ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Disclosure Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q includes forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended ("Forward Looking Statements"). All statements other than statements of historical fact included in this report are Forward Looking Statements. In the normal course of its business, the Company, in an effort to help keep its shareholders and the public informed about the Company's operations, may from time-to-time issue certain statements, either in writing or orally, that contain or may contain Forward-Looking Statements. Although the Company believes that the expectations reflected in such Forward Looking Statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies, past and possible future, of acquisitions and projected or anticipated benefits from acquisitions made by or to be made by the Company, or projections involving anticipated revenues, earnings, levels of capital expenditures or other aspects of operating results. All phases of the Company operations are subject to a number of uncertainties, risks and other influences, many of which are outside the control of the Company and any one of which, or a combination of which, could materially affect the results of the Company's proposed operations and whether Forward Looking Statements made by the Company ultimately prove to be accurate. Such important factors ("Important Factors") and other factors could cause actual results to differ materially from the Company's expectations are disclosed in this report. All prior and subsequent written and oral Forward Looking Statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Important Factors described below that could cause actual results to differ materially from the Company's expectations as set forth in any Forward Looking Statement made by or on behalf of the Company.

Overview

We are an oil and gas exploration, development and production company. Our corporate strategy is to continue building value through the development and acquisition of our existing gas and oil assets. However, we intend to continue seeking acquisition opportunities which exhibit consistent, predictable, and long-lived production. We intend to fund our development activity primarily through proceeds from internal cash flow from our wells in the Fayetteville Shale Field, from private placements of stock, and from the sale of working interests in undeveloped acreage.

Our revenue, profitability, and future growth rate depend substantially on factors beyond our control, such as economic, political, and regulatory developments and competition from other sources of energy. Oil and natural gas prices historically have been volatile and may fluctuate widely in the future. Sustained periods of low prices for oil or natural gas could materially and adversely affect our financial position, our results of operations, the quantities of oil and natural gas reserves that we can economically produce and our access to capital.

Results of Operations

Six Months Ended June 30, 2008 and 2007

We had revenues in the six months ended June 30, 2008 of $492,306, as compared to revenues of $135,532 in the six months ended June 30, 2007. All of our revenues in 2007 and $62,400 of our revenues in 2008 were payments received under a royalty agreement that expired in the first quarter of 2008. The royalty agreement expired on December 31, 2007, and we do not expect to receive any more revenues under the royalty agreement. Our remaining revenues in 2008 were from gas produced from our wells in the Fayetteville Shale Field. Our revenues in the first six months of 2008 are not reflective of our future revenues. Since late 2007, we have invested in a substantial number of wells in the Fayetteville Shale Field, which started to come online in 2008. We expect that our revenues will continue to trend upward throughout the remainder of 2008 as wells in which we have participated begin to produce gas. The operator of our working interests in the Fayetteville Shale Field has proposed an aggressive drilling schedule to develop the field, and to the extent we elect to continue investing new wells, we expect the upward trend in our revenues to continue.

We reported losses from operations during the six months ended June 30, 2008 and 2007 of ($1,455,981) and ($813,040), respectively. The increase in our loss from operations in 2008 as compared to 2007 was primarily attributable to increased general and administrative expenses. In particular, general and administrative expenses increased to $1,890,608 in the six months ended June 30, 2008 as compared to $946,346 in the six months ended June 30, 2007, an increase of $944,262. Significant factors in the increase in general and administrative expenses were:

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Management compensation increased to $585,833 in the six months ended June 30, 2008, as compared to $192,500 in the six months ended June 30, 2007, as the result of five officers drawing compensation in 2008 as compared to only four officers in 2007, and as a result of three officers drawing compensation at Blaze in 2008 as compared to none in 2007.

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Payroll expenses associated with non-officer personnel increased to $189,676 in the six months ended June 30, 2008, from $12,380 in the six months ended June 30, 2007.

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Legal expenses increased to $273,550 in the six months ended June 30, 2008, as compared to $216,044 in the six months ended June 30, 2007, as the result of costs associated with an SEC review of our past reports, legal expenses relating to certain

litigation that was settled in the six months ended June 30, 2008, and legal expenses associated with the drilling of our first well on our Mirror Image prospect.

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Expenses associated with the issuance of warrants for compensatory purposes were $268,900 in the six months ended June 30, 2008, as compared to $350,834 in the six months ended June 30, 2007.

We reported net other income (expense) of ($89,708) in the six months ended June 30, 2008, as compared to net other income (expense) of $28,148 in the six months ended June 30, 2007. Significant factors in net other income (expense) in 2008 as compared to 2007 were:

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In 2008, we recorded an unconsolidated entity loss of ($25,968), representing our share of the net loss incurred by Wastech, Inc. during the period, as compared to an unconsolidated entity loss of ($54,102) in 2007.

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In 2007, we recorded a settlement gain of $192,610 resulting from restructuring a contract to acquire oil and gas leases, as compared to a settlement loss of ($125,503) in 2008 resulting from the settlement of certain litigation.

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In 2008, we recorded interest income of $67,134, and interest expense of ($5,371), as compared to $176 of interest income in 2007 and ($28,600) of interest expense 2007. Interest income increased substantially as a result of the investment of the proceeds of the sale of a portion of our working interests in the Fayetteville Shale Field in August 2007.

