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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
  THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

BONANZA OIL AND GAS, INC.(Exact Name of Registrant as Specified in Its Charter)

|Nevada                          | 000-52411             | 76-0720654                     
|------------------------------- | --------------------- | -------------------------------
|(State or Other Jurisdiction    | (Commission File No.) | (I.R.S. Employer               
|of Incorporation or             |                       | Identification No.)            
|Organization)                   |                       |                                
|                                |                       |                                
|3417 Mercer                     |                       | (713) 333-5808                 
|Suite E                         |                       | (Registrants telephone number)
|Houston, TX 77027               |                       |                                
|(Address of Principal Executive |                       |                                
|Offices)                        |                       |                                

Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]    No
[   ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files) 
  Yes [   ]    No [   ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act (Check one)

|Large accelerated filer [   ] | Accelerated filer [   ]                       | Non-accelerated filer [   ] | Smaller reporting company [X]
|----------------------------- | --------------------------------------------- | --------------------------- | -----------------------------
|                              | (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company
(as defined in section 12b-2 of the Exchange Act) Yes [  
]    No [X]

State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.

|Common Stock, par value $0.001 | 846,995,903                     
|------------------------------ | --------------------------------
|(Class)                        | (Outstanding at August 18, 2010)

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BONANZA OIL & GAS, INC.

TABLE OF CONTENTS

|PART I     |         
|---------- | --------
|           |         
|           | ITEM 1. 
|           |         
|           | ITEM 2. 
|           |         
|           | ITEM 3. 
|           |         
|           | ITEM 4. 
|           |         
|PART II    |         
|           |         
|           | ITEM 1. 
|           |         
|           | ITEM 1A.
|           |         
|           | ITEM 2. 
|           |         
|           | ITEM 3. 
|           |         
|           | ITEM 4. 
|           |         
|           | ITEM 5. 
|           |         
|           | ITEM 6. 
|           |         
|SIGNATURES | 39      

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BONANZA OIL AND GAS, INC. AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

|                                                                                                                                                              |   | June 30,    |   |   | December 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ------------ | -
|                                                                                                                                                              |   | 2010        |   |   | 2009         |  
|                                                                                                                                                              |   | (Unaudited) |   |   | (Audited)    |  
|ASSETS                                                                                                                                                        |   |             |   |   |              |  
|CURRENT ASSETS:                                                                                                                                               |   |             |   |   |              |  
|Cash and cash equivalents                                                                                                                                     | $ | -           |   | $ | 9,892        |  
|Other                                                                                                                                                         |   | -           |   |   | 89           |  
|                                                                                                                                                              |   | -           |   |   | 9,981        |  
|PROPERTY AND EQUIPMENT:                                                                                                                                       |   |             |   |   |              |  
|Oil and gas, on the basis
      of full cost accounting:                                                                                                      |   |             |   |   |              |  
|Proved properties                                                                                                                                             |   | 11,788,196  |   |   | 11,617,669   |  
|Unproved properties                                                                                                                                           |   | 488,444     |   |   | 488,444      |  
|Other                                                                                                                                                         |   | 9,669       |   |   | 9,669        |  
|                                                                                                                                                              |   | 12,286,309  |   |   | 12,115,782   |  
|Less:
      Accumulated depreciation, depletion and amortization                                                                                              |   | (10,954,186 | ) |   | (10,905,081  | )
|                                                                                                                                                              |   | 1,332,123   |   |   | 1,210,701    |  
|                                                                                                                                                              | $ | 1,332,123   |   | $ | 1,220,682    |  
|LIABILITIES AND STOCKHOLDERS'
      DEFICIT                                                                                                                   |   |             |   |   |              |  
|                                                                                                                                                              |   |             |   |   |              |  
|CURRENT LIABILITIES:                                                                                                                                          |   |             |   |   |              |  
|Accounts payable                                                                                                                                              | $ | 657,753     |   | $ | 804,440      |  
|Accrued
      operating expenses                                                                                                                              |   | 404,082     |   |   | 419,004      |  
|Notes payable,
      net of $0 and $27,272 of unamortized discount
      at           June
      30, 2010 and December 31, 2009, respectively                 |   | 1,326,750   |   |   | 2,540,028    |  
|                                                                                                                                                              |   | 2,388,585   |   |   | 3,763,472    |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                 |   |             |   |   |              |  
|                                                                                                                                                              |   |             |   |   |              |  
|STOCKHOLDERS' DEFICIT:                                                                                                                                        |   |             |   |   |              |  
|Preferred stock
      - Series A, $0.001 par value, 5,000,000 shares
      authorized;           5,000,000
      shares issued and outstanding, respectively  |   | 5,000       |   |   | 5,000        |  
|Preferred stock - Series B,
      $0.001 par value, 5,000,000 shares
      authorized;           0
      shares issued and outstanding, respectively          |   | -           |   |   | -            |  
|Preferred stock
      - Series C, $0.001 par value, 5,000,000 shares
      authorized;           0
      shares issued and outstanding, respectively          |   | -           |   |   | -            |  
|Preferred stock - Series D,
      $0.001 par value, 10,000,000 shares
      authorized;           0
      shares issued and outstanding, respectively         |   | -           |   |   | -            |  
|Preferred stock
      - Series E, $0.001 par value, 10,000,000 shares
      authorized;           0
      shares issued and outstanding, respectively         |   | -           |   |   | -            |  
|Common stock, $0.001 par
      value, 1,500,000,000 shares
      authorized;           785,545,903
      and 124,352,034 issued and outstanding, respectively |   | 785,545     |   |   | 124,352      |  
|Additional paid-in
      capital                                                                                                                              |   | 21,910,423  |   |   | 13,268,811   |  
|Accumulated deficit                                                                                                                                           |   | (23,757,430 | ) |   | (15,940,953  | )
|                                                                                                                                                              |   | (1,056,462  | ) |   | (2,542,790   | )
|                                                                                                                                                              | $ | 1,332,123   |   | $ | 1,220,682    |  

The accompanying notes are an integral part of these
consolidated unaudited financial statements.

2

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BONANZA OIL AND GAS, INC. AND
SUBSIDIARIESSTATEMENTS OF CONSOLIDATED
OPERATIONS(Unaudited)

|                                                                                            |   | For the Three Months Ended |   |   | For the Six Months Ended |  
|------------------------------------------------------------------------------------------- | - | -------------------------- | - | - | ------------------------ | -
|                                                                                            |   | June
      30,             |   |   | June
      30,           |  
|                                                                                            |   | 2010                       |   |   | 2009                     |  
|REVENUES:                                                                                   |   |                            |   |   |                          |  
|Crude oil sales                                                                             | $ | 68,565                     |   | $ | 73,340                   |  
|                                                                                            |   | 68,565                     |   |   | 73,340                   |  
|OPERATING EXPENSES:                                                                         |   |                            |   |   |                          |  
|Depreciation, depletion and amortization                                                    |   | 23,911                     |   |   | 41,200                   |  
|Lease operating expenses                                                                    |   | 21,961                     |   |   | 36,360                   |  
|Severance and other taxes                                                                   |   | 2,978                      |   |   | 3,210                    |  
|General and administrative                                                                  |   | 220,876                    |   |   | 505,320                  |  
|Loss on conversion of debt and accounts
      payable                                       |   | 384,832                    |   |   | -                        |  
|Financing costs, net                                                                        |   | 96,181                     |   |   | 169,346                  |  
|                                                                                            |   | 750,739                    |   |   | 755,436                  |  
|OPERATING LOSS                                                                              |   | (682,174                   | ) |   | (682,096                 | )
|Provision for income taxes                                                                  |   | -                          |   |   | -                        |  
|NET LOSS                                                                                    | $ | (682,174                   | ) | $ | (682,096                 | )
|                                                                                            |   |                            |   |   |                          |  
|BASIC AND DILUTED LOSS PER COMMON SHARE                                                     | $ | (0.00                      | ) | $ | (0.01                    | )
|                                                                                            |   |                            |   |   |                          |  
|Weighted average number of common shares 
            outstanding - basic and fully diluted |   | 725,464,079                |   |   | 75,952,342               |  

The accompanying notes are an integral part of these
consolidated unaudited financial statements.

3

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BONANZAOIL AND GAS, INC. ANDSUBSIDIARIESSTATEMENTSOFCONSOLIDATEDSTOCKHOLDERS'DEFICIT(Unaudited)

TotalPreferred
        Stock - Series A
      
      
      Common
        Stock
      
      
      Paid-In
      
      
      Accumulated
      
      
      Stockholders'Shares
      
      
      Amount
      
      
      Shares
      
      
      Amount
      
      
      Capital
      
      
      Deficit
      
      
      DeficitBALANCE AT DECEMBER 31, 2009
      
      5,000,000
      
      $
      5,000
      
      
      124,352,034
      
      $
      124,352
      
      $
      13,268,811
      
      $
      (15,940,953
      )
      $
      (2,542,790
      )Fair value of warrants to
        acquire              
        common shares issued with the             
         August 2008 Notes
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      18,397
      
      
      -
      
      
      18,397Fair value of warrants to acquire common 
                    
        shares issued with the October 2008 Note
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1,903
      
      
      -
      
      
      1,903Common shares issued in conversion
        of              
        notes payable and accounts payable
      
      -
      
      
      -
      
      
      641,193,869
      
      
      641,193
      
      
      8,475,812
      
      
      -
      
      
      9,117,005Fair value of beneficial conversion feature 
                    
        of Convertible Notes
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      25,000
      
      
      -
      
      
      25,000Common shares issued in property acquisitions
      
      -
      
      
      -
      
      
      20,000,000
      
      
      20,000
      
      
      120,500
      
      
      -
      
      
      140,500Net loss
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (7,816,477
      )
      
      (7,816,477
      )BALANCE AT JUNE 30, 2010
      
      5,000,000
      
      $
      5,000
      
      
      785,545,903
      
      $
      785,545
      
      $
      21,910,423
      
      $
      (23,757,430
      )
      $
      (1,056,462
      )


The accompanying notes are an integral part of these
consolidated unaudited financial statements.

4

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BONANZA OIL AND GAS, INC. AND
SUBSIDIARIESSTATEMENTS OF CONSOLIDATED CASH
FLOWS(Unaudited)

|                                                                                                   |   | For the Six Months Ended |  
|-------------------------------------------------------------------------------------------------- | - | ------------------------ | -
|                                                                                                   |   | June
      30,           |  
|                                                                                                   |   | 2010                     |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                              |   |                          |  
|Net loss                                                                                           | $ | (7,816,477               | )
|Adjustments
      to reconcile net loss to net cash used in operating activities:                  |   |                          |  
|Depreciation,
      depletion and amortization                                                     |   | 49,105                   |  
|Amortization
      of deferred financing costs                                                     |   | 72,572                   |  
|Loss on conversion
      of debt and accounts payable                                              |   | 7,094,492                |  
|Stock-based
      compensation                                                                     |   | -                        |  
|Fair value
      of shares issued for consulting services                                          |   | -                        |  
|Changes in operating
      assets and liabilities:                                                 |   |                          |  
|Accounts receivable                                                                                |   | -                        |  
|Other
      current assets                                                                         |   | 62                       |  
|Accounts payable
      and accrued expenses                                                        |   | 436,104                  |  
|Net cash used in operating activities                                                              |   | (164,142                 | )
|CASH FLOWS FROM INVESTING ACTIVITIES                                                               |   |                          |  
|Oil and gas capital
      expenditures                                                             |   | -                        |  
|Net cash used in investing activities                                                              |   | -                        |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                               |   |                          |  
|Proceeds from issuance of notes
      payable                                                      |   | 154,250                  |  
|Repayment of notes
      payable                                                                   |   | -                        |  
|Debt issue costs                                                                                   |   | -                        |  
|Net cash provided by financing activities                                                          |   | 154,250                  |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                               |   | (9,892                   | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                                     |   | 9,892                    |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                         | $ | -                        |  
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                                |   |                          |  
|Cash paid for interest                                                                             | $ | -                        |  
|NON-CASH INVESTING AND FINANCING ACTIVITIES:                                                       |   |                          |  
|Fair value
      of equity issued upon conversion of             
      notes and accounts payable | $ | 9,117,005                |  
|Acquisition of oil
      and gas property for common shares and debt                               | $ | 170,500                  |  

The accompanying notes are an integral part of these
consolidated unaudited financial statements.

5

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BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS June 30, 2010 
  (Unaudited)

1. BASIS OF PRESENTATION

Bonanza
Oil and Gas, Inc. (Bonanza or the Company) has prepared the accompanying
unaudited consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) instructions to Form 10-Q and Item
310(b) of regulation S-K. These interim financial statements should be read
together with the financial statements and notes in the Companys 2009 Form 10-K
filed with the SEC on April 15, 2010. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted. The accompanying financial statements reflect
all adjustments and disclosures, which, in the Companys opinion, are necessary
for fair presentation. All such adjustments are of a normal recurring nature.
The results of operations for the interim periods are not necessarily indicative
of the results of the entire year. Certain reclassifications have been made to
the prior years financial statements to conform to the current years
presentation.

***Going
Concern***

The
Company has incurred significant losses and had negative cash flow from
operations since Inception (August 17, 2007), and has an accumulated deficit of
$23,757,430 at June 30, 2010. Substantial portions of the losses are
attributable to non-cash writedowns of oil and gas properties, with the balance
attributable to primarily personnel costs, legal and professional fees, and
financing costs. The Company's operating plans require additional funds that may
take the form of debt or equity financings. There can be no assurance that any
additional funds will be available. The Company's ability to continue as a going
concern is in substantial doubt and is dependent upon achieving a profitable
level of operations and obtaining additional financing.

The
Company has undertaken steps as part of a plan to improve operations with the
goal of sustaining its operations for the next twelve months and beyond. These
steps include a) raising additional capital and/or obtaining financing, if
available; (b) converting debt and accounts payable into common shares; (c)
increasing our current production; (d) continuing development drilling or
farming out our interest in our proved, undeveloped properties or selling
interests in our current production; and (e) controlling overhead and expenses.

There
can be no assurance that the Company will successfully accomplish these steps
and it is uncertain if it will achieve a profitable level of operations and/or
obtain additional financing. There can be no assurance that any additional
financings will be available to the Company on satisfactory terms and
conditions, if at all. In the event the Company is unable to continue as a going
concern, it may elect or be required to seek protection from its creditors by
filing a voluntary petition in bankruptcy or may be subject to an involuntary
petition in bankruptcy.

***Principles
of Consolidation***

The
accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of intercompany balances and
transactions. The Companys interest in oil and gas exploration and production
ventures and partnerships are proportionately consolidated.

***Use
of Estimates***

Preparation
of financial statements in conformity with U.S. Generally Accepted Accounting
Principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. The Company bases
its estimates on historical experience and various other assumptions that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. The Company
evaluates its estimates and assumptions on a regular basis. Actual results may
differ from these estimates and assumptions used in preparation of its financial
statements and changes in these estimates are recorded when known.

