Tableof Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**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, 2010**

 

**o****          ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from              to              ..**

 

**Commission file number 000-08532**

 

----

 

**OAKRIDGEENERGY, 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 telephone number,including area code: **(940) 322-4772**

 

----

 

Securities registered pursuant to Section 12(b) of the Act: **None**

 

Securities registered pursuant 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 common stock, par value $0.04 per share, held bynonaffiliates of the registrant, based on the average bid and asked prices ofthe common stock on August 31, 2009 (the last business day of theregistrant’s most recently completed second fiscal quarter) was approximately$3.8 million.  For purposes of thiscomputation, all officers, directors and 10% beneficial owners of theregistrant are deemed to be affiliates. Such determination should not be deemed an admission that such officers,directors or 10% beneficial owners are, in fact, affiliates of the registrant.

 

Asof May 25, 2010, there were 4,068,927 shares of common stock outstanding.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

None

 

----

Table of Contents

 

**TABLE OFCONTENTS**

 
| ** **                                                                                                                                                    | ** ** | **Page** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
|                                                                                                                                                          |       |     |
| PART I                                                                                                                                                   |       | 3        |
|                                                                                                                                                          |       |     |
| ITEM 1.       BUSINESS                                                                                                          |       | 3        |
|                                                                                                                                                          |       |     |
| Oil and Gas Operations                                                                                                                                        |       | 3        |
|                                                                                                                                                          |       |     |
| Gravel  Operations                                                                                                                                            |       | 4        |
|                                                                                                                                                          |       |     |
| Carbon Junction Coal Mine                                                                                                                                     |       | 4        |
|                                                                                                                                                          |       |     |
| Real Estate Held for Sale                                                                                                                                     |       | 6        |
|                                                                                                                                                          |       |     |
| Competition and Markets                                                                                                                                       |       | 8        |
|                                                                                                                                                          |       |     |
| Regulation                                                                                                                                                    |       | 8        |
|                                                                                                                                                          |       |     |
| Environmental and  Health Controls                                                                                                                            |       | 9        |
|                                                                                                                                                          |       |     |
| Operating  Hazards and Uninsured Risks                                                                                                                        |       | 9        |
|                                                                                                                                                          |       |     |
| Employees                                                                                                                                                     |       | 9        |
|                                                                                                                                                          |       |     |
| ITEM 1B.    UNRESOLVED STAFF COMMENTS                                                                                                          |       | 9        |
|                                                                                                                                                          |       |     |
| ITEM 2.       PROPERTIES                                                                                                        |       | 10       |
|                                                                                                                                                          |       |     |
| Oil and Gas Properties                                                                                                                                        |       | 10       |
|                                                                                                                                                          |       |     |
| Coal and Gravel  Properties                                                                                                                                   |       | 12       |
|                                                                                                                                                          |       |     |
| Real Estate                                                                                                                                                   |       | 13       |
|                                                                                                                                                          |       |     |
| Office Building                                                                                                                                               |       | 13       |
|                                                                                                                                                          |       |     |
| ITEM 3.       LEGAL PROCEEDINGS                                                                                                 |       | 13       |
|                                                                                                                                                          |       |     |
| ITEM 4.       RESERVED                                                                                                          |       | 13       |
|                                                                                                                                                          |       |     |
| PART II                                                                                                                                                  |       | 14       |
|                                                                                                                                                          |       |     |
| ITEM 5.       MARKET FOR REGISTRANT’S COMMON EQUITY RELATED  STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |       | 14       |
|                                                                                                                                                          |       |     |
| ITEM 7.       MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS                       |       | 14       |
|                                                                                                                                                          |       |     |
| Results of Operations                                                                                                                                         |       | 14       |
|                                                                                                                                                          |       |     |
| Financial  Condition and Liquidity                                                                                                                            |       | 16       |
|                                                                                                                                                          |       |     |
| Critical  Accounting Policies and Estimates                                                                                                                   |       | 17       |
|                                                                                                                                                          |       |     |
| Forward-Looking  Statements                                                                                                                                   |       | 18       |
|                                                                                                                                                          |       |     |
| ITEM 8.       FINANCIAL STATEMENTS AND  SUPPLEMENTARY DATA                                                                      |       | 19       |
|                                                                                                                                                          |       |     |
| ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS  ON ACCOUNTING AND FINANCIAL DISCLOSURE                             |       | 36       |

 

i

----

Table of Contents

 
| ITEM 9A(T). CONTROLS AND PROCEDURES                                                                                              |   | 36     |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                             |   |   |
| Disclosure  Controls and Procedures                                                                                              |   | 36     |
|                                                                                                                             |   |   |
| Changes in  Internal Control Over Financial Reporting                                                                            |   | 36     |
|                                                                                                                             |   |   |
| Management’s  Annual Report on Internal Control Over Financial Reporting                                                    |   | 36     |
|                                                                                                                             |   |   |
| ITEM 9B.    OTHER INFORMATION                                                                                     |   | 37     |
|                                                                                                                             |   |   |
| PART III                                                                                                                    |   | 38     |
|                                                                                                                             |   |   |
| ITEM 10.     DIRECTORS, EXECUTIVE  OFFICERS AND CORPORATE GOVERNANCE                                         |   | 38     |
|                                                                                                                             |   |   |
| Directors and  Executive Officers                                                                                                |   | 38     |
|                                                                                                                             |   |   |
| Section 16(a) Beneficial  Ownership Reporting Compliance                                                               |   | 38     |
|                                                                                                                             |   |   |
| Audit Committee                                                                                                                  |   | 39     |
|                                                                                                                             |   |   |
| Audit Committee  Financial Expert                                                                                                |   | 39     |
|                                                                                                                             |   |   |
| Nomination Procedures                                                                                                            |   | 39     |
|                                                                                                                             |   |   |
| Code of Ethics                                                                                                                   |   | 39     |
|                                                                                                                             |   |   |
| ITEM 11.     EXECUTIVE COMPENSATION                                                                          |   | 39     |
|                                                                                                                             |   |   |
| ITEM 12.     SECURITY OWNERSHIP OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |   | 40     |
|                                                                                                                             |   |   |
| ITEM 13.     CERTAIN RELATIONSHIPS AND  RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE                       |   | 41     |
|                                                                                                                             |   |   |
| Related Party  Transactions                                                                                                      |   | 41     |
|                                                                                                                             |   |   |
| Director Independence                                                                                                            |   | 41     |
|                                                                                                                             |   |   |
| ITEM 14.     PRINCIPAL ACCOUNTING FEES  AND SERVICES                                                         |   | 42     |
|                                                                                                                             |   |   |
| Audit Fees                                                                                                                       |   | 42     |
|                                                                                                                             |   |   |
| Audit-Related Fees                                                                                                               |   | 42     |
|                                                                                                                             |   |   |
| Tax Fees                                                                                                                         |   | 42     |
|                                                                                                                             |   |   |
| All Other Fees                                                                                                                   |   | 42     |
|                                                                                                                             |   |   |
| Pre-Approval  Policies and Procedures                                                                                            |   | 42     |
|                                                                                                                             |   |   |
| PART IV                                                                                                                     |   | 43     |
|                                                                                                                             |   |   |
| ITEM 15.     EXHIBITS, FINANCIAL STATEMENT  SCHEDULES                                                             |   | 43     |
|                                                                                                                             |   |   |
| SIGNATURES                                                                                                                       |   | 44     |
|                                                                                                                             |   |   |
| EXHIBITS                                                                                                                         |   | 45     |

 

ii

----

Table of Contents

 

**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 approximately 1,866acres of land in La Plata County, Colorado for sale, which lands cover gas,coal and other mineral deposits. See “Oil and Gas Operations” and “Real EstateHeld for Sale” below and “Item 7. — Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.”

 

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.

 

**Overview**

 

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, which was substantially completed in fiscal 2009.  In fiscal 2010, the Company continued itsparticipation in the water-flood project started in the last quarter of fiscal2003, as well as its other oil and gas operations.

 

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 but continues to receivetreatment.  Ms. Pautsky has been theprincipal force pushing the Company’s proposed real estate development of theDurango Property.  Because of concernsregarding Ms. Pautsky’s health, the project size, the significantfinancial requirement by the Company, the number of years to complete theproject, and the risk to the Company in committing so much of its limitedfinancial resources to one project, the Company decided during the firstquarter of fiscal 2005 to attempt to sell the Company’s approximately 1,866acres of land located in La Plata County, Colorado.

 

TheCompany has entered into two previous contracts to sell the Durango Propertythat were unsuccessful.  The nationwidedownturn of the real estate market has had a dampening effect on interest frompotential buyers of the Durango Property. However, the Company continues tomarket the Durango Property, and recently the level of interest from potentialbuyers has improved.  On January 25,2010, the Company entered into a non-binding letter of intent with La PlataCounty, Colorado, which proposes that La Plata County build and maintain twoconnector roads across the Durango Property to be dedicated and constructed intwo phases: the Grandview Connector as Phase I and the Highway 160 DominguezDrive Connection (also commonly known in La Plata County as the “Wal-MartIntersection”) as Phase II.  See “RealEstate Held for Sale-Decision to Sell the Durango Property” below and “Item 7. —Management’s Discussion and Analysis of Financial Condition and Results ofOperations.”

 

**Oil and Gas Operations**

 

**General:**  The Company’soil and gas operations are primarily conducted in Madison County, Texas andother North Texas counties and, to a lesser extent, Freestone, Red River,Panola, Gregg and Smith Counties of Texas, as well as counties in Oklahoma,Colorado and Mississippi. The Company is the operator of only the leases inNorth Texas, not including its lease in Madison County.  All other oil and gas interests owned areparticipation interests whereby the Company owns a working or royalty interestin a property that is operated and maintained by another interest owner underan operating agreement.  For theparticipation interests, the Company receives payment for its oil and gas salesfrom the purchaser or the operator and is billed by the operator for itsownership percentage of joint expenses for getting the oil and/or gas from thewells to the point of sale.

 

TheCompany drilled a development well on one of its North Texas properties infiscal 2010, which was in the process of being completed at the fiscal yearend. The well was a low cost shallow well and based on the performance of thiswell to date, the Company expects to drill two additional wells during fiscal2011.  Ms. Pautsky and Danny Croker,the Company’s Vice President, select the exploration and development prospectsin which the Company participates.

 

**Madison County, TexasProperty: **The Company’sprincipal producing oil and gas property for the past eleven fiscal years hasbeen its 25% working interest in the BSR (Sub-Clarksville) Field in MadisonCounty, Texas (the “Madison County, Texas Property”).  The Madison County, Texas Property wasresponsible for approximately 58.3% and 57.1% of the Company’s total oil andgas revenues for fiscal years 2009 and 2010, respectively.  The property consists of 23 producing 

 

3

----

Table of Contents

 

wells, four water injectionwells (which include one converted injection well on November 1, 2008),and one water supply 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 is astratigraphically trapped oil accumulation of 20MMBOIP (millions of barrels ofoil in place) and is fully developed for its primary oil and gas reserves. Asthe Madison County, Texas Property aged and production declined, a secondaryrecovery project was installed on the property. In fiscal 2003, the Texas RailroadCommission approved the waterflooding project, the property was unitized andthe water-flooding project commenced effective as of December 1, 2002. Thewaterflooding project is ongoing.

 

**MadisonCounty, Texas Property revenues:**  The Madison County, Texas Property revenuesfor fiscal 2010 and 2009 were $582,459 and $958,054, respectively, whichrepresents a decrease of $375,595 (39.2%) for fiscal 2010 as compared to fiscal2009.  The average oil prices received infiscal 2010 and 2009 were $63.46 and $91.80 per barrel, respectively, whichrepresents a decrease of $28.34 per barrel (30.9%) for fiscal 2010 as comparedto fiscal 2009.  The volume of oil soldin fiscal 2010 decreased in the amount of 1,063 barrels (11.0%) as compared tofiscal 2009.  The decrease in the priceof oil and the decrease in the volume of oil sold for fiscal 2010 as comparedto fiscal 2009 are the primary reasons for decreased revenue from the MadisonCounty, Texas Property for fiscal 2010. In addition, the average gas prices receivedin fiscal 2010 and 2009 were $3.56 and $6.59 per mcf, respectively, whichrepresents a decrease of $3.03 per mcf (46.0%) for fiscal 2010 as compared tofiscal 2009.  Gas sales volumes remainedvirtually unchanged at 10,538 mcf and 10,557 mcf for fiscal 2010 and 2009,respectively. Sales of immaterial amount of other petroleum products were alsoincluded in total revenue from the field.

 

**Gravel Operations**

 

**Surface ownership, gravel mining contract and surface lease**:  The Company’s gravel property is located onapproximately 63.5 acres of the approximately 1,866 acres of land owned by theCompany in La Plata County, Colorado. Pursuant to a contract and surface lease effective January 1, 1994,Four Corners Materials (“FCM”) mined sand, gravel and rock products from theEwing Mesa Pit #1 for a term of eight years. After the expiration of thecontract, FCM continued mining gravel pursuant to an oral agreement between theCompany and FCM.  FCM ceased mining onthe property 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 hadstabilized. In fiscal 2009, CDRMS records indicated that FCM requested arelease of financial warranties and termination of the gravel permit, which theCDRMS denied. According to the CDRMS, the CDRMS continues to retain thefinancial warranty because FCM has not reclaimed (i) its sediment pond andoverburden pile within the gravel permit area, (ii) a couple of lengths ofdiversion ditch, (iii) the electrical substation and has not topsoiled andseeded those areas.

