##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended March 31, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 0-7914
 BASIC EARTH SCIENCE SYSTEMS, INC.
 1801 Broadway, Suite 620
Denver, Colorado 80202-3835
Telephone (303) 296-3076
 Incorporated in Delaware
    
    IRS ID# 84-0592823
   o þ
 þ o
 o
 o þ




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##### Table of Contents



Basic Earth Science Systems, Inc.
 Form 10-KSB
 March 31, 2007
 Table of Contents
 PagePart I:Item 1. Description of Business
    
    
    3Item 2. Description of Property
    
    
    10Item 3. Legal Proceedings
    
    
    12Item 4. Submission of Matters to a Vote of Security Holders
    
    
    13Part II:Item 5. Market for Common Equity and Related Stockholder Matters
    
    
    14Item 6. Managements Discussion and Analysis and
Plan of Operation
    
    
    14Item 7. Consolidated Financial Statements
    
    
    22Item 8. Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure
    
    
    39Item 8A. Controls and Procedures
    
    
    39Item 8B. Other Information
    
    
    40Part III:Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With
Section 16(a) of the Exchange Act
    
    
    40Item 10. Executive Compensation
    
    
    40Item 11. Security Ownership of Certain Beneficial Owners
and Management
    
    
    40Item 12. Certain Relationships and Related Transactions
    
    
    40Item 13. Exhibits and Reports on Form 8-K
    
    
    41Item 14. Principal Accountant Fees and Services
    
    
    41Signatures
    
    
    42Amended Loan AgreementCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
 2




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##### Table of Contents



Part I
 
 ITEM 1
DESCRIPTION OF BUSINESS
 Overview
  Strategy
  
    
    Cost effective implementation of internally and externally generated exploration and
development drilling projects.
    
    Identification and acquisition of strategic producing properties; strategic and
significant in that they are either synergistic to our existing production or will provide
a dramatic increase to the Companys existing production base.
    
    Boosting cash flows from existing oil and gas production through a combination of cost
control and the exploitation of behind-pipe potential.
   3




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##### Table of Contents



Areas of Focus
 Williston Basin
  Banks Prospect  McKenzie County, North Dakota .
 TR Madison Unit Prospect  Billings County, North Dakota . th
 South Flat Lake Prospect  Sheridan County, Montana.
 Other Areas
  4




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Denver-Julesberg Basin  Weld County, Colorado.
 Onshore Gulf Coast.
 Christmas Meadows Prospect  Summit County, Utah.
 Contemplated Activities
  Williston Basin
    5




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Other Areas
 nd rd
   Segment Information and Major Customers
 Industry segment.
 Markets.
 6




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Competition
   Regulations
 General.
 Environmental matters.
   7




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Risk Factors
 Volatility of oil and gas prices.
   Uncertainty of reserve information and future net revenue estimates.
  8




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Reserve replacement.
 Operating hazards.
 Other
   9




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Forward-Looking Statements
   
 ITEM 2
DESCRIPTION OF PROPERTY
 Producing Properties: Location and Impact
  Producing Property
 Gross Wells
    
    Net WellsOil
    
    Gas
    
    Oil
    
    GasColorado
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    4.20Louisiana
    
    
    1
    
    
    
    1
    
    
    
    0.01
    
    
    
    0.10Montana
    
    
    17
    
    
    
    
    
    
    
    8.75
    
    
    
    North Dakota
    
    
    41
    
    
    
    
    
    
    
    9.03
    
    
    
    Texas
    
    
    23
    
    
    
    2
    
    
    
    20.66
    
    
    
    0.18Wyoming
    
    
    1
    
    
    
    
    
    
    
    0.47
    
    
    
    Total
    
    
    83
    
    
    
    10
    
    
    
    38.92
    
    
    
    4.48
 10




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##### Table of Contents



Production
  Reserves
   Net Oil
    
    
    Net Gas(Bbls)
    
    
    (Mcf)
    
    
    BOE
    
    
    %Williston BasinOperated
    
    
    364,000
    
    
    
    95,000
    
    
    
    379,000
    
    
    
    32.0Non-Operated
    
    
    276,000
    
    
    
    204,000
    
    
    
    310,000
    
    
    
    26.2640,000
    
    
    
    299,000
    
    
    
    689,000
    
    
    
    58.2South
Texas/Onshore
Gulf CoastOperated
    
    
    329,000
    
    
    
    
    
    
    
    329,000
    
    
    
    27.7Non-Operated
    
    
    
    
    