6

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BONANZA OIL AND GAS, INC. AND SUBSIDIARIES 
  NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS June 30, 2010 
  (Unaudited)

2. NOTES PAYABLE

The
Companys notes payable at June 30, 2010 and December 31, 2009, consisted of the
following:

June 30,
    
    
    December 31,2010
    
    
    2009January 2008 Notes
    $
    50,000
    
    $
    724,800May 2008 Convertible Note
    
    370,000
    
    
    750,000August 2008 Notes
    
    160,000
    
    
    500,000October 2008 Notes
    
    50,000
    
    
    50,000May 2009 Note
    
    340,000
    
    
    340,000July 2009 Note
    
    40,000
    
    
    40,000September 2009 Note
    
    55,000
    
    
    55,000October 2009 Convertible Notes
    
    15,000
    
    
    15,000November 10, 2009 Note
    
    50,000
    
    
    50,000November 30, 2009 Note
    
    15,000
    
    
    15,000December 2009 Convertible
      Note
    
    20,000
    
    
    20,000December 2009 Note
    
    7,500
    
    
    7,500January 2010 Convertible Note
    
    25,000
    
    
    -April 2010 Notes
    
    129,250
    
    
    -Total
    
    1,326,750
    
    
    2,567,300Unamortized discount
    
    -
    
    
    (27,272
    )Balance, net of discount
    $
    1,326,750
    
    $
    2,540,028


***January
2008 Notes***

In
January 2008, the Company entered into three 14% Senior Secured Promissory Note
and Security Agreements, and Securities Purchase Agreements, with accredited
investors for an aggregate principal amount of $800,000 (the "January 2008
Notes") and the issuance of 320,000 shares of the Companys Common Stock. The
January 2008 Notes matured on January 31, 2009, with interest payable on a
monthly basis. The Company's obligations under the January 2008 Notes are
secured by the Companys interest in three prospect areas located in Borden,
Hidalgo and Brazoria counties of Texas. The shares issued in conjunction with
the January 2008 Notes were valued at $120,000, based on the market price of the
Companys Common Stock at the time of issuance, and was recorded as a discount
to the January 2008 Notes and additional paid-in capital. This discount was
amortized using the effective interest rate method over the term of the
indebtedness. These balances were fully amortized as of June 30, 2010. Under the
terms of the January 2008 Notes, as a result of their non-repayment as of July
31, 2009, the Company was obligated to issue an additional 300,000 shares of its
Common Stock as an additional interest payment. The Company issued the
additional 300,000 shares of its Common Stock in August 2009.

On
December 2, 2009, the Company entered a Letter Agreement with the holder of
$750,000 principal amount of the January 2008 Notes whereby, in order to induce
the holder to convert the notes into shares of the Companys common stock and,
in turn, to reduce the Companys debt and avoid potentially filing for
bankruptcy, the terms with respect to $750,000 of principal of January 2008
Notes held by holder were amended providing that the holder may from time to
time convert all or any part of the outstanding and unpaid principal amount of
their January 2008 Notes into shares of the Companys common stock, at the holder's option, at the lesser of (i) $0.0025 or
(ii) a 50% discount to the average of the three lowest trading prices of the
common stock during the 20 trading day period prior to conversion (the Variable
Conversion Price). On January 29, 2010, the Company entered into a Letter
Agreement with the holder removing the holders ability to convert at the
Variable Conversion Price. During December 2009, the holder converted $75,200 of
principal due into 30,080,000 shares of the Companys Common Stock. During the
six months ended June 30, 2010, the holder converted an additional $868,750,
including $193,950 of accrued and unpaid interest, into 347,500,000 shares of
the Companys Common Stock. The Company recognized a loss of $192,000 and
$5,514,600 on conversion during the three and six months ended June 30, 2010,
respectively, as a result of the difference between the conversion price and the
fair market value of the Companys common shares, as determined by the closing
price of the Companys common stock on the OTC Bulletin Board on the day prior
to the conversion.

7

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BONANZA OIL AND GAS, INC. AND SUBSIDIARIES 
  NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS June 30, 2010 
  (Unaudited)

The
Company is in default with respect to the repayment obligation upon maturity
which occurred on January 31, 2009. Pursuant to the terms of the January 2008
Notes, upon becoming in default, the interest rate on all amounts outstanding
increased to 24% per annum. The Company made no interest payments on the January
2008 Notes during the six months ended June 30, 2010, or during the year ended
December 31, 2009, and paid $92,726 in interest on the January 2008 Notes during
the year ended December 31, 2008. As of June 30, 2010, the Company had total
accrued and unpaid interest of $56,893 on the January 2008 Notes.

As
of June 30, 2010, the Company had not cured its default with respect to any of
the January 2008 Notes; however, the lenders have not yet taken any further
action with respect to the default. Although the Company is actively seeking
additional financing to remedy this default, continuing to convert principal and
accrued interest into shares of its Common Stock and are in constant
communication with the lenders, there can be no assurances that the lenders will
continue to delay the enforcement of their remedies under the January 2008
Notes.

***May
2008 Convertible Note***

In
May 2008, the Company entered into a Securities Purchase Agreement with an
accredited investor providing for the sale by the Company of an 8% convertible
note in the principal amount of $750,000 (the "May 2008 Convertible Note") and
the issuance of 750,000 shares of Common Stock of the Company, a Series A Common
Stock Purchase Warrant to purchase 1,500,000 shares of the Companys Common
Stock (the Series A May Warrant) and a Series B Common Stock Purchase Warrant
to purchase 1,500,000 shares of the Companys Common Stock (the Series B May
Warrant). The May 2008 Convertible Note matured on May 14, 2009, and interest
is payable on a quarterly basis. The May 2008 Convertible Note is unsecured,
however, in the event that the Company grants a secured interest in its assets
in connection with any future financing, then the holder of the May 2008
Convertible Note will be entitled to a pari passu interest in such secured
interest. The May 2008 Convertible Note was convertible into the Companys
Common Stock, at a conversion price of $0.1871 per common share, as adjusted,
and is subject to normal and customary anti-dilution provisions. The Company may
require that the holder of the May 2008 Convertible Note convert all or a
portion of the May 2008 Convertible Note in the event that the Companys closing
market price for any 10 consecutive trading days exceeds 300% of the then
conversion price. However, in no event can the holder of the May 2008
Convertible Note convert the May 2008 Convertible Note into such shares which
would provide for the holder to own more than 4.9% of the then outstanding
shares of the Companys Common Stock, including the shares for which the holder
is entitled upon exercise of the Series A May Warrant and Series B May Warrant.
The Series A May Warrant and Series B May Warrant were exercisable until May 14,
2010, at an exercise price of $0.375 and $0.50 per share, respectively.

Pursuant
to ASC Topic 740-20, "Debt with Conversions and Other Options, the proceeds
from the debt were allocated to the common shares issued, the warrants issued
and the debt on a relative fair value basis. The Company calculated the value of
the beneficial conversion feature as $305,576, and recorded such value as a
discount to the May 2008 Convertible Note and to additional paid-in capital.
Using the Black Scholes pricing model, with volatility of 140.69%, a risk-free
interest rate of 3.88% and a 0% dividend yield, the Series A May Warrant
and Series B May Warrant were determined to have a fair value of $236,114, with
such value also recorded as a discount to the May 2008 Convertible Note and to
additional paid-in capital. The value of the 750,000 common shares was
determined to be $99,462, based on the market price of the Companys Common
Stock at the time of issuance, and was also recorded as a discount to the May
2008 Convertible Note and as Common Stock and additional paid-in capital. The
aggregate discount of $641,152 attributable to the shares, the warrants and the
beneficial conversion feature was amortized using the effective interest rate
method over the term of the indebtedness and as was fully amortized as of June
30, 2010. The Company also incurred issue costs of $90,000 associated with the
May 2008 Convertible Note which it recorded as deferred financing costs as a
component of prepaid and other current expenses. The Company also issued 150,000
Series A May Warrants and 150,000 Series B May Warrants, valued at $42,730, to
its investment banking firm as additional compensation. The deferred financing
costs were amortized using the effective interest rate method over the term of
the indebtedness.

8

---

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES 
  NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS June 30, 2010 
  (Unaudited)

On
December 2, 2009, the Company entered a Letter Agreement with the holder of the
May 2008 Convertible Note whereby, in order to induce the holder to convert the
May 2008 Convertible Note into shares of the Companys common stock and, in
turn, to reduce the Companys debt and avoid potentially filing for bankruptcy,
the May 2008 Convertible Note was amended providing that the holder may from
time to time convert all or any part of the outstanding and unpaid principal
amount of the May 2008 Convertible Note into shares of the Companys common
stock, at the holder's option, at the lesser of (i) $0.0025 or (ii) a 50%
discount to the average of the three lowest trading prices of the common stock
during the 20 trading day period prior to conversion (the Variable Conversion
Price). On January 29, 2010, the Company entered into a Letter Agreement with
the holder removing the holders ability to convert at the Variable Conversion
Price. The holder did not convert any of the May 2008 Convertible Note into
shares of the Companys Common Stock during the year ended December 31, 2009.
During the six months ended June 30, 2010, the holder converted $380,000 of the
principal balance outstanding into 152,000,000 shares of the Companys Common
Stock. The Company recognized a loss of $175,500 and $1,162,600 on conversion
during the three and six months ended June 30, 2010, respectively, as a result
of the difference between the conversion price and the fair market value of the
Companys common shares, as determined by the closing price of the Companys
common stock on the OTC Bulletin Board on the day prior to the conversion.

The
Company has not made any required interest payment since March 31, 2009, and was
unable to repay the May 2008 Convertible Note at maturity on May 14, 2009.
Pursuant to the terms of the May 2008 Convertible Note, upon becoming in
default, the interest rate on all amounts outstanding increased to 15% per
annum. The Company made no interest payments on the May 2008 Convertible Note
during the six months ended June 30, 2010 or the year ended December 31, 2009,
and paid $23,808 in interest on the May 2008 Convertible Note during the year
ended December 31, 2008. As of June 30, 2010, the Company had total accrued and
unpaid interest of $133,440 on the May 2008 Convertible Note.

As
of June 30, 2010, the Company had not cured its default with respect to the May
2008 Convertible Note; however, the lender has not yet taken any further action
with respect to the default. Although the Company is actively seeking additional
financing to remedy this default, continuing to convert principal and accrued
interest into shares of its Common Stock and are in constant communication with
the lender, there can be no assurances that the lender will continue to delay
the enforcement of their remedies under the May 2008 Convertible Note.

***August
2008 Notes***

In
August 2008, the Company entered into four 12% Unsecured Promissory Notes, and
Securities Purchase Agreements, with accredited investors for an aggregate
principal amount of $500,000 (the "August 2008 Notes") and the issuance of
500,000 shares of the Companys Common Stock. The August 2008 Notes matured on
September 28, 2008. In the event that the August 2008 Notes were not repaid by
September 28, 2008, the Company became required to issue 250,000 shares of the
Companys Common Stock every thirty days that any amounts remain outstanding
under the August 2008 Notes (the Additional Shares).

9

---

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS June 30, 2010 
  (Unaudited)

In
October 2008, and prior to the issuance of the 500,000 shares of the Companys
Common Stock or the Additional Shares, the Company and the holders of the August
2008 Notes elected to amend the terms of the August 2008 Notes. In connection
therewith, in exchange for the holders of the August 2008 Notes election to
forego their right to receive the 500,000 shares of the Companys Common Stock
and the Additional Shares, the Company agreed to issue the holders of the August
2008 Notes common stock purchase warrants to purchase an aggregate of 1,000,000
common shares of the Companys Common Stock (the August 2008 Warrants). The
August 2008 Warrants are exercisable for a period of three years at a price of
$0.50 per share. As the August 2008 Notes were not repaid by September 28, 2008,
the Company is required to issue the holders of the August 2008 Notes warrants
to purchase shares of the Companys Common Stock every thirty days that any
amounts remain outstanding under the August 2008 Notes (the Additional
Warrants). The Additional Warrants shall be exercisable for a period of three
years at a price equal to the greater of $0.50 or the market price as of the
date of the issuance. As of June 30, 2010 a total of 5,150,000 Additional
Warrants have been issued.

Using
the Black Scholes pricing model, with volatility ranging from 146.59% to
181.19%, a risk-free interest rate ranging from 1.25% to 4.50% and a 0% dividend
yield, the August 2008 Warrants and the Additional Warrants issued during 2008
were determined to have an aggregate fair value of $569,606, with such value
recorded as a discount to the August 2008 Notes and to additional paid-in
capital. This discount was amortized using the effective interest rate method
over the term of the indebtedness and as of December 31, 2008, was fully
amortized. Using the Black Scholes pricing model, with volatility ranging from
168.44% to 241.61%, a risk-free interest rate of ranging from 1.25% to 1.46% and
a 0% dividend yield, the 3,000,000 Additional Warrants issued during 2009 were
determined to have an aggregate fair value of $98,873, with such value recorded
as additional interest expense and to additional paid-in capital. Using the
Black Scholes pricing model, with volatility ranging from 230.66% to 246.98%, a
risk-free interest rate of ranging from 1.36% to 1.60% and a 0% dividend yield,
the 1,150,000 Additional Warrants issued during 2010 were determined to have an
aggregate fair value of $18,397, with such value recorded as additional interest
expense and to additional paid-in capital.

As
of June 30, 2010, the Company was in default of the repayment provision with
respect to the August 2008 Notes; however, the lenders have not yet taken any
further action with respect to the default. During the three months ended March
31, 2010, the Company, in order to reduce the Companys debt and avoid
potentially filing for bankruptcy, entered into a series of individual
agreements with the holders of an aggregate of $250,000 of principal amount of
the August 2008 Notes to convert portions of their notes into shares of the
Companys Common Stock. On May 13, 2010, the Company entered a Letter Agreement
with one of the holders of approximately $169,000 of unpaid principal amount of
the August 2008 Notes whereby, in order to induce the holder to convert the
notes into shares of the Companys common stock and, in turn, to reduce the
Companys debt and avoid potentially filing for bankruptcy, the terms with
respect to $169,000 of remaining principal of August 2008 Notes held by holder
were amended providing that the holder may from time to time convert all or any
part of the outstanding and unpaid principal amount of their August 2008 Notes
into shares of the Companys common stock at a price of $0.0025 per share of
Common Stock.

On
April 27, 2010, the Company entered a Letter Agreement with the holder of
approximately $235,000 of unpaid principal and accrued interest on the August
2008 Notes whereby, in order to induce the holder to convert the notes into
shares of the Companys common stock and, in turn, to reduce the Companys debt
and avoid potentially filing for bankruptcy, the holder agreed to exchange the
approximate $235,000 of principal and accrued interest on the August 2008 Notes
held by holder into 27,416,667 shares of the Companys Common Stock.

During
the six months ended June 30, 2010, the lenders converted an aggregate of
$340,000 of unpaid principal and $42,693 of accrued interest into 86,493,870
shares of the Companys Common Stock. The Company recognized a loss of $297,532
on conversion during six months ended June 30, 2010, as a result of the
difference between the conversion price and the fair market value of the
Companys common shares, as determined by the closing price of the Companys
common stock on the OTC Bulletin Board on the day prior to the conversion.

