As a crude oil and natural gas producer, our revenue, cash flow from operations, other income and profitability, reserve values, access to capital and future rate of growth are substantially dependent upon the prevailing prices of crude oil and natural gas. Declines in commodity prices will materially and adversely affect our financial condition, liquidity, ability to obtain financing and operating results. Lower commodity prices may reduce the amount of crude oil and natural gas that we can produce economically. Prevailing prices for such commodities are subject to wide fluctuation in response to relatively minor changes in supply and demand and a variety of additional factors beyond our control, such as global, political and economic conditions. Historically, prices received for crude oil and natural gas production have been volatile and unpredictable, and such volatility is expected to continue. Most of our production is sold at market prices. Generally, if the commodity indexes fall, the price that we receive for our production will also decline. Therefore, the amount of revenue that we realize is to a large extent determined by factors beyond our control.

Liquidity and Capital Resources

Liquidity Outlook. Our primary source of funding is the net cash flow from the sale of our oil and gas production. The profitability and cash flow generated by our operations in any particular accounting period will be directly related to:
(a) the volume of oil and gas produced and sold, (b) the average realized prices for oil and gas sold, and (c) lifting costs. Assuming that oil prices do not decline from current levels, we believe the cash generated from operations, along with existing cash balances, will enable us to meet our existing and normal recurring obligations during the next fiscal year and beyond.

Working Capital. At September 30, 2009, we had a working capital surplus of $5,585,000 (a current ratio of 4.53:1) compared to a working capital surplus at March 31, 2009 of $5,045,000 (a current ratio of 4.62:1). The decrease in current ratio is largely a result of the timing between payments made for payables, and cash received for revenue.

Cash Flow. Net cash provided by operating activities decreased 34.2% from $2,851,000 in the six months ended September 30, 2008 ("2008") to $1,875,000 in the six months ended September 30, 2009 ("2009") primarily due to decreased oil and gas commodity prices.

Net cash used in investing activities decreased 81.6% from $2,668,000 during 2008 to $491,000 in the six months ended September 30, 2009. The difference relates primarily to significantly more expenditures made during the prior year on the DJ Basin wells in Colorado.

Net cash used in financing activities was $165,000 at September 30, 2009 as compared to no cash used for financing activities at September 30, 2008 since the Company did not adopt its stock buyback program until October 2008.

Credit Line. Our current banking relationship, established in March 2002, is with American National Bank ("the Bank"), located in Denver, Colorado. Subject to evaluation every six months, the line of credit amount was set at $20,000,000 with a concurrent borrowing base of $4,000,000. Effective December 31, 2008 the loan agreement was amended to extend the maturity date of the credit agreement to December 31, 2010. We renewed the line with an interest rate of prime plus 0.25% or 6.5% whichever is higher. During the year ended March 31, 2009 and for the six months ending September 30, 2009, we did not utilize our credit facility. The loan contains several covenant restrictions. At September 30, 2009, we were in compliance with all covenants. This line may be used for purposes of borrowing funds to reduce payables, finance re-completion or drilling efforts, fund property acquisitions, or pursue other opportunities that might arise.

Capital Expenditures

The amounts presented herein are presented on an accrual basis, and as such may not be consistent with the amounts presented on the consolidated statement of cash flows under investing activities for expenditures on oil and gas property in that the amounts contained therein are presented on a cash basis.

During the quarter ended September 30, 2009, we spent approximately $95,000 on various projects. This compares to $575,000 for the quarter ended September 30, 2008. The decrease in capital expenditures is primarily attributable to the timing of expenditures incurred. During the quarter ended September 30, 2009, 85% of capital expenditures were dedicated to leasing and completions. We spent approximately 71% of our capital expenditures amount on leasing acreage for the Banks prospect, 6% on recompletion of the Guenther 1-8 in Sheridan County, Montana, and 8% on completion efforts of the Lassen 41-26H in McKenzie County, North Dakota. These projects were funded with internally generated cash flow from operations.

At present cash levels, and with the extension of our available borrowing capacity, we expect to have sufficient funds available for our share of any additional acreage, seismic and/or drilling cost requirements that might arise from these opportunities. We may alter or vary all or part of any planned capital expenditures for reasons including but not limited to; changes in circumstances, unforeseen opportunities, inability to negotiate favorable acquisition, farmout or joint venture terms, lack of cash flow, and lack of additional funding.

We currently have no capital expenditure commitments. We are continually evaluating other drilling and acquisition opportunities for possible participation. Typically, at any one time, several opportunities are in various stages of due diligence. Our policy is to not disclose the specifics of a project or prospect, nor to speculate on such ventures, until such time as those various opportunities are finalized and undertaken. We caution that the absence of news and/or press releases should not be interpreted as a lack of development or activity.

