current     |       | $        | —     |     | $          | — |   |
| Deferred income taxes, non-current |       | 670,464  |       | 382,996  |       |
| Net deferred tax asset             |       | $        | 670,464    |     | $          | 382,996 |   |

 

Basedon the future reversal of existing taxable temporary differences and futureearnings expectations, management of the Company believes it is more likelythan not that deferred tax assets will be realized or settled, and accordingly,no valuation allowance has been recorded.

 

AtFebruary 28, 2009, theCompany has an alternative minimum tax credit carryforward of approximately$98,000, which has no expiration date and is available to reduce the Company’sfuture taxable income.  Additionally, at February 28,2009, 

 

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theCompany has a net operating loss carryforward for federal taxes ofapproximately $1,143,000.  The netoperating loss carryforward for federal taxes will expire in fiscal 2027 and isavailable to offset the Company’s future taxable income.

 

# **G.   Segment Information**

# ** **

The following information is presented in accordancewith SFAS No. 131, *Disclosures aboutSegments of an Enterprise and Related Information.*  The Company is engaged in oil and gas, coaland gravel activities and real estate development.  The Company has identified such segmentsbased on management responsibility and the 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 segmentprofit (loss) as income (loss) from operations. Business segment assets are those assets controlled by each reportablesegment.  The following table sets forthcertain information about the financial information of each segment for theyears ended February 28(9), 2009 and 2008:

 
| ** **                                      | ** ** | **2009**   | ** ** | **2008** | ** ** |
|-------------------------------------------------|------------|------------|------------|----------|------------|
| Business segment revenue:                       |       |       |       |     |       |
| Oil and gas                                     |       | $          | 1,643,972  |     | $          | 1,631,388 |   |
|                                            |       |       |       |     |       |
| Business segment profit (loss):                 |       |       |       |     |       |
| Oil and gas                                     |       | $          | (197,557   | )        | $          | 603,992 |   |
| Coal and gravel                                 |       | (139,582   | )          | (39,469  | )          |
| Real estate development                         |       | (237,135   | )          | (103,267 | )          |
| General corporate                               |       | (546,703   | )          | (483,841 | )          |
| Loss from operations                            |       | (1,120,977 | )          | (22,585  | )          |
| Other income                                    |       | 171,188    |       | 179,486  |       |
| Income (loss) before income taxes               |       | $          | (949,789   | )        | $          | 156,901 |   |
|                                            |       |       |       |     |       |
| Depreciation, depletion, and amortization:      |       |       |       |     |       |
| Oil and gas                                     |       | $          | 11,800     |     | $          | 41,713 |   |
| Coal and gravel                                 |       | —     |       | —   |       |
| Real estate development                         |       | —     |       | —   |       |
| General corporate                               |       | 16,630     |       | 22,758   |       |
| Total depreciation, depletion, and amortization |       | $          | 28,430     |     | $          | 64,471 |   |

 
| ** **                 | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|----------------------------|------------|------------|------------|------------|------------|
| Capital expenditures:      |       |       |       |       |       |
| Oil and gas                |       | $          | 147,205    |       | $          | 59,316 |   |
| Real estate development    |       | 33,034     |       | 60,216     |       |
| General corporate          |       | —     |       | —     |       |
| Total capital expenditures |       | $          | 180,239    |       | $          | 119,532 |   |
| ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Assets:                    |       |       |       |       |       |
| Oil and gas                |       | $          | 3,933,061  |       | $          | 3,836,317 |   |
| Coal and gravel            |       | 260,488    |       | 260,488    |       |
| Real estate development    |       | 3,168,107  |       | 3,135,073  |       |
| General corporate          |       | 516,121    |       | 970,887    |       |
| Total assets               |       | $          | 7,877,777  |       | $          | 8,202,765 |   |

 

**H.   RelatedParty Transactions**

 

Inthe normal course of business, the Company owns interests in various oil andgas properties in which certain stockholders and related parties also owninterests.

 

# **I.  Commitment and Contingency**

# ** **

Asof February 28(9), 2009 and 2008,the Company has pledged interest-bearing cash deposits of $380,527 and $695,436,respectively, to secure letters of credit in favor of the Colorado Bureau ofLand Management for state requirements regarding land reclamation based onfuture operations with respect to coal and gravel properties.  These pledged cash deposits are included inother non-current assets in the accompanying balance sheets.