10

---

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS June 30, 2010 
  (Unaudited)

Although
the Company is actively seeking additional financing to remedy this default,
converting principal and accrued interest into shares of its Common Stock and
are in constant communication with the lender, there can be no assurances that
the lenders will continue to delay the enforcement of their remedies under the
August 2008 Notes. As noted above, pursuant to the terms of the August 2008
Notes, the Company is required to issue to the holders of the August 2008 Notes,
warrants to purchase shares of the Companys Common Stock every 30 days that
amounts remain outstanding under the August 2008 Notes. The Company had accrued
and unpaid interest totaling $45,484associated with the August 2008
Notes at June 30, 2010.

***October
2008 Note***

On
October 17, 2008, the Company entered into a 12% Unsecured Promissory Note, and
Securities Purchase Agreement, with an accredited investor for an aggregate
principal amount of $50,000 (the "October 2008 Note") and the issuance of common
stock purchase warrants to purchase an aggregate of 100,000 common shares of the
Companys Common Stock (the October 2008 Warrants). The October 2008 Warrants
are exercisable for a period of three years at a price of $0.50 per share. The
October 2008 Notes matured on November 17, 2008. In the event that the October
2008 Notes were not repaid by November 17, 2008, the Company became required to
issue 25,000 warrants to purchase shares of the Companys Common Stock every
thirty days that any amounts remain outstanding under the October 2008 Notes
(the Additional October Warrants). The Additional October Warrants are
exercisable for a period of three years at a price equal to the greater of $0.50
or the market price as of the date of the issuance. As of June 30, 2010, a total
of 500,000 Additional Warrants have been issued.

Using
the Black Scholes pricing model, with volatility ranging from 150.67% to
176.24%, a risk-free interest rate ranging of 1.25% and a 0% dividend yield, the
October 2008 Warrants and the Additional October Warrants issued during 2008
were determined to have an aggregate fair value of $29,180, with such value
recorded as a discount to the October 2008 Note and to additional paid-in
capital. This discount was amortized using the effective interest rate method
over the term of the indebtedness and as of December 31, 2008, was fully
amortized. Using the Black Scholes pricing model, with volatility ranging from
168.44% to 241.61%, a risk-free interest rate of ranging from 1.25% to 1.46% and
a 0% dividend yield, the 300,000 Additional Warrants issued during 2009 were
determined to have an aggregate fair value of $9,885, with such value recorded
as additional interest expense and to additional paid-in capital. Using the
Black Scholes pricing model, with volatility ranging from 230.66% to 246.98%, a
risk-free interest rate of ranging from 1.36% to 1.60% and a 0% dividend yield,
the 150,000 Additional Warrants issued during 2010 were determined to have an
aggregate fair value of $1,903, with such value recorded as additional interest
expense and to additional paid-in capital.

As
of June 30, 2010, the Company was in default of the repayment provision with
respect to the October 2008 Note; however, the lender has not yet taken any
further action with respect to the default. Although the Company is actively
seeking additional financing to remedy this default, and is in constant
communication with the lender, there can be no assurances that the lender will
continue to delay the enforcement of their remedies under the October 2008 Note.
As noted above, pursuant to the terms of the October 2008 Notes, the Company is
required to issue to the holders of the October 2008 Notes, a total of 25,000
warrants to purchase shares of the Companys Common Stock every 30 days that
amounts remain outstanding under the October 2008 Notes. The Company has a total
of $10,208 in accrued and unpaid interest on the October 2008 Note at June 30,
2010.

11

---

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS June 30, 2010 
  (Unaudited)

***May
2009 Note***

On
May 26, 2009, the Company entered into a 16% Unsecured Promissory Note with an
accredited investor for an aggregate principal amount of $340,000 (the "May 2009
Note") and the issuance of common stock purchase warrants to purchase an
aggregate of 1,000,000 common shares of the Companys Common Stock (the May
2009 Warrants). The May 2009 Warrants are exercisable for a period of three
years at a price of $0.05 per share. The May 2009 Note matured on August 24,
2009. In the event that the May 2009 Note was not repaid by August 24, 2009, the
interest rate increased to 18% per annum and the lender, at its option, could
convert all outstanding amounts in shares of the Companys Common Stock at a
conversion price of $0.05 per share. The Company incurred $17,000 of issue costs
associated with the May 2009 Note, which was amortized using the effective
interest rate method over the term of the indebtedness and as of June 30, 2010,
was fully amortized.

Using
the Black Scholes pricing model, with volatility of 231%, a risk-free interest
rate of 1.25% and a 0% dividend yield, the 1,000,000 May 2009 Warrants were
determined to have an aggregate fair value of $33,139, with such value recorded
as a discount to the May 2009 Note and to additional paid-in capital. This
discount was amortized using the effective interest rate method over the term of
the indebtedness and as of June 30, 2010, was fully amortized.

As
of June 30, 2010, the Company was in default of the repayment provision with
respect to the May 2009 Note; however, the lender has not yet taken any further
action with respect to the default. Although the Company is actively seeking
additional financing to remedy this default, and is in constant communication
with the lender, there can be no assurances that the lender will continue to
delay the enforcement of their remedies under the May 2009 Note. The Company has
a total of $72,640 in accrued and unpaid interest on the May 2009 Note at June
30, 2010.

***July
2009 Note***

On
July 16, 2009, the Company issued an unsecured promissory note to an accredited
investor providing for a loan of $40,000 (the July 2009 Note). The July 2009
Note matured on October 13, 2009, and bears interest at 14% per annum.

As
of June 30, 2010, the Company was in default of the repayment provision with
respect to the July 2009 Note; however, the lender has not yet taken any further
action with respect to the default. Although the Company is actively seeking
additional financing to remedy this default, and is in constant communication
with the lender, there can be no assurances that the lender will continue to
delay the enforcement of their remedies under the July 2009 Note. The Company
has a total of $5,429 in accrued and unpaid interest on the July 2009 Note at
June 30, 2010.

***September
2009 Note***

On
September 21, 2009, the Company issued an unsecured promissory note to an
accredited investor providing for a loan of $55,000 (the September 2009 Note).
The September 2009 Note is due on September 21, 2010, and bears interest at 12%
per annum. The Company has a total of $5,152 in accrued and unpaid interest on
the September 2009 Note at June 30, 2010.

***October
2009 Convertible Notes***

On
October 30, 2009, the Company issued unsecured convertible notes to two
accredited investors for an aggregate principal amount of $15,000 (the October
2009 Convertible Notes). The October 2009 Notes matured on April 30, 2010, and
bore interest at 18% per annum. In the event that the October 2009 Convertible
Notes were not repaid by April 30, 2010, the interest rate increased to 21% per
annum. The October 2009 Convertible Notes are convertible into the Companys
Common Stock at the discretion of the holder at any time, at
the lesser of (i) $0.0025 or (ii) a 50% discount to the average of the three
lowest trading prices of the common stock during the 20 trading day period prior
to conversion.

12

---

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES 
  NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS June 30, 2010 
  (Unaudited)

Pursuant
to ASC Topic 740-20, "Debt with Conversions and Other Options, the proceeds
from the debt were allocated to the beneficial conversion feature and the debt
on a relative fair value basis. The Company calculated the value of the
beneficial conversion feature as $15,000, and recorded such value as a discount
to the October 2009 Convertible Notes and to additional paid-in capital. The
discount was amortized using the effective interest rate method over the term of
the indebtedness and was fully amortized as of June 30, 2010.

As
of June 30, 2010, the Company was in default of the repayment provision with
respect to the October 2009 Convertible Notes; however, the lenders have not yet
taken any further action with respect to the default. Although the Company is
actively seeking additional financing to remedy this default, and is in constant
communication with the lenders, there can be no assurances that the lenders will
continue to delay the enforcement of their remedies under the October 2009
Convertible Notes. The Company has a total of $1,974 in accrued and unpaid
interest on the October 2009 Convertible Notes at June 30, 2010.

***November
10, 2009 Note***

On
November 10, 2009, the Company entered into a loan agreement with an accredited
investor providing for a loan of $50,000 (the November 10, 2009 Note). The
November 10, 2009 Note matured on December 31, 2009, and bore interest at 12%
per annum. In the event that the November 10, 2009 Note was not repaid by
December 31, 2009, the interest rate increased to an annual rate equal to Prime
plus 10% (currently an effective rate of 13.25%) .

As
of June 30, 2010, the Company was in default of the repayment provision with
respect to the November 10, 2009 Note; however, the lender has not yet taken any
further action with respect to the default. Although the Company is actively
seeking additional financing to remedy this default, and is in constant
communication with the lender, there can be no assurances that the lender will
continue to delay the enforcement of their remedies under the November 10, 2009
Note. The Company has a total of $4,146 in accrued and unpaid interest on the
November 10, 2009 Note at June 30, 2010.

***November
30, 2009 Note***

On
November 30, 2009, the Company entered into a loan agreement with an accredited
investor providing for a loan of $15,000 (the November 30, 2009 Note). The
November 30, 2009 Note matured on April 1, 2010, and bore interest at 12% per
annum. In the event that the November 10, 2009 Note was not repaid by April 1,
2010, the interest rate increased to an annual rate equal to Prime plus 10%
(currently an effective rate of 13.25%) .

As
of June 30, 2010, the Company was in default of the repayment provision with
respect to the November 30, 2009 Note; however, the lender has not yet taken any
further action with respect to the default. Although the Company is actively
seeking additional financing to remedy this default, and is in constant
communication with the lender, there can be no assurances that the lender will
continue to delay the enforcement of their remedies under the November 30, 2009
Note. The Company has a total of $1,117 in accrued and unpaid interest on the
November 30, 2009 Note at June 30, 2010.

***December
2009 Convertible Note***

On
December 14, 2009, the Company issued an unsecured convertible notes to an
accredited investor for a principal amount of $20,000 (the December 2009
Convertible Note). The December 2009 Convertible Note matured on May 14, 2010,
and bore interest at 18% per annum. In the event that the December 2009
Convertible Note was not repaid on May 14, 2010, the interest rate increased to
21% per annum. The December 2009 Convertible Note is convertible into the Companys Common Stock at the discretion of the holder at any
time, at the lesser of (i) $0.0025 or (ii) a 50% discount to the average of the
three lowest trading prices of the common stock during the 20 trading day period
prior to conversion.

13

---

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES 
  NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS June 30, 2010 
  (Unaudited)

Pursuant
to ASC Topic 740-20, "Debt with Conversions and Other Options, the proceeds
from the debt were allocated to the beneficial conversion feature and the debt
on a relative fair value basis. The Company calculated the value of the
beneficial conversion feature as $20,000, and recorded such value as a discount
to the December 2009 Convertible Note and to additional paid-in capital. The
discount was amortized using the effective interest rate method over the term of
the indebtedness and was fully amortized as of June 30, 2010

As
of June 30, 2010, the Company was in default of the repayment provision with
respect to the December 2009 Convertible Note; however, the lender has not yet
taken any further action with respect to the default. Although the Company is
actively seeking additional financing to remedy this default, and is in constant
communication with the lender, there can be no assurances that the lender will
continue to delay the enforcement of their remedies under the December 2009
Convertible Note. The Company has a total of $2,070 in accrued and unpaid
interest on the December 2009 Convertible Note at June 30, 2010.

***December
2009 Note***

On
December 31, 2009, the Company entered into a loan agreement with an accredited
investor providing for a loan of $7,500 (the December 2009 Note). The December
2009 Note matured on May 1, 2010, and bore interest at 12% per annum. In the
event that the December 2009 Note was not repaid by May 1, 2010, the interest
rate increased to an annual rate equal to Prime plus 10% (currently an effective
rate of 13.25%) .

As
of June 30, 2010, the Company was in default of the repayment provision with
respect to the December 2009 Note; however, the lender has not yet taken any
further action with respect to the default. Although the Company is actively
seeking additional financing to remedy this default, and is in constant
communication with the lender, there can be no assurances that the lender will
continue to delay the enforcement of their remedies under the December 2009
Note. The Company has a total of $472 in accrued and unpaid interest on the
December 2009 Note at June 30, 2010.

***January
2010 Convertible Note***

On
January 28, 2010, the Company issued a $25,000 Convertible Note (January 2010
Convertible Note) to an accredited investor. The January 2010 Convertible Note
matured on June 30, 2010, and bore interest at an annual rate of 18%. In the
event that the January 2010 Convertible Note was not repaid by June 30, 2010,
the interest rate increased to 21% per annum. The January 2010 Convertible Note
is convertible into the Companys Common Stock at the discretion of the holder
at any time, at the lesser of (i) $0.0025 or (ii) a 50% discount to the average
of the three lowest trading prices of the common stock during the 20 trading day
period prior to conversion.

Pursuant
to ASC Topic 740-20, "Debt with Conversions and Other Options, the proceeds
from the debt were allocated to the beneficial conversion feature and the debt
on a relative fair value basis. The Company calculated the value of the
beneficial conversion feature as $25,000, and recorded such value as a discount
to the January 2010 Convertible Note and to additional paid-in capital. The
discount was amortized using the effective interest rate method over the term of
the indebtedness and was fully amortized as of June 30, 2010.

As
of June 30, 2010, the Company was in default of the repayment provision with
respect to the January 2010 Convertible Note; however, the lender has not yet
taken any further action with respect to the default. Although the Company is
actively seeking additional financing to remedy this default, and is in constant
communication with the lender, there can be no assurances that the lender will
continue to delay the enforcement of their remedies under the January 2010 Convertible Note. The Company has a total of $1,893 in accrued
and unpaid interest on the January 2010 Convertible Note at June 30, 2010.

14

---

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES 
  NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS June 30, 2010 
  (Unaudited)

***April
2010 Notes***

During
2010, the Company was advanced $128,250 by two accredited investors for working
capital purposes. On April 12, 2010, the Company issued two promissory notes
totaling $129,250 for the balance of the monies advanced plus $1,000 due one of
the investors as of December 31, 2009 (April Promissory Notes). The April
Promissory Notes mature on December 31, 2010, and bear interest at an annual
rate of 10%. The Company has a total of $3,007 in accrued and unpaid interest on
the April 2010 Notes at June 30, 2010.

3. EQUITY TRANSACTIONS

During
2010, the Company issued 55,200,000 common shares in settlement of $307,530 of
accounts payable. The Company recognized a loss of $48,000 and $119,760 on
conversion during the three and six months ended June 30, 2010, as a result of
the difference between the conversion price and the fair market value of the
Companys common shares, as determined by the closing price of the Companys
common stock on the OTC Bulletin Board on the day prior to the conversion.

On
March 25, 2010, the Company entered into a purchase agreement whereby the
Company purchased a 10% interest in a proved non-producing crude oil well and
associated oil and gas leases, in exchange for $15,000 and 5,000,000 shares of
the Companys Common Stock. The aggregate consideration totaled $52,000.

On
March 30, 2010, the Company entered into a contract and assignment agreement
whereby the Company purchased a 10% interest in a producing crude oil well and
associated oil and gas leases, in exchange for $15,000 and 15,000,000 shares of
the Companys Common Stock. The aggregate consideration totaled $118,500.