Divestitures/Abandonments

During the quarter ended September 30, 2009 we commenced the plugging of one well.

Results of Operations

Overview. Net income for the three and six months ended September 30, 2009 was $271,000 and $520,000 compared to net income of $946,000 and $2,326,000, for the three and six months ended September 30, 2008. The following table shows selected financial information for the three and six months ended September 30 in the current and prior year. Certain prior year amounts may have been reclassified to conform to current year presentation.

                                     Six Months                     Three Months
                                        Ended                           Ended
                                    September 30,                   September 30,
                                2009            2008            2009            2008

Sales volume
   Oil (barrels)                  51,609          43,300          27,266          19,400
   Gas (mcf)                     119,326          81,900          84,140          38,800

Revenue
   Oil                       $ 2,981,000     $ 5,106,000     $ 1,711,000     $ 2,234,000
   Gas                           489,000         903,000         299,000         463,000
Total revenue1                 3,470,000       6,009,000       2,010,000       2,697,000

Total production expense2      1,405,000       1,627,000         817,000         779,000

Gross profit                 $ 2,065,000     $ 4,382,000     $ 1,193,000     $ 1,918,000

Depletion expense            $   556,000     $   400,000     $   326,000     $   179,000

Average sales price3
   Oil (per barrel)          $     57.76     $    117.86     $     62.75     $    115.09
   Gas (per mcf)             $      4.10     $     10.98     $      3.55     $     11.98

Average per BOE
   Production expense2,3,4   $     19.65     $     28.54     $     19.79     $     30.13
   Gross profit3,4           $     28.88     $     76.88     $     28.89     $     74.05
   Depletion expense3,4      $      7.78     $      7.33     $      8.14     $      7.61

1 Net of $11,000 and $27,000 in water service and disposal revenue, to total $2,021,000 and $3,497,000 in revenue for the three and six months ended September 30, 2009, compared to $38,000 and $45,000 to total $2,735,000 and $6,054,000 for the same period in 2008.
2 Overall lifting cost (oil and gas production expenses and production taxes)
3 Averages calculated based upon non-rounded figures
4 Per equivalent barrel (6 Mcf of gas is equivalent to 1 barrel of oil)

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

Revenues. Oil and gas sales revenue decreased $687,000 (25.5%) in 2009 from 2008 due to lower realized oil and gas prices. Oil sales revenue decreased $523,000 (23.4%), and gas sales revenue decreased $164,000 (35.4%) in 2009 from 2008.

Volumes and Prices. Oil sales volumes increased 40.5%, from 19,400 barrels in 2008 to 27,266 barrels in 2009 while there was a decrease of 45.5% in the average price per barrel from $115.09 in 2008 to $62.75 in 2009. Gas sales volume changed 116.9% from 38,800 thousand cubic feet (Mcf) in 2008 to 84,140 Mcf in 2009, while the average price per Mcf decreased 70.3%, from $11.98 in 2008 to $3.55 in 2009. The increase in gas sales volume, and to some extent the change in oil sales volume, is primarily due to the receipt of sales volume information related to the production from the Antenna Federal property in Weld County, Colorado which differed significantly from accruals for prior periods. The reported sales volumes, while mathematically accurate and in accordance with GAAP, are not representative of actual sales volume for this three month period and should not be used to discern or predict future production or sales volumes. Therefore, as a result of this adjustment, any metric whose denominator is related to sales volumes may be understated. On an equivalent barrel (BOE) basis, sales volume increased 59.4% from 25,900 BOE in 2008 to 41,290 BOE in 2009.

Expenses. Oil and gas production expense decreased $11,000 (2.0%) in 2009 over 2008, primarily due to workover expense decreasing $35,000 (44.9%) from $78,000 in 2008 to $43,000 in 2009 and routine lease operating expense increasing by $24,000 (4.9%) from $485,000 in 2008 to $509,000 in 2009. Routine lease operating expense per BOE decreased 34.2% from $18.73 in 2008 to $12.33 in 2009 due to the overall increase in BOE, while workover expense per BOE decreased 65.4% from $3.01 in 2008 to $1.04 in 2009 due to fewer workover operations in 2009.

Production taxes, which are generally a percentage of sales revenue, increased $49,000 (22.7%) in 2009 compared to 2008. Production taxes, as a percent of sales revenue increased from 7.9% in 2008 to 13.1% in 2009, which is due to the adjustment as mentioned above and the corresponding rate of production tax withheld on the Antenna Federal property in Weld County, Colorado. The overall lifting cost (oil and gas production expense and production taxes) per BOE decreased 34.2% from $30.08 in 2008 to $19.79 in 2009.