 

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### **J.   RiskConcentrations**

### ** **

The Company considersall highly liquid investments with a maturity of three months or less at thetime of purchase to be cash equivalents. The Company maintains deposits primarily in two financial institutions,which deposits may at times exceed amounts covered by insurance provided by theU.S. Federal Deposit Insurance Corporation (“FDIC”) or the Securities InsuranceProtection Corporation (“SIPC”). The Company has not experienced any lossesrelated to amounts in excess of FDIC or SIPC limits.

 

Oil sales to twocustomers, which accounted for more than 10% of the Company’s total oil sales,approximated $971,000 (67.5%) and $355,000 (24.8%) for the year ended February 28, 2009.  Two customers accounted for approximately$932,000 (66.2%) and $355,000 (25.3%) of the Company’s total oil sales for theyear ended February 29, 2008.  Gassales to three customers approximated $99,000 (57.8%), $31,000 (18.4%), and$23,000 (13.3%) of the Company’s total gas sales for the year ended February 28, 2009.  Three customers accounted for approximately$107,000 (61.6%), $28,000 (15.8%), and $19,000 (11.2%) of the Company’s gassales for the year ended February 29, 2008.  Lease operating payments primarily made to aprincipal operator on its oil and gas producing properties approximated$926,000 and $791,000 in 2009 and 2008, respectively.

 

**K.   QuarterlyOperating Results (Unaudited)**

 

Quarterlyresults of operations for 2009 and 2008 were as follows:

 
| **2009**                                         | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Full  Year** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|----------------|------------|
|                                             |       |               |       |                |       |               |       |                |       |           |       |
| Total revenues                                   |       | $                  | 509,693    |                | $          | 598,182            |       | $                   | 359,095    |           | $          | 177,002 |   | $ | 1,643,972 |   |
|                                             |       |               |       |                |       |               |       |                |       |           |       |
| Income (loss) from operations                    |       | 2,013              |       | (59,766             | )          | (190,921           | )          | (872,303            | )          | (1,120,977     | )          |
|                                             |       |               |       |                |       |               |       |                |       |           |       |
| Net income (loss)                                |       | $                  | 31,313     |                | $          | (24,345            | )          | $                   | (67,432    | )              | $          | (592,239 | ) | $ | (652,703 | ) |
|                                             |       |               |       |                |       |               |       |                |       |           |       |
| Basic and diluted income (loss) per common share |       | $                  | 0.01       |                | $          | (0.01              | )          | $                   | (0.02      | )              | $          | (0.13 | ) | $ | (0.15 | ) |

 
| **2008**                                         | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Full  Year** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|----------------|------------|
|                                             |       |               |       |                |       |               |       |                |       |           |       |
| Total revenues                                   |       | $                  | 336,953    |                | $          | 346,553            |       | $                   | 481,464    |           | $          | 466,418 |   | $ | 1,631,388 |   |
|                                             |       |               |       |                |       |               |       |                |       |           |       |
| Income (loss) from operations                    |       | (86,769            | )          | (93,125             | )          | 71,539             |       | 85,770              |       | (22,585        | )          |
|                                             |       |               |       |                |       |               |       |                |       |           |       |
| Net income (loss)                                |       | $                  | (19,868    | )                   | $          | (33,073            | )          | $                   | 86,509     |           | $          | 38,976 |   | $ | 72,544 |   |
|                                             |       |               |       |                |       |               |       |                |       |           |       |
| Basic and diluted income (loss) per common share |       | $                  | (0.00      | )                   | $          | (0.01              | )          | $                   | 0.02       |           | $          | 0.01 |   | $ | 0.02 |   |

 

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**OAKRIDGE ENERGY, INC,**

 

**L. SUPPLEMENTAL OIL AND GAS DATA (UNAUDITED)**

 

Thefollowing tables set forth supplementary disclosures for oil and gas producingactivities in accordance with SFAS No. 69, *Disclosures about Oil and Gas Producing Activities*.