15

---

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS June 30, 2010 
  (Unaudited)

As
of June 30, 2010, the Company had the following dilutive securities outstanding:

|                                                               |  | Number          |  |   | Exercise |  |  | Expiration                              | 
|-------------------------------------------------------------- |  | --------------- |  | - | -------- |  |  | --------------------------------------- | 
|                                                               |  | of
      Shares |  |   | Price    |  |  | Date                                    | 
|Common Shares issuable:                                        |  |                 |  |   |          |  |  |                                         | 
|Upon conversion of the amended January
      2008 Note         |  | 14,476,400      |  |   | -        |  |  | -                                       | 
|In connection with the
      May 2008 Convertible Note:        |  |                 |  |   |          |  |  |                                         | 
|Upon conversion of May
      2008 Convertible Note             |  | 201,376,000     |  |   | -        |  |  | -                                       | 
|In connection with the
      June 2008 Unit Offering:          |  |                 |  |   |          |  |  |                                         | 
|Upon exercise of Series A
      June Warrants                  |  | 870,832         |  | $ | 0.50     |  |  | August 31, 2010                         | 
|Upon
      exercise of Series B June Warrants                  |  | 870,832         |  | $ | 0.50     |  |  | August 31, 2010                         | 
|Upon exercise of Series C
      June Warrants                  |  | 12,000,000      |  | $ | 0.0005   |  |  | November 30, 2012                       | 
|In connection with the
      August 2008 Notes:                |  |                 |  |   |          |  |  |                                         | 
|Upon exercise of the
      August 2008 Warrants                |  | 1,000,000       |  | $ | 0.50     |  |  | August 28, 2011                         | 
|Upon
      exercise of the Penalty Warrants (9/08 - 06/10)     |  | 5,150,000       |  | $ | 0.50     |  |  | September 30, 2011 - June 30, 2013      | 
|In connection with the October 2008
      Notes:               |  |                 |  |   |          |  |  |                                         | 
|Upon
      exercise of the October 2008 Warrants               |  | 100,000         |  | $ | 0.50     |  |  | October 17, 2011                        | 
|Upon exercise of the
      Penalty Warrants (9/08 - 06/10)     |  | 500,000         |  | $ | 0.50     |  |  | November 17, 2011 -
      June 17, 2013 | 
|In connection with the
      May 2009 Note:                    |  |                 |  |   |          |  |  |                                         | 
|Upon exercise of the May
      2009 Warrants                   |  | 1,000,000       |  | $ | 0.05     |  |  | May 26, 2012                            | 
|Upon
      conversion of May 2009 Note in the event of default |  | 6,800,000       |  |   | -        |  |  | -                                       | 
|Upon conversion of the October 2009
      Convertible Notes    |  | 6,000,000       |  |   | -        |  |  | -                                       | 
|Upon conversion of the
      December 2009 Convertible Notes   |  | 8,000,000       |  |   | -        |  |  | -                                       | 
|Upon conversion of the January 2010
      Convertible Notes    |  | 10,000,000      |  |   | -        |  |  | -                                       | 
|Total
      dilutive securities at June 30, 2010               |  | 268,144,064     |  |   |          |  |  |                                         | 

The
Companys basic earnings per share (EPS) amounts have been computed based on the
weighted-average number of shares of Common Stock outstanding for the period.
Diluted EPS reflects the potential dilution, using the treasury stock method,
which could occur if the above dilutive securities were exercised. As the
Company realized a net loss for each of the three and six months ended June 30,
2010 and 2009, no potentially dilutive securities were included in the
calculation of diluted earnings per share as their impact would have been
anti-dilutive.

4. SUBSEQUENT EVENTS

Since
June 30, 2010, the Company entered into conversion agreements converting a total
of $131,875 of principal of the May 2008 Convertible Note into 52,750,000 shares
of the Companys Common Stock.

Since
June 30, 2010, the Company issued a total of 8,000,000 shares of its Common
Stock in conversion of approximately $20,000 of principal and accrued interest
on its August 2008 Notes.

On
August 13, 2010, the Company entered into a Purchase and Sale and Exploration
Agreement with respect to the Companys 25% working interest in its two
producing wells, the Jackson No. 1 and Everett No. 7-1H and 18.875% of its 25%
working interest in 1,253 acres of land held by production thereby. The Company
received total cash consideration of $460,000.

16

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**Item
2.**     **Managements Discussion
and Analysis of Financial Condition and Results of Operations.**

The following information should be read in conjunction with
the Companys consolidated unaudited financial statements and the notes thereto
contained elsewhere in this report. Information in this Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
elsewhere in this Form 10-Q that does not consist of historical facts, are
"forward-looking statements." Statements accompanied or qualified by, or
containing words such as "may," "will," "should," "believes," "expects,"
"intends," "plans," "projects," "estimates," "predicts," "potential," "outlook,"
"forecast," "anticipates," "presume," and "assume" constitute forward-looking
statements, and as such, are not a guarantee of future performance. The
statements involve factors, risks and uncertainties including those discussed in
the Risk Factors section found in the Companys Annual Report on Form 10-K for
the year ended December 31, 2009, filed with the Securities and Exchange
Commission on April 15, 2010, the impact or occurrence of which can cause actual
results to differ materially from the expected results described in such
statements. Risks and uncertainties can include, among others, fluctuations in
general business cycles and changing economic conditions; changing product
demand and industry capacity; increased competition and pricing pressures;
advances in technology that can reduce the demand for the Company's products, as
well as other factors, many or all of which may be beyond the Company's control.
Consequently, investors should not place undue reliance on forward-looking
statements as predictive of future results. The Company disclaims any obligation
to update the forward-looking statements in this report.

***Overview***

Bonanza
Oil & Gas, Inc. is an independent energy company engaged primarily in the
acquisition, development, production and the sale of crude oil, natural gas and
natural gas liquids. The Company's production activities are located in the
United States of America. The principal executive offices of the Company are
located at 3417 Mercer, Suite E, Houston, TX 77027.

The
Company has incurred significant losses and had negative cash flow from
operations since inception on August 17, 2007, and has an accumulated deficit of
$23,757,430 at June 30, 2010. Substantial portions of the losses are
attributable to non-cash writedowns of oil and gas properties, with the balance
attributable to primarily personnel costs, legal and professional fees, and
financing costs. The Company's operating plans require additional funds that may
take the form of debt or equity financings. There can be no assurance that any
additional funds will be available. The Company's ability to continue as a going
concern is in substantial doubt and is dependent upon achieving a profitable
level of operations and obtaining additional financing.

We
have undertaken steps as part of a plan to improve operations with the goal of
sustaining our operations for the next twelve months and beyond. These steps
include (a) raising additional capital and/or obtaining financing, if available;
(b) converting debt and accounts payable into common shares; (c) increasing our
current production; (d) continuing development drilling or farming out our
interest in our proved, undeveloped properties or selling interests in our
current production; and (e) controlling overhead and expenses.

There
can be no assurance that we will successfully accomplish these steps and it is
uncertain if we will achieve a profitable level of operations and/or obtain
additional financing. There can be no assurance that any additional financings
will be available to us on satisfactory terms and conditions, if at all. In the
event we are unable to continue as a going concern, we may elect or be required
to seek protection from our creditors by filing a voluntary petition in
bankruptcy or may be subject to an involuntary petition in bankruptcy.

17

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***Results
of Operations***

|                                                                 |   | For the Three Months Ended |   |   | For the Six Months Ended |  
|---------------------------------------------------------------- | - | -------------------------- | - | - | ------------------------ | -
|                                                                 |   | June
      30,             |   |   | June
      30,           |  
|                                                                 |   | 2010                       |   |   | 2009                     |  
|REVENUES:                                                        |   |                            |   |   |                          |  
|Crude oil sales                                                  | $ | 68,565                     |   | $ | 73,340                   |  
|                                                                 |   | 68,565                     |   |   | 73,340                   |  
|OPERATING EXPENSES:                                              |   |                            |   |   |                          |  
|Depreciation, depletion and            amortization              |   | 23,911                     |   |   | 41,200                   |  
|Lease operating expenses                                         |   | 21,961                     |   |   | 36,360                   |  
|Severance and other taxes                                        |   | 2,978                      |   |   | 3,210                    |  
|General and administrative                                       |   | 220,876                    |   |   | 505,320                  |  
|Loss on conversion of debt and 
                accounts payable |   | 384,832                    |   |   | -                        |  
|Financing costs, net                                             |   | 96,181                     |   |   | 169,346                  |  
|                                                                 |   | 750,739                    |   |   | 755,436                  |  
|OPERATING LOSS                                                   |   | (682,174                   | ) |   | (682,096                 | )

***Three
months ended June 30, 2010, compared to the three months ended June 30, 2009***

During
the three months ended June, 2010 and 2009, the Company realized gross revenue
from its first two development wells drilled in the exploitation of the Apclark
field in the second half of 2008. During the three months ended June 30, 2010
and 2009, the Company had total sales, net to its interest, of 874 and 1,272
barrels of crude oil, respectively, and realized average prices of $78.45 and
$57.66, respectively. During the same periods, lease operating expenses,
including severance and other taxes and transportation costs, totaled $28.53 and
$31.11 per barrel, respectively, resulting in netbacks to the Company of $49.92
and $26.55 per barrel, respectively.

Depreciation,
depletion and amortization expense totaled $23,911 and $41,200 for the three
months ended June 30, 2010 and 2009, respectively, most of which is attributable
to depletion on our Apclark field.

For
the three months ended June 30, 2010 and 2009, general and administrative
expenses totaled $220,876 and $505,320, respectively. For 2010, these expenses
were comprised primarily of payroll and other personnel expenses ($108,000),
audit and accounting services ($35,497), legal services ($18,000) and rent
expense ($48,667). For 2009, these expenses were comprised primarily of payroll
and other personnel expenses ($109,015), stock based compensation ($262,920),
audit and accounting services ($34,500), legal services ($18,000) and rent
expense ($24,934).

For
the three months ended June 30, 2010, the loss on conversion of debt and
accounts payable resulted from the conversion of $112,500 of accrued interest on
the January 2008 Notes into 45,000,000 shares of the Companys Common Stock, the
conversion of $112,500 of principal of the May 2008 Convertible Note into
45,000,000 shares of the Companys Common Stock, the conversion of $327,693 of
principal of the August 2008 Notes into 64,493,869 shares of the Companys
Common Stock and $200,000 of accounts payable into 40,000,000 shares of the
Companys Common Stock. The loss on each such conversion was calculated as the
difference between the conversion price and the fair market value of the
Companys common shares, as determined by the closing price of the Companys
common stock on the OTC Bulletin Board on the day prior to the conversion.

Financing
costs, net for the three months ended June 30, 2010, totaled $96,181 and
$169,346, respectively. The Company capitalized $127,417 of interest associated
with unproved properties during the three months ended June 30, 2009. No
interest was capitalized during the three months ended June 30, 2010. The
balance of financing costs recognized was primarily attributable to the
amortization of deferred financing fees and discounts associated with the
outstanding debt.

18

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***Six
months ended June 30, 2010, compared to the six months ended June 30, 2009***

During
the six months ended June 30, 2010 and 2009, the Company realized gross revenue
from its first two development wells drilled in the exploitation of the Apclark
field in the second half of 2008. During the six months ended June 30, 2010 and
2009, the Company had total sales, net to its interest, of 1,795 and 2,847
barrels of crude oil, respectively, and realized average prices of $79.32 and
$46.66, respectively. During the same periods, lease operating expenses,
including severance and other taxes and transportation costs, totaled $25.17 and
$26.33 per barrel, respectively, resulting in netbacks to the Company of $54.15
and $20.33 per barrel, respectively.

Depreciation,
depletion and amortization expense totaled $49,105 and $73,275 for the six
months ended June 30, 2010 and 2009, respectively, most of which is attributable
to depletion on our Apclark field.

For
the six months ended June 30, 2010 and 2009, general and administrative expenses
totaled $511,146 and $828,725, respectively. For 2010, these expenses were
comprised primarily of payroll and other personnel expenses ($216,000),
consulting fees ($81,440), audit and accounting services ($51,497), legal
services ($36,000), transfer agent fees ($38,254) and rent expense ($72,474).
For 2009, these expenses were comprised primarily of payroll and other personnel
expenses ($231,129), stock based compensation ($327,920), audit and accounting
services ($80,500), legal services ($36,000) and rent expense ($39,748).

For
the six months ended June 30, 2010, the loss on conversion of debt and accounts
payable resulted from the conversion of $868,750 of principal and accrued
interest on the January 2008 Notes into 347,500,000 shares of the Companys
Common Stock, the conversion of $380,000 of principal of the May 2008
Convertible Note into 152,000,000 shares of the Companys Common Stock, the
conversion of $382,693 of principal and accrued interest of the August 2008
Notes into 86,493,870 shares of the Companys Common Stock and $388,000 of
accounts payable into 55,200,000 shares of the Companys Common Stock. The loss
on each such conversion was calculated as the difference between the conversion
price and the fair market value of the Companys common shares, as determined by
the closing price of the Companys common stock on the OTC Bulletin Board on the
day prior to the conversion.

Financing
costs, net for the six months ended June 30, 2010, totaled $258,956 and
$429,779, respectively. The Company capitalized $211,430 of interest associated
with unproved properties during the six months ended June 30, 2009. No interest
was capitalized during the six months ended June 30, 2010. The balance of
financing costs recognized was primarily attributable to the amortization of
deferred financing fees and discounts associated with the outstanding debt.

***Liquidity
and Capital Resources***

At
June 30, 2010, we had a working capital deficit of $2,388,585 consisting of
$1,326,750 of short-term debt and $1,061,835 of accounts payable and accrued
expenses.

We
have raised net proceeds of $6,247,973 in various debt and equity financings
since our inception (August 17, 2007), and have used the majority of the net
proceeds to begin the exploitation of our interest in the Apclark field with the
completion of the first two wells to be drilled, the acquisition of various oil
and gas properties, initial payments toward the exercise of the option on the
two drilling projects acquired in the merger with Black Pearl Energy, Inc., as
well as for general and administrative expenses and working capital
purposes.

Net
cash used in operating activities for the six months ended June 30, 2010,
totaled $164,142 and consisted primarily of the net loss of $7,816,477, net of
non-cash charges of a $7,094,492 loss on conversion of debt and accounts payable
into shares of the Companys common stock, $72,572 related to the amortization
of deferred financing fees and discount on outstanding debt, and $49,105 related
to depreciation, depletion and amortization expense. The Company also had
$436,166 of other working capital changes. Net cash used in operating activities
for the six months ended June 30, 2009, totaled $109,168 and consisted primarily
of the net loss of $1,274,504, net of non-cash charges of $429,114 related to
the amortization of deferred financing fees and discount on
outstanding debt, $327,920 related to stock-based compensation, $73,275 related
to depreciation, depletion and amortization expense and $15,897 related to the
fair value of our common share issued for consulting services. The Company also
had $319,130 of other working capital changes.