In the six months ended June 30, 2008, we reported a net loss before minority interest and preferred dividends of ($1,545,689), and a net loss of ($1,420,536), as compared to a net loss before minority interest and preferred dividends of ($748,892) and a net loss of ($794,368) in the six months ended June 30, 2007. In 2008, our net loss was affected by preferred dividends of $29,833 in 2008, as compared to preferred dividends of $9,476 in 2007. In 2008, our net loss was reduced by a minority interest benefit of $154,986, representing the interest of the minority shareholders of Blaze, our majority controlled subsidiary, in the net loss generated by Blaze.

Liquidity and Sources of Capital

Our consolidated balance sheet as of June 30, 2008 reflects cash and cash equivalents of $37,437, current assets of $2,060,632, current liabilities of $6,398,854, and a working capital deficit of ($4,338,222). However, our current liabilities consist primarily of loans received from related parties, and we have minimal indebtedness to unrelated parties.

We project that monthly revenues from wells in the Fayetteville Shale Field in which we have participated will be sufficient, at current gas prices, to pay all of our general and administrative expenses when the wells come online and begin producing revenue in late 2008. Until the wells begin producing revenue, the Company has implemented a partial deferral of salaries of its officers and certain employees, to a level with reduces our cash outlays for general and administrative expenses to no more than our current revenues from producing wells. Even with the projected revenue from our wells, however, we have insufficient liquidity to satisfy our current general and administrative expenses and planned capital expenditures for the foreseeable future due to the substantial additional capital necessary to fund the development of our oil and gas fields. In particular, our immediate capital needs are as follows:

Fayetteville Shale Field: We project that our share of drilling and completion costs for wells drilled in the Fayetteville Shale Field for the remainder of 2008 will be approximately $2,000,000. In the event we cannot raise the capital to fund our share of drilling costs, we will be forced to opt out of new wells proposed in the field. In the event we elect not to participate in an exploratory well proposed by the operator of our working interests, we will forfeit our interest in the entire section. In the event we elect not to participate in a development well proposed by the operator of our working interests, we will forfeit our interest in the entire section, except that we will not forfeit our interest in any well in which we have previously participated in the section. If we have to forfeit part or all of our interest in a section because we cannot meet our share of drilling costs, we will have to write off our investment in the underlying leases at issue. We are actively exploring options to raise capital to meet our drilling obligations, including the sale of preferred shares in a private offering, the sale of common shares of Blaze in a private offering, the sale of interests in producing wells, and obtaining a line of credit secured by our producing wells. It is not possible at this time to quantify the amount of lease investment we will have to write off if we are unable to meet our drilling commitments on future wells.

Mirror Image Prospect: Our leases begin to expire in October 2008, unless we have commenced drilling operations in the Mirror Image Prospect by then. We estimate that it will cost around $13,000,000 to drill and complete one well, which will be necessary to hold our leases in force. While we have received nonbinding commitments from third parties to purchase a 17% working interest in the Mirror Image Prospect, we still need additional capital to drill the first well in the prospect. Leases covering 1,276 acres of land will expire between October 15, 2008 and January 15, 2009 in the event we are unable to commence drilling operations by then. In that event, we would have to write off our investment in those leases, which would be about $960,000. However, even if some leases expire prior to the commencement of drilling operations, we would still be able to drill the prospect, but our percentage working interest in the wells would be reduced by the amount of the lease acreage lost due to lease expirations. In the event we are unable to commence drilling operations by August 2009, leases covering an additional 32.5 acres of land will expire. The remaining 719 acres of leases expire at various times between November 30, 2009 and January 31, 2010. We are required to pay delay rentals of $181,690 in 2008 and $142,940 in 2009 to maintain leases expiring after 2008. We are discussions with representatives of the lessors about extending the leases which are due to expire later this year.

Our other prospects (Morrilton's, Independence Ridge and Aegis/Maverick) are under leases which are not scheduled to expire any time soon, and therefore the focus of our capital raising and drilling activities are to meet our requirements in the Mirror Image Prospect and the Fayetteville Shale Field. We are not required to pay delay rentals to maintain our Morrilton's or Independence Ridge leases, while Aegis/Maverick requires delay rentals of only $17,152 in 2008.

Our liquidity may also be impacted by the fact that most of our current indebtedness is in the form of demand loans from A. Leon Blaser and his brother.
As a demand loan, they have the right to obtain repayment of part or all of the loans at any time and for any reason or no reason at all. To date, Mr. Blaser and his brother have only sought repayment of the loans as needed to fund obligations in their real estate business. However, the residential real estate development business has experienced a slowdown nationwide, including in the Boise metro area, as a result of the current crisis in the mortgage markets.
The slowdown caused Mr. Blaser and his brother to obtain repayment of their loans in the last half of 2007 faster than they originally envisioned. If Mr. Blaser and his brother continue to experience slowness in their real estate business, or if they suffer further adverse problems in their real estate business, we may be forced to repay our loans to Mr. Blaser and his brother, which would seriously jeopardize our ability to finance our drilling obligations on our oil and gas leases and pay our general administrative expenses, unless we are able to raise additional capital to offset the amounts we have repay Mr. Blaser and his brother.

There is no assurance that we will be able to raise the necessary capital, or that the terms under which we can raise capital will be favorable to existing shareholders.

Going Concern

The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company incurred a net operating loss in the six months ended June 30, 2008, and had significant unpaid accounts payable and liabilities. The Company needs to raise substantial capital to meet its obligations to fund the drilling of oil and gas wells on acreage it has leased.
These factors create an uncertainty about the Company's ability to continue as a going concern. The Company is currently trying to raise capital through a private offering of preferred stock. The ability of the Company to continue as a going concern is dependent on the success of this plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.