 

**CostsIncurred**

 

Asummary of costs incurred in oil and gas property acquisition, development, andexploration activities (both capitalized and charged to expense) for the yearsended February 28(9), 2009 and 2008, as follows:

 
| ** **                         | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Acquisition of proved properties   |       | $        | 142,014    |     | $          | 57,183 |   |
| Acquisition of unproved properties |       | $        | 5,191      |     | $          | 2,133 |   |
| Exploration costs                  |       | $        | 65,994     |     | $          | — |   |

 

### **Resultsof Operations for Producing Activities**

### ** **

Thefollowing table presents the results of operations for the Company’s oil andgas producing activities for the years ended February 28(9), 2009 and2008:

 
| ** **                                                                                        | ** ** | **2009**   | ** ** | **2008** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| Revenues                                                                                          |       | $          | 1,643,972  |     | $          | 1,631,388 |   |
| Production costs                                                                                  |       | (1,179,859 | )          | (994,896 | )          |
| Depletion, depreciation, accretion and valuation  provisions                                      |       | (595,676   | )          | (32,500  | )          |
| Exploration costs                                                                                 |       | (65,994    | )     | —   |       |
|                                                                                              |       | (197,557   | )          | 603,992  |       |
| Income tax (expense) benefit                                                                      |       | 67,169     |       | (205,357 | )          |
| Results of operations for producing activities (excluding  corporate overhead and interest costs) |       | $          | (130,388   | )   | $          | 398,635 |   |

### ** **

### **ReserveQuantity Information**

### ** **

Thefollowing table presents the Company’s estimate of its proved oil and gasreserves all of which are 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 gasproperties.  Accordingly, the estimatesare expected to change as future information becomes available.  The estimates have been prepared with theassistance of an independent petroleum reservoir engineering firm.  Oil reserves, which include condensate andnatural gas liquids, are stated in barrels and gas reserves are stated inthousands of cubic feet.

 
| ** **                                      | ** ** | **Oil  (Bbls)** | ** ** | **Gas  (MCF)** | ** ** |
|-------------------------------------------------|------------|-----------------|------------|----------------|------------|
| **Proved developed and  undeveloped reserves:** |       |            |       |           |       |
| Balance at March 1, 2007                   |       | 654,088         |       | 193,354        |       |
| Revisions of previous estimates                 |       | 38,900          |       | 61,487         |       |
| Production                                      |       | (17,293         | )          | (20,843        | )          |
| Balance at February 29, 2008               |       | 675,695         |       | 233,998        |       |
| Revisions of previous estimates                 |       | (15,807         | )     | (134,168       | )          |
| Production                                      |       | (16,088         | )          | (19,860        | )          |
| Balance at February 28, 2009               |       | 643,800         |       | 79,970         |       |
|                                            |       |            |       |           |       |
| **Proved developed reserves:**                  |       |            |       |           |       |
| February 28, 2007                          |       | 144,447         |       | 193,354        |       |
| February 29, 2008                          |       | 210,810         |       | 233,998        |       |
| February 28, 2009                          |       | 44,741          |       | 79,970         |       |

 

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### **StandardizedMeasure of Discounted Future Net Cash Flow and Changes Therein Relating toProved Oil and Gas Reserves**

### ** **

Thefollowing table, which presents a standardized measure of discounted futurecash flows and changes therein relating to proved oil and gas reserves, ispresented pursuant to SFAS No. 69. In computing this data, assumptions other than those required by theFinancial Accounting Standards Board could produce different results.  Accordingly, the data should not be construedas being representative of the fair market value of the Company’s proved oiland gas reserves.

 

Futurecash inflows were computed by applying existing contract and year-end prices ofoil and gas relating to the Company’s proved reserves to the estimated year-endquantities of those reserves.  Futureprice changes were considered only to the extent provided by contractualarrangements in existence at year end. Future development and production costs were computed by estimating theexpenditures to be incurred in developing and producing the proved oil and gasreserves at the end of the year, based on year-end costs.  Future income tax expenses were computed byapplying the year-end statutory tax rate, with consideration of future taxrates already legislated, to the future pre-tax net cash flows relating to theCompany’s proved oil and gas reserves. The standardized measure of discounted future cash flows at February 28(9),2009 and 2008, which represents the present value of estimated future cashflows using a discount rate of 10% a year, follows:

 
| ** **                                                            | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|-----------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| Future cash inflows                                                   |       | $           | 20,478,971 |        | $          | 62,755,404 |   |
| Future production and development costs                               |       | (7,999,638  | )          | (16,179,666 | )          |
| Future income tax expenses                                            |       | (1,844,054  | )          | (7,492,192  | )          |
| Future net cash flows                                                 |       | 10,635,279  |       | 39,083,546  |       |
| 10% annual discount for estimated timing of cash  flows               |       | (3,143,919  | )          | (12,773,406 | )          |
| Standardized measure of discounted future net cash  flows             |       | $           | 7,491,360  |        | $          | 26,310,140 |   |
|                                                                  |       |        |       |        |       |   |   |
| Beginning of year                                                     |       | $           | 26,310,140 |        | $          | 16,325,760 |   |
| Sales of oil and gas, net of production costs                         |       | (464,113    | )          | (636,492    | )          |
| Extensions, discoveries, and improved recoveries,  less related costs |       | —      |       | —      |       |
| Accretion of discount                                                 |       | 2,631,014   |       | 1,632,576   |       |
| Net change in sales and transfer prices, net of  production costs     |       | (18,586,017 | )          | 10,159,660  |       |
| Changes in estimated future development costs                         |       | —      |       | —      |       |
| Net change in income taxes                                            |       | 6,970,252   |       | (3,479,900  | )          |
| Changes in production rates (timing and other)                        |       | (8,948,155  | )     | 369,393     |       |
| Revisions of previous quantities                                      |       | (421,761    | )     | 1,939,143   |       |
| End of year                                                           |       | $           | 7,491,360  |        | $          | 26,310,140 |   |

 

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**ITEM 9.**                                          **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE**

 

TheCompany did not change its independent registered public accounting firm orhave any disagreements with them on accounting and financial disclosure issuesin the fiscal year ended February 28, 2009.

 

**ITEM 9A(T).****                ****CONTROLS AND PROCEDURES**

 

**Disclosure Controls and Procedures**

 

Theterm “disclosure controls and procedures” is defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”).  This term refers to the controls andprocedures of a company that are designed to ensure that information requiredto be disclosed by a company in the reports that it files or submits under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified by the Commission. In designing and evaluating our disclosurecontrols and procedures, management recognized that disclosure controls andprocedures, no matter how well conceived and operated, can provide onlyreasonable assurance of achieving the desired control objectives, and wenecessarily are required to apply our judgment in evaluating the cost-benefitrelationship of possible disclosure controls and procedures.

 

Ourmanagement, namely our Chief Executive and 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 Chief Executive and Financial Officerhas concluded that our disclosure controls and procedures were not effective asof the end of the period covered by this annual report because of certaindeficiencies involving internal control over financial reporting thatconstituted material weaknesses as discussed below.

 

**Management’s Annual Report on Internal Control over Financial Reporting**

 

Ourmanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting, as such term is defined in Rules 13a-15(f) and15d-15(f) of the Exchange Act.  Ourinternal control system was designed to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financialstatements for external purposes, in accordance with generally acceptedaccounting principles.  Because ofinherent limitations, a system of internal control over financial reporting maynot prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periodsare subject to the risk that controls may become inadequate due to change inconditions, or that the degree of compliance with the policies or proceduresmay deteriorate.

 

Ourmanagement, namely our Chief Executive and Financial Officer, conducted anevaluation of the effectiveness of our internal control over financialreporting using the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission (COSO) in Internal Control-IntegratedFramework.  Based on its evaluation, ourmanagement concluded that there is a material weakness in our internal controlover financial reporting.  A materialweakness is a deficiency, or a combination of control deficiencies, in internalcontrol over financial reporting such that there is a reasonable possibilitythat a material misstatement of the Company’s annual or interim financialstatements will not be prevented or detected on a timely basis.

 

Thematerial weakness identified was that the Company does not have the requiredtechnical expertise to properly calculate complex oil and gas requireddisclosures for FAS 109 income taxes and relies on outside sources for thatcalculation.

 

Wehave not implemented a control to mitigate the material weakness related to FAS109 calculations and disclosures.  At anytime, if it appears that a control can be implemented to mitigate such materialweaknesses, the Company expects to implement the control. This Annual Reportdoes not include an attestation report of the Company’s independent registeredpublic accounting firm regarding internal control over financialreporting.  Management’s report was notsubject to attestation by the Company’s independent registered publicaccounting firm pursuant to temporary rules of the SEC that permit theCompany to provide only management’s report in this Annual Report.