19

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The
Company had no cash flow activity related to investing activities during the six
months ended June 30, 2010. Net cash used in investing activities for the six
months ended June 30, 2009, totaled $53,027 and consisted primarily of payments
due from the 2008 drilling activity in the Apclark field.

Net
cash provided by financing activities for the six months ended June 30, 2010,
totaled $154,250 and consisted of the issuance by the Company of the January
2010 Note and April 2010 Notes. Net cash provided by financing activities for
the six months ended June 30, 2009, totaled $158,314 from the issuance of our
February 2009 Note and May 2009 Note, net of issuance costs, and the partial
repayment of the December 2007 Note.

*We
are in default on the January 2008 Notes*

In
January 2008, we entered into three 14% Senior Secured Promissory Note and
Security Agreements, and Securities Purchase Agreements, with accredited
investors for an aggregate principal amount of $800,000 (the "January 2008
Notes") and the issuance of 320,000 shares of our Common Stock. The January 2008
Notes matured on January 31, 2009. Under the terms of the January 2008 Notes, as
a result of their non-repayment as of July 31, 2009, we were obligated to issue
an additional 300,000 shares of our Common Stock as an additional interest
payment. We issued the additional 300,000 shares of Common Stock in August 2009.

We
are in default with respect to the repayment obligation upon maturity which
occurred on January 31, 2009. Pursuant to the terms of the January 2008 Notes,
upon becoming in default, the interest rate on all amounts outstanding increased
to 24% per annum. On December 2, 2009, we entered a Letter Agreement with the
holder of $750,000 principal amount of the January 2008 Notes whereby, in order
to induce the holder to convert the notes into shares of our common stock and,
in turn, to reduce our debt and avoid potentially filing for bankruptcy, the
terms of the $750,000 of principal of January 2008 Notes held by holder were
amended providing that the holder may from time to time convert all or any part
of the outstanding and unpaid principal amount of their January 2008 Notes into
shares of our common stock, at the holder's option, at the lesser of (i) $0.0025
or (ii) a 50% discount to the average of the three lowest trading prices of the
common stock during the 20 trading day period prior to conversion (the Variable
Conversion Price). On January 29, 2010, we entered into a Letter Agreement with
the holder removing the holders ability to convert at the Variable Conversion
Price. During December 2009, the holder converted $75,200 of principal and
accrued interest due into 30,080,000 shares of our Common Stock. During the six
months ended June 30, 2010, the holder converted an additional $868,750,
including $193,950 of accrued and unpaid interest, into 347,500,000 shares of
the Companys Common Stock.

We
have not cured the underlying default with respect to any of the January 2008
Notes; however, the lenders have not yet taken any further action with respect
to the default. Although we are actively seeking additional financing to remedy
this default, continuing to convert principal and accrued interest into shares
of our Common Stock and are in constant communication with the lenders, there
can be no assurances that the lenders will continue to delay the enforcement of
their remedies under the January 2008 Notes.

*We
are in default on the May 2008 Convertible Note*

In
May 2008, we entered into a Securities Purchase Agreement with an accredited
investor providing for the sale of an 8% convertible note in the principal
amount of $750,000 (the "May 2008 Convertible Note") and the issuance of 750,000
shares of our Common Stock, a Series A Common Stock Purchase Warrant to purchase
1,500,000 shares of our Common Stock (the Series A May Warrant) and a Series B
Common Stock Purchase Warrant to purchase 1,500,000 shares of our Common Stock
(the Series B May Warrant). The May 2008 Convertible Note matured on May 14,
2009, and interest is payable on a quarterly basis. The May 2008 Convertible
Note was convertible into our Common Stock, at a conversion price of $0.1871 per
common share, as adjusted, and is subject to normal and customary anti-dilution
provisions.

20

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We
have not made any required interest payment since March 31, 2009, and we were
unable to repay the May 2008 Convertible Note at maturity on May 14, 2009.
Pursuant to the terms of the May 2008 Convertible Note, upon becoming in
default, the interest rate on all amounts outstanding increased to 15% per
annum. On December 2, 2009, we entered into a Letter Agreement with the holder
of the May 2008 Convertible Note whereby, in order to induce the holder to
convert the May 2008 Convertible Note into shares of our common stock and, in
turn, to reduce our debt and avoid potentially filing for bankruptcy, the May
2008 Convertible Note was amended providing that the holder may from time to
time convert all or any part of the outstanding and unpaid principal amount of
the May 2008 Convertible Note into shares of our common stock, at the holder's
option, at the lesser of (i) $0.0025 or (ii) a 50% discount to the average of
the three lowest trading prices of the common stock during the 20 trading day
period prior to conversion (the Variable Conversion Price). On January 29,
2010, we entered into a Letter Agreement with the holder removing the holders
ability to convert at the Variable Conversion Price. The holder did not convert
any of the May 2008 Convertible Note into shares of our Common Stock during the
year ended December 31, 2009. During the six months ended June 30, 2010, the
holder converted $380,000 of the principal balance outstanding into 152,000,000
shares of the Companys Common Stock. As of August 20, 2010, we have entered
into conversion agreements whereby an additional $131,875 of principal of the
May 2008 Convertible Note has been converted into 52,750,000 shares of our
Common Stock.

We
have not cured the default with respect to the May 2008 Convertible Note;
however, the lender has not yet taken any further action with respect to the
default. Although we are actively seeking additional financing to remedy this
default, continuing to convert principal and accrued interest into shares of our
Common Stock and are in constant communication with the lender, there can be no
assurances that the lender will continue to delay the enforcement of their
remedies under the May 2008 Convertible Note.

*We
are in default on the August 2008 Notes*

In
August 2008, we entered into four 12% Unsecured Promissory Notes, and Securities
Purchase Agreements, with accredited investors for an aggregate principal amount
of $500,000 (the "August 2008 Notes"). The August 2008 Notes matured on
September 28, 2008.

We
are in default of the repayment provision with respect to the August 2008 Notes;
however, the lenders have not yet taken any further action with respect to the
default. Although we are actively seeking additional financing, began, in 2010,
to convert principal and accrued interest into shares of our Common Stock and
are in constant communication with the lenders, there can be no assurances that
the lenders will continue to delay the enforcement of their remedies under the
August 2008 Notes. Pursuant to the terms of the August 2008 Notes, we are
required to issue to the holders of the August 2008 Notes, a total of 250,000
warrants to purchase shares of our Common Stock every 30 days that amounts
remain outstanding under the August 2008 Notes.

During
the three months ended March 31, 2010, the Company, in order to reduce the
Companys debt and avoid potentially filing for bankruptcy, entered into a
series of individual agreements with the holders of an aggregate of $250,000 of
principal amount of the August 2008 Notes to convert portions of their notes
into shares of the Companys Common Stock. On May 13, 2010, the Company entered
a Letter Agreement with one of the holders of approximately $169,000 of unpaid
principal amount of the August 2008 Notes whereby, in order to induce the holder
to convert the notes into shares of the Companys common stock and, in turn, to
reduce the Companys debt and avoid potentially filing for bankruptcy, the terms
with respect to $169,000 of remaining principal of August 2008 Notes held by
holder were amended providing that the holder may from time to time convert all
or any part of the outstanding and unpaid principal amount of their August 2008
Notes into shares of the Companys common stock at a price of $0.0025 per share
of Common Stock.

On
April 27, 2010, the Company entered a Letter Agreement with the holder of
approximately $235,000 of unpaid principal and accrued interest on the August
2008 Notes whereby, in order to induce the holder to convert the notes into
shares of the Companys common stock and, in turn, to reduce the Companys debt
and avoid potentially filing for bankruptcy, the holder agreed to exchange the approximate
$235,000 of principal and accrued interest on the August 2008 Notes held by
holder into 27,416,667 shares of the Companys Common Stock.

21

---

During
the six months ended June 30, 2010, the lenders converted an aggregate of
$340,000 of unpaid principal and $42,693 of accrued interest into 86,493,870
shares of the Companys Common Stock. As of August 20, 2010, we have entered
into conversion agreements whereby an additional $20,000 of principal of the
August 2008 Notes has been converted into 8,000,000 shares of our Common Stock.

*We
are in default on the October 2008 Note*

On
October 17, 2008, we entered into a 12% Unsecured Promissory Note, and
Securities Purchase Agreement, with an accredited investor for an aggregate
principal amount of $50,000 (the "October 2008 Note"). The October 2008 Notes
matured on November 17, 2008.

We
are in default of the repayment provision with respect to the October 2008 Note;
however, the lender has not yet taken any further action with respect to the
default. Although we are actively seeking additional financing to remedy this
default, and are in constant communication with the lender, there can be no
assurances that the lender will continue to delay the enforcement of their
remedies under the October 2008 Note. Pursuant to the terms of the October 2008
Notes, we are required to issue to the holders of the October 2008 Notes, a
total of 25,000 warrants to purchase shares of our Common Stock every 30 days
that amounts remain outstanding under the October 2008 Notes.

*We
are in default on the May 2009 Note*

On
May 26, 2009, we entered into a 16% Unsecured Promissory Note with an accredited
investor for an aggregate principal amount of $340,000 (the "May 2009 Note").
The May 2009 Note matured on August 24, 2009. In the event that the May 2009
Note was not repaid by August 24, 2009, the interest rate increased to 18% per
annum and the lender, at its option, could convert all outstanding amounts in
shares of the Companys Common Stock at a conversion price of $0.05 per
share.

We
are in default of the repayment provision with respect to the May 2009 Note;
however, the lender has not yet taken any further action with respect to the
default. Although we are actively seeking additional financing to remedy this
default, and are in constant communication with the lender, there can be no
assurances that the lender will continue to delay the enforcement of their
remedies under the May 2009 Note.

*We
are in default on the July 2009 Note*

On
July 16, 2009, we issued an unsecured promissory note to an accredited investor
providing for a loan of $40,000 (the July 2009 Note). The July 2009 Note
matured on October 13, 2009.

We
are in default of the repayment provision with respect to the July 2009 Note;
however, the lender has not yet taken any further action with respect to the
default. Although we are actively seeking additional financing to remedy this
default, and are in constant communication with the lender, there can be no
assurances that the lender will continue to delay the enforcement of their
remedies under the July 2009 Note.

*We
are in default on the October 2009 Convertible Notes*

On
October 30, 2009, the Company issued unsecured convertible notes to two
accredited investors for an aggregate principal amount of $15,000 (the October
2009 Convertible Notes). The October 2009 Convertible Notes matured on April
30, 2010. In the event that the October 2009 Convertible Notes were not repaid
by April 30, 2010, the interest rate increased to 21% per annum.

22

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We
are in default of the repayment provision with respect to the October 2009
Convertible Notes; however, the lenders have not yet taken any further action
with respect to the default. Although the Company is actively seeking additional
financing to remedy this default, and is in constant communication with the
lenders, there can be no assurances that the lenders will continue to delay the
enforcement of their remedies under the October 2009 Convertible Notes.

*We
are in default on the November 10, 2009 Note*

On
November 10, 2009, we entered into a loan agreement with an accredited investor
providing for a loan of $50,000 (the November 10, 2009 Note). The November 10,
2009 Note matured on December 31, 2009. In the event that the November 10, 2009
Note was not repaid by December 31, 2009, the interest rate increased to an
annual rate equal to Prime plus 10% (currently 13.25%) .

We
are in default of the repayment provision with respect to the November 10, 2009
Note; however, the lender has not yet taken any further action with respect to
the default. Although we are actively seeking additional financing to remedy
this default, and are in constant communication with the lender, there can be no
assurances that the lender will continue to delay the enforcement of their
remedies under the November 10, 2009 Note.

*We
are in default on the November 30, 2009 Note*

On
November 30, 2009, the Company entered into a loan agreement with an accredited
investor providing for a loan of $15,000 (the November 30, 2009 Note). The
November 30, 2009 Note matured on April 1, 2010. In the event that the November
30, 2009 Note was not repaid by April 1, 2010, the interest rate increased to an
annual rate equal to Prime plus 10% (currently 13.25%) .

We
are in default of the repayment provision with respect to the November 30, 2009
Note; however, the lender has not yet taken any further action with respect to
the default. Although we are actively seeking additional financing to remedy
this default, and are in constant communication with the lender, there can be no
assurances that the lender will continue to delay the enforcement of their
remedies under the November 30, 2009 Note.

*We
are in default on the December 2009 Convertible Note*

On
December 14, 2009, the Company entered into a loan agreement with an accredited
investor providing for a loan of $20,000 (the December 2009 Convertible Note).
The December 2009 Convertible Note matured on May 14, 2010. In the event that
the December 2009 Convertible Note was not repaid by May 14, 2010, the interest
rate increased to 21% per annum.

We
are in default of the repayment provision with respect to the December 2009
Convertible Note; however, the lender has not yet taken any further action with
respect to the default. Although the Company is actively seeking additional
financing to remedy this default, and is in constant communication with the
lender, there can be no assurances that the lender will continue to delay the
enforcement of their remedies under the December 2009 Convertible Note.

*We
are in default on the December 2009 Note*

On
December 31, 2009, the Company entered into a loan agreement with an accredited
investor providing for a loan of $7,500 (the December 2009 Note). The December
2009 Note matured on May 1, 2010. In the event that the December 2009 Note was
not repaid by May 1, 2010, the interest rate increased to an annual rate equal
to Prime plus 10% (currently 13.25%) .

We
are in default of the repayment provision with respect to the December 2009
Note; however, the lender has not yet taken any further action with respect to
the default. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the
lender, there can be no assurances that the lender will continue to delay the
enforcement of their remedies under the December 2009 Note.

23

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*We
are in default on the January 2010 Convertible Note*

On
January 28, 2010, the Company issued a $25,000 Convertible Note (January 2010
Convertible Note) to an accredited investor. The January 2010 Convertible Note
matured on June 30, 2010, and bore interest at an annual rate of 18%. In the
event that the January 2010 Convertible Note was not repaid by June 30, 2010,
the interest rate increased to 21% per annum.

We
  are in default of the repayment provision with respect to the January 2010 Convertible
  Note; however, the lender has not yet taken any further action with respect
  to the default. Although the Company is actively seeking additional financing
  to remedy this default, and is in constant communication with the lender, there
  can be no assurances that the lender will continue to delay the enforcement
  of their remedies under the January 2010 Convertible Note.

*Capital
Expenditures and 2010 Outlook*

We
presently do not have any available credit, bank financing or other external
sources of liquidity. Due to our brief history and historical operating losses,
our operations have not been a source of liquidity. We will need to obtain
additional capital in order to expand operations and become profitable. In order
to obtain capital, we may need to sell additional shares of our common stock or
borrow funds from private lenders. There can be no assurance that we will be
successful in obtaining additional funding.

We
will still need additional capital in order to continue operations until we are
able to achieve positive operating cash flow. Additional capital is being
sought, but we cannot guarantee that we will be able to obtain such investments.
Financing transactions may include the issuance of equity or debt securities,
obtaining credit facilities, or other financing mechanisms. However, the trading
price of our common stock and a downturn in the North American stock and debt
markets could make it more difficult to obtain financing through the issuance of
equity or debt securities. Even if we are able to raise the funds required, it
is possible that we could incur unexpected costs and expenses, or experience
unexpected cash requirements that would force us to seek alternative financing.
Furthermore, if we issue additional equity or debt securities, stockholders may
experience additional dilution or the new equity securities may have rights,
preferences or privileges senior to those of existing holders of our common
stock. If additional financing is not available or is not available on
acceptable terms, we will have to curtail our operations.