    
    230,000
    
    
    
    39,000
    
    
    
    3.3329,000
    
    
    
    230,000
    
    
    
    368,000
    
    
    
    31.0D-J BasinOperated
    
    
    12,000
    
    
    
    596,000
    
    
    
    118,000
    
    
    
    9.4Non-Operated
    
    
    1,000
    
    
    
    13,000
    
    
    
    4,000
    
    
    
    0.313,000
    
    
    
    609,000
    
    
    
    122,000
    
    
    
    9.7Other AreasOperated
    
    
    13,000
    
    
    
    
    
    
    
    13,000
    
    
    
    1.1Non-Operated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,000
    
    
    
    
    
    
    
    13,000
    
    
    
    1.1Total
    
    
    995,000
    
    
    
    1,138,000
    
    
    
    1,185,000
    
    
    
    100.0
 11




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Leasehold Acreage
  Developed Acreage
    
    Undeveloped AcreageGross
    
    Net
    
    Gross
    
    NetColorado
    
    
    640
    
    
    
    384
    
    
    
    
    
    
    
    Louisiana
    
    
    687
    
    
    
    51
    
    
    
    
    
    
    
    Montana
    
    
    6,161
    
    
    
    2,773
    
    
    
    5,623
    
    
    
    3,049North Dakota
    
    
    14,263
    
    
    
    2,385
    
    
    
    23,632
    
    
    
    1,534Texas
    
    
    3,080
    
    
    
    2,486
    
    
    
    
    
    
    
    Utah
    
    
    
    
    
    
    
    
    
    
    35,945
    
    
    
    719Wyoming
    
    
    1,555
    
    
    
    329
    
    
    
    40
    
    
    
    1Total
    
    
    26,386
    
    
    
    8,408
    
    
    
    65,240
    
    
    
    5,303
 Field Service Equipment
  Office Lease
  
 ITEM 3
LEGAL PROCEEDINGS
  12




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ITEM 4
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
  Director
    
    For
    
    Against
    
    AbstainDavid Flake
    
    
    13,690,002
    
    
    
    
    
    
    
    109,229Richard Rodgers
    
    
    13,690,602
    
    
    
    
    
    
    
    108,629Ray Singleton
    
    
    13,690,002
    
    
    
    
    
    
    
    109,229
  13




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Part II
 
 ITEM 5
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
  High
    
    LowYear Ended March 31, 2006First Quarter
    
    $
    1.98
    
    
    $
    1.13Second Quarter
    
    
    2.65
    
    
    
    1.60Third Quarter
    
    
    3.37
    
    
    
    1.88Fourth Quarter
    
    
    2.73
    
    
    
    2.06Year Ended March 31, 2007First Quarter
    
    $
    2.85
    
    
    $
    2.00Second Quarter
    
    
    2.29
    
    
    
    1.66Third Quarter
    
    
    2.22
    
    
    
    1.77Fourth Quarter
    
    
    1.90
    
    
    
    1.52
   
 ITEM 6
MANAGEMENTS DISCUSSION AND ANALYSIS
AND PLAN OF OPERATION
 Liquidity Outlook
  14




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Capital Structure and Liquidity
 Financing
 Bank Debt
  Hedging
 Working Capital
 Cash Flow
   15




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Capital Expenditures
 
    
    Banks Prospect  McKenzie County, North Dakota.Basic spent a total of $739,000 for
additional drilling and/or completion operations on the prospects first three wells.
The State 16-1H well began producing near the end of 2006, the LM #2 well was placed on
production near the beginning of 2007 and the LM #1 is currently shut-in and being
evaluated for further development.
    
    Horizontal Bakken  Richland County, Montana.The Company invested $298,000 in this
area: $258,000 to drill a second horizontal lateral in the Johnson 3-21H well and $40,000
of additional completion costs on the Halvorsen 21X-36.
    
    Indian Hill Field  McKenzie County, North Dakota.A total of $154,000 was used to
finance re-completion work on the Lynn #2 and Lynn#3H wells.
    