 

Thisreport shall not be deemed to be filed for purposes of Section 18 of theExchange Act or otherwise subject to the liabilities of that section, and isnot incorporated by reference into any filing of the Company, whether madebefore or after the date hereof, regardless of any general incorporationlanguage in such filing.

 

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**ITEM 9B.****                                     ****OTHER INFORMATION**

 

None.

 

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**PART III**

 

**ITEM 10.****                                        ****DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

 

**Directors and Executive Officers**

 

Thefollowing table provides certain information pertaining to the Company’sdirectors and executive officers:

 
| **Name and Age** | ** ** | **Business Experience  and Current Positions  With Company**                                                                                                                                          | ** ** | **Year First  Became Director** |
|----------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|
| ** **                 | ** ** | ** **                                                                                                                                                                                                                | ** ** | ** **                                |
| Sandra  Pautsky — 67  |       | Chairperson  of the Board of Directors of the Company since July 1998, President and  Chief Executive Officer since June 1998 and Secretary-Treasurer since May 1992                                       |       | 1986                                      |
| Danny  Croker — 59    |       | Member  of the Board of Directors, Vice President and Assistant Secretary - Treasurer  of the Company since May 1992 and owner of Exlco, Inc., oil and gas  operations                                          |       | 1992                                      |
| Randy  Camp — 56      |       | Member  of the Board of Directors, 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                                      |

 

Mr. Crokeris Ms. Pautsky’s stepbrother.  Thereare no other family relationships among any of the directors or executiveofficers of the Company.  Ms. Pautskymay be considered to be the controlling stockholder of the Company by virtue ofher beneficial ownership of approximately 52.11% of the Company’s outstandingcommon stock and her positions with the Company.  See “Item 12.-Security Ownership of CertainBeneficial Owners and 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 executive officers is involved, nor has beeninvolved during the past five years, in any legal proceedings in which he orshe is a party adverse or has a material interest adverse to the Company.  None of the directors or executive officershas been involved in any legal proceedings which are material to an evaluationof his or her ability or integrity.

 

**Section 16(a) Beneficial Ownership Reporting Compliance**

 

Section 16(a) ofthe Exchange Act requires the Company’s executive officers, directors andpersons who beneficially own more than 10% of the Company’s common stock tofile with the Commission initial reports of beneficial ownership and reports ofchanges in beneficial ownership of the Company’s common stock.  The rules promulgated by the Commissionunder Section 16(a) of the Exchange Act require those persons tofurnish the Company with copies of all reports filed with the Commissionpursuant to Section 16(a).

 

Basedsolely on the Company’s review of copies of forms it received and on writtenrepresentations from the foregoing persons, the Company believes that duringthe fiscal year ended February 28, 2009 all filing requirements under Section 16(a) ofthe Exchange Act were met on a timely basis by such persons.

 

**Audit Committee**

 

TheCompany does not have a separately-designated standing audit committee.  Instead, the entire Board of Directors actsas the audit committee for the Company.

 

**Audit Committee Financial Expert**

 

Althoughthe Company does not have a separately-designated audit committee, a member ofthe Company’s Board of Directors, Mr. Camp, meets the requirements to beconsidered an audit committee financial expert and is independent as defined inRule 4200(a)(15) of the National Association of Securities Dealers, Inc.listing standards.

 

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**Nomination Procedures**

 

TheCompany has not made any changes to the procedures by which security holdersmay recommend nominees to the Company’s Board of Directors since the Companylast provided disclosure to security holders in response to the requirements ofItem 7 of Schedule 14A of the Exchange Act.

 

**Code of Ethics**

 

TheCompany has adopted a code of ethics that applies to its principal executiveofficer, principal financial officer, principal accounting officer andcontroller, or persons performing similar functions.  Pursuant to the requirements of Item 406 ofRegulation S-K, the Company’s “Code of Ethical Conduct for Senior Officers,”which is currently in effect, is filed as Exhibit 14 to this AnnualReport.