*Contractual
Obligations*

We
are subject to various financial obligations and commitments in the normal
course of operations. These contractual obligations represent future cash
payments that we are required to make and relate primarily to notes payable and
accounts payable, all of which are due currently and which are reflected on the
Companys Unaudited Consolidated Balance Sheet at June 30, 2010, found in Item 1
in this Form 10-Q. The Company does have an operating lease obligation with
annual payments totaling $103,790 in 2010, $108,321 in 2011 and $36,610 in 2012.
The Company expects to fund these contractual obligations with additional
financing, either in the form of equity or debt issuances, for which there is no
assurance that any additional financings will be available to us on satisfactory
terms and conditions, if at all.

*Off-balance
Sheet Arrangements*

The
Company does not currently utilize any off-balance sheet arrangements with
unconsolidated entities to enhance liquidity and capital resource positions.

24

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***Critical
Accounting Policies and Estimates***

Management's
Discussion and Analysis of Financial Condition and Results of Operations
discusses our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis,
management evaluates our estimates and judgments, including those related to
revenue recognition, recovery of oil and gas reserves, financing operations, and
contingencies and litigation.

*Oil
and Gas Properties*

We
follow the full cost method of accounting for oil and gas producing activities.
Costs to acquire mineral interests in oil and gas properties, to drill and equip
exploratory wells used to find proved reserves, and to drill and equip
development wells including directly related overhead costs and related asset
retirement costs are capitalized.

Under
this method, all costs, including internal costs directly related to
acquisition, exploration and development activities are capitalizable as oil and
gas property costs. Properties not subject to amortization consist of
exploration and development costs which are evaluated on a property-by-property
basis. Amortization of these unproved property costs begins when the properties
become proved or their values become impaired. Bonanza assesses the
realizability of unproved properties, if any, on at least an annual basis or
when there has been an indication that impairment in value may have occurred.
Impairment of unproved properties is assessed based on management's intention
with regard to future exploration and development of individually significant
properties and the ability of Bonanza to obtain funds to finance such
exploration and development. If the results of an assessment indicate that the
properties are impaired, the amount of the impairment is added to the
capitalized costs to be amortized.

The
provision for depreciation and depletion of oil and gas properties is computed
on the unit-of-production method. Under this method, we compute the provision by
multiplying the total unamortized costs of oil and gas properties including
future development, site restoration, and dismantlement abandonment costs, but
excluding costs of unproved properties by an overall rate determined by dividing
the physical units of oil and gas produced during the period by the total
estimated units of proved oil and gas reserves. This calculation is done on a
country-by-country basis. As of March 31, 2010, all of our oil production
operations are conducted in the United States of America. The cost of
unevaluated properties not being amortized, to the extent there is such a cost,
is assessed quarterly to determine whether the value has been impaired below the
capitalized cost. The cost of any impaired property is transferred to the
balance of oil and gas properties being depleted. The costs associated with
unevaluated properties relate to projects which were undergoing exploration or
development activities or in which we intend to commence such activities in the
future. We will begin to amortize these costs when proved reserves are
established or impairment is determined.

In
accordance with Financial Accounting Standards Board Accounting Standards
Codification (ASC) Topic 410 Asset Retirement and Environmental Obligations,"
we report a liability for any legal retirement obligations on our oil and gas
properties. The asset retirement obligations represent the estimated present
value of the amounts expected to be incurred to plug, abandon, and remediate the
producing properties at the end of their productive lives, in accordance with
state laws, as well as the estimated costs associated with the reclamation of
the property surrounding. The Company determines the asset retirement
obligations by calculating the present value of estimated cash flows related to
the liability. The asset retirement obligations are recorded as a liability at
the estimated present value as of the asset's inception, with an offsetting
increase to producing properties. Periodic accretion of the discount related to
the estimated liability is recorded as an expense in the statement of
operations. The estimated liability is determined using significant assumptions,
including current estimates of plugging and abandonment costs, annual inflation
of these costs, the productive lives of wells, and a risk-adjusted interest
rate. Changes in any of these assumptions can result in significant revisions to
the estimated asset retirement obligations. Revisions to the asset retirement
obligations are recorded with an offsetting change to producing properties,
resulting in prospective changes to depletion and depreciation expense and
accretion of the discount. Because of the subjectivity of assumptions and the
relatively long lives of most of the wells, the costs to ultimately retire the
Company's wells may vary significantly from prior estimates. As of June 30,
2010, our asset retirement obligation was not significant.

25

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*Reserve
Estimates*

Our
estimate of proved reserves is based on the quantities of oil and gas that
geological and engineering data demonstrate, with reasonable certainty, to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. The accuracy of any reserve estimate is a function of the
quality of available data, engineering and geological interpretation and
judgment. For example, we must estimate the amount and timing of future
operating costs, severance taxes, development costs and workover costs, all of
which may in fact vary considerably from actual results. In addition, as prices
and cost levels change from year to year, the estimate of proved reserves also
changes. Any significant variance in these assumptions could materially affect
the estimated quantity and value of our reserves. As such, our reserve engineers
review and revise our reserve estimates at least annually.

Despite
the inherent imprecision in these engineering estimates, our reserves are used
throughout our financial statements. For example, since we use the
units-of-production method to amortize our oil and gas properties, the quantity
of reserves could significantly impact our DD&A expense. Our oil and gas
properties are also subject to a ceiling limitation based in part on the
quantity of our proved reserves. Finally, these reserves are the basis for our
supplemental oil and gas disclosures.

*Revenue
Recognition*

Bonanza
recognizes oil and natural gas revenue under the sales method of accounting for
its interests in producing wells as crude oil and natural gas is produced and
sold from those wells. Crude oil and natural gas sold by Bonanza is not
significantly different from Bonanzas share of production. We recognize revenue
upon transfer of ownership of the product to the customer which occurs when (i)
the product is physically received by the customer, (ii) an invoice is generated
which evidences an arrangement between the customer and us, (iii) a fixed sales
price has been included in such invoice and (iv) collection from such customer
is probable.

*Income
Taxes*

The
Company uses the liability method for accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The realizability of deferred tax assets
are evaluated annually and a valuation allowance is provided if it is more
likely than not that the deferred tax assets will not give rise to future
benefits in the Companys tax returns.

The
Companys estimates are based on the information available to it at the time
that it prepares the income tax provision. The Company generally files its
annual income tax returns several months after its fiscal year-end. Income tax
returns are subject to audit by federal, state, and local governments, generally
years after the returns are filed. These returns could be subject to material
adjustments or differing interpretations of the tax laws.

**Item
3.**     **Quantitative and
Qualitative Disclosures About Market Risks**

Since
we are a company that qualifies as a smaller reporting company, as defined
under Rule 12b-2, we are not required to provide the information required by
this Item 3.

26

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**Item
4.**     **Controls and Procedures**

Disclosure Controls and Procedures

We
maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended the "Exchange
Act) that are designed to ensure that information required to be disclosed in
our reports filed under the Exchange Act, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and
Principal Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

We
carried out an evaluation under the supervision and with the participation of
management, including our Chief Executive Officer and Principal Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of June 30, 2010, the end of the period covered by
this report. Based on that evaluation, our Chief Executive Officer and Principal
Financial Officer concluded that our disclosure controls and procedures were
effective.

Changes in Internal Control Over Financial Reporting

There
have been no changes in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
quarter ended June 30, 2010, that materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.

PART II  OTHER INFORMATION

**Item
1.**     **Legal Proceedings**

From
time to time, the Company may become a party to litigation or other legal
proceedings that it considers to be a part of the ordinary course of its
business. The Company is currently not involved in legal proceedings that could
reasonably be expected to have a material adverse affect on its business,
prospects, financial condition or results of operations. The Company may become
involved in material legal proceedings in the future. Further, litigation is
subject to inherent uncertainties, and an adverse result in these types of
matters may arise in the future that may harm our business.

**Item 1A.**   **Risk
Factors.**

Since
we are a company that qualifies as a smaller reporting company, as defined
under Rule 12b-2, we are not required to provide the information required by
this Item 1A. Refer to the Companys Annual Report on Form 10-K for the year
ended December 31, 2009, filed with the Securities and Exchange Commission on
April 15, 2010, for a discussion of the Companys Risk Factors.

**Item
2.**     **Unregistered Sales of
Equity Securities and Use of Proceeds**

In
January 2008, the Company entered into three 14% Senior Secured Promissory Note
and Security Agreements, and Securities Purchase Agreements, with accredited
investors for an aggregate principal amount of $800,000 (the "January 2008
Notes") and the issuance of 320,000 shares of the Companys Common Stock. The
January 2008 Notes matured on January 31, 2009, with interest payable on a
monthly basis. The Company's obligations under the January 2008 Notes are
secured by the Companys interest in three prospect areas located in Borden,
Hidalgo and Brazoria counties of Texas.

27

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On
December 2, 2009, the Company entered a Letter Agreement with the holder of
$750,000 principal amount of the January 2008 Notes whereby, in order to induce
the holder to convert the notes into shares of the Companys common stock and,
in turn, to reduce the Companys debt and avoid potentially filing for
bankruptcy, the terms with respect to $750,000 of principal of January 2008
Notes held by holder were amended providing that the holder may from time to
time convert all or any part of the outstanding and unpaid principal amount of
their January 2008 Notes into shares of the Companys common stock, at the
holder's option, at the lesser of (i) $0.0025 or (ii) a 50% discount to the
average of the three lowest trading prices of the common stock during the 20
trading day period prior to conversion (the Variable Conversion Price).

On
January 29, 2010, the Company entered into a Letter Agreement with the holder
removing the holders ability to convert at the Variable Conversion Price.
During December 2009, the holder converted $75,200 of principal due into
30,080,000 shares of the Companys Common Stock. During the six months ended
June 30, 2010, the holder converted an additional $868,750, including $193,950
of accrued and unpaid interest, into 347,500,000 shares of the Companys Common
Stock.

In May
  2008, the Company entered into a Securities Purchase Agreement with an accredited
  investor providing for the sale by the Company of an 8% convertible note in
  the principal amount of $750,000 (the "May 2008 Convertible Note") and the issuance
  of 750,000 shares of Common Stock of the Company, a Series A Common Stock Purchase
  Warrant to purchase 1,500,000 shares of the Companys Common Stock (the
  Series A May Warrant) and a Series B Common Stock Purchase Warrant
  to purchase 1,500,000 shares of the Companys Common Stock (the Series
  B May Warrant). The May 2008 Convertible Note matured on May 14, 2009,
  and interest is payable on a quarterly basis. The May 2008 Convertible Note
  is unsecured, however, in the event that the Company grants a secured interest
  in its assets in connection with any future financing, then the holder of the
  May 2008 Convertible Note will be entitled to a pari passu interest in such
  secured interest.

On
December 2, 2009, the Company entered a Letter Agreement with the holder of the
May 2008 Convertible Note whereby, in order to induce the holder to convert the
May 2008 Convertible Note into shares of the Companys common stock and, in
turn, to reduce the Companys debt and avoid potentially filing for bankruptcy,
the May 2008 Convertible Note was amended providing that the holder may from
time to time convert all or any part of the outstanding and unpaid principal
amount of the May 2008 Convertible Note into shares of the Companys common
stock, at the holder's option, at the lesser of (i) $0.0025 or (ii) a 50%
discount to the average of the three lowest trading prices of the common stock
during the 20 trading day period prior to conversion (the Variable Conversion
Price).

On
January 29, 2010, the Company entered into a Letter Agreement with the holder
removing the holders ability to convert at the Variable Conversion Price. The
holder did not convert any of the May 2008 Convertible Note into shares of the
Companys Common Stock during the year ended December 31, 2009. During the six
months ended June 30, 2010, the holder converted $380,000 of the principal
balance outstanding into 152,000,000 shares of the Companys Common Stock. As of
August 20, 2010, we have entered into conversion agreements whereby an
additional $131,875 of principal of the May 2008 Convertible Note has been
converted into 52,750,000 shares of our Common Stock.

In August
  2008, the Company entered into four 12% Unsecured Promissory Notes, and Securities
  Purchase Agreements, with accredited investors for an aggregate principal amount
  of $500,000 (the "August 2008 Notes") and the issuance of 500,000 shares of
  the Companys Common Stock. The August 2008 Notes matured on September
  28, 2008.

During
the three months ended March 31, 2010, the Company, in order to reduce the
Companys debt and avoid potentially filing for bankruptcy, entered into a
series of individual agreements with the holders of an aggregate of $250,000 of
principal amount of the August 2008 Notes to convert portions of their notes
into shares of the Companys Common Stock. On May 13, 2010, the Company entered
a Letter Agreement with one of the holders of approximately $169,000 of unpaid
principal amount of the August 2008 Notes whereby, in order to induce the holder
to convert the notes into shares of the Companys common stock and, in turn, to
reduce the Companys debt and avoid potentially filing for bankruptcy, the terms
with respect to $169,000 of remaining principal of August 2008 Notes held by
holder were amended providing that the holder may from time to time convert all
or any part of the outstanding and unpaid principal amount of their August 2008
Notes into shares of the Companys common stock at a price of $0.0025 per share
of Common Stock.

28

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On
April 27, 2010, the Company entered a Letter Agreement with the holder of
approximately $235,000 of unpaid principal and accrued interest on the August
2008 Notes whereby, in order to induce the holder to convert the notes into
shares of the Companys common stock and, in turn, to reduce the Companys debt
and avoid potentially filing for bankruptcy, the holder agreed to exchange the
approximate $235,000 of principal and accrued interest on the August 2008 Notes
held by holder into 27,416,667 shares of the Companys Common Stock.

During the six months ended June 30, 2010, the lenders converted an aggregate of
$340,000 of unpaid principal and $42,693 of accrued interest into 86,493,870
shares of the Companys Common Stock. As of August 20, 2010, we have entered
into conversion agreements whereby an additional $20,000 of principal of the
August 2008 Notes has been converted into 8,000,000 shares of our Common Stock.

On
March 25, 2010, the Company entered into a contract and assignment agreement
whereby the Company purchased a 10% interest in a producing crude oil well and
associated oil and gas leases, in exchange for $15,000 and 5,000,000 shares of
the Companys Common Stock.

On
March 30, 2010, the Company entered into a contract and assignment agreement
whereby the Company purchased a 10% interest in a producing crude oil well and
associated oil and gas leases, in exchange for $15,000 and 15,000,000 shares of
the Companys Common Stock.

During
the six months ended June 30, 2010, the Company issued 55,200,000 common shares
in settlement of $307,530 of accounts payable.

The
above issuances were made in reliance upon exemptions from registration pursuant
to Section 4(2) under the Securities Act of 1933 and Rule 506 promulgated under
Regulation D thereunder. The holders of the above securities are accredited
investors as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.