    Other Areas  Summit County, Utah.The Company invested $302,000 for its 2% working
interest to drill the Table Top Unit #1 well that is operated by Double Eagle Petroleum
Company. In February 2007 drilling operations were halted after encountering the Dakota
formation at approximately 16,000 and the well was plugged back to the base of the
intermediate casing.
    Divestitures/Abandonments
 Impact of Inflation
 Capital Resources
 Overview
 16




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Other Commitments
 Results of Operations
 Fiscal 2007 Compared with Fiscal 2006
 Overview
 Revenues
 Volumes and Prices
 Expenses
  17




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Other Income/Expense
 Income Taxes.
 18




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Selected Financial Information
  2007
    
    
    2006
    
    
    2005Production:Oil (barrels)
    
    
    104,200
    
    
    
    99,900
    
    
    
    91,600Gas (Mcf)
    
    
    155,800
    
    
    
    140,800
    
    
    
    163,700Revenue: (in thousands)Oil
    
    $
    6,115
    
    
    $
    5,530
    
    
    $
    3,934Gas
    
    
    1,014
    
    
    
    1,065
    
    
    
    893Total
    
    
    7,129
    
    
    
    6,595
    
    
    
    4,827Less: Total production expense (in thousands)1
    
    
    2,422
    
    
    
    2,564
    
    
    
    1,919Gross profit (in thousands)
    
    $
    4,707
    
    
    $
    4,031
    
    
    $
    2,908Depletion expense (in thousands)4
    
    $
    631
    
    
    $
    456
    
    
    $
    256General and administrative expense
(in thousands)
    
    $
    546
    
    
    $
    524
    
    
    $
    416Average sales price2Oil (per barrel)
    
    $
    58.70
    
    
    $
    55.35
    
    
    $
    42.94Gas (per Mcf)
    
    
    6.51
    
    
    
    7.56
    
    
    
    5.45Average production expense1,2,3
    
    
    18.61
    
    
    
    20.78
    
    
    
    16.14Average gross profit2,3
    
    
    36.17
    
    
    
    32.66
    
    
    
    24.45Average depletion expense2,3,4
    
    
    4.85
    
    
    
    3.70
    
    
    
    2.15Average general and administrative expense2,3
    
    
    4.20
    
    
    
    4.24
    
    
    
    3.50
 
 1
    
    Operating expenses, including production tax2
    
    Averages calculated based upon non-rounded figures3
    
    Per equivalent barrel (6 Mcf of gas is equivalent to 1 barrel of oil)4
    
    Excluding impairment expense related to Canadian full cost pool ceiling limitation Critical Accounting Policies and Estimates
  Oil and Gas Property
 19




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Oil and Gas Reserves
 Asset Retirement Obligations
 Off Balance Sheet Transactions, Arrangements or Obligations
  Recent Accounting Pronouncements
   20




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Basic Earth Science Systems, Inc.
 Table of Contents
 Consolidated Financial Statements
and Accompanying Notes
 March 31, 2007 and 2006
 PageReport of Independent Registered Public Accounting Firm  Hein & Associates LLP
    
    
    22Consolidated Balance Sheets
    
    
    23-24Consolidated Statements of Operations
    
    
    25Consolidated Statements of Shareholders Equity
    
    
    26Consolidated Statements of Cash Flows
    
    
    27Notes to Consolidated Financial Statements
    
    
    28-39
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ITEM 7
FINANCIAL STATEMENTS
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    HEIN & ASSOCIATES LLP
 
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Basic Earth Science Systems, Inc.
 
 Consolidated Balance Sheets
 At March 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,523,000
    
    
    $
    78,000Accounts receivable:Oil and gas sales
    
    
    825,000
    
    
    
    913,000Joint interest and other receivables, net of
$70,000 allowance
    
    
    436,000
    
    
    
    402,000Other current assets
    
    
    262,000
    
    
    
    297,000Total current assets
    
    
    4,046,000
    
    
    
    1,690,000Oil and gas property, full cost method:Proved property
    
    
    27,686,000
    
    
    
    24,257,000Unproved property
    
    
    1,199,000
    
    
    
    2,881,000Accumulated depreciation and depletion
    
    
    (17,842,000
    )
    
    
    (17,250,000
    )Net oil and gas property
    
    
    11,043,000
    
    
    
    9,888,000Other non-current assets, net
    
    
    363,000
    
    
    
    272,000Total non-current assets
    
    
    11,406,000
    
    
    
    10,160,000Total assets
    
    $
    15,452,000
    
    
    $
    11,850,000
  23




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Basic Earth Science Systems, Inc.
 Consolidated Balance Sheets
 At March 31,2007
    
    
    2006Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    744,000
    
    
    $
    389,000Accrued liabilities
    
    
    1,245,000
    
    
    
    1,084,000Total current liabilities
    
    
    1,989,000
    
    
    
    1,473,000Long-term liabilities:Long-term debt
    
    
    
    
    