 

**ITEM 11.****                                        ****EXECUTIVE COMPENSATION**

 

Thefollowing table sets forth information regarding compensation for services inall capacities to the Company for each of the last three fiscal years of theCompany’s Chief Executive Officer.  Noother executive officer of the Company received total annual salary and bonusexceeding $100,000 in any of such years.

 
| ** **                                 | ** ** | **Summary Compensation Table** | ** ** |
|--------------------------------------------|------------|------------------------------------------|------------|
| **Name and  Principal Position** | ** ** | **Year**                                 | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **All Other  Compensation(1)** | ** ** | **Total** | ** ** |
| ** **                                 | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sandra Pautsky                             |       | 2009                                     |       | $ | 125,000 |   | $ | 10,417 |   | $ | 195 |   | $ | 135,612 |   |
| President and                              |       | 2008                                     |       | 125,000 |   | 10,417 |   | 163 |   | $ | 135,580 |   |
| Chief Executive Officer                    |       | 2007                                     |       | 101,667 |   | 10,417 |   | 174 |   | $ | 112,258 |   |
|                                            |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)                                  All othercompensation consisted of Company paid life insurance premiums.

 

TheCompany does not have employment agreements with any of its executive officers,has no material bonus, profit-sharing or stock option plans or pension orretirement benefits.  The Company has agroup health insurance plan which it makes available to all employees of theCompany and their family members on a non-discriminatory basis.  Pursuant to such plan, $25,000 in lifeinsurance benefits are provided for all employees of the Company, with theexception of Ms. Pautsky who would receive a benefit of $18,750 asbenefits decrease as certain age levels are reached.

 

Executiveofficers of the Company who are also directors do not receive any fee orremuneration for services as members of the Board of Directors.  Mr. Camp, the only director who is notan employee of the Company, received an annual fee of $3,000 for serving as adirector in the fiscal year ended February 28, 2009.

 

Thefollowing table sets forth information concerning compensation of our directorwho is not also an executive officer for fiscal 2009:

 

**Director Compensation Table as of February 28, 2009**

 
| **Name**        | ** ** | **Fees Earned or Paid in Cash** | ** **  | **Total** | ** ** |
|-----------------|------------|----------------------------------------------------------|-------------|-----------|------------|
| Randy Camp |       | $                                                        |  3,000 |      | $          |  3,000 |   |
|                 |            |                                                          |             |           |            |  |  |

 

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**ITEM 12.****                             ****SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS**

 

Thefollowing table shows the beneficial ownership of the Company’s common stock asof May 8, 2009 by:  (i) eachperson known by the management of the Company to own more than 5% of theCompany’s outstanding common stock; (ii) each executive officer anddirector; and (iii) the executive officers and directors of the Company asa group.

 
| **Name and Address  of  Beneficial Owner**    | ** ** | **Amount  Beneficially  Owned** | ** ** | **Percent  of  Class** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------|------------|------------------------|------------|
| Sandra Pautsky                                          |       | 2,219,928                       | (1)        | 52.11                  | %          |
| 4613 Jacksboro Highway                             | ** ** | ** **                      | ** ** | ** **             | ** ** |
| Wichita Falls, Texas 76302                    |       |                            |       |                   |       |
|                                                         |       |                            |       |                   |       |
| Flem Noel Pautsky, Jr. Trust                            |       | 908,247                         |       | 21.31                  |       |
| 4613 Jacksboro Highway                                       |       |                            |       |                   |       |
| Wichita Falls, Texas 76302                                   |       |                            |       |                   |       |
|                                                         |       |                            |       |                   |       |
| West Coast Asset Management                                  |       | 672,789                         |       | 15.79                  |       |
| 2151 Alessandro Drive                                        |       |                            |       |                   |       |
| Ventura, CA 93001                                            |       |                            |       |                   |       |
|                                                         |       |                            |       |                   |       |
| Noel Pautsky Trust                                           |       | 536,062                         |       | 12.58                  |       |
| 4613 Jacksboro Highway                                       |       |                            |       |                   |       |
| Wichita Falls, Texas 76302                                   |       |                            |       |                   |       |
|                                                         |       |                            |       |                   |       |
| Danny Croker                                                 |       | —                          |       | —                 |       |
| 4613 Jacksboro Highway                                       |       |                            |       |                   |       |
| Wichita Falls, Texas 76302                                   |       |                            |       |                   |       |
|                                                         |       |                            |       |                   |       |
| Randy Camp                                                   |       | 100                             |       | *                      |       |
| 1400 Eleventh St.                                            |       |                            |       |                   |       |
| Wichita Falls, Texas 76301                                   |       |                            |       |                   |       |
|                                                         |       |                            |       |                   |       |
| Executive officers and directors as a group (three  persons) |       | 2,220,028                       | (2)        | 52.11                  | %          |