**Item
3.**     **Default upon Senior
Securities**

*We
are in default on the January 2008 Notes*

In
January 2008, we entered into three 14% Senior Secured Promissory Note and
Security Agreements, and Securities Purchase Agreements, with accredited
investors for an aggregate principal amount of $800,000 (the "January 2008
Notes") and the issuance of 320,000 shares of our Common Stock. The January 2008
Notes matured on January 31, 2009. Under the terms of the January 2008 Notes, as
a result of their non-repayment as of July 31, 2009, we were obligated to issue
an additional 300,000 shares of our Common Stock as an additional interest
payment. We issued the additional 300,000 shares of Common Stock in August 2009.

We
are in default with respect to the repayment obligation upon maturity which
occurred on January 31, 2009. Pursuant to the terms of the January 2008 Notes,
upon becoming in default, the interest rate on all amounts outstanding increased
to 24% per annum. On December 2, 2009, we entered a Letter Agreement with the
holder of $750,000 principal amount of the January 2008 Notes whereby, in order
to induce the holder to convert the notes into shares of our common stock and,
in turn, to reduce our debt and avoid potentially filing for bankruptcy, the
terms of the $750,000 of principal of January 2008 Notes held by holder were
amended providing that the holder may from time to time convert all or any part
of the outstanding and unpaid principal amount of their January 2008 Notes into
shares of our common stock, at the holder's option, at the lesser of (i) $0.0025
or (ii) a 50% discount to the average of the three lowest trading prices of the
common stock during the 20 trading day period prior to conversion (the Variable
Conversion Price). On January 29, 2010, we entered into a Letter Agreement with
the holder removing the holders ability to convert at the Variable Conversion
Price. During December 2009, the holder converted $75,200 of principal and
accrued interest due into 30,080,000 shares of our Common Stock. During the six
months ended June 30, 2010, the holder converted an additional $868,750,
including $193,950 of accrued and unpaid interest, into 347,500,000 shares of
the Companys Common Stock.

29

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We
have not cured the underlying default with respect to any of the January 2008
Notes; however, the lenders have not yet taken any further action with respect
to the default. Although we are actively seeking additional financing to remedy
this default, continuing to convert principal and accrued interest into shares
of our Common Stock and are in constant communication with the lenders, there
can be no assurances that the lenders will continue to delay the enforcement of
their remedies under the January 2008 Notes.

*We
are in default on the May 2008 Convertible Note*

In
May 2008, we entered into a Securities Purchase Agreement with an accredited
investor providing for the sale of an 8% convertible note in the principal
amount of $750,000 (the "May 2008 Convertible Note") and the issuance of 750,000
shares of our Common Stock, a Series A Common Stock Purchase Warrant to purchase
1,500,000 shares of our Common Stock (the Series A May Warrant) and a Series B
Common Stock Purchase Warrant to purchase 1,500,000 shares of our Common Stock
(the Series B May Warrant). The May 2008 Convertible Note matured on May 14,
2009, and interest is payable on a quarterly basis. The May 2008 Convertible
Note was convertible into our Common Stock, at a conversion price of $0.1871 per
common share, as adjusted, and is subject to normal and customary anti-dilution
provisions.

We
have not made any required interest payment since March 31, 2009, and we were
unable to repay the May 2008 Convertible Note at maturity on May 14, 2009.
Pursuant to the terms of the May 2008 Convertible Note, upon becoming in
default, the interest rate on all amounts outstanding increased to 15% per
annum. On December 2, 2009, we entered into a Letter Agreement with the holder
of the May 2008 Convertible Note whereby, in order to induce the holder to
convert the May 2008 Convertible Note into shares of our common stock and, in
turn, to reduce our debt and avoid potentially filing for bankruptcy, the May
2008 Convertible Note was amended providing that the holder may from time to
time convert all or any part of the outstanding and unpaid principal amount of
the May 2008 Convertible Note into shares of our common stock, at the holder's
option, at the lesser of (i) $0.0025 or (ii) a 50% discount to the average of
the three lowest trading prices of the common stock during the 20 trading day
period prior to conversion (the Variable Conversion Price). On January 29,
2010, we entered into a Letter Agreement with the holder removing the holders
ability to convert at the Variable Conversion Price. The holder did not convert
any of the May 2008 Convertible Note into shares of our Common Stock during the
year ended December 31, 2009. During the six months ended June 30, 2010, the
holder converted $380,000 of the principal balance outstanding into 152,000,000
shares of the Companys Common Stock. As of August 20, 2010, we have entered
into conversion agreements whereby an additional $131,875 of principal of the
May 2008 Convertible Note has been converted into 52,750,000 shares of our
Common Stock.

We
have not cured the default with respect to the May 2008 Convertible Note;
however, the lender has not yet taken any further action with respect to the
default. Although we are actively seeking additional financing to remedy this
default, continuing to convert principal and accrued interest into shares of our
Common Stock and are in constant communication with the lender, there can be no
assurances that the lender will continue to delay the enforcement of their
remedies under the May 2008 Convertible Note.

*We
are in default on the August 2008 Notes*

In
August 2008, we entered into four 12% Unsecured Promissory Notes, and Securities
Purchase Agreements, with accredited investors for an aggregate principal amount
of $500,000 (the "August 2008 Notes"). The August 2008 Notes matured on
September 28, 2008.

We
are in default of the repayment provision with respect to the August 2008 Notes;
however, the lenders have not yet taken any further action with respect to the
default. Although we are actively seeking additional financing, began, in 2010,
to convert principal and accrued interest into shares of our Common Stock and
are in constant communication with the lenders, there can be no assurances that
the lenders will continue to delay the enforcement of their remedies under the
August 2008 Notes. Pursuant to the terms of the August 2008 Notes, we are
required to issue to the holders of the August 2008 Notes, a total of 250,000
warrants to purchase shares of our Common Stock every 30 days that amounts
remain outstanding under the August 2008 Notes.

30

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During
the three months ended March 31, 2010, the Company, in order to reduce the
Companys debt and avoid potentially filing for bankruptcy, entered into a
series of individual agreements with the holders of an aggregate of $250,000 of
principal amount of the August 2008 Notes to convert portions of their notes
into shares of the Companys Common Stock. On May 13, 2010, the Company entered
a Letter Agreement with one of the holders of approximately $169,000 of unpaid
principal amount of the August 2008 Notes whereby, in order to induce the holder
to convert the notes into shares of the Companys common stock and, in turn, to
reduce the Companys debt and avoid potentially filing for bankruptcy, the terms
with respect to $169,000 of remaining principal of August 2008 Notes held by
holder were amended providing that the holder may from time to time convert all
or any part of the outstanding and unpaid principal amount of their August 2008
Notes into shares of the Companys common stock at a price of $0.0025 per share
of Common Stock.

On
April 27, 2010, the Company entered a Letter Agreement with the holder of
approximately $235,000 of unpaid principal and accrued interest on the August
2008 Notes whereby, in order to induce the holder to convert the notes into
shares of the Companys common stock and, in turn, to reduce the Companys debt
and avoid potentially filing for bankruptcy, the holder agreed to exchange the
approximate $235,000 of principal and accrued interest on the August 2008 Notes
held by holder into 27,416,667 shares of the Companys Common Stock.

During
the six months ended June 30, 2010, the lenders converted an aggregate of
$340,000 of unpaid principal and $42,693 of accrued interest into 86,493,870
shares of the Companys Common Stock. As of August 20, 2010, we have entered
into conversion agreements whereby an additional $20,000 of principal of the
August 2008 Notes has been converted into 8,000,000 shares of our Common Stock.

*We
are in default on the October 2008 Note*

On
October 17, 2008, we entered into a 12% Unsecured Promissory Note, and
Securities Purchase Agreement, with an accredited investor for an aggregate
principal amount of $50,000 (the "October 2008 Note"). The October 2008 Notes
matured on November 17, 2008.

We
are in default of the repayment provision with respect to the October 2008 Note;
however, the lender has not yet taken any further action with respect to the
default. Although we are actively seeking additional financing to remedy this
default, and are in constant communication with the lender, there can be no
assurances that the lender will continue to delay the enforcement of their
remedies under the October 2008 Note. Pursuant to the terms of the October 2008
Notes, we are required to issue to the holders of the October 2008 Notes, a
total of 25,000 warrants to purchase shares of our Common Stock every 30 days
that amounts remain outstanding under the October 2008 Notes.

*We
are in default on the May 2009 Note*

On
May 26, 2009, we entered into a 16% Unsecured Promissory Note with an accredited
investor for an aggregate principal amount of $340,000 (the "May 2009 Note").
The May 2009 Note matured on August 24, 2009. In the event that the May 2009
Note was not repaid by August 24, 2009, the interest rate increased to 18% per
annum and the lender, at its option, could convert all outstanding amounts in
shares of the Companys Common Stock at a conversion price of $0.05 per
share.

We
are in default of the repayment provision with respect to the May 2009 Note;
however, the lender has not yet taken any further action with respect to the
default. Although we are actively seeking additional financing to remedy this
default, and are in constant communication with the lender, there can be no
assurances that the lender will continue to delay the enforcement of their
remedies under the May 2009 Note.

31

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*We
are in default on the July 2009 Note*

On
July 16, 2009, we issued an unsecured promissory note to an accredited investor
providing for a loan of $40,000 (the July 2009 Note). The July 2009 Note
matured on October 13, 2009.

We
are in default of the repayment provision with respect to the July 2009 Note;
however, the lender has not yet taken any further action with respect to the
default. Although we are actively seeking additional financing to remedy this
default, and are in constant communication with the lender, there can be no
assurances that the lender will continue to delay the enforcement of their
remedies under the July 2009 Note.

*We
are in default on the October 2009 Convertible Notes*

On
October 30, 2009, the Company issued unsecured convertible notes to two
accredited investors for an aggregate principal amount of $15,000 (the October
2009 Convertible Notes). The October 2009 Convertible Notes matured on April
30, 2010. In the event that the October 2009 Convertible Notes were not repaid
by April 30, 2010, the interest rate increased to 21% per annum.

We
are in default of the repayment provision with respect to the October 2009
Convertible Notes; however, the lenders have not yet taken any further action
with respect to the default. Although the Company is actively seeking additional
financing to remedy this default, and is in constant communication with the
lenders, there can be no assurances that the lenders will continue to delay the
enforcement of their remedies under the October 2009 Convertible Notes.

*We
are in default on the November 10, 2009 Note*

On
November 10, 2009, we entered into a loan agreement with an accredited investor
providing for a loan of $50,000 (the November 10, 2009 Note). The November 10,
2009 Note matured on December 31, 2009. In the event that the November 10, 2009
Note was not repaid by December 31, 2009, the interest rate increased to an
annual rate equal to Prime plus 10% (currently 13.25%) .

We
are in default of the repayment provision with respect to the November 10, 2009
Note; however, the lender has not yet taken any further action with respect to
the default. Although we are actively seeking additional financing to remedy
this default, and are in constant communication with the lender, there can be no
assurances that the lender will continue to delay the enforcement of their
remedies under the November 10, 2009 Note.

*We
are in default on the November 30, 2009 Note*

On
November 30, 2009, the Company entered into a loan agreement with an accredited
investor providing for a loan of $15,000 (the November 30, 2009 Note). The
November 30, 2009 Note matured on April 1, 2010. In the event that the November
30, 2009 Note was not repaid by April 1, 2010, the interest rate increased to an
annual rate equal to Prime plus 10% (currently 13.25%) .

We
are in default of the repayment provision with respect to the November 30, 2009
Note; however, the lender has not yet taken any further action with respect to
the default. Although we are actively seeking additional financing to remedy
this default, and are in constant communication with the lender, there can be no
assurances that the lender will continue to delay the enforcement of their
remedies under the November 30, 2009 Note.

*We
are in default on the December 2009 Convertible Note*

On
December 14, 2009, the Company entered into a loan agreement with an accredited
investor providing for a loan of $20,000 (the December 2009 Convertible Note).
The December 2009 Convertible Note matured on May 14, 2010. In the event that the December 2009 Convertible Note was not repaid by
May 14, 2010, the interest rate increased to 21% per annum.

32

---

We
are in default of the repayment provision with respect to the December 2009
Convertible Note; however, the lender has not yet taken any further action with
respect to the default. Although the Company is actively seeking additional
financing to remedy this default, and is in constant communication with the
lender, there can be no assurances that the lender will continue to delay the
enforcement of their remedies under the December 2009 Convertible Note.

*We
are in default on the December 2009 Note*

On
December 31, 2009, the Company entered into a loan agreement with an accredited
investor providing for a loan of $7,500 (the December 2009 Note). The December
2009 Note matured on May 1, 2010. In the event that the December 2009 Note was
not repaid by May 1, 2010, the interest rate increased to an annual rate equal
to Prime plus 10% (currently 13.25%) .

We
are in default of the repayment provision with respect to the December 2009
Note; however, the lender has not yet taken any further action with respect to
the default. Although the Company is actively seeking additional financing to
remedy this default, and is in constant communication with the lender, there can
be no assurances that the lender will continue to delay the enforcement of their
remedies under the December 2009 Note.

*We
are in default on the January 2010 Convertible Note*

On
January 28, 2010, the Company issued a $25,000 Convertible Note (January 2010
Convertible Note) to an accredited investor. The January 2010 Convertible Note
matured on June 30, 2010, and bore interest at an annual rate of 18%. In the
event that the January 2010 Convertible Note was not repaid by June 30, 2010,
the interest rate increased to 21% per annum.

We
  are in default of the repayment provision with respect to the January 2010 Convertible
  Note; however, the lender has not yet taken any further action with respect
  to the default. Although the Company is actively seeking additional financing
  to remedy this default, and is in constant communication with the lender, there
  can be no assurances that the lender will continue to delay the enforcement
  of their remedies under the January 2010 Convertible Note.

Item 4. Removed and Reserved

Item 5. Other Information

On
August 13, 2010, the Company entered into a Purchase and Sale and Exploration
Agreement with respect to the Companys 25% working interest in its two
producing wells, the Jackson No. 1 and Everett No. 7-1H and 18.875% of its 25%
working interest in 1,253 acres of land held by production thereby (the Sold
Assets). The Company received total cash consideration of $460,000.

The
unaudited pro forma consolidated financial information presented below
illustrates the effect of the disposition of the Sold Assets. The unaudited pro
forma consolidated balance sheet as of June 30, 2010 is based on the historical
statements of the Company as of June 30, 2010, after giving effect to the
disposition of the Sold Assets as if it had occurred on June 30, 2010. The
unaudited pro forma consolidated statements of operations for the six months
ended June 30, 2010, and the fiscal year ended December 31, 2009, are based on
the historical financial statements of The Company for such periods after giving
effect to the disposition of the Sold Assets, as if it had occurred on January
1, 2009. The unaudited pro forma financial information should be read in
conjunction with the Companys historical consolidated financial statements and
notes thereto contained in the Companys 2009 Form 10-K filed with the SEC on
April 15, 2010.