    
    445,000Deferred tax liability
    
    
    581,000
    
    
    
    Asset retirement obligation
    
    
    1,802,000
    
    
    
    1,372,000Total long-term liabilities
    
    
    2,383,000
    
    
    
    1,817,000Commitments (Note 6)Shareholders equity:Preferred stock, $.001 par value
Authorized - 3,000,000 shares
Issued - 0 shares
    
    
    
    
    
    
    Common stock, $.001 par value
Authorized - 32,000,000 shares
Issued - 17,304,752 shares at March 31,
2007 and 17,129,752 at March 31, 2006
    
    
    17,000
    
    
    
    17,000Additional paid-in capital
    
    
    22,730,000
    
    
    
    22,710,000Treasury stock (349,265 shares); at cost
    
    
    (23,000
    )
    
    
    (23,000
    )Accumulated deficit
    
    
    (11,644,000
    )
    
    
    (14,144,000
    )Total shareholders equity
    
    
    11,080,000
    
    
    
    8,560,000Total liabilities and shareholders equity
    
    $
    15,452,000
    
    
    $
    11,850,000
  24




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Basic Earth Science Systems, Inc.
 
 Consolidated Statements of Operations
 Years Ended March 31,2007
    
    
    2006Revenues:Oil and gas sales
    
    $
    7,129,000
    
    
    $
    6,595,000Well service revenue
    
    
    38,000
    
    
    
    20,000Total revenues
    
    
    7,167,000
    
    
    
    6,615,000Expenses:Oil and gas production
    
    
    1,935,000
    
    
    
    2,104,000Production tax
    
    
    487,000
    
    
    
    460,000Well servicing expenses
    
    
    41,000
    
    
    
    24,000Depreciation, depletion and impairment
    
    
    640,000
    
    
    
    550,000Accretion of asset retirement obligation
    
    
    108,000
    
    
    
    74,000Asset retirement expense
    
    
    125,000
    
    
    
    63,000General and administrative
    
    
    546,000
    
    
    
    524,000Total expenses
    
    
    3,882,000
    
    
    
    3,799,000Income from operations
    
    
    3,285,000
    
    
    
    2,816,000Other Income (Expense):Interest and other income
    
    
    50,000
    
    
    
    23,000Fuel purchase overcharge refund
    
    
    79,000
    
    
    
    Interest and other expenses
    
    
    (7,000
    )
    
    
    (11,000
    )Total other income
    
    
    122,000
    
    
    
    12,000Income before income taxes
    
    
    3,407,000
    
    
    
    2,828,000Current income tax expense
    
    
    326,000
    
    
    
    13,000Provision for deferred income taxes
    
    
    581,000
    
    
    
    Total income taxes
    
    
    907,000
    
    
    
    13,000Net income
    
    $
    2,500,000
    
    
    $
    2,815,000Per share amounts:Basic
    
    $
    0.149
    
    
    $
    0.168Diluted
    
    $
    0.146
    
    
    $
    0.164Weighted average common shares outstanding:Basic
    
    
    16,825,076
    
    
    
    16,732,611Diluted
    
    
    17,129,537
    
    
    
    17,125,635
  25




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Basic Earth Science Systems, Inc.
 
 Consolidated Statements of Shareholders Equity
 Years Ended March 31, 2007 and 2006
 AdditionalCommon stock
    
    
    paid-in
    
    
    Treasury stock
    
    
    AccumulatedShares
    
    
    Par value
    
    
    capital
    
    
    Shares
    
    
    Amount
    
    
    deficitBalance, April 1, 2005
    
    
    17,004,752
    
    
    $
    17,000
    
    
    $
    22,701,000
    
    
    
    (349,265
    )
    
    $
    (23,000
    )
    
    $
    (16,959,000
    )Stock options exercised
    
    
    125,000
    
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,815,000Balance, March 31, 2006
    
    
    17,129,752
    
    
    
    17,000
    
    
    
    22,710,000
    
    
    
    (349,265
    )
    
    
    (23,000
    )
    
    
    (14,144,000
    )Stock options exercised
    
    
    175,000
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500,000Balance, March 31, 2007
    
    
    17,304,752
    
    
    $
    17,000
    
    
    $
    22,730,000
    
    
    
    (349,265
    )
    
    $
    (23,000
    )
    
    $
    (11,644,000
    )
  26




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Basic Earth Science Systems, Inc.
 