 

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| *                                                                                                   |   | Represents  less than 1% of outstanding common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (1)                                                                                                 |   | Includes:  (i) 635,155 shares owned directly by Ms. Pautsky; (ii) 536,062  owned by the Noel Pautsky Trust of which Ms. Pautsky is the Trustee and  one of four beneficiaries; (iii) 140,464 shares owned by the Noel  Pautsky Marital Trust, of which Ms. Pautsky is the Trustee and (iv) 908,247  shares owned by the Flem Noel Pautsky, Jr. Trust, of which Ms. Pautsky  is the Trustee. Ms. Pautsky disclaims any beneficial ownership of the  shares owned by the Noel Pautsky Trust in excess of 125,000 shares. Ms. Pautsky  also disclaims any beneficial ownership of the shares owned by the Flem Noel  Pautsky, Jr. Trust and the Noel Pautsky Marital Trust. |
|                                                                                                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (2)                                                                                                 |   | Includes  all shares beneficially owned by Ms. Pautsky, Mr. Croker and Mr. Camp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| The  Company does not have any securities authorized for issuance under equity  compensation plans. |

 

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**ITEM 13.****                                       ****CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE**

 

Ms. Pautskyis an executive officer, director and beneficial owner of in excess of 5% ofthe Company’s outstanding common stock. In addition, the Flem Noel Pautsky, Jr. Trust and the Noel PautskyTrust are the beneficial owners of in excess of 5% of the Company’s outstandingcommon stock.

 

Ms. Pautskyis the trustee of the Flem Noel Pautsky, Jr. Trust, the Noel Pautsky Trustand the Noel Pautsky Marital Trust.  Ms. Pautskyand the Flem Noel Pautsky, Jr. Trust each own undivided working interestsin certain of the oil and gas leases in the North Texas area in which theCompany also owns an undivided working interest and of which the Company servesas the operator.  In accordance withstandard operating procedures, the Company submits joint interest billings tosuch related parties and the other unaffiliated working interest owners in theproperties which the Company operates on a monthly basis for their respectivepro-rata shares of the costs incurred on the properties and the Company’s feefor serving as operator for the preceding month.  In addition, Exlco, Inc. (“Exlco”), 100%of whose outstanding stock is owned by Mr. Croker, an executive officerand director, is allocated and bears a portion of the Company’s office rent andsupplies.  Ms. Pautsky, the FlemNoel Pautsky, Jr. Trust, the Noel Pautsky Marital Trust, the Jimmy PautskyTrust and Shawn Price (Ms. Pautsky’s son) are allocated and bear a portionof the Company’s accounting expense.

 

AtFebruary 28, 2007, Ms. Pautsky, the Flem Noel Pautsky, Jr.Trust, Shawn Price and Exlco had accounts payable to the Company, representingtheir then unpaid joint interest and other billings, aggregating $2,092. Duringthe two fiscal years ended February 28, 2009, the Company submittedmonthly joint interest and other billings to such parties and the two newentities listed above (the Noel Pautsky Marital Trust and the Jimmy PautskyTrust) totaling $58,933, and such parties paid the Company an aggregate of$54,882 with respect to such joint interest and other billings, leaving abalance of $6,143 owed to the Company at February 28, 2009.

 

TheCompany’s Board of Directors consists of Sandra Pautsky, Danny Croker and RandyCamp.  Mr. Camp is independent asdefined in Rule 4200(a)(15) of the National Association of SecuritiesDealers, Inc. listing standards.

 

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**ITEM 14.****                                       ****PRINCIPAL ACCOUNTANT FEES AND SERVICES**

 

Theindependent registered public accounting firm of Whitley Penn LLP (“WhitleyPenn”) audited the financial statements of the Company for the fiscal yearended February 28, 2009.  WhitleyPenn has audited the Company’s financial statements for each of the ten fiscalyears ended February 28, 2009.

 

**Audit Fees**

 

Feesbilled by Whitley Penn for the fiscal year 2008 and 2009 audits of the Company’sfinancial statements and the reviews of quarterly reports on Form 10-Q andForm 10-QSB during such years were $62,378 and $59,888, respectively.