 

**Current activity and inspection:** Regular inspection of the gravel mine-site andits records are conducted by the CDRMS who reports to FCM regarding compliancerequirements under the permit as a result of the inspection.  Inspections and resulting complianceoperations will continue until the complete release of the financial 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**

 

**Surface ownership and coal leases: **In 1990 and 1991, the Company purchased the lands that comprise theDurango Property for the purpose of mining coal.  In addition to acquiring the surface estateof the lands, the Company obtained the exclusive rights to sign coal leases anda 75% interest in the coal deposits.  Ofthe lands purchased in 1990, the Company obtained coal leases on the remaining25% interest in the coal deposits.  Theleases require no annual delay rentals or advanced minimum royalties haveprimary terms of 25 years and, unless renewed, will expire in 2015.  No coal leases 

 

4

----

Table ofContents

 

wereobtained on the remaining 25% interest in the coal deposits on the approximate190 acres purchased in 1991.  In fiscal1994, however, an appraisal by a third party engineer determined that the coaldeposits under the Durango Property (the “Carbon Junction Coal Mine”) could notbe mined and marketed profitably. Therefore, in accordance with the rules of the Securities andExchange Commission (the “SEC”), the Company records no reserves or economicvalue for coal deposits.

 

**Coal mining permit expires September 22, 2013:**   Coal deposits held in the Carbon JunctionCoal Mine have been minimally permitted and disturbed by miningoperations.  Of the 192.77 permittedacres, approximately 59 were disturbed, 55 have been reclaimed and 3.5 remaindisturbed at the fiscal 2010 year end. The Carbon Junction Coal Mine permit was renewed September 22,2008, for a period of five years and will expire September 22, 2013.  The permit covers reclamation or dispositionof existing surface coal mining related disturbance within the permit area.

 

**Reclamation liability and financial warranties of $405,834 at fiscal2010 year end:**  The Company’soriginal bond****amount for the reclamation of theCarbon Junction Coal Mine was $816,526 for a permitted area of approximately192.77 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 theamount of $380,527.  A discrepancy incalculation by the CDRMS regarding the Company’s remaining financial warrantyresulted in a request on December 12, 2008 by the CDRMS that the Companyincrease 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 completed in April 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 fiscal2010 year end, approximately 3.5 disturbed acres remained to be reclaimed;however, the acreage is contained in topsoil piles that are in excess to therequirements of reclamation of the mine site. The CDRMS has expressed awillingness to revise the current reclamation permit requirements to excludethe topsoil stock piles from being redisturbed or reclaimed and the CompanyfiledTechnical Revision No. 16 Application to the Carbon Junction CoalMine permit for leaving topsoil piles 4 and 7 in place. The Company has beennotified by the CDRMS that the application was considered adequate and theyexpect to have a decision by July 13, 2010.  However, the CDRMS has expressed concernsthat an adequate demonstration of residential, industrial, commercial, and /orrecreational post-mining land use in accordance with Technical Revision No. 5has not been implemented.  The fullrelease of the Company’s financial warranty is subject to the CDRMS’sconfirmation that either post-mining land uses have been implemented orenvironmental responses, ground cover, vegetative habitat and re-growth havestabilized. In May 2009, the CDRMS advised the Company that it did notbelieve that residential post-mining land use had been “substantially commencedand is likely to be achieved” and that the Company’s Phase III bond releaseapplication would be held pending further information from the Company.  The Company is continuing to evaluate itsoptions with regard to obtaining approval from the CDRMS of the Phase III bondrelease application. Phase II and Phase III Bond Releases are eligible forcomplete and final bond release after sediment control structures arereclaimed, and Sediment Ponds #1 and #2 were reclaimed between December 2008and April 2009.  The Company did notsubmit a Phase II Bond Release application, however, because the Phase III BondRelease has not been approved based on the Company not adequately demonstratingapproved post-mining land use.

 

**Current mining activities and inspections:** The Companysubstantially completed its reclamation activities in fiscal 2009, and renewedits Carbon Junction Coal Mine permit, which covers reclamation or dispositionof existing surface coal mining related disturbance within the modified permitarea.  Inspections are conductedregularly by the CDRMS to determine that terms and conditions of the existingpermit are being satisfactorily met. As needed in response to the inspections,the Company then performs compliance operations to conform to the CDRMSrequirements cited in its report. 

 

5

----

Table ofContents

 

TheCompany expects that inspections and operations will continue until thecomplete release of the reclamation liability and warranty. See “Item 7. —Management’s Discussion and Analysis of Financial Condition and Results ofOperations.”

 

**Real Estate Held for Sale**

 

**Location:**  According toan Alta Survey, the Durango Property consists of approximately 1,866 acres ofland located in La Plata County, Colorado. The major highways intersecting the City of Durango and La Plata Countyare US Highway 550 running North and South and US Highway 160 running East andWest.  The Durango Property is alignedwith US Highway 160 and is located on a mesa adjacent to and above the City ofDurango.  The Durango Property is notcurrently within the city limits; however, certain portions of the DurangoProperty 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 Companypurchased approximately 1,800 acres on which the Carbon Junction Coal Mine issituated and contains 192.77 acres permitted for coal mining purposes.  In fiscal 1995, following a third partyappraisal that resulted in the Company’s coal reserves being classified as uneconomicto produce competitively in the marketplace, the Company’s focus for theDurango Property changed from energy related to real estate opportunities.

 

**Letter of Intent by and between La Plata County, Colorado and theCompany dated January 25, 2010:    **On January 25,2010, the Company signed a non-binding Letter of Intent with La Plata County,Colorado (the “Letter of Intent”) to dedicate and develop county roads on theDurango Property.  In the Letter ofIntent, La Plata County generally agrees that the Company will have direct andconvenient access to any county roads dedicated and developed on the DurangoProperty, that the Company (and its utility providers) will be given theopportunity to locate utilities within any dedicated right of way, and that LaPlata County accepts maintenance for the portions of county roads dedicateduntil maintenance is assumed by another government entity.  The Letter of Intent states that La PlataCounty will be responsible for the construction and development of the countyroads.  The Letter of Intent anticipatestwo separate dedications of rights of way on the Company’s property, theGrandview Connector and the Highway 160 Connector, to be completed no laterthan seven and nine years, respectively, from the date of formalagreement.  The Letter of Intent is not adefinitive agreement and is subject to the delivery and execution of a finalwritten agreement of the parties as well as certain conditions such as theavailability of public funds.  TheCompany can provide no assurance that a final written agreement will be agreedupon or entered into by the parties or that the roads will be constructedtimely or at all.

 

**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 theaverage daily traffic volume to and from the area will exceed 5,000 vehicletrips per day. The Area Plan supports approximately 1,500 to 3,000 residentialunits.

 

**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 publichearings, and prepare a recommendation to the City 

 

6

----

Table of Contents

 

Councilto approve, approve with conditions or deny the annexation application and planfor development.   The Company iscurrently unable to estimate the timetable for the annexation process.

 

**Durango Property division into thirty-five acre lots:  **The Durango Property islocated within****La****PlataCounty.****In August 2007, La Plata Countyadopted a new land use code to originally have an effective date of January 6,2008.  The new code would place seriousrestrictions within La Plata 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 La Plata County land use codes, the Companyestablished fifty-four 35 acre parcels on the Durango Property and filed theplats with the La Plata County Clerk’s office.    Although the Board of County Commissionersdelayed the effective date of the new code, it remains likely that it will beput into effect in substantially 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 within 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 withinLa Plata County jurisdiction 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 as well 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 in the center of the village to medium or less density as thegolf course or rims of the mesa are approached. The Area Plan approved by the City of Durango incorporates areas of openspace and preserves hillsides, gulches and other natural features of theterrain, while allowing residential, commercial and resort developmentopportunities around the proposed golf course and other recreationalproperties.  A substantial business parkis envisioned to attract corporate home offices and local businesses to thearea.

 

**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, butcontinues to receive treatment. Because of concerns regarding Ms. Pautsky’shealth, the project size, the significant financial requirement by the Company,the number of years to complete and the risk involved to the Company incommitting so much of its limited financial resources to one project, theCompany decided to attempt to sell the Durango Property.  The Company’s officers, other than Ms. Pautsky,have not been actively involved with the Durango Property; however, in theevent that the Company should not sell the Durango Property, the Companyanticipates that Arbie Ray, Ms. Pautsky’s daughter and long-term employeeof the Company, would assume primary responsibility for the DurangoProperty.  Ms. Ray has been activelyinvolved historically 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. The Companyis not a distressed seller and continues to have strong

 

7

----

Table ofContents

 

expectationsfor the Durango Property.  However, thedownturn of the real estate market environment nationwide has affected themarketability of the Durango Property.  See“Competition 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. Home owners experienced foreclosureof their homes, the residential sales market became saturated, prices fell assupply increased and sellers had difficulty realizing a price when they soldtheir home that would cover their remaining loan cost.  Real estate prices have been forced downwardas distressed sellers compete for the limited buyers available as a result ofstricter lending requirements being implemented by banks and lendinginstitutions.

 

**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.

 

**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, favors larger companies. In fiscal 2009 and 2010, theCompany did not experience any difficulty in obtaining services and materialsbecause of its limited 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 delivery requirements.  The Company has been unable to market itscoal competitively and in accordance with regulations of the SEC does notaccount 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.  Factors affecting themarketing of oil and gas include, but are not limited to, imports, refiningcapacities, current worldwide events, unpredictable pricing and actions by foreignproducing nations.

 

Oiland gas prices were generally on an upward trend from the first quarter offiscal 2003 until June 2008.  Higheroil and gas prices had a materially positive effect on the Company’srevenues.  In fiscal 2009 and 2010, theCompany’s average oil price received was $91.17 and $63.85, respectively, whichrepresents a decrease of $27.32 per barrel (30.0%) in fiscal 2010 as comparedto fiscal 2009.  The Company’s averagegas price received was $7.01 and $3.77 in fiscal 2009 and 2010, respectively,which represents a decrease of $3.24 per mcf (46.2%) in fiscal 2010 as comparedto fiscal 2009.  The Company generatedmost of its revenue from oil production.

 

Whilecertain of the Company’s gas properties experience seasonal variations in demand,the Company was not experiencing any significant curtailment, or an inabilityto sell all of its deliverable gas, on an overall basis at February 28,2010. See “Item 7. — Management’s Discussion and Analysis of FinancialCondition and Results of Operations.”

 

**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, 

 

8

----

Table of Contents

 

preventionof waste 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 regulationsthereunder, are complex and can affect all who produce, resell, transport,purchase or consume natural gas.

 

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 intrastate pipelines.

 

**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 these limitingfactors, the Company has been unable to market its coal competitively and inaccordance with SEC regulations does not account for coal reserves in itsfinancial records. The Company’s gravel reserves are subject to comparableregulation, 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 the acquisitionof a permit before drilling commences, restrict the type, quantities andconcentration of various substances that can be released into the environmentin connection with drilling and production activities, limit or prohibitdrilling activities on certain lands lying within wilderness, wetlands andother protected areas and impose substantial liabilities for pollutionresulting from oil and gas operations. These laws and regulations may 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 25, 2010, 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 1B.             UNRESOLVEDSTAFF COMMENTS**

 

None.

 

9

----

Table of Contents

 

**ITEM 2.               PROPERTIES**

 

**Oil and Gas Properties**

 

**Reserves:**** **Reference is made to “Supplemental Oil and Gas Data (Unaudited)”included as supplemental information to the Company’s financial statements foradditional information 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 thediscounted future net cash flows from the Company’s oil and gas reserves andthe changes in such standardized measure. The engineering report with respect to the Company’s proved oil and gasreserves as of February 28, 2010 was prepared by Stephens Engineering,independent petroleum engineers, based in Wichita Falls, Texas (“StephensEngineering”) and is filed as Exhibit 99 to this annual report.  Stephens Engineering is a ConsultantEngineering firm specializing in valuations, oil and gas reservoir studies andsupervision of secondary tertiary recovery programs.  The firm provides services primarily inTexas, Oklahoma and New Mexico and is experienced in a total of twenty Statesand Canada.  At February 28, 2010,all of the Company’s oil and gas reserves were located in the States of Texas,Mississippi, Colorado and Oklahoma.  Thetechnical persons responsible for preparing the reserve estimates areindependent petroleum engineers and geoscientists that meet the requirementsregarding qualifications, independence, objectivity and confidentiality setforth in the Standards Pertaining to the Estimating and Auditing of Oil and GasReserves Information promulgated by the Society of Petroleum Engineers.