 Consolidated Statements of Cash Flows
 Years Ended March 31,2007
    
    
    2006Increase (decrease) in cash and cash equivalents:Cash flows from operating activities:Net income
    
    $
    2,500,000
    
    
    $
    2,815,000Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation, depletion and impairment
    
    
    640,000
    
    
    
    550,000Deferred tax liability
    
    
    581,000
    
    
    
    Accretion of asset retirement obligation
    
    
    108,000
    
    
    
    74,000Change in:Net accounts receivable
    
    
    54,000
    
    
    
    (308,000
    )Other assets
    
    
    70,000
    
    
    
    (86,000
    )Accounts payable and accrued liabilities
    
    
    321,000
    
    
    
    (33,000
    )Asset retirement obligation
    
    
    
    
    
    
    (6,000
    )Other
    
    
    9,000
    
    
    
    7,000Net cash provided by operating activities
    
    
    4,283,000
    
    
    
    3,013,000Cash flows from investing activities:Capital expenditures:Oil and gas property
    
    
    (1,703,000
    )
    
    
    (4,271,000
    )Support equipment
    
    
    (38,000
    )
    
    
    (8,000
    )Insurance settlements
    
    
    208,000
    
    
    
    Proceeds from sale of oil and gas property and equipment
    
    
    146,000
    
    
    
    21,000Proceeds from sale of support equipment
    
    
    
    
    
    
    1,000Other
    
    
    (26,000
    )
    
    
    (24,000
    )Net cash used in investing activities
    
    
    (1,413,000
    )
    
    
    (4,281,000
    )Cash flows from financing activities:Proceeds from exercise of common stock options
    
    
    20,000
    
    
    
    9,000Proceeds from borrowing
    
    
    565,000
    
    
    
    1,905,000Debt payments
    
    
    (1,010,000
    )
    
    
    (1,460,000
    )Net cash provided by (used in) financing activities
    
    
    (425,000
    )
    
    
    454,000Cash and cash equivalents:Increase (decrease) in cash and cash equivalents
    
    
    2,445,000
    
    
    
    (814,000
    )Balance, beginning of year
    
    
    78,000
    
    
    
    892,000Balance, end of year
    
    $
    2,523,000
    
    
    $
    78,000Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    7,000
    
    
    $
    8,000Increase in oil and gas property due to asset retirement obligation
    
    $
    512,000
    
    
    $
    132,000
  27




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##### Table of Contents



Basic Earth Science Systems, Inc.
 
 Notes to Consolidated Financial Statements
 1. Summary of Significant Accounting Policies
 Organization and Nature of Operations
 Principles of Consolidation
 Oil and Gas Producing Activity
    Use of Estimates
 28




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Support Equipment and Other
 Inventory
 Fair Value of Financial Instruments
 Long-Term Assets
 Earnings Per Share
 Years Ended March 31,2007
    
    
    2006Numerator:Net income available to common shareholders
    
    $
    2,500,000
    
    
    $
    2,815,000Denominator:Denominator for basic earnings per share
    
    
    16,825,076
    
    
    
    16,732,611Effect of dilutive securities:Stock options
    
    
    304,461
    
    
    
    393,024Denominator for diluted earnings per share
    
    
    17,129,537
    
    
    
    17,125,635
  Stock Option Plan
 Comprehensive Income .
 29




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Cash and Cash Equivalents
 Income Taxes
 Hedging Activities
    Recent Accounting Pronouncements
  Reclassifications
 30




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##### Table of Contents



2. Asset Retirement Obligation
   Years Ended March 31,2007
    
    
    2006Asset retirement obligation at beginning of period
    
    $
    1,408,000
    
    
    $
    1,263,000Liabilities settled during the period
    
    
    (57,000
    )
    
    
    (61,000
    )New obligations for wells drilled and completed
    
    
    
    
    
    
    29,000Accretion of asset retirement obligation
    
    
    108,000
    
    
    
    74,000Revisions to estimates
    
    
    512,000
    
    
    
    103,000Asset retirement obligation at end of period
    
    $
    1,971,000
    
    
    $
    1,408,000Current liability
    
    $
    169,000
    
    
    $
    36,000Long-term liability
    
    
    1,802,000
    
    
    
    1,372,000Asset retirement obligation at end of each period
    
    $
    1,971,000
    
    
    $
    1,408,000
  3. Other Current Assets
  2007
    
    
    2006Lease and well equipment inventory
    
    $
    159,000
    
    
    $
    161,000Drilling and completion cost prepayments
    
    
    50,000
    
    
    