Depreciation, depletion and amortization expense increased $139,000 (70.6%) in 2009 compared to 2008 as a result of the change in gas volumes as mentioned above and a decrease in our reserve values due to the decline in oil and gas prices.

General and administrative expense increased $237,000 (92.9%) in 2009 over 2008. Approximately 75% of this increase is related to professional services (legal and consulting fees) while all other categories increased 10% or less. G&A expense per BOE increased 21.0% from $9.85 in 2008 to $11.92 in 2009. As a percent of total sales revenue, G&A expense increased from 9.3% in 2008 to 24.3% in 2009.

Income Tax Expense. For the three months ended September 30, 2009 we recorded an income tax expense of $99,000. This amount consists of a current period expense of $119,000 which was partially reduced by a deferred tax benefit of $20,000. Our effective income tax rate decreased from 26.28% for the three months ended September 30, 2008 to 16.27% for the three months ended 2009. Our effective income tax rate was lower for 2009 primarily due to an increase in estimated deductions for statutory depletion.

Six Months Ended September 30, 2009 Compared to Six Months Ended September 30, 2008

Revenues. Oil and gas sales revenue decreased $2,539,000 (42.3%) in 2009 from 2008 due to lower realized oil and gas prices. Oil sales revenue decreased $2,125,000 (41.6%), and gas sales revenue decreased $414,000 (45.8%) in 2009 from 2008.

Volumes and Prices. Oil sales volumes increased 19.2%, from 43,300 barrels in 2008 to 51,609 barrels in 2009 while there was a decrease of 51.0% in the average price per barrel from $117.86 in 2008 to $57.76 in 2009. Gas sales volume changed 45.7% from 81,900 thousand cubic feet (Mcf) in 2008 to 119,326 Mcf in 2009, while the average price per Mcf decreased 62.7%, from $10.98 in 2008 to $4.10 in 2009. The increase in gas sales volume, and to some extent the change in oil sales volume, is primarily due to the receipt of sales volume information related to the production from the Antenna Federal property in Weld County, Colorado which differed significantly from accruals for prior periods. The reported sales volumes while mathematically accurate and in accordance with GAAP, are not representative of actual sales volume for the period and should not be used to discern or predict future production or sales volumes. Therefore, as a result of this adjustment, any metric whose denominator is related to sales volumes may be understated. On an equivalent barrel (BOE) basis, sales volume increased 25.4% from 57,000 BOE in 2008 to 71,497 BOE in 2009.

Expenses. Oil and gas production expense decreased $109,000 (9.7%) in 2009 over 2008, primarily due to routine lease operating expense declining by $90,000 (9.6%) from $938,000 in 2008 to $848,000 in 2009. Workover expense, which is more volatile than routine lease operating expense, decreased $19,000 (9.9%) from $191,000 in 2008 to $172,000 in 2009. Routine lease operating expense per BOE decreased 27.9% from $16.46 in 2008 to $11.86 in 2009 while workover expense per BOE decreased 28.2% from $3.35 in 2008 to $2.41 in 2009.

Production taxes, which are generally a percentage of sales revenue, decreased $113,000 (22.7%) in 2009 compared to 2008 primarily due to the overall decline of oil prices. Production taxes, as a percent of sales revenue increased from 8.2% in 2008 to 11.0% in 2009, which is due to the adjustment as mentioned above and the corresponding rate of production tax withheld on the Antenna Federal property in Weld County, Colorado. The overall lifting cost (oil and gas production expense and production taxes) per BOE decreased 31.2% from $28.54 in 2008 to $19.65 in 2009.

Depreciation, depletion and amortization expense increased $156,000 (37.3%) in 2009 compared to 2008 as a result of the change in oil and gas volumes and a decrease in our reserve values due to the decline in oil and gas prices.

General and administrative expense increased $269,000 (48.2%) in 2009 over 2008. Approximately 68% of this increase is related to professional services (legal and consulting fees) while all other categories increased 15% or less. G&A expense per BOE increased 18.2% from $9.79 in 2008 to $11.57 in 2009. As a percent of total sales revenue, G&A expense increased from 9.2% in 2008 to 23.6% in 2009.

Income Tax Expense. For the six months ended September 30, 2009 we recorded an income tax expense of $89,000. This includes current period expense of $87,000 and a deferred tax expense of $2,000. Our effective income tax rate decreased from 28.67% for the six months ended September 30, 2008 to 14.63% for the six months ended 2009. Our effective income tax rate was lower for 2009 primarily due to an increase in estimated deductions for statutory depletion.