 

Management maintains internal controls designed toprovide reasonable assurance that the estimates of proved reserves are computedand reported in accordance with rules and regulations provided by theSEC.  As stated above, the Companyretained Stephens Engineering to prepare estimates of the Company’s oil and gasreserves.  Management works closely withthis firm, and is responsible for providing accurate operating and technicaldata to it.  Management reviews the finalreserves estimate and, if necessary, discusses the process used and findingswith representatives from the independent petroleum engineering firm.  Ms. Pautsky is primarily responsible foroverseeing the preparation of the reserve estimates and has over 40 years ofexperience in the oil and gas industry and has extensive geologicalknowledge.  Numerous uncertainties existin estimating quantities of proved reserves. Reserve estimates are imprecise and subjective and may change at anytime as additional information becomes available.  Furthermore, estimates of oil and gasreserves are projections based on engineering data.  There are uncertainties inherent in theinterpretation of this data as well as the projection of future rates ofproduction.  The accuracy of any reserveestimate is a function of the quality of available data and of engineering andgeological interpretation and judgement.

 

Noreserve reports pertaining to the Company’s proved net oil or gas reserves werefiled with or included in reports to any Federal governmental authority oragency during the fiscal year ended February 28, 2010, and no majordiscovery is believed to have caused a significant change in the Company’sestimates of proved reserves since that date.

 

The following table reflectsStephens Engineering’s estimate of those quantities of oil and gas as of February 28,2010 that can be produced from the Company’s proved developed reserves duringthe fiscal year ending February 28, 2011 using equipment installed andunder economic and operating conditions existing at February 28, 2010:

 
| Oil (Bbls) |   | 14,470 |   |
|------------|--------|--------|--------|
| Gas (mcf)  |   | 25,261 |   |

 

**Summary of Oil and Gas Reserves as of Fiscal-Year End Based on AverageFiscal-Year Prices:**  Thefollowing table reflects Stephens Engineering’s estimate of oil and gasreserves as of February 28, 2010 using prices and costs under existingeconomic conditions:

 
| ** **            | ** ** | **Reserves as of February 28, 2010** | ** ** |
|-----------------------|------------|-------------------------------------------|------------|
| ** **            | ** ** | **Oil (Bbls)**                            | ** ** | **Gas (MCF)** | ** ** |
| Proved developed      |       | 110,458                                   |       | 220,082 |   |
| Proved undeveloped    |       | 554,636                                   |       | — |   |
| Total proved reserves |       | 665,094                                   |       | 220,082 |   |

 

10

----

Table of Contents

 

**Proved Undeveloped Reserves: **The followingtable reflects Stephens Engineering’s estimate of proved undeveloped reservesas of February 28, 2009 and 2010:

 
| **Proved undeveloped reserves** | ** ** | **Oil  (Bbls)** | ** ** |
|---------------------------------|------------|-----------------|------------|
| As of February 28, 2009    |       | 599,059         |       |
| Change in estimate              |       | (44,423         | )          |
| As of February 28, 2010    |       | 554,636         |       |

 

Allof the estimated 554,636 barrels of oil of proved undeveloped reserves as ofthe end of fiscal 2010 are attributed to the Madison County, TexasProperty.  Other than a change inestimate, no material changes to proved undeveloped reserves were made duringfiscal 2010.  As a minority workinginterest owner, the Company is unable to determine the amount or timing ofefforts to recover the proved undeveloped reserves or convert them to developedreserves.

 

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.  The Company has been able to meet allsignificant delivery commitments in each of the last three fiscal years.

 

**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)** | ** ** |
|-------------------------------------------------------|------------|-----------------|------------|----------------|------------|
| 2010                                                  |       | 13,049          |       | 19,805         |       |
| 2009                                                  |       | 16,088          |       | 19,860         |       |
| 2008                                                  |       | 17,293          |       | 20,843         |       |

 

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

 
| ** **                         | ** ** | **Fiscal Year  Ended February 28(9),** | ** ** |
|------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                         | ** ** | **2010**                                              | ** ** | **2009** | ** ** | **2008** | ** ** |
| Average Production (Lifting) Costs |       |                                                  |       |   |   |   |   |
|                               |       |                                                  |       |   |   |   |   |
| Per equivalent unit (Bbls)         |       | $                                                     | 46.21      |   | $ | 55.64 |   | $ | 44.20 |   |
|                               |       |                                                  |       |   |   |   |   |
| Average Sales Prices               |       |                                                  |       |   |   |   |   |
|                               |       |                                                  |       |   |   |   |   |
| Oil (per Bbl)                      |       | $                                                     | 63.85      |   | $ | 91.17 |   | $ | 76.57 |   |
| Gas (per mcf)                      |       | $                                                     | 3.77       |   | $ | 7.01 |   | $ | 6.63 |   |

 

**Sales contracts and major customers**:  The Company does not own any refiningfacilities and sells its oil under short-term contracts at freight on boardfield prices posted by the principal purchasers of oil in the areas where theCompany’s producing properties are located. During the fiscal year ended February 28, 2010, the Company soldapproximately 66.4% of its oil to Teppco Crude Oil, L.P. (“Teppco”) andapproximately 25.5% to Sunoco, Inc. During fiscal 2010, the Company sold approximately 60.0% of its gasunder short-term contracts to Orion Pipeline, L.L.C. (“Orion”), approximately18.6% to Targa North Texas LP, and approximately 10.5% to Chevron U.S.A., Inc.

 

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, 2010, the Company owned working and overridingroyalty interests in 8,492 gross (2,566 net) acres of developed oil and gasleases and 50 gross (16.45 net) productive oil and gas wells.

 

11

----

Table of Contents

 

Thefollowing table summarizes the Company’s developed acreage and productive wellsas of February 28, 2010:

 
| ** **         | ** ** | **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 |   | — |   | 5.75 |   | — |   |
| All Other Counties |       | 2,608                         |       | 1,047                           |       | 1,193 |   | 239 |   | 21 |   | 3 |   | 9.64 |   | 1.00 |   |
| Mississippi        |       | 40                            |       | —                          |       | .26 |   | — |   | 1 |   | — |   | 0.01 |   | — |   |
| Colorado           |       | —                        |       | 242                             |       | — |   | 4 |   | — |   | 1 |   | — |   | 0.02 |   |
| Oklahoma           |       | 40                            |       | —                          |       | 1 |   | — |   | 1 |   | — |   | 0.03 |   | — |   |
|               |       |                          |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total              |       | 7,203                         |       | 1,289                           |       | 2,323 |   | 243 |   | 46 |   | 4 |   | 15.43 |   | 1.02 |   |

 

----

| (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  22 gross (12.38 net) shut-in wells; excludes eight gross (3.30 net) water  injection wells and one 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 28,2010:

 
| **State**                        | ** ** | **Gross Acres (1)** | ** ** | **Net Acres(1)** | ** ** |
|----------------------------------|------------|--------------------------|------------|-----------------------|------------|
| Greg County, Texas Teal Prospect |       | 78.65                    |       | 26.19                 |       |

 

----

| (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, 100% of the Company’sleases will expire in fiscal 2011.  As aminority working interest owner, the Company cannot determine when or if theconversion to developed acres will occur.

 

**Present activities**:  The Company drilled one gross (.58 net)development well in fiscal 2010 on one of its North Texas properties.  As of February 28, 2010, the Company wasin the process of completing the well. Completion was hampered by adverse weatherconditions, which also delayed the drilling of a second well on the sameproperty. The Company did not participate in drilling any development wellsduring fiscal 2009 or 2008.

 

**Drilling activities:**  The following table shows the number of netproductive and dry exploratory wells and the number of net productive and drydevelopment wells drilled by the Company in each of the last three fiscalyears:

 
| ** **                                | ** ** | **Fiscal Year********Ended  February 28(9),** | ** ** |
|-------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                | ** ** | **2010**                                           | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net productive and dry  exploratory wells |       | —                                             |       | — |   | — |   |
| Net productive and dry  development wells |       | .58                                                |       | — |   | — |   |

 

**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 

 

12

----

Table of Contents

 

75%interest in the coal and the executive rights to the remaining 25% interest inthe coal of approximately 190 additional acres in La Plata County adjacent tothe approximately 1,640 acres previously purchased.  The Company has not leased the remaining 25%interest in the coal.  By virtue of itsfee and lease ownership and the executive rights it holds, the Company controls100% of the above described tracts.

 

**Coal mining permit approved by the CDRMS expires September 22,2013:**  Coal deposits held in theCarbon Junction Coal Mine have been minimally permitted and disturbed by miningoperations.  Of the approximately 1,830acres owned and leased, approximately 192.77 acres were permitted by the CDRMSand only 3.5 acres remain disturbed.  Theterm of the Company’s permit is five years and the current permit expires September 22,2013.  The Carbon Junction Coal Minepermit covers reclamation or disposition of existing surface coal miningrelated disturbance within the permit area. See “Item 1 - Business - CarbonJunction 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, the CDRMS continues to retain the financial warranty because FCM has notreclaimed (i) its sediment pond and overburden pile within the gravelpermit area, (ii) a couple of lengths of diversion ditch, (iii) theelectrical substation and has not topsoiled and seeded those areas. Aggregatepermits generally do not have a termination date.  See “Item 1. Business - Gravel Operations”and “Item 7. — Management’s Discussion and Analysis of Financial Condition andResults of Operations.”

 

**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 the Durango Property is the subject of a planned mixed use developmentby the Company.  In the opinion ofmanagement, 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 good overall 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.               RESERVED**

 

13

----

Table of Contents

 

**PART II**

 

**ITEM 5.               MARKET FOR REGISTRANT’SCOMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES**

 

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 28,2009 and February 28, 2010 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 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    |       |
|                                      |       |     |       |    |       |
| Fiscal Year Ended February 28, 2010: |       |     |       |    |       |
| Quarter Ended May 31, 2009           |       | 4.65     |       | 1.00    |       |
| Quarter Ended August 31, 2009        |       | 4.90     |       | 1.05    |       |
| Quarter Ended November 30, 2009      |       | 4.90     |       | 1.50    |       |
| Quarter Ended February 28, 2010      |       | 4.65     |       | 1.65    |       |
|                                           |            |          |            |         |            |  |  |

 

Asof May 27, 2010, the Company had approximately 402  holders of record of its common stock.

 

TheCompany did not pay any dividends during fiscal 2009 or 2010.  There are currently no restrictions upon theCompany’s ability to pay dividends.

 

Thefollowing table shows all purchases of the Company’s shares of common stockmade by the Company during the fourth quarter of fiscal 2010:

 

Purchases of Equity Securities

 
| **Period**                                            | ** ** | **Total Number of  Shares Purchased****(1)** | ** ** | **Average Price  Paid Per Share** | ** ** |
|-------------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------|------------|
| December 1, 2009 through February 28,  2010 |       | 7,000                                        |       | 2.50                              |       |

 

----

(1)         The Company repurchased 7,000 shares of its commonstock in a private transaction based upon the stock price on the closing day ofthe transaction.

 

The Company has no publicly announced plans orprograms to purchase its shares of common stock.

 

**ITEM 7.               MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

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

 

**Results of Operations**

 

TheCompany had a net loss of $232,347 ($0.06 per share) in the fiscal year ended February 28,2010 as compared to a net loss of $652,703 ($0.15 per share) in the fiscal yearended February 28, 2009.

 

Oiland gas revenues decreased $623,812 (37.9%) in fiscal 2010 as compared tofiscal 2009.  The primary reasons forthis decline in revenue were decreased average oil and gas prices received anddecreased sales volumes for the 2010 fiscal 

 

14

----

Table of Contents

 

yearas compared to the 2009 fiscal year. Fees in the amount of $36,600 received by the Company both in fiscal2010 and 2009 for serving as operator of most of the Company’s North Texas areaproperties are included in oil and gas revenues.

 

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 2010with those of fiscal 2009:

 
| ** **               | ** ** | **Fiscal 2010** | ** ** | **Fiscal 2009** | ** ** | **Percentage  Change** | ** ** |
|--------------------------|------------|----------------------|------------|----------------------|------------|------------------------|------------|
| Oil:                     |       |                 |       |                 |       |                   |       |
|                     |       |                 |       |                 |       |                   |       |
| Revenues                 |       | $                    | 899,691    |                 | $          | 1,434,279              |       | - | 37.3 | % |
| Volume (Bbls.)           |       | 14,092               |       | 15,732               |       | -                      | 10.4       | % |
| Average Price (per Bbl.) |       | $                    | 63.85      |                 | $          | 91.17                  |       | - | 30.0 | % |
|                     |       |                 |       |                 |       |                   |       |   |
| Gas:                     |       |                 |       |                 |       |                   |       |   |
|                     |       |                 |       |                 |       |                   |       |   |
| Revenues                 |       | $                    | 83,869     |                 | $          | 170,619                |       | - | 50.8 | % |
| Volume (mcf)             |       | 22,266               |       | 24,345               |       | -                      | 8.5        | % |
| Average Price (per mcf)  |       | $                    | 3.77       |                 | $          | 7.01                   |       | - | 46.2 | % |

 

Non-materialamounts of natural gas liquids revenues and sales volumes for fiscal 2009 areexcluded from the foregoing table.