    118,000Prepaid insurance premiums
    
    
    47,000
    
    
    
    12,000Other current assets
    
    
    6,000
    
    
    
    6,000Total other current assets
    
    $
    262,000
    
    
    $
    297,000
  31




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##### Table of Contents



4. Other Non-Current Assets
  2007
    
    
    2006Lease and well equipment inventory
    
    $
    220,000
    
    
    $
    149,000Office and support equipment, net
    
    
    74,000
    
    
    
    54,000Plugging bonds
    
    
    69,000
    
    
    
    69,000Total other non-current assets
    
    $
    363,000
    
    
    $
    272,000
   5. Long-Term Debt
 Bank Debt
   32




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##### Table of Contents



6. Commitments
  7. Shareholders Equity
 Preferred Stock
 Stock Option Plan
  33




---



##### Table of Contents



2007
    
    
    2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding, beginning of year
    
    
    365,000
    
    
    $
    0.1023
    
    
    
    490,000
    
    
    $
    0.0954Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (175,000
    )
    
    
    (0.1117
    )
    
    
    (125,000
    )
    
    
    (0.0755
    )Outstanding, end of year
    
    
    190,000
    
    
    $
    0.0936
    
    
    
    365,000
    
    
    $
    0.1023Options exercisable, end of year
    
    
    190,000
    
    
    $
    0.0936
    
    
    
    365,000
    
    
    $
    0.1023
 Weighted average fair value of
options granted during the year
    
    $
    
    
    
    $
    
   Options OutstandingWeightedAverage
    
    
    WeightedRange of
    
    
    Number
    
    
    Remaining
    
    
    AverageExercise
    
    
    Outstanding
    
    
    Contractual
    
    
    ExercisePrices
    
    
    at 3/31/07
    
    
    Life
    
    
    Price$
    0.0325
    
    
    
    25,000
    
    
    1.33 years
    
    $
    0.03250.0420
    
    
    
    25,000
    
    
    
    2.33
    
    
    
    0.04200.0900
    
    
    
    25,000
    
    
    
    0.33
    
    
    
    0.09000.1150
    
    
    
    90,000
    
    
    
    0.67
    
    
    
    0.11500.1325
    
    
    
    25,000
    
    
    
    3.33
    
    
    
    0.1325$
    0.0325-0.1325
    
    
    
    190,000
    
    
    1.28 years
    
    $
    0.0936
 Options ExercisableWeightedNumber
    
    
    Average
    
    
    IntrinsicExercisable
    
    
    Exercise
    
    
    Value
    
    
    Expirationat 3/31/07
    
    
    Price
    
    
    at 3/31/07
    
    
    Date25,000
    
    
    $
    0.0325
    
    
    $
    39,000
    
    
    
    7/25/0825,000
    
    
    
    0.0420
    
    
    
    40,000
    
    
    
    7/25/0925,000
    
    
    
    0.0900
    
    
    
    40,000
    
    
    
    7/25/0790,000
    
    
    
    0.1150
    
    
    
    136,000
    
    
    
    12/5/0725,000
    
    
    
    0.1325
    
    
    
    37,000
    
    
    
    7/26/10190,000
    
    
    $
    0.0936
    
    
    $
    292,000
  34




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##### Table of Contents



8. Major Customers
  2007
    
    2006Plains Marketing LP
    
    
    22
    %
    
    
    15
    %Murphy Oil USA, Inc.
    
    
    20
    %
    
    
    25
    %Valero Marketing & Supply Company
    
    
    18
    %
    
    
    17
    %
  9. Income Tax
  2007
    
    
    2006Federal income tax provision at statutory rates
    
    $
    1,161,000
    
    
    $
    993,000State income tax
    
    
    106,000
    
    
    
    87,000Change in valuation allowance
    
    
    (359,000
    )
    
    
    (819,000
    )Other
    
    
    (1,000
    )
    
    
    (248,000
    )Income tax expense
    
    $
    907,000
    
    
    $
    13,000
   For the Years Ended March 31,2007
    
    
    2006Allowance for doubtful accounts
    
    $
    26,000
    
    
    $
    26,000Asset retirement obligation
    
    
    731,000
    
    
    
    537,000Other accruals
    
    
    98,000
    
    
    
    47,000Statutory depletion carry-forward
    
    
    1,244,000
    
    
    
    1,897,000Total gross deferred tax assets
    
    
    2,099,000
    
    
    
    2,507,000Valuation allowance
    
    
    
    
    
