Quarterly Report to Shareholders

After a challenging year in fiscal 2009 the Company recorded a profit for the first quarter of fiscal 2010. For the quarter, the Company generated a net income of $1,708,378, or $.20 per share as compared to a net loss of $874,629, or $.10 per share, for the 2009 first quarter. Total revenues for the 2010 quarter increased 9.8% to $12,424,503, as compared to $11,319,702 for the 2009 quarter. Our first quarter average sales price per Mcfe of $4.75 was an increase of $.96 per Mcfe over the 2009 fiscal year per Mcfe average sales price of $3.79. In addition, our natural gas hedging contracts contributed $1.4 million to our first quarter 2010 revenues. Current natural gas futures prices point to an average realized price in the $5.00 - $5.50 range during 2010, which is equivalent to the prices used to develop our 2010 capital and operational program and should allow us to have a profitable year.

For the quarter cash provided by operating activities totaled $4,820,926 while capital expenditures for drilling and completion costs were $2,658,662. Our cash flow both funded drilling costs and enabled us to reduce our debt approximately $1.9 million during the quarter to $8.5 million at the December 31, 2009 balance sheet date. Further reductions have been made since quarter end with total debt at February 17, 2010 standing at approximately $6.5 million.

Production for the first quarter of 2010 was 2,278,144 Mcfe. This was a 3% decrease in sequential quarterly production and a 9% decrease from 2009 first quarter production. Reductions in drilling activity in the Company’s principal plays were evident from our significantly lower capital expenditure level in the first quarter. Our production, however, decreased only 3% from the fourth quarter of fiscal 2009. This modest production decrease, given the capital deployed, indicates the quality of our drilling opportunities in several world class shale plays. The completion of five wells in the Southeastern Oklahoma Woodford Shale in late November added an average of 2,240 Mcf per day to our production for one month of the 2010 first quarter. These wells are expected to be on-line for the entire second quarter of 2010. Also, three additional Woodford Shale wells in which our net revenue interest is approximately 11% per well, are drilled and should be completed and on line in late February or early March. In addition, one well in the Anadarko Basin “Cana” Woodford Shale went on production in mid-December and this well is projected to contribute approximately 300 Mcf per day to our production in the second quarter. We currently have seven wells producing in the “Cana” and one well drilling in which we have a 9.5% net revenue interest. That well should come on-line in late March 2010. Currently we have two additional wells scheduled to be drilled and four wells proposed for drilling in the play. In the Arkansas Fayetteville Shale, three wells in which our net revenue interest is approximately 10% were placed on production in early January and are expected to be on-line for the entire quarter.

Key operators in the Company’s resource plays have announced plans to increase drilling activity in 2010. As a result, we project increases in capital expenditures as the year progresses. We expect the increase in drilling investments to result in the Company re-establishing its upward momentum in production volumes as these new wells come on line in future quarters. With our strong financial position, we will participate in those drilling opportunities which are economically viable in the expected price environment.