 

Oiland gas prices received were very volatile in fiscal 2009.  For the first seven months of fiscal 2009,the Company received unprecedented prices in excess of $100.00 per barrel ofoil topping out at approximately $133.00 per barrel.  During the last five months of fiscal 2009,the oil prices received by the Company declined dramatically and bottomed-outat approximately $35.00 per barrel of oil sold. Fiscal 2010 saw a rebuilding from the low price of approximately $35.00per barrel to a high of approximately $75.00 per barrel of oil sold.  The 30.0% decline in the average oil pricereceived in fiscal 2010 as compared to fiscal 2009 was a primary contributor tothe Company’s lower revenue in fiscal 2010 as compared to fiscal 2009. A 1,640barrel (10.4%) decrease in oil sales volumes also contributed to lower revenuefor fiscal 2010 as compared to fiscal 2009. Average gas prices received decreased by $3.24 per mcf (46.2%) from $7.01per mcf to $3.77 per mcf during fiscal 2010 as compared to fiscal 2009 and gassales volumes decreased 2,079 mcf (8.5%) during fiscal 2010 as compared tofiscal 2009 from 24,345 mcf to 22,266 mcf.

 

TheCompany’s revenues in fiscal 2010 from the Madison County, Texas Propertydecreased $375,595 (39.2%) as compared to fiscal 2009 as average oil pricesreceived from the property decreased $28.34 per barrel (30.9%) from $91.80 perbarrel to $63.46 per barrel and oil sales volumes from the property decreased1,063 barrels (11.0%) from 9,651 barrels in fiscal 2009 to 8,588 barrels infiscal 2010.

 

Oiland gas operating expense decreased $1,021,737 (55.1%) in fiscal 2010 ascompared to fiscal 2009. A primary reason for the reduced oil and gas operatingexpense was a $550,418 (98.5%) decrease in impairment costs for oil and gasproperties in fiscal 2010 as compared to fiscal 2009.  In fiscal 2009, the Company recorded animpairment and partial write off of the Madison County, Texas Property.  The price of oil per barrel and gas per mcfplummeted in February 2009 to $32.82 and $3.26, respectively, which priceswere used to calculate reserve value.  Infiscal 2009, SEC S-X Rule 4-10 provided that reserves that are a part of anatural resource occurrence which can be economically and legally extracted ata profit based on the price received at the *time of the reservedetermination* are recordable to the Company.  However, in fiscal 2010, the ruling changedto where the price used to estimate reserves is a twelve month average pricerather than a single day spot price.  Noimpairment of the Madison County, Texas Property was recorded in fiscal 2010 asa result of increases in the prices received by the Company for its oil and gasproduction.

 

TheCompany had a decrease of $65,617 (99.43%) in write offs of abandoned leaseholdinterests in fiscal 2010 as compared to fiscal 2009.  The Company also recognized a gain in fiscal2010 related to the completion of a plugging program on certain previouslyabandoned North Texas oil and gas properties in the amount of $38,707.  No such gain was recognized in fiscal2009.  The Company also had a decrease inthe change in estimate related to the asset retirement obligation in the amountof $42,553 for fiscal 2010 as compared to fiscal 2009.

 

15

----

Table ofContents

 

Thetable below shows by property certain of the changes in expenses incurred inthe Company’s oil and gas operations in fiscal 2010 as compared to fiscal 2009.

 
| **Changes  in:**                               | ** ** | **Madison  County,  Texas** | ** ** | **North  Texas** | ** ** | **Smith  County,  Texas** | ** ** | **Red River  County,  Texas** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|------------------|------------|---------------------------|------------|-------------------------------|------------|
| Operating expenses                             |       | $                           | (296,633   | )                | $          | (23,310                   | )          | $                             | (10,536    | ) | $ | 14,744 |   |
| Asset retirement obligation and accretion      |       | 8,137                       |       | (10,921          | )          | (3,703                    | )          | (591                          | )          |
| Depletion and depreciation expense             |       | 2,472                       |       | 7,072            |       | (708                      | )          | (416                          | )          |
| Total change in oil and gas operating expenses |       | $                           | (286,024   | )                | $          | (27,159                   | )          | $                             | (14,947    | ) | $ | 13,737 |   |

 

Theexpenses of the Company’s coal and gravel operations decreased $113,525 (81.3%)in fiscal 2010 as compared to fiscal 2009 primarily due to reduced reclamationcosts and testing and permitting costs.

 

Realestate development expense decreased $42,970 (18.1%) in fiscal 2010 as comparedto fiscal 2009 primarily due to decreased ad valorem taxes in the amount of $76,077partially offset by increased legal and other expenses regarding ad valoremtaxes in the amount of $30,328.

 

Generaland administrative expenses decreased $31,709 (5.8%) primarily due to decreasedcosts for professional fees and expenses for compliance with Federal laws andregulations in the amount of $27,259 and decreased letter of credit fees in theamount of $10,959, partially offset by increased employee insurance benefits inthe amount of $9,330.

 

TheCompany had gains on sale of property in the amount of $79,082 in fiscal 2010and $208,611in fiscal 2009, representing a decrease of $129,529 (62.1%) forfiscal 2010 as compared to fiscal 2009. The 2010 gains were for equipment sold from certain previously abandonedNorth Texas oil and gas properties which were plugged during the year.  The gains on sale of property for fiscal 2009were from the sale of a workover rig and the salvage of remaining coal miningequipment.

 

Otherincome (expense) increased $165,627 (693.7%) in fiscal 2010 as compared tofiscal 2009. Other income (expense) consists of four primary components: (i) interestand dividend income, (ii) gains on sales of marketable securities, (iii) impairmentloss on investments and (iv) other income (expense), primarily partnershipgains and losses and changes in estimates. Lower interest rates and slightlylower portfolio values resulted in decreased interest income in the amount ofapproximately $59,889 (76.3%) and decreased dividend income of $7,215 (83.4%).  However, the Company experienced a gain onthe sale of marketable securities available for sale of $125,343 in fiscal 2010with no such gain realized in fiscal 2009. The write-down of an investment security which was consideredpermanently impaired in fiscal 2009 resulted in an expense in the amount of$124,143 for that period with no comparable expense in fiscal 2010.  As to the remaining other expense components,the Company’s income relating to its interest in a limited partnership whichoperates a small gas pipeline in the East Texas area was $16,755 less in fiscal2010 than in fiscal 2009.

 

TheCompany’s provision for income taxes was a benefit in both fiscal 2010 and2009.  The income tax benefit decreased$201,871 (68.0%) in fiscal 2010 as compared to fiscal 2009.  This provision includes U.S. Federalcorporate and state income taxes.

 

TheCompany made no purchases of its common stock in fiscal 2009.  In fiscal 2010, the Company purchased 174,128shares of its common stock.  There were4,086,114 shares of common stock outstanding at the February 28, 2010fiscal year end.

 

**Financial Condition and Liquidity**

 

Duringfiscal 2010, the Company generally tried to restrict its expenditures; however,the Company did drill one gross (.58 net) development well on one of its NorthTexas properties which was in the process of being completed at the fiscal yearend.  Related drilling, completion andequipment costs are included in investing activities.  In fiscal 2010, investing activities were netproviders of cash in the amount of approximately $2,432,000 due mainly toproceeds received from maturities of certificates of deposit of$2,632,000.  In fiscal 2010, operatingactivities and financing activities, namely purchases of the Company’s treasurystock, were net users of cash in the approximate amounts of $785,000 and$374,000, respectively resulting in an increase in cash and cash equivalentsfor fiscal 2010 of approximately $1,274,000.

 

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 2011and any purchases of the 

 

16

----

Table of Contents

 

Company’sstock that it makes from its cash and cash equivalents,  cash flow from its oil and gas properties,and sale of salvage from the abandoned wells.

 

TheCompany’s oil products received an average price of $63.85 in fiscal 2010 forall properties.  The Company has noassurance that its average price received for oil and gas in fiscal 2011 willbe equivalent to or exceed those received during fiscal 2010.  The Company believes it has sufficient fundsavailable for its use in operations for the next 12 months.

 

**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 the Company’s 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 Company believes the following criticalaccounting policies affect its more significant judgments and estimates used inthe preparation of the Company’s financial statements:

 

**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 arecapitalized.  Exploration costs,including personnel costs, certain geological and geophysical expensesincluding two-dimensional (2-D) seismic costs and delay rentals for oil and gasleases, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged toexpense if and when the well is determined not to have found reserves incommercial 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 finding an oil and gas field that will be the focus of futuredevelopment drilling activity.  Theinitial exploratory wells may be unsuccessful and would 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 therefrom mayvary substantially.  Any significant 

 

17

----

Table of Contents

 

variancein the assumptions could materially affect the estimated quantity and value ofthe reserves, which could affect the carrying value of the Company’s oil andgas properties and/or the rate of depletion of the oil and gas properties.  Actual production, revenues and expenditureswith respect to the Company’s reserves will likely vary from estimates and suchvariances 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 the Madison County, Texas Property. The price of oil per barrel and naturalgas per mcf plummeted in February 2009 to $32.82 and $3.26, respectively,which prices were used to calculated reserve value.  In fiscal 2009, SEC S-X Rule 4-10provided that reserves that are a part of a natural resource occurrence whichcan be economically and legally extracted at a profit based on the pricereceived at the *time of the reserve determination*are recordable to the Company. However, in fiscal 2010, the price used toestimate reserves changed to a twelve month average price rather than a singleday spot price.  No impairment of theMadison County, Texas Property was recorded in fiscal 2010 as a result ofincreases in the prices received by the Company for its oil and gas production.

 

**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 ofthe subjectivity of assumptions and the relatively long lives of most of thewells, the costs to ultimately retire the Company’s wells may vary significantlyfrom 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 the 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 andinternational economic and political conditions.

 

18

----

Table of Contents

 

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

 

**Index toFinancial Statements**

 
| ** **                                                                                                     | **Page** |
|----------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                           |     |
| Report  of Independent Registered Public Accounting Firm                                                       | 20       |
|                                                                                                           |     |
| Balance Sheets as of  February 28, 2010 and 2009                                                          | 21       |
|                                                                                                           |     |
| Statements of  Operations for the fiscal years ended February 28, 2010 and 2009                           | 23       |
|                                                                                                           |     |
| Statements of Changes in Stockholders’ Equity for the  fiscal years ended February 28, 2010 and 2009 | 24       |
|                                                                                                           |     |
| Statements  of Cash Flows for the fiscal years ended February 28, 2010 and 2009                           | 25       |
|                                                                                                           |     |
| Notes  to Financial Statements                                                                                 | 26       |
|                                                                                                           |     |
| Supplemental Oil and Gas Data (Unaudited)                                                                      | 34       |

 

19

----

Table of Contents

 

#### **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, 2010 and February 28,2009, and the related statements of operations, changes in stockholders’equity, and cash flows for the years then ended.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our 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 28,2010 and February 28, 2009,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 |   |
|----------------------|--------|
|                 |   |
|                 |   |
| Fort  Worth, Texas   |   |
| June 1,  2010   |   |

 

20

----

Table ofContents

 

**OAKRIDGE ENERGY, INC.**

 

**BALANCESHEETS**

 
| ** **                                                                                            | ** ** | **February 28,** | ** **      | **February 28,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-----------------------|-----------------|-----------------------|------------|
| ** **                                                                                            | ** ** | **2010**              | ** **      | **2009**              | ** ** |
| ** **                                                                                            | ** ** | ** **            | ** **      | ** **            | ** ** |
| **Assets**                                                                                            |       |                  |            |                  |       |
| Current assets:                                                                                       |       |                  |            |                  |       |
| Cash and cash equivalents                                                                             |       | $                     |  1,480,775 |                  | $          |  207,244 |   |
| Trade accounts receivable                                                                             |       | 129,797               |            | 131,686               |       |
| Investment securities available for sale                                                              |       | 128,030               |            | 72,992                |       |
| Prepaid expenses and other                                                                            |       | 16,715                |            | 16,851                |       |
| Certificates of deposit                                                                               |       | 204,399               |            | 2,483,931             |       |
| Total current assets                                                                                  |       | 1,959,716             |            | 2,912,704             |       |
|                                                                                                  |       |                  |            |                  |       |
| Oil and gas properties, at cost, using the  successful efforts method of accounting:                  |       |                  |            |                  |       |
| Proved developed and undeveloped properties                                                           |       | 7,189,713             |            | 7,280,164             |       |
| Less accumulated depletion and depreciation                                                           |       | 6,886,657             |            | 7,001,515             |       |
| Proved developed and undeveloped properties, net                                                      |       | 303,056               |            | 278,649               |       |
| Unproved properties                                                                                   |       | 43,521                |            | 43,899                |       |
| Net oil and gas properties                                                                            |       | 346,577               |            | 322,548               |       |
|                                                                                                  |       |                  |            |                  |       |
| Coal and gravel properties, at cost:                                                                  |       |                  |            |                  |       |
| Undeveloped properties                                                                                |       | 5,850,424             |            | 5,850,424             |       |
| Less accumulated depletion and depreciation                                                           |       | 5,589,936             |            | 5,589,936             |       |
| Net coal and gravel properties                                                                        |       | 260,488               |            | 260,488               |       |
|                                                                                                  |       |                  |            |                  |       |
| Other property and equipment, net of accumulated  depreciation of $291,948 and $280,337, respectively |       | 107,132               |            | 118,743               |       |
|                                                                                                  |       |                  |            |                  |       |
| Real estate held for sale                                                                             |       | 3,168,107             |            | 3,168,107             |       |
|                                                                                                  |       |                  |            |                  |       |
| Deferred income taxes                                                                                 |       | 754,499               |            | 670,464               |       |
|                                                                                                  |       |                  |            |                  |       |
| Other non-current assets                                                                              |       | 446,367               |            | 424,723               |       |
|                                                                                                  |       |                  |            |                  |       |
| Total assets                                                                                          |       | $                     |  7,042,886 |                  | $          |  7,877,777 |   |

 

Seeaccompanying notes to financial statements.