    
    (359,000
    )Net deferred tax asset
    
    
    2,099,000
    
    
    
    2,148,000Deferred tax liability  Depreciation,
depletion and intangible drilling costs
    
    
    (2,680,000
    )
    
    
    (2,148,000
    )Net deferred tax liability
    
    $
    (581,000
    )
    
    $
    
  35




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##### Table of Contents



10. Related Party Transactions
  11. 401(k) Plan
   12. Oil and Gas Property
  2007
    
    
    2006Proved property
    
    $
    27,686,000
    
    
    $
    24,257,000Unproved property
    
    
    1,199,000
    
    
    
    2,881,00028,885,000
    
    
    
    27,138,000Accumulated depreciation and depletion
    
    
    (17,842,000
    )
    
    
    (17,250,000
    )Net capitalized oil and gas property
    
    $
    11,043,000
    
    
    $
    9,888,000
 36




---



##### Table of Contents



TotalCosts Incurred During
    
    Exploration
    
    
    Development
    
    
    Acquisition
    
    
    UnprovedYear Ended
    
    Costs
    
    
    Costs
    
    
    Costs
    
    
    PropertyMarch 31, 2007
    
    $
    308,000
    
    
    $
    104,000
    
    
    $
    
    
    
    $
    412,000March 31, 2006
    
    
    428,000
    
    
    
    335,000
    
    
    
    
    
    
    
    763,000March 31, 2005
    
    
    24,000
    
    
    
    
    
    
    
    
    
    
    
    24,000$
    760,000
    
    
    $
    439,000
    
    
    $
    
    
    
    $
    1,199,000
  For the Years Ended March 31,2007
    
    
    2006Development costs
    
    $
    1,017,000
    
    
    $
    2,881,000Exploration costs
    
    
    686,000
    
    
    
    1,394,000Acquisitions:Proved
    
    
    
    
    
    
    Unproved
    
    
    
    
    
    
    Total
    
    $
    1,703,000
    
    
    $
    4,275,000
 13. Unaudited Oil and Gas Reserves Information
    37




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##### Table of Contents



Analysis of Changes in Proved Reserves
 Proved Developed Reserves
 Oil andnatural gas
    
    Naturalliquids
    
    gas(Bbls)
    
    (Mcf)Proved developed reserves at March 31, 2005
    
    
    1,056,000
    
    
    
    870,000Revisions of previous estimates
    
    
    (59,000
    )
    
    
    152,000Extensions and discoveries
    
    
    55,000
    
    
    
    89,000Sales of reserves in place
    
    
    
    
    
    
    Improved recovery
    
    
    
    
    
    
    Purchase of reserves
    
    
    
    
    
    
    Production
    
    
    (100,000
    )
    
    
    (141,000
    )Proved developed reserves at March 31, 2006
    
    
    952,000
    
    
    
    970,000Revisions of previous estimates
    
    
    92,000
    
    
    
    5,000Extensions and discoveries
    
    
    55,000
    
    
    
    319,000Sales of reserves in place
    
    
    
    
    
    
    Improved recovery
    
    
    
    
    
    
    Purchase of reserves
    
    
    
    
    
    
    Production
    
    
    (104,000
    )
    
    
    (156,000
    )Proved developed reserves at March 31, 2007
    
    
    995,000
    
    
    
    1,138,000
   Standardized Measure of Estimated Discounted Future Net Cash Flows
 At March 31,2007
    
    
    2006Future cash inflows
    
    $
    67,502,000
    
    
    $
    64,022,000Future cash outflows:Production cost
    
    
    (33,909,000
    )
    
    
    (29,618,000
    )Development cost
    
    
    
    
    
    
    Future income taxes
    
    
    (8,070,000
    )
    
    
    (8,142,000
    )Future net cash flows
    
    
    25,523,000
    
    
    
    26,262,000Adjustment to discount future
annual net cash flows at 10%
    
    
    (10,899,000
    )
    
    
    (11,230,000
    )Standardized measure of discounted
future net cash flows
    
    $
    14,624,000
    
    
    $
    15,032,000
 38




---



##### Table of Contents



Changes in Standardized Measure of Estimated Discounted Net Cash Flows
 Years Ended March 31,2007
    
    
    2006Standardized measure, beginning of period
    
    $
    15,032,000
    
    
    $
    14,819,000Sales of oil and gas, net of production cost
    
    
    (4,707,000
    )
    
    
    (4,031,000
    )Net change in sales prices, net of production cost
    
    
    (1,300,000
    )
    