 

**Audit-Related Fees**

 

TheCompany did not incur any audit-related fees from Whitley Penn during thefiscal year ended February 28(9), 2008 or 2009.

 

**Tax Fees**

 

Feesbilled by Whitley Penn to the Company for preparation of the Company’s federalincome tax return for the fiscal year ended February 29, 2008 and fiscalyear ended February 28, 2009 were $11,950 and $14,000, respectively.

 

**All Other Fees**

 

Feesbilled by Whitley Penn to the Company for consulting services related to itsDurango Property for the fiscal year ended February 29, 2008 was $2,724,which included an overpayment of $1,362. This amount was credited to the Company during the fiscal year ended February 28,2009.

 

**Pre-Approval Policies and Procedures**

 

Asindicated under Item 10, the Company does not have a separately-designatedaudit committee and the Board of Directors of the Company acts in thatcapacity.  Prior to the Company’sengagement of Whitley Penn to render the audit and non-audit services set forthabove, such engagement was approved by the Company’s Board of Directors.

 

**PART IV**

 

**ITEM 15.****                                           ****EXHIBITS, FINANCIAL STATEMENT SCHEDULES**

 
| **Exhibit No.** | ** ** | **Document Description**                                                                                                                                                                                                 |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3(i)(a)              |       | Articles  of Incorporation of the Company dated May 9, 1969 filed as Exhibit A  (1) to the Company’s Form 10 and incorporated herein by reference.                                                   |
|                 |       |                                                                                                                                                                                                                          |
| 3(i)(b)              |       | Amendment  to Articles of Incorporation of the Company dated October 22, 1982 filed  as Exhibit 3. (I)(B) Form 10-KSB for the period ending February 28,  2005 and incorporated herein by reference. |
|                 |       |                                                                                                                                                                                                                          |
| 3(ii)                |       | By-Laws  of the Company dated May 23, 1975 filed as Exhibit A (4) to Form 10  and incorporated herein by reference.                                                                                       |
|                 |       |                                                                                                                                                                                                                          |
| 14                   |       | Code  of Ethical Conduct of Senior Officers filed as Exhibit 14 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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**SIGNATURES**

 

Inaccordance with Section 13 or 15(d) of the Exchange Act, theregistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

 

OAKRIDGEENERGY, INC.

 
| By:    | /s/  Sandra Pautsky   |   |
|--------|----------------------------|--------|
|   | Sandra  Pautsky, President |

 

DATE:June 12, 2009

 

Inaccordance with the Exchange Act, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.

 
| By:                       | /s/  Sandra Pautsky              |   | By:                       | /s/  Danny Croker                      |
|---------------------------|---------------------------------------|--------|---------------------------|---------------------------------------------|
|                      | Sandra  Pautsky, President,           |   |                      | Danny  Croker, Director, Vice President and |
|                      | Chief  Executive Officer and Director |   |                      | Assistant  Secretary-Treasurer              |
|                      |                                  |   |                      |                                        |
|                      |                                  |   |                      |                                        |
| DATE:  June 12, 2009 |                                  |   | DATE:  June 12, 2009 |

 

 
| By:    | /s/  Randy Camp  |   |
|--------|-----------------------|--------|
|   | Randy  Camp, Director |
|        |                       |        |  |

 

DATE:June 12, 2009

 

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**EXHIBITS.**

 
| **Exhibit No.** | ** ** | **Document Description**                                                                                                                                                                                                                       |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3(i)(a)              |       | Articles  of Incorporation of the Company dated May 9, 1969 filed as Exhibit A  (1) to the Company’s Form 10 and incorporated herein by reference.                                                                         |
|                 |       |                                                                                                                                                                                                                                                |
| 3(i)(b)              |       | Amendment  to Articles of Incorporation of the Company dated October 22, 1982 filed  as Exhibit 3. (I)(B) to the Company’s Form 10-KSB for the  period ending February 28, 2005 and incorporated herein by reference. |
|                 |       |                                                                                                                                                                                                                                                |
| 3(ii)                |       | By-Laws  of the Company dated May 23, 1975 filed as Exhibit A (4) to Form 10  and incorporated herein by reference.                                                                                                             |
|                 |       |                                                                                                                                                                                                                                                |
| 14                   |       | Code  of Ethical Conduct of Senior Officers filed as Exhibit 14 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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