 

21

----

Table ofContents

 
| ** **                                                                                      | ** ** | **February 28,** | ** ** | **February 28,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                      | ** ** | **2010**              | ** ** | **2009**              | ** ** |
| ** **                                                                                      | ** ** | ** **            | ** ** | ** **            | ** ** |
| **Liabilities and Stockholders’  Equity**                                                  |       |                  |       |                  |       |
| Current liabilities:                                                                            |       |                  |       |                  |       |
| Accounts payable                                                                                |       | $                     | 210,784    |                  | $          | 381,297 |   |
| Accrued expenses                                                                                |       | 45,172                |       | 39,946                |       |
| Current portion of asset retirement obligations                                                 |       | 81,696                |       | 88,696                |       |
| Total current liabilities                                                                       |       | 337,652               |       | 509,939               |       |
|                                                                                            |       |                  |       |                  |       |
| Asset retirement obligations                                                                    |       | 413,149               |       | 505,904               |       |
| Total liabilities                                                                               |       | 750,801               |       | 1,015,843             |       |
|                                                                                            |       |                  |       |                  |       |
| 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                                                                               |       | 15,809,759            |       | 16,042,106            |       |
| Accumulated other comprehensive gain (loss)                                                     |       | 13,913                |       | (22,326               | )          |
| Stockholders’ equity before treasury stock                                                 |       | 17,035,076            |       | 17,231,184            |       |
| Less treasury stock, at cost; 6,071,689 shares and  5,897,561 shares, respectively              |       | 10,742,991            |       | 10,369,250            |       |
| Total stockholders’ equity                                                                 |       | 6,292,085             |       | 6,861,934             |       |
|                                                                                            |       |                  |       |                  |       |
| Total liabilities and stockholders’ equity                                                 |       | $                     | 7,042,886  |                  | $          | 7,877,777 |   |

 

See accompanying notes to financial statements.

 

22

----

Table ofContents

 

**OAKRIDGEENERGY, INC.**

 

**STATEMENTS OF OPERATIONS**

 
| ** **                                                | ** ** | **For Fiscal Year Ended February 28,** | ** ** |
|-----------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                                | ** ** | **2010**                                                   | ** ** | **2009** | ** ** |
| Oil and gas revenues                                      |       | $                                                          | 1,020,160  |   | $ | 1,643,972 |   |
|                                                      |       |                                                       |       |   |   |
| Operating expenses:                                       |       |                                                       |       |   |   |
| Oil and gas:                                              |       |                                                       |       |   |   |
| Impairment of oil and gas properties                      |       | 8,568                                                      |       | 558,986 |   |
| Depletion, depreciation and accretion                     |       | 33,613                                                     |       | 36,690 |   |
| Lease operating                                           |       | 791,158                                                    |       | 1,259,400 |   |
| Total oil and gas                                         |       | 833,339                                                    |       | 1,855,076 |   |
|                                                      |       |                                                       |       |   |   |
| Coal and gravel                                           |       | 26,057                                                     |       | 139,582 |   |
| Real estate development                                   |       | 194,165                                                    |       | 237,135 |   |
| General and administrative                                |       | 514,994                                                    |       | 546,703 |   |
| Gain on sale of property                                  |       | (79,082                                                    | )          | (208,611 | ) |
| Total operating expenses                                  |       | 1,489,473                                                  |       | 2,569,885 |   |
|                                                      |       |                                                       |       |   |   |
| Loss from operations                                      |       | (469,313                                                   | )          | (925,913 | ) |
|                                                      |       |                                                       |       |   |   |
| Other income (expense):                                   |       |                                                       |       |   |   |
| Interest and dividend income                              |       | 20,071                                                     |       | 87,175 |   |
| Gain on sale of marketable securities available  for sale |       | 125,343                                                    |       | — |   |
| Impairment of marketable securities available for  sale   |       | —                                                     |       | (124,143 | ) |
| Other income (expense)                                    |       | (3,663                                                     | )          | 13,092 |   |
|                                                      |       | 141,751                                                    |       | (23,876 | ) |
|                                                      |       |                                                       |       |   |   |
| Loss before income taxes                                  |       | (327,562                                                   | )          | (949,789 | ) |
|                                                      |       |                                                       |       |   |   |
| Income tax benefit                                        |       | (95,215                                                    | )          | (297,086 | ) |
|                                                      |       |                                                       |       |   |   |
| Net loss                                                  |       | $                                                          | (232,347   | ) | $ | (652,703 | ) |
|                                                      |       |                                                       |       |   |   |
| **Basic and diluted loss per  common share:**             |       |                                                       |       |   |   |
|                                                      |       |                                                       |       |   |   |
| Net loss                                                  |       | $                                                          | (0.06      | ) | $ | (0.15 | ) |
|                                                      |       |                                                       |       |   |   |
| Weighted average shares outstanding                       |       | 4,160,545                                                  |       | 4,260,242 |   |

 

See accompanying notes to financial statements.

 

23

----

Table of Contents

 

**OAKRIDGE ENERGY, INC.**

 

**STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

 

**Fiscal Years Ended February 28, 2010 and 2009**

 
| ** **                                                               | ** ** | **Common  Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive****Gain  (Loss)** | ** ** | **Treasury  Stock** | ** ** | **Total** | ** ** | **Comprehensive  Loss** | ** **  |
|--------------------------------------------------------------------------|------------|-------------------|------------|----------------------------------|------------|------------------------|------------|-------------------------------------------------------|------------|---------------------|------------|-----------|------------|-------------------------|-------------|
|                                                                     |       |              |       |                             |       |                   |       |                                                  |       |                |       |      |       |                    |        |
| Balance at March 1, 2008                                            |       | $                 | 406,312    |                             | $          | 805,092                |       | $                                                     | 16,694,809 |                | $          | (54,216   | )          | $                       | (10,369,250 | ) | $ | 7,482,747 |   |   |   |
|                                                                     |       |              |       |                             |       |                   |       |                                                  |       |                |       |      |       |                    |        |
| 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 |       |                    |        |
|                                                                     |       |              |       |                             |       |                   |       |                                                  |       |                |       |      |       |                    |        |
| Purchases of treasury stock                                              |       | —            |       | —                           |       | —                 |       | —                                                |       | (373,741            | )          | (373,741  | )          |                    |        |
|                                                                     |       |              |       |                             |       |                   |       |                                                  |       |                |       |      |       |                    |        |
| Net loss                                                                 |       | —            |       | —                           |       | (232,347               | )          | —                                                |       | —              |       | (232,347  | )          | $                       | (232,347    | ) |
|                                                                     |       |              |       |                             |       |                   |       |                                                  |       |                |       |      |       |                    |        |
| Change in unrealized gain on investment  securities, net of income taxes |       | —            |       | —                           |       | —                 |       | 36,239                                                |       | —              |       | 36,239    |       | 36,239                  |        |
|                                                                     |       |              |       |                             |       |                   |       |                                                  |       |                |       |      |       |                    |        |
| Comprehensive loss for year                                              |       |              |       |                             |       |                   |       |                                                  |       |                |       |      |       | $                       | (196,108    | ) |
|                                                                     |       |              |       |                             |       |                   |       |                                                  |       |                |       |      |       |                    |        |
| Balance at February 28, 2010                                        |       | $                 | 406,312    |                             | $          | 805,092                |       | $                                                     | 15,809,759 |                | $          | 13,913    |       | $                       | (10,742,991 | ) | $ | 6,292,085 |   | ** ** |   |

 

See accompanying notes to financial statements.

 

24

----

Table of Contents

 

**OAKRIDGEENERGY, INC.**

 

**STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                 | ** ** | **Fiscal Year Ended February 28,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2010**                                          | ** ** | **2009** | ** ** |
| **Operating Activities**                                                                   |       |                                              |       |   |   |
| Net loss                                                                                   |       | $                                                 | (232,347   | ) | $ | (652,703 | ) |
| Adjustments to reconcile net loss to net cash  provided by (used in) operating activities: |       |                                              |       |   |   |
| Impairment of oil and gas properties                                                       |       | 8,568                                             |       | 558,986 |   |
| Depletion and depreciation                                                                 |       | 30,128                                            |       | 28,430 |   |
| Accretion of discount on asset retirement  obligations                                     |       | 15,096                                            |       | 24,891 |   |
| Change in estimate of asset retirement obligation                                          |       | (29,006                                           | )          | 13,547 |   |
| Gain on sale of marketable securities available  for sale                                  |       | (125,343                                          | )          | — |   |
| Gain on sale of oil and gas properties                                                     |       | (79,082                                           | )          | — |   |
| Gain on sales of coal and gravel property                                                  |       | —                                            |       | (20,000 | ) |
| Gain on sales of other property and equipment                                              |       | —                                            |       | (188,611 | ) |
| (Gain) loss on investment in limited partnership                                           |       | 3,663                                             |       | (13,092 | ) |
| Deferred income taxes                                                                      |       | (102,704                                          | )          | (303,720 | ) |
| Impairment of marketable securities available for  sale                                    |       | —                                            |       | 124,143 |   |
| Change in reclamation bond liability                                                       |       | (25,307                                           | )          | 435,999 |   |
| Abandoned leaseholds                                                                       |       | 377                                               |       | 65,994 |   |
| Changes in operating assets and liabilities:                                               |       |                                              |       |   |   |
| Trade accounts receivable                                                                  |       | 1,889                                             |       | 146,036 |   |
| Prepaid expenses and other                                                                 |       | 136                                               |       | 748 |   |
| Accounts payable and accrued expenses                                                      |       | (165,287                                          | )          | 201,999 |   |
| Asset retirement obligation                                                                |       | (85,845                                           | )          | (13,547 | ) |
| Net cash provided by (used in) operating  activities                                       |       | (785,064                                          | )          | 409,100 |   |
|                                                                                       |       |                                              |       |   |   |
| **Investing Activities**                                                                   |       |                                              |       |   |   |
| Additions to investment securities available for  sale                                     |       | (196,663                                          | )          | (69,410 | ) |
| Additions to oil and gas properties                                                        |       | (53,679                                           | )          | (147,205 | ) |
| Additions to real estate held for sale                                                     |       | —                                            |       | (33,034 | ) |
| Purchases of certificates of deposit                                                       |       | (353,007                                          | )          | (4,476,262 | ) |
| Proceeds from maturities of certificates of  deposit                                       |       | 2,632,000                                         |       | 1,990,000 |   |
| Proceeds from sales of investment securities  available for sale                           |       | 322,415                                           |       | — |   |
| Proceeds from sales of oil and gas properties                                              |       | 81,270                                            |       | — |   |
| Proceeds from sales of coal and gravel property  and equipment                             |       | —                                            |       | 20,000 |   |
| Proceeds from sales of other property and  equipment                                       |       | —                                            |       | 190,000 |   |
| Proceeds from sales of other non-current assets                                            |       | —                                            |       | 15,000 |   |
| Net cash provided by (used in) investing  activities                                       |       | 2,432,336                                         |       | (2,510,911 | ) |
|                                                                                       |       |                                              |       |   |   |
| **Financing Activity**                                                                     |       |                                              |       |   |   |
| Purchases of treasury stock                                                                |       | (373,741                                          | )          | — |   |
|                                                                                       |       |                                              |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                                      |       | 1,273,531                                         |       | (2,101,811 | ) |
| Cash and cash equivalents at beginning of year                                             |       | 207,244                                           |       | 2,309,055 |   |
|                                                                                       |       |                                              |       |   |   |
| Cash and cash equivalents at end of year                                                   |       | $                                                 | 1,480,775  |   | $ | 207,244 |   |
|                                                                                       |       |                                              |       |   |   |
| **Supplemental Disclosure of Cash  Flow Information**                                      |       |                                              |       |   |   |
| Income taxes paid                                                                          |       | $                                                 | 7,894      |   | $ | 6,634 |   |
|                                                                                       |       |                                              |       |   |   |
| **Supplemental Disclosure of  Non-Cash Information**                                       |       |                                              |       |   |   |
| Change in unrealized gain on investment  securities, net of income taxes                   |       | $                                                 | 36,239     |   | $ | 31,890 |   |
|                                                                                       |       |                                              |       |   |   |
| Additions to asset retirement obligation                                                   |       | $                                                 | 2,631      |   | $ | 68,935 |   |

 

See accompanying notes to financial statements.