33

---

The
preparation of the unaudited pro forma consolidated financial information is
based on financial statements prepared in accordance with accounting principles
generally accepted in the United States of America. These principles require the
use of estimates that affect the reported amounts of revenues and expenses.
Actual results could differ from those estimates. The unaudited pro forma
consolidated financial information is provided for illustrative purposes only
and does not purport to represent what the actual results of operations would
have been had the transactions occurred on the respective date assumed, nor is
it necessarily indicative of the Companys future operating results. However,
the pro forma adjustments reflected in the accompanying unaudited pro forma
consolidated financial information reflect estimates and assumptions that the
Companys management believes to be reasonable.

BONANZA OIL AND GAS, INC. AND
SUBSIDIARIESUNUADITED PRO FORMA CONSOLIDATED BALANCE
SHEET

|                                                                                                                                                             |   | June
      30, 2010 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ------------------- | -
|                                                                                                                                                             |   | Historical          |  
|ASSETS                                                                                                                                                       |   |                     |  
|CURRENT ASSETS:                                                                                                                                              |   |                     |  
|Cash and cash equivalents                                                                                                                                    | $ | -                   |  
|                                                                                                                                                             |   | -                   |  
|PROPERTY AND EQUIPMENT:                                                                                                                                      |   |                     |  
|Oil and gas, on the basis of full cost
      accounting:                                                                                                     |   |                     |  
|Proved properties                                                                                                                                            |   | 11,788,196          |  
|Unproved properties                                                                                                                                          |   | 488,444             |  
|Other                                                                                                                                                        |   | 9,669               |  
|                                                                                                                                                             |   | 12,286,309          |  
|Less: Accumulated depreciation, depletion and amortization                                                                                                   |   | (10,954,186         | )
|                                                                                                                                                             |   | 1,332,123           |  
|                                                                                                                                                             | $ | 1,332,123           |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                        |   |                     |  
|CURRENT LIABILITIES:                                                                                                                                         |   |                     |  
|Accounts payable                                                                                                                                             | $ | 657,753             |  
|Accrued operating expenses                                                                                                                                   |   | 404,082             |  
|Notes payable                                                                                                                                                |   | 1,326,750           |  
|                                                                                                                                                             |   | 2,388,585           |  
|STOCKHOLDERS' DEFICIT:                                                                                                                                       |   |                     |  
|Preferred stock - Series A, $0.001 par value, 5,000,000 shares authorized;
           5,000,000 shares
      issued and outstanding, respectively            |   | 5,000               |  
|Preferred stock - Series B, $0.001 par
      value, 5,000,000 shares authorized;
      
           0 shares issued
      and outstanding,
      respectively |   | -                   |  
|Preferred stock - Series C, $0.001 par value, 5,000,000 shares authorized; 
           0 shares issued and outstanding, respectively                         |   | -                   |  
|Preferred stock - Series D, $0.001 par
      value, 10,000,000 shares authorized;
           0 shares issued and outstanding,
      respectively             |   | -                   |  
|Preferred stock - Series E, $0.001 par value, 10,000,000 shares authorized; 
           0 shares issued and outstanding, respectively                        |   | -                   |  
|Common stock, $0.001 par value, 1,500,000,000 shares authorized; 
           785,545,903 issued and outstanding                                              |   | 785,545             |  
|Additional paid-in capital                                                                                                                                   |   | 21,910,423          |  
|Accumulated deficit                                                                                                                                          |   | (23,757,430         | )
|                                                                                                                                                             |   | (1,056,462          | )
|                                                                                                                                                             | $ | 1,332,123           |  

Pro Forma Adjustments

The unaudited pro forma consolidated balance sheet at June 30,
2010, reflects the following adjustments:

|(1) | Adjustment to reflect the $460,000 of cash
    proceeds.                                                                                                                                                         
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Adjustment to eliminate the net carrying value of the
      proved property associated with the Sold Assets and recognition of the net
      loss on the sale as if the disposition had occurred June 30,
  2010.
|(3) | Adjustment necessary to reflect non-consent penalty associated with the Sold Assets required to be settled from proceeds.                                                                                        

34

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BONANZA OIL AND GAS, INC. AND
SUBSIDIARIESUNAUDITED PRO FORMA STATEMENT OF CONSOLIDATED
OPERATIONS

For the Six Months EndedJune
        30, 2010Historical
      
      
      Adjustments
      
      
      
      
      Pro FormaREVENUES:Crude oil sales
      $
      142,410
      
      $
      (142,410
      )
      (1
      )
      $
      -142,410
      
      
      (142,410
      )
      
      
      
      -OPERATING EXPENSES:Depreciation, depletion
        and          amortization
      
      49,105
      
      
      (47,902
      )
      (2
      )
      
      1,203Lease operating expenses
      
      39,004
      
      
      (39,004
      )
      (1
      )
      
      -Severance and other taxes
      
      6,184
      
      
      (6,184
      )
      (1
      )
      
      -General and administrative
      
      511,146
      
      
      -
      
      
      
      
      511,146Loss on conversion of
        debt and          accounts payable
      
      7,094,492
      
      
      -
      
      
      
      
      7,094,492Financing costs, net
      
      258,956
      
      
      (8,784
      )
      (1
      )
      
      250,172Loss on disposition of
        assets
      
      -
      
      
      162,796
      
      (3
      )
      
      162,7967,958,887
      
      
      60,922
      
      
      
      
      8,019,809OPERATING LOSS
      
      (7,816,477
      )
      
      (203,332
      )
      
      
      
      (8,019,809
      )Provision for income taxes
      
      -
      
      
      -
      
      
      
      
      -NET LOSS
      $
      (7,816,477
      )
      $
      (203,332
      )
      
      
      $
      (8,019,809
      )


Pro Forma Adjustments

The unaudited pro forma statement of consolidated operations
for the six months ended June 30, 2010, reflects the following adjustments:

|(1) | Adjustment to eliminate operating revenues and expenses
      associated with the Sold Assets.                                                                                                                                                                                                     
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Adjustment to adjust historical depreciation, depletion
      and amortization expense associated with the Sold Assets as if it had
      occurred on January 1, 2009. Depreciation and depletion expense is
      calculated using the unit of production method under full cost
      accounting.
|(3) | Adjustment to record loss on disposition of the Sold
      Assets as if the disposition has occurred on January 1,
  2009.                                                                                                                                                                         

35

---

BONANZA OIL AND GAS, INC. AND
SUBSIDIARIESUNAUDITED PRO FORMA STATEMENT OF CONSOLIDATED
OPERATIONS

For the Year EndedDecember
        31, 2009Historical
      
      
      Adjustments
      
      
      
      
      Pro FormaREVENUES:Crude oil sales
      $
      257,897
      
      $
      (254,106
      )
      (1
      )
      $
      3,791257,897
      
      
      (254,106
      )
      
      
      
      3,791OPERATING EXPENSES:Depreciation, depletion
        and         amortizationRecurring
      
      93,947
      
      
      (88,946
      )
      (2
      )
      
      5,001Additional
      
      6,485,455
      
      
      (6,485,455
      )
      (4
      )
      
      -Lease operating expenses
      
      142,993
      
      
      (140,990
      )
      (1
      )
      
      2,003Severance and other taxes
      
      11,260
      
      
      (11,085
      )
      (1
      )
      
      175General and administrative
      
      1,498,294
      
      
      -
      
      
      
      
      1,498,294Loss on conversion of
        debt and            
        accounts payable
      
      386,120
      
      
      -
      
      
      
      
      386,120Financing costs, net
      
      518,129
      
      
      (35,797
      )
      (1
      )
      
      482,332Loss on disposition of
        assets
      
      -
      
      
      6,689,295
      
      (3
      )
      
      6,689,2959,136,198
      
      
      (72,978
      )
      
      
      
      9,063,220OPERATING LOSS
      
      (8,878,301
      )
      
      (181,128
      )
      
      
      
      (9,059,429
      )Provision for income taxes
      
      -
      
      
      -
      
      
      
      
      -NET LOSS
      $
      (8,878,301
      )
      $
      (181,128
      )
      
      
      $
      (9,059,429
      )


Pro Forma Adjustments

The unaudited pro forma statement of consolidated operations
for the year ended December 31, 2009, reflects the following adjustments:

|(1) | Adjustment to eliminate operating revenues and expenses
      associated with the Sold Assets.                                                                                                                                                                                                     
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Adjustment to adjust historical depreciation, depletion
      and amortization expense associated with the Sold Assets as if it had
      occurred on January 1, 2009. Depreciation and depletion expense is
      calculated using the unit of production method under full cost
      accounting.
|(3) | Adjustment to record loss on disposition of the Sold
      Assets as if the disposition has occurred on January 1, 2009.                                                                                                                                                                           
|(4) | Adjustment to reflect the elimination of the full cost
      ceiling impairment recognized by the Company in 2009, all of which was
      related to the Sold Assets.                                                                                                                              

Item 6. Exhibits

Exhibit No.
      Description2.2
      Acquisition Agreement and Plan of Merger between National
      Filing Agents, Inc. and Plantation Working Interests, LLC dated October
      23, 2007 (incorporated by reference to the Form 8-K Current Report filed
    with the Securities and Exchange Commission on October 24, 2007)3.1
      Articles of Incorporation of Bonanza Oil and Gas, Inc.
      (incorporated by reference to Exhibit 3.1 to the Bonanza Oil and Gas, Inc.
      Form SB-2 filed December 18, 2006)3.2
      Articles of Merger (incorporated by reference to the Form
      8-K Current Report filed with the Securities and Exchange Commission on
      January 11, 2008)3.3
      Bylaws of Bonanza Oil and Gas, Inc. (incorporated by
      reference to Exhibit 3.2 to the Bonanza Oil and Gas, Inc. Form SB-2 filed
      December 18, 2006)3.4
      Certificate of Amendment for the State of Nevada filed
      November 9, 2009 (incorporated by reference to the Schedule 14C filed with
      the Securities and Exchange Commission on January 6, 2010)4.1
      Securities Purchase Agreement (incorporated by reference
      to the Form 8-K Current Report filed with the Securities and Exchange
      Commission on December 21, 2007)4.2
      14% Senior Asset Backed Secured Promissory Note dated
      December 17, 2007 (incorporated by reference to the Form 8-K Current
      Report filed with the Securities and Exchange Commission on December 21,
      2007)4.3
      Form of 14% Senior Secured Promissory Note dated January
      31, 2008 (incorporated by reference to the Form 10-K Annual Report filed
      with the Securities and Exchange Commission on April 15, 2010)4.4
      Form of Securities Purchase Agreement dated January 31,
      2008 (incorporated by reference to the Form 10-K Annual Report filed with the Securities and Exchange
      Commission on April 15, 2010)


36

---

4.5
      Securities Purchase Agreement dated May 14, 2008
      (incorporated by reference to the Form 8-K Current Report filed with the
      Securities and Exchange Commission on May 19, 2008)4.6
      8% Convertible Note issued May 14, 2008 (incorporated by
      reference to the Form 8-K Current Report filed with the Securities and
      Exchange Commission on May 19, 2008)4.7
      Series A Common Stock Purchase Warrants issued May 14,
      2008 (incorporated by reference to the Form 8- K Current Report filed with
      the Securities and Exchange Commission on May 19, 2008)4.8
      Series B Common Stock Purchase Warrants issued May 14,
      2008 (incorporated by reference to the Form 8- K Current Report filed with
      the Securities and Exchange Commission on May 19, 2008)4.9
      Form of Securities Purchase Agreement (incorporated by
      reference to the Form 8-K Current Report filed with the Securities and
      Exchange Commission on July 7, 2008)4.10
      Form of Series A June 2008 Common Stock Purchase Warrants
      issued June 2008 (incorporated by reference to the Form 8-K Current Report
    filed with the Securities and Exchange Commission on July 7, 2008)4.11
      Form of Series B June 2008 Common Stock Purchase Warrants
      issued June 2008 (incorporated by reference to the Form 8-K Current Report
    filed with the Securities and Exchange Commission on July 7, 2008)4.12
      Form of Securities Purchase Agreement dated August 28,
      2008 (incorporated by reference to the Form 8-K Current Report filed with
      the Securities and Exchange Commission on September 3, 2008)4.13
      Form of 12% Promissory Note dated August 28, 2008
      (incorporated by reference to the Form 8-K Current Report filed with the
      Securities and Exchange Commission on September 3, 2008)4.14
      Amendment No. 1 to the Form of Securities Purchase
      Agreement dated August 28, 2008 (incorporated by reference to the Form 8-K
      Current Report filed with the Securities and Exchange Commission on
      October 10, 2008)4.15
      Form of Common Stock Purchase Warrant (incorporated by
      reference to the Form 8-K Current Report filed with the Securities and
      Exchange Commission on October 10, 2008)4.16
      Bridge Loan Letter Agreement dated February 2, 2009,
      (incorporated by reference to the Form 8-K Current Report filed with the
      Securities and Exchange Commission on March 31, 2009)4.17
      14% Promissory Note issued February 2, 2009,
      (incorporated by reference to the Form 8-K Current Report filed with the
      Securities and Exchange Commission on March 31, 2009)4.18
      16% Promissory Note issued May 26, 2009, (incorporated by
      reference to the Form 10-Q Quarterly Report filed with the Securities and
      Exchange Commission on August 14, 2009)4.19
      Bridge Loan Letter Agreement dated July 8, 2009,
      (incorporated by reference to the Form 10-Q Quarterly Report filed with
      the Securities and Exchange Commission on September 21, 2009)4.20
      Bridge Loan Letter Agreement dated September 18, 2009,
      (incorporated by reference to the Form 10-Q Quarterly Report filed with
      the Securities and Exchange Commission on September 21, 2009)4.21
      Form of Convertible Note issued October 2009
      (incorporated by reference to the Form 10-K Annual Report filed with the
      Securities and Exchange Commission on April 15, 2010)4.22
      Bridge Loan Letter Agreement dated November 10, 2009,
      (incorporated by reference to the Form 8-K Current Report filed with the
      Securities and Exchange Commission on December 4, 2009)4.23
      Bridge Loan Letter Agreement dated November 30, 2009
      (incorporated by reference to the Form 10-K Annual Report filed with the
      Securities and Exchange Commission on April 15, 2010)4.24
      Convertible Note issued December 14, 2009 (incorporated
      by reference to the Form 10-K Annual Report filed with the Securities and
      Exchange Commission on April 15, 2010)4.25
      Bridge Loan Letter Agreement dated December 31, 2009
      (incorporated by reference to the Form 10-K Annual Report filed with the
      Securities and Exchange Commission on April 15, 2010)4.26
      Convertible Note issued January 28, 2010 (incorporated by
      reference to the Form 10-K Annual Report filed with the Securities and
      Exchange Commission on April 15, 2010)4.27
      Promissory Note issued April 12, 2010 to Mirus Capital
      Management LLC (incorporated by reference to the Form 10-K Annual Report
    filed with the Securities and Exchange Commission on April 15, 2010)


37

---

4.28
      Promissory Note issued April 12,
          2010 to Triumph Small Cap Fund Ltd. (incorporated by reference to the
          Form 10-K Annual Report filed with the Securities and Exchange Commission
      on April 15, 2010)10.1
      Asset Purchase Agreement between
          National Filing Agents, Inc. and Lucas Energy