    
    768,000Discoveries, extensions and improved recoveries,
net of future development cost
    
    
    2,828,000
    
    
    
    2,294,000Change in future development costs
    
    
    
    
    
    
    4,000Development costs incurred during the period
that reduced future development cost
    
    
    
    
    
    
    Purchase of reserves
    
    
    
    
    
    
    Sales of reserves in place
    
    
    
    
    
    
    Revisions of quantity estimates
    
    
    1,404,000
    
    
    
    (559,000
    )Accretion of discount
    
    
    1,874,000
    
    
    
    1,948,000Net change in income taxes
    
    
    (317,000
    )
    
    
    957,000Changes in rates of production and other
    
    
    (190,000
    )
    
    
    (1,168,000
    )Standardized measure, end of period
    
    $
    14,624,000
    
    
    $
    15,032,000
 
 ITEM 8
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 8A
CONTROLS AND PROCEDURES
  39




---



##### Table of Contents



ITEM 8B
OTHER INFORMATION
  
 Part III
 
 ITEM 9
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT
  
 ITEM 10
EXECUTIVE COMPENSATION
  
 ITEM 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
  
 ITEM 12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  40




---



##### Table of Contents



ITEM 13
EXHIBITS AND REPORTS ON FORM 8-K
 Exhibits
 Exhibit No.
    
    Document3i1
    
    Restated Certificate of Incorporation included in Basics Form 10-K for the year
ended March 31, 19813i1
    
    By-laws included in Basics Form S-1 filed October 24, 19803i1
    
    Certificate of Amendment to Basics Restated Certificate of Incorporation dated
March 31, 199610(i)a1
    
    Loan Agreement between The Bank of Cherry Creek and Basic, dated March 4, 200210(i)a1
    
    Amended Loan Agreement between American National Bank (formerly The Bank of
Cherry Creek) and Basic dated January 3, 2006.10(i)a
    
    Amended Loan Agreement between American National Bank (formerly The Bank of Cherry Creek)
and Basic dated December 31, 200610(ii)1
    
    Oil and Gas Incentive Compensation Plan included in Basics Form 10-K for the
year ended March 31, 1985211
    
    Subsidiaries of Basic included in Basics Form 10-KSB for the year ended March
31, 200231.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Ray Singleton,
Chief Executive Officer)31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (David Flake,
Chief Financial Officer)32.1
    
    Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Ray Singleton, Chief Executive Officer)32.2
    
    Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (David Flake, Chief Financial Officer).
 1
  
 ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES
  41




---



##### Table of Contents



Signatures
   Date/s/ Ray Singleton
    
    June 28, 2007Ray Singleton, President/s/ David Flake
    
    June 28, 2007David Flake, Chief Financial Officer andPrincipal Accounting Officer
  Name and Capacity
    
    Date/s/ David Flake
    
    June 28, 2007David Flake, Director/s/ Monroe W. Robertson
    
    June 28, 2007Monroe W. Robertson, Director andAudit Committee Chairman/s/ Richard K. Rodgers
    
    June 28, 2007Richard K. Rodgers, Director andCompensation Committee Chairman/s/ Ray Singleton
    
    June 28, 2007Ray Singleton, Director
 42




---



##### Table of Contents



Exhibit Index
 Exhibits
 Exhibit No.
    
    Document3i1
    
    Restated Certificate of Incorporation included in Basics Form 10-K for the year
ended March 31, 19813i1
    
    By-laws included in Basics Form S-1 filed October 24, 19803i1
    
    Certificate of Amendment to Basics Restated Certificate of Incorporation dated
March 31, 199610(i)a1
    
    Loan Agreement between The Bank of Cherry Creek and Basic, dated March 4, 200210(i)a1
    
    Amended Loan Agreement between American National Bank (formerly The Bank of
Cherry Creek) and Basic dated January 3, 2006.10(i)a
    
    Amended Loan Agreement between American National Bank (formerly The Bank of Cherry Creek)
and Basic dated December 31, 200610(ii)1
    
    Oil and Gas Incentive Compensation Plan included in Basics Form 10-K for the
year ended March 31, 1985211
    
    Subsidiaries of Basic included in Basics Form 10-KSB for the year ended March
31, 200231.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Ray Singleton,
Chief Executive Officer)31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (David Flake,
Chief Financial Officer)32.1
    
    Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Ray Singleton, Chief Executive Officer)32.2
    
    Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (David Flake, Chief Financial Officer).
 
 1
    
    Previously filed and incorporated herein by reference