 

25

----

Table of Contents

 

**OAKRIDGE ENERGY, INC.**

**NOTES TO FINANCIAL STATEMENTS**

**February 28, 2010 and 2009**

 

**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 ofAccounting**

 

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 ofFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification(“ASC”) Topic 220, *Comprehensive Income* (“ASC 220”)*.*  ASC 220 established standards for reportingand presentation of comprehensive income and its components in a full set offinancial statements.  Comprehensiveincome (loss) consists of net income (loss) and net unrealized gains (losses)on securities and is presented in the statements of changes in stockholders’equity.  ASC 220 requires only additionaldisclosures in the financial statements; it does not affect the Company’sfinancial position or results of operations.

 

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

### ** **

Inaccordance with the reporting requirements of FASB ASC Topic 825,*FinancialInstruments*, the Company calculates the fair value of itsassets and liabilities which qualify as financial instruments under thisstatement and includes this additional information in the notes to financialstatements when the fair value is different than the carrying value of thosefinancial instruments.  The estimatedfair value of cash equivalents, accounts receivable, and accounts payableapproximates their carrying amounts due to the relatively short maturity ofthese 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.

 

26

----

Table of Contents

 

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

### ** **

The Company reportsinvestments in accordance with FASBASC Topic 320,*Investments - Debt and EquitySecurities*.  TheCompany’s investments are classified at the time of purchase into one of threecategories as follows:

 

·                  Held to Maturity Securities - Debt securities that the Company has thepositive intent and ability to hold to maturity are reported at amortized cost,adjusted for the amortization or accretion 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 for Sale Securities - Debt andequity securities not classified as held to maturity securities or trading securitiesare reported at fair value, with unrealized gains and losses excluded fromearnings and reported as a separate component of stockholders’ equity (net oftax effects).

 

TheCompany did not have any securities classified as held to maturity or tradingas of February 28, 2010 and2009.

 

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 infiscal 2010.

 

Dividend and interest income are recognized whenearned.  Gains and losses on securitiessold are computed under the specific identification method.  A gain on sale of marketable securitiesavailable for sale in the amount of $125,343 was recognized in fiscal2010.  No such gain was recognized infiscal 2009.

 

### **(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 petroleum reservoirengineering 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 is calculatedusing accelerated and straight-line methods over the estimated useful lives ofthe assets. Upon sale or abandonment, the cost of the equipment and relatedaccumulated depreciation are removed from the accounts and any gains or lossesthereon 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.

 

27

----

Table of Contents

 

**(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 FASB ASC Topic 360, *Property,Plant, and Equipment* (“ASC 360”)*.*  ASC 360 requires long-lived assets andcertain identifiable intangibles to be reviewed for impairment whenever eventsor changes in circumstances indicate that the carrying amount of an asset maynot be recoverable.  When it isdetermined that the estimated future net cash flows of an asset will not besufficient to recover its carrying amount, an impairment loss must be recordedto reduce the carrying amount to its estimated fair value.

 

Under ASC 360, the Company evaluates impairment ofproved 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.  The Companyrecorded $8,568 and $558,986 in impairment losses related to its proved oil andgas properties, in fiscal 2010 and 2009, respectively.  If estimated future cash flows are notachieved with respect to certain fields, additional write-downs may be required.

 

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

### ** **

The Company uses theequity method of accounting for its investment in a partnership.  The investment in partnership ofapproximately $41,000 and $44,000 at February 28,2010 and 2009, respectively, are included in other non-current assets inthe accompanying balance sheets.  TheCompany recognized income (loss) pertaining to its interest in the partnershipof approximately $(4,000) and $13,000 during fiscal 2010 and 2009, respectively,which are included in other income in the accompanying statements ofoperations.

 

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

### ** **

TheCompany accounts for asset retirement obligations under FASB ASC Topic 410, Asset*Retirementand Environmental Obligations* (“ASC 410”).  ASC 410 requires legal obligations associatedwith the retirement of long-lived assets to be recognized at their fair valueat the time that the obligations are incurred. Oil and gas producing companies incur this liability upon acquiring or drillinga well.  Under ASC 410, an assetretirement obligation is recorded as a liability at its estimated present valueat the asset’s inception, with an offsetting increase to producing propertieson the accompanying balance sheet which is allocated to expense over the usefullife of the asset.  Periodic accretion ofthe discount on asset retirement obligations is recorded as an expense in theaccompanying statement of 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 topurchasers.  However, the Company has nohistory of significant gas imbalances.

 

**(p)  Income Taxes**

 

Deferredincome taxes are determined using the liability method in accordance with FASB ASC Topic 740, *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. Inaddition, a valuation allowance is established to reduce any deferred tax assetfor which it is determined that it is more likely than not that some portion ofthe deferred tax asset will not be realized.

 

28

----

Table of Contents

 

**(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)  Reclassifications**

 

Certain2009 amounts have been reclassified to conform to the 2010 presentation.

 

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

 

OnDecember 31, 2008, the SEC issued *Modernization of Oil andGas Reporting*updating its oil and gas reporting requirements. Manyof the revisions 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, the ability to include nontraditional resourcesin reserves, the use of new technology for determining reserves, and permittingdisclosure of probable and possible reserves. The SEC requires companies tocomply with the amended disclosure requirements for registration statementsfiled after January 1, 2010, and for annual reports on Form 10-K forfiscal years ending on or after December 15, 2009. Early adoption was notpermitted. The Company has adopted this issued pronouncement as of this filingand results of this adoption are included in the report.

 

InJune 2009, FASB issued a new Statement of Financial Accounting Standards (“SFAS”)No. 168, *The FASB Accounting Standards Codification (“ASC”)and the Hierarchy of Generally Accepted Accounting Principles. *The FASB ASC became the singlesource of authoritative nongovernmental U.S. generally accepted accountingprinciples (“GAAP”), superseding existing FASB, American Institute of CertifiedPublic Accountants (“AICPA”), Emerging Issues Task Force (“EITF”), and relatedaccounting literature.  The newcodification system reorganizes the thousands of GAAP pronouncements intoroughly 90 accounting topics and displays them using a consistent structure.  Also included is relevant SEC guidanceorganized using the same topical structure in separate sections.  This standard, which is now considered FASBASC Topic 105, became effective for financial statements issued for reportingperiods that ended after September 15, 2009.

 

**C.   FairValue**

 

EffectiveMarch 1, 2008, the Company adopted SFAS No.157,*Fair ValueMeasurements*currently classified in FASB ASC Topic 820 (“ASC 820”).  ASC 820 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 marketparticipants.  As such, fair value is amarket-based measurement that should be determined based on assumptions thatmarket participants would use in pricing an asset or a liability.

 

ASC820 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 — Other inputs that are directly orindirectly observable in the marketplace.

·                  Level 3 — Unobservable inputs which are supportedby 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.  Assets measured at fair value are summarizedbelow:

 

29

----

Table of Contents

 
| ** **                               | ** ** | ** **                 | ** ** | **Fair Value Measurement at February 28, 2010 Using:**           | ** ** |
|------------------------------------------|------------|----------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                               | ** ** | **February 28, 2010** | ** ** | **Quoted Prices In  Active Markets  For Identical Assets  (Level 1)** | ** ** | **Significant Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
| Assets:                                  |       |                       |       |                                                                  |       |   |   |   |   |
| Money market funds                       |       | $                          | 1,401,601  |                                                                  | $          | 1,401,601 |   | $ | — |   | $ | — |   |
| Investment securities available for sale |       | 128,030                    |       | 128,030                                                               |       | — |   | — |   |
| Certificates of deposit                  |       | 204,399                    |       | 204,399                                                               |       | — |   | — |   |
| Non-current certificates of deposit      |       | 405,834                    |       | 405,834                                                               |       | — |   | — |   |
|                                     |       | $                          | 2,139,864  |                                                                  | $          | 2,139,864 |   | $ | — |   | $ | — |   |

 
| ** **                               | ** ** | ** **                 | ** ** | **Fair Value Measurement at February 28, 2009 Using:**          | ** ** |
|------------------------------------------|------------|----------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                               | ** ** | **February 28, 2009** | ** ** | **Quoted Prices In Active Markets  For Identical Assets  (Level 1)** | ** ** | **Significant Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
| Assets:                                  |       |                       |       |                                                                 |       |   |   |   |   |
| Money market funds                       |       | $                          | 144,825    |                                                                 | $          | 144,825 |   | $ | — |   | $ | — |   |
| 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                                                              |       | — |   | — |   |
|                                     |       | $                          | 3,082,275  |                                                                 | $          | 3,082,275 |   | $ | — |   | $ | — |   |

 

**D.   Investment Securities**

 

Asof February 28, 2010, the amortized cost and fair value of the Company’sinvestment securities available for sale, was approximately $107,000 and$128,000, respectively.  As of February 28,2009, the amortized cost and fair value of the Company’s investment securitiesavailable for sale was approximately $104,000 and $73,000, respectively.

 

# **E.  Asset Retirement Obligations**

# ** **

Pursuantto FASB ASC Topic 410, *Asset Retirement and Environmental Obligations*,the Company has recognized the fair value of its asset retirement obligationsrelated to the plugging, abandonment, and remediation of oil and gas producingproperties as well as the reclamation of the property surrounding the Company’sprevious coal mining operations.  Thepresent value of the estimated asset retirement costs has been capitalized aspart of the carrying amount of the related long-lived assets, whichapproximated $344,000.

 

Theliability has been accreted to its present value as of the end of each year.  The Company evaluated 72 wells, and hasdetermined a range of abandonment dates between February 2010 and February 2060.

 

Thefollowing represents a reconciliation of the asset retirement obligations forthe fiscal years ended February 28, 2010 and 2009:

 
| ** **                                        | ** ** | **2010** | ** ** | **2009** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| Asset retirement obligations at beginning of year |       | $        | 594,600    |     | $          | 500,774 |   |
| Revision to estimate                              |       | (29,006  | )          | 13,547   |       |
| Additions to asset retirement obligation          |       | 2,631    |       | 68,935   |       |
| Liabilities settled during the year               |       | (88,476  | )          | (13,547  | )          |
| Accretion of discount                             |       | 15,096   |       | 24,891   |       |
| Asset retirement obligations at end of year       |       | $        | 494,845    |     | $          | 594,600 |   |

 

30

----

Table of Contents

 

# **F.  Income Taxes**

# ** **

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

 
| ** **                                | ** ** | **Current** | ** ** | **Deferred** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|-------------|------------|--------------|------------|-----------|------------|
| Fiscal year ended February 28, 2010: |       |        |       |         |       |      |       |
| U.S. Federal                              |       | $           | —     |         | $          | (102,704  | )          | $ | (102,704 | ) |
| State and local                           |       | 7,489       |       | —       |       | 7,489     |       |
| Income tax expense (benefit)              |       | $           | 7,489      |         | $          | (102,704  | )          | $ | (95,215 | ) |
|                                      |       |        |       |         |       |      |       |
| Fiscal 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 | ) |

 

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

 
| ** **                                                 | ** ** | **2010** | ** ** | **2009** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|
| Computed “expected” tax benefit                  |       | $        | (111,372   | )        | $          | (322,928 | ) |
| State and local income taxes, net of Federal  income tax   |       | (9,729   | )          | —   |       |
| Marketable securities                                      |       | (17,878  | )          | —   |       |
| Other, primarily revision of prior year provision estimate |       | 43,764   |       | 25,842   |       |
| Income tax expense (benefit)                               |       | $        | (95,215    | )        | $          | (297,086 | ) |

 

The tax effects oftemporary differences that give rise to significant portions of the deferredtax assets and deferred tax liabilities, at February 28, 2010 and 2009 arepresented below:

 
| ** **                                                                                                    | ** ** | **2010** | ** ** | **2009** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax assets:                                                                                          |       |     |       |     |       |
| Net operating loss carryforward                                                                               |       | $        | 553,972    |     | $          | 388,626 |   |
| Contributions                                                                                                 |       | 2,672    |       | —   |       |
| Alternative minimum tax credit carryforward                                                                   |       | 98,033   |       | 98,033   |       |
| Marketable securities                                                                                         |       | 35,040   |       | 52,918   |       |
| Asset retirement obligations                                                                                  |       | 168,248  |       | 202,164  |       |
| Total deferred tax assets                                                                                     |       | 857,965  |       | 741,741  |       |
|                                                                                                          |       |     |       |     |       |
| Deferred tax liabilities:                                                                                     |       |     |       |     |       |
| Oil, gas and coal properties and other property  and equipment, principally due to depletion and depreciation |       | (99,062  | )          | (67,709  | )          |
| Property and equipment                                                                                        |       | (4,404   | )          | (3,568   | )          |
| Total deferred tax liabilities                                                                                |       | (103,466 | )          | (71,277  | )          |
| Net deferred tax asset                                                                                        |       | $        | 754,499    |     | $          | 670,464 |   |

 
| ** **                         | ** ** | **2010** | ** ** | **2009** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Included in the balance sheet as:  |       |     |       |     |       |
| Deferred income taxes, current     |       | $        | —     |     | $          | — |   |
| Deferred income taxes, non-current |       | 754,499  |       | 670,464  |       |
| Net deferred tax asset             |       | $        | 754,499    |     | $          | 670,464 |   |

 

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, 2010, 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 28,2010, the Company has a net operating loss carryforward for Federal taxes ofapproximately $1,629,000 which is available to offset the Company’s futuretaxable income.  The net operating losscarryforward for Federal taxes will expire as follows:

 

31

----

 

Table ofContents

 
| ** ** | ** ** | **Approximate amount of net operating loss carryforward  for federal taxes which will expire** | ** ** | **Percentage of total net operating loss  carryforward for federal taxes** | ** ** |
|------------|------------|------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| 2027       |       | $                                                                                              | 739,000    |                                                                       | 45.4       | % |
| 2029       |       | 404,000                                                                                        |       | 24.8                                                                       | %          |
| 2030       |       | 486,000                                                                                        |       | 29.8                                                                       | %          |
|            |            |                                                                                                |            |                                                                            |            |  |

 

# **G. Segment Information**

# ** **

# **The following information is presented in accordancewith FASB ASC Topic 280, *Segment Reporting.* The Company isengaged in oil and gas, coal and gravel activities and real estate development.The Company has identified such segments based on management responsibility andthe nature of the Company’s products, services and costs. There are no majordistinctions in geographical areas served as all operations are in the UnitedStates. The Company measures segment profit (loss) as income (loss) fromoperations. Business segment assets are those assets controlled by eachreportable segment. The following table sets forth certain information aboutthe financial information of each segment for the fiscal years ended February 28,2010 and 2009:**

 
| ** **                                     | ** ** | **2010** | ** ** | **2009** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| Business segment revenue:                      |       |     |       |     |       |
| Oil and gas                                    |       | $        | 1,020,160  |     | $          | 1,643,972 |   |
|                                           |       |     |       |     |       |
| Business segment profit (loss):                |       |     |       |     |       |
| Oil and gas                                    |       | $        | 265,903    |     | $          | (22,493 | ) |
| Coal and gravel                                |       | (26,057  | )          | (119,582 | )          |
| Real estate development                        |       | (194,165 | )          | (237,135 | )          |
| General corporate                              |       | (514,994 | )          | (546,703 | )          |
| Loss from operations                           |       | (469,313 | )          | (925,913 | )          |
| Other income (loss)                            |       | 141,751  |       | (23,876  | )          |
| Loss before income taxes                       |       | $        | (327,562   | )        | $          | (949,789 | ) |
|                                           |       |     |       |     |       |
| Depreciation, depletion, and amortization:     |       |     |       |     |       |
| Oil and gas                                    |       | $        | 18,517     |     | $          | 11,800 |   |
| Coal and gravel                                |       | —   |       | —   |       |
| Real estate development                        |       | —   |       | —   |       |
| General corporate                              |       | 11,611   |       | 16,630   |       |
| Total depreciation, depletion and amortization |       | $        | 30,128     |     | $          | 28,430 |   |

 
| ** **                 | ** ** | **2010**   | ** ** | **2009**   | ** ** |
|----------------------------|------------|------------|------------|------------|------------|
| Capital expenditures:      |       |       |       |       |       |
| Oil and gas                |       | $          | 53,679     |       | $          | 147,205 |   |
| Real estate development    |       | —     |       | 33,034     |       |
| General corporate          |       | —     |       | —     |       |
| Total capital expenditures |       | $          | 53,679     |       | $          | 180,239 |   |
| ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Assets:                    |       |       |       |       |       |
| Oil and gas                |       | $          | 3,084,610  |       | $          | 3,933,061 |   |
| Coal and gravel            |       | 260,488    |       | 260,488    |       |
| Real estate development    |       | 3,168,107  |       | 3,168,107  |       |
| General corporate          |       | 529,681    |       | 516,121    |       |
| Total assets               |       | $          | 7,042,886  |       | $          | 7,877,777 |   |

 

**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.

 

32

----

# **Table of Contents**

 

# **I. Commitment andContingency**

# ** **

Asof February 28, 2010 and 2009,the Company has pledged interest-bearing cash deposits of $405,834 and$380,527, respectively, to secure letters of credit in favor of the ColoradoBureau of Land Management for state requirements regarding land reclamationwith respect to the Carbon Junction Coal Mine. These pledged cash deposits areincluded in other non-current assets in the accompanying balance sheets.

 

**J.   RiskConcentrations**

 

The Companyconsiders all highly liquid investments with a maturity of three months or lessat the time of purchase to be cash equivalents. The Company maintains depositsprimarily in two financial institutions, which deposits may at times exceedamounts covered by insurance provided by the U.S. Federal Deposit InsuranceCorporation (“FDIC”) or the Securities Insurance Protection Corporation (“SIPC”).The Company has not experienced any losses related to amounts in excess of FDICor SIPC limits.

 

Oil sales to twocustomers, which accounted for more than 10% of the Company’s total oil sales,approximated $597,000 (66.4%) and $229,000 (25.5%) for the fiscal year ended February 28, 2010. Two customersaccounted for approximately $971,000 (67.5%) and $355,000 (24.8%) of theCompany’s total oil sales for the fiscal year ended February 28, 2009. Gassales to three customers approximated $50,000 (60.0 %), $16,000 (18.6 %), and$9,000 (10.5 %) of the Company’s total gas sales for the fiscal year ended February 28, 2010. Threecustomers accounted for approximately $99,000 (57.8%), $31,000 (18.4%), and$23,000 (13.3%) of the Company’s total gas sales for the fiscal year ended February 28,2009. Lease operating payments primarily made to a principal operator on itsoil and gas producing properties approximated $657,000 and $926,000 in fiscal2010 and 2009, respectively.

 

**K.   QuarterlyOperating Results (Unaudited)**

 

Quarterlyresults of operations for fiscal 2010 and 2009 were as follows:

 
| **Fiscal  2010**                                 | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Full Fiscal  Year** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|-----------------------|------------|
|                                             |       |               |       |                |       |               |       |                |       |                  |       |
| Total revenues                                   |       | $                  | 227,102    |                | $          | 267,506            |       | $                   | 259,844    |                  | $          | 265,708 |   | $ | 1,020,160 |   |
|                                             |       |               |       |                |       |               |       |                |       |                  |       |
| Income (loss) from operations                    |       | (151,973           | )          | (201,084            | )          | (121,368           | )          | 5,112               |       | (469,313              | )          |
|                                             |       |               |       |                |       |               |       |                |       |                  |       |
| Net income (loss)                                |       | $                  | (87,555    | )                   | $          | (125,900           | )          | $                   | (75,812    | )                     | $          | 56,920 |   | $ | (232,347 | ) |
|                                             |       |               |       |                |       |               |       |                |       |                  |       |
| Basic and diluted income (loss) per common share |       | $                  | (0.02      | )                   | $          | (0.03              | )          | $                   | (0.02      | )                     | $          | 0.01 |   | $ | (0.06 | ) |

 
| **Fiscal  2009**                                 | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Full Fiscal  Year** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|-----------------------|------------|
|                                             |       |               |       |                |       |               |       |                |       |                  |       |
| Total revenues                                   |       | $                  | 509,693    |                | $          | 598,182            |       | $                   | 359,095    |                  | $          | 177,002 |   | $ | 1,643,972 |   |
|                                             |       |               |       |                |       |               |       |                |       |                  |       |
| Income (loss) from operations                    |       | 2,013              |       | (59,766             | )          | (190,921           | )          | (677,239            | )          | (925,913              | )          |
|                                             |       |               |       |                |       |               |       |                |       |                  |       |
| 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 | ) |

 

33

----

Table of Contents

 

**OAKRIDGE ENERGY, INC,**

 

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

 

Thefollowing tables set forth supplementary disclosures for oil and gas producingactivities in accordance with FASB ASCTopic 932, *Extractive Activities - Oil andGas*(“ASC 932”).

 

**CostsIncurred**

 

Asummary of costs incurred in oil and gas property acquisition, development, andexploration activities (both capitalized and charged to expense) for the fiscalyears ended February 28, 2010 and 2009, as follows:

 
| ** **                         | ** ** | **2010** | ** ** | **2009** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Acquisition of proved properties   |       | $        | 53,679     |     | $          | 142,014 |   |
| Acquisition of unproved properties |       | $        | —     |     | $          | 5,191 |   |
| Exploration costs                  |       | $        | 377        |     | $          | 65,994 |   |

 

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

### ** **

Thefollowing table presents the results of operations for the Company’s oil andgas producing activities for the fiscal years ended February 28, 2010 and2009:

 
| ** **                                                                                        | ** ** | **2010** | ** ** | **2009**   | ** ** |
|---------------------------------------------------------------------------------------------------|------------|----------|------------|------------|------------|
| Revenues                                                                                          |       | $        | 1,020,160  |       | $          | 1,643,972 |   |
| Production costs                                                                                  |       | (790,781 | )          | (1,193,406 | )          |
| Depletion, depreciation, accretion and valuation  provisions                                      |       | (42,181  | )          | (595,676   | )          |
| Exploration costs                                                                                 |       | (377     | )          | (65,994    | )          |
|                                                                                              |       | 186,821  |       | (211,104   | )          |
| Income tax (expense) benefit                                                                      |       | (63,519  | )          | 71,775     |       |
| Results of operations for producing activities  (excluding corporate overhead and interest costs) |       | $        | 123,302    |       | $          | (139,329 | ) |

 

### **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 emphasizesthat reserve estimates are inherently imprecise and that estimates of reservesrelated to new discoveries are more imprecise than those for producing oil andgas properties. Accordingly, the estimates are expected to change as futureinformation becomes available. The estimates have been prepared with theassistance of an independent petroleum reservoir engineering firm. Oilreserves, which include condensate and natural gas liquids, are stated inbarrels and gas reserves are stated in thousands of cubic feet.

 
| ** **                                      | ** ** | **Oil  (Bbls)** | ** ** | **Gas  (mcf)** | ** ** |
|-------------------------------------------------|------------|-----------------|------------|----------------|------------|
| **Proved developed and  undeveloped reserves:** |       |            |       |           |       |
| Balance at March 1, 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         |       |
| Revisions of previous estimates                 |       | 34,343          |       | 159,917        |       |
| Production                                      |       | (13,049         | )          | (19,805        | )          |
| Balance at February 28, 2010               |       | 665,094         |       | 220,082        |       |
| ** **                                      |       |            |       |           |       |
| **Proved developed reserves:**                  |       |            |       |           |       |
| February 29, 2008                          |       | 210,810         |       | 233,998        |       |
| February 28, 2009                          |       | 44,741          |       | 79,970         |       |
| February 28, 2010                          |       | 110,458         |       | 220,082        |       |

 

34

----

Table of Contents

 

### **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 ASC 932. In computing this data, assumptions other thanthose required by the Financial Accounting Standards Board could producedifferent results. Accordingly, the data should not be construed as beingrepresentative of the fair market value of the Company’s proved oil and gasreserves.

 

Effectivefiscal 2010, the SEC reporting rules require that year end reserve calculationsand future cash inflows be based on the average market prices for sales of oiland gas on the first calendar day of each month during the year. The averageprices used for fiscal 2010 under these new rules were $62.20 per barrelof oil and $3.54 per mcf of natural gas for proved developed reserves and$62.02 per barrel of oil for proved undeveloped reserves. There are no provedundeveloped gas reserves for either fiscal 2010 or 2009. For fiscal 2009,future cash inflows were computed by applying year end prices of oil andnatural gas to year end quantities of proved oil and natural gas reserves. Pricesused in computing year end 2009 future cash inflows were $33.33 per barrel ofoil and $2.89 per mcf of natural gas for proved developed reserves and $31.31per barrel of oil for proved undeveloped reserves. Future price changes wereconsidered to the extent provided by contractual arrangements in existence atyear end. Future development and production costs were computed by estimatingthe expenditures to be incurred in developing and producing the proved oil andgas reserves at the end of the year, based on year end costs. Future income taxexpenses were computed by applying the year end statutory tax rates withconsideration of future tax rates already legislated as well as tax credits andallowances relating to the Company’s proved oil and gas reserves to the futurepre-tax net cash flows relating to the Company’s proved oil and gas reserves. Thestandardized measure of discounted future cash flows at February 28, 2010and 2009, which represents the present value of estimated future cash flowsusing a discount rate of 10% a year, follows:

 
| ** **                                                                           | ** ** | **2010**   | ** ** | **2009**    | ** ** |
|--------------------------------------------------------------------------------------|------------|------------|------------|-------------|------------|
| Future cash inflows                                                                  |       | $          | 41,672,090 |        | $          | 20,478,971 |   |
| Future production and development costs                                              |       | (9,105,352 | )          | (7,999,638  | )          |
| Future income tax expenses                                                           |       | (4,981,776 | )          | (1,844,054  | )          |
| Future net cash flows                                                                |       | 27,584,962 |       | 10,635,279  |       |
| 10% annual discount for estimated timing of cash  flows                              |       | (8,493,410 | )          | (3,143,919  | )          |
| Standardized measure of discounted future net cash  flows related to proved reserves |       | $          | 19,091,552 |        | $          | 7,491,360 |   |
|                                                                                 |       |       |       |        |       |   |   |
| Beginning of year                                                                    |       | $          | 7,491,360  |        | $          | 26,310,140 |   |
| Sales of oil and gas, net of production costs                                        |       | (229,379   | )          | (450,566    | )          |
| Extensions, discoveries, and improved recoveries,  less related costs                |       | 347,030    |       | 341,415     |       |
| Accretion of discount                                                                |       | 749,136    |       | 2,631,014   |       |
| Net change in sales and transfer prices, net of  production costs                    |       | 11,543,232 |       | (18,625,400 | )          |
| Changes in estimated future development costs                                        |       | (5,615     | )          | —      |       |
| Net change in income taxes                                                           |       | (4,313,800 | )          | 6,970,252   |       |
| Changes in production rates (timing and other)                                       |       | 1,691,849  |       | (9,263,735  | )          |
| Revisions of previous quantities                                                     |       | 1,817,739  |       | (421,760    | )          |
| End of year                                                                          |       | $          | 19,091,552 |        | $          | 7,491,360 |   |

 

35

----

Table of Contents

 
| **ITEM 9.** | **CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE** |
|-------------|-------------------------------------------------------------------------------------------|

 

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, 2010.

 
| **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”). Thisterm refers to the controls and procedures of a company that are designed toensure that information required to be disclosed by a company in the reportsthat it files or submits under the Exchange Act is recorded, processed,summarized and reported within the time periods specified by the SEC. Indesigning and evaluating our disclosure controls and procedures, managementrecognized that disclosure controls and procedures, no matter how wellconceived and operated, can provide only reasonable assurance of achieving thedesired control objectives, and we necessarily are required to apply ourjudgment in evaluating the cost-benefit relationship of possible disclosure controlsand 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 ChiefExecutive and Financial Officer has concluded that our disclosure controls andprocedures were not effective as of the end of the period covered by thisannual report because of certain deficiencies involving internal control overfinancial reporting that constituted material weaknesses as discussed below.

 

**Changes in Internal Control Over Financial Reporting**

 

There has not been any change in the Company’sinternal control over financial reporting during the fourth quarter of fiscal2010 that has materially affected, or is reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

**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. Our internal control system was designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes, inaccordance with generally accepted accounting principles. Because of inherentlimitations, a system of internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate due to changes in conditions, or that the degree ofcompliance with the policies or procedures may 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, our management concluded that there is amaterial weakness in our internal control over 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 ASC 740 income taxes and relies on outside sources for thatcalculation.

 

Wehave not implemented a control to mitigate the material weakness related to ASC740 calculations and disclosures. At any time, if it appears that a control canbe implemented to mitigate such material weaknesses, the Company expects toimplement the control. This annual report on Form 10-K does not include anattestation report of the Company’s independent registered public accountingfirm regarding internal control over financial reporting. Management’s reportwas not subject 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 on Form 10-K.

 

36

----

Table of Contents

 

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.

 

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

 

None.

 

37

----

Table ofContents

 

**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 — 68 |       | 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 — 60   |       | 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 since 1980              |       | 1992                             |
| Randy  Camp — 57     |       | Member  of the Board of Directors, partner in the firm of Moore, Camp,  Phillips & Patterson, L.L.P. (or its predecessor firms), Certified  Public Accountants, Wichita Falls, Texas since 1980 |       | 1992                             |

 

Mr. Crokeris Ms. Pautsky’s stepbrother. There are no other family relationshipsamong any of the directors or executive officers of the Company. Ms. Pautskymay be considered to be the controlling stockholder of the Company by virtue ofher beneficial ownership of approximately 30.8% of the Company’s outstandingcommon stock and her positions with the Company. See “Item 12.-SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.” Each of the directors and executive officers holds office from thedate of his or her election for a period of one year or until his or hersuccessor has been elected. None of the directors or executive officers isinvolved, nor has been involved during the past ten years, in any legalproceedings in which he or she is a party adverse or has a material interestadverse to the Company. None of the directors or executive officers has beeninvolved in any legal proceedings which are material to an evaluation of his orher ability or integrity.

 

SandraPautsky currently serves as Chairperson of the Board of Directors, President,Chief Executive Officer and Secretary-Treasurer of the Company. Ms. Pautskyhas over forty years experience in the oil and gas industry, has beenintimately involved in the operations of the Company and became responsible forthe daily administration of the Company in 1988. Ms. Pautsky has studiedextensively in the geologic field at a local university.

 

DannyCroker currently serves as a member of the Board of Directors, Vice Presidentand Assistant Secretary Treasurer of the Company. Mr. Croker is also anindependent oil and gas business man with experience in numerous phases of theindustry. He has been employed by the Company for 32 years executing field andexploration activities. His knowledge of the day-to-day operations, completionand workover procedures as well as his supervision skills continues to benefitthe Company. Mr. Croker received a B.S. degree from Midwestern StateUniversity.

 

RandyCamp serves as a member of the Board of Directors. Mr. Camp is anindependent director as defined in Rule 5605 (a)(2) of the NASDAQlisting rules. He is a partner in the firm of Moore, Camp, Phillips &Patterson, L.L.P., Certified Public Accountants. He has been with this firmsince 1980. Mr. Camp has unique knowledge of accounting and its relationto the oil and gas industry.

 

**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 SEC initial reports of beneficial ownership and reports ofchanges in beneficial ownership of the Company’s common stock. The rules promulgatedby the SEC under Section 16(a) of the Exchange Act require thosepersons to furnish the Company with copies of all reports filed with the SECpursuant 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, 2010 all filing requirements under Section 16(a) ofthe Exchange Act were met on a timely basis by such persons.

 

38

----

Table ofContents

 

**Audit Committee**

 

TheCompany does not have a separately-designated standing audit committee. Instead,the entire Board of Directors acts as 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 inRules 5605(a)(2) and 5605 (c)(2) of the NASDAQ listing rules.

 

**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 therequirements of Item 406 of Regulation S-K, the Company’s “Code of EthicalConduct for Senior Officers,” which is currently in effect, is filed as Exhibit 14to this annual report on Form 10-K.

 

**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. No other executive officer of the Companyreceived total annual salary and bonus exceeding $100,000 in any of such years.

 
| ** **                                     | ** ** | **Summary Compensation Table** | ** ** |
|------------------------------------------------|------------|------------------------------------------|------------|
| **Name and**

**Principal Position** | ** ** | **Year**                                 | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **All Other**

**Compensation(1)** | ** ** | **Total** | ** ** |
| ** **                                     | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sandra Pautsky                                 |       | 2010                                     |       | $ | 125,000 |   | $ | 10,417 |   | $ | 217 |   | $ | 135,634 |   |
| President and Chief Executive Officer          |       | 2009                                     |       | 125,000 |   | 10,417 |   | 195 |   | $ | 135,612 |   |
|                                           | 2008       |                                     | 125,000    |   | 10,417 |   | 163 |   | $ | 135,580 |   |
|                                                |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)           All other compensation consisted ofCompany 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 a group health insurance plan which itmakes available to all employees of the Company and their family members on anon-discriminatory basis. Pursuant to such plan, $25,000 in life insurancebenefits are provided for all employees of the Company, with the exception of Ms. Pautskywho would receive a benefit of $18,750 as benefits decrease as certain agelevels 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 not an employee of the Company, received an annual feeof $3,000 for serving as a director in the fiscal year ended February 28,2010.

 

39

----

Table ofContents

 
| **ITEM 12.** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND RELATED STOCKHOLDER MATTERS** |
|--------------|-----------------------------------------------------------------------------------------------------|

 

Thefollowing table shows the beneficial ownership of the Company’s common stock asof May 28, 2010 by: (i) each person known by the management of theCompany to own more than 5% of the Company’s outstanding common stock; (ii) eachexecutive officer and director; and (iii) the executive officers anddirectors of the Company as a group.

 
| **Name and Address  of  Beneficial Owner**    | ** ** | **Amount  Beneficially  Owned** | ** ** | **Percent  of  Class** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------|------------|------------------------|------------|
| Sandra Pautsky                                          |       | 1,253,181                       | (1)        | 30.80                  | %          |
| 4613 Jacksboro Highway                             | ** ** | ** **                      | ** ** | ** **             | ** ** |
| Wichita Falls, Texas 76302                    |       |                            |       |                   |       |
|                                                         |       |                            |       |                   |       |
| Flem Noel Pautsky, Jr.                                  |       | 1,026,690                       |       | 25.23                  | %          |
| 4613 Jacksboro Highway                                       |       |                            |       |                   |       |
| Wichita Falls, Texas 76302                                   |       |                            |       |                   |       |
|                                                         |       |                            |       |                   |       |
| West Coast Asset Management                                  |       | 617,317                         |       | 15.17                  | %          |
| 2151 Alessandro Drive                                        |       |                            |       |                   |       |
| Ventura, CA 93001                                            |       |                            |       |                   |       |
|                                                         |       |                            |       |                   |       |
| Noel Pautsky Trust                                           |       | 536,062                         |       | 13.17                  | %          |
| 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) |       | 1,253,281                       | (2)        | 30.80                  | %          |

 

----

| *      | Represents  less than 1% of outstanding common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| (1)    | Includes:  (i) 576,655 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 and (iii) 140,464 shares owned by the Noel  Pautsky Marital 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 Noel Pautsky  Marital Trust, except to the extent of her pecuniary interest therein. |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| (2)    | Includes  all shares beneficially owned by Ms. Pautsky, Mr. Croker and  Mr. Camp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |

 

TheCompany does not have any securities authorized for issuance under equitycompensation plans.

 

40

----

Table ofContents

 

**ITEM13.               CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE**

 

**RelatedParty Transactions**

 

Flem Noel Pautsky, Jr. isa beneficial owner of in excess of 5% of the Company’s outstanding commonstock.  On July 8, 2009, the Companypurchased 92,255 shares of the common stock held by Flem Noel Pautsky, Jr. in aprivate transaction for $2.20 per share, for a total purchase price of$202,961.

 

West Coast AssetManagement is a beneficial owner of in excess of 5% of the Company’soutstanding common stock.  On July 29,2009, the Company purchased 55,472 shares of the common stock held by WestCoast Asset Management in a private transaction for $2.20 per share, for atotal purchase price of $122,038.

 

**DirectorIndependence**

 

The Company’s Board ofDirectors consists of Sandra Pautsky, Danny Croker and Randy Camp.  Mr. Camp is an independent director asdefined in Rule 5605(a)(2) of the NASDAQ listing rules.

 

41

----

Table of Contents

 

**ITEM 14.****              ****PRINCIPAL ACCOUNTING 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, 2010.

 

**Audit Fees**

 

Feesbilled by Whitley Penn for the fiscal year 2009 and 2010 audits of the Company’sfinancial statements and the reviews of quarterly reports on Form 10-Qduring such years were $59,888 and $60,861, respectively.

 

**Audit-Related Fees**

 

TheCompany did not incur any audit-related fees from Whitley Penn during thefiscal year ended February 28, 2009 or 2010.

 

**Tax Fees**

 

Feesbilled by Whitley Penn to the Company for preparation of the Company’s Federalincome tax return for the fiscal year 2009 and fiscal year  2010 were $14,000 and $12,900, respectively.

 

**All Other Fees**

 

TheCompany did not incur any other fees from Whitley Penn during the fiscal year2009 or 2010.

 

**Pre-Approval Policies and Procedures**

 

TheCompany does not have a separately-designated audit committee and the Board ofDirectors of the Company acts in that capacity. Prior to the Company’s engagement of Whitley Penn to render the auditand non-audit services set forth above, the engagement was approved by theCompany’s Board of Directors.

 

42

----

Table of Contents

 

**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.                              |
|                 |       |                                                                                                                                                                                                                          |
| 23                   |       | Consent  of Independent Petroleum Engineers and Geologists (filed herewith).                                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                          |
| 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).                                                                  |
|                 |       |                                                                                                                                                                                                                          |
| 99                   |       | Stephens  Engineering engineering report with respect to the Company’s proved oil and  gas reserves (filed herewith).                                                                                                    |

 

43

----

Table of Contents

 

**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 

 

OAKRIDGEENERGY, INC.

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

 

DATE:June 1, 2010

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.

 
| By:    | /s/  Sandra Pautsky                                   |   | By:    | /s/  Danny Croker                           |
|--------|-------------------------------------------------------|--------|--------|---------------------------------------------|
|   | Sandra  Pautsky, President,                           |   |   | Danny  Croker, Director, Vice President and |
|   | Chief  Executive Officer, Principal Financial Officer |   |   | Assistant  Secretary-Treasurer              |
|   | and  Director (Principal Executive Officer and        |   |   |                                        |
|   | Principal  Financial Officer)                         |   |   |                                        |

 

 
| DATE: June 1, 2010 |   | DATE:  June 1, 2010 |
|-------------------------|--------|--------------------------|

 

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

 

DATE:June 1, 2010

 

44

----

Table of Contents

 

**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.                                                    |
|                 |       |                                                                                                                                                                                                                                                |
| 23                   |       | Consent  of Independent Petroleum Engineers and Geologists (filed herewith).                                                                                                                                                                        |
|                 |       |                                                                                                                                                                                                                                                |
| 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).                                                                                        |
|                 |       |                                                                                                                                                                                                                                                |
| 99                   |       | Stephens  Engineering engineering report with respect to the Company’s proved oil and  gas reserves (filed herewith).                                                                                                                          |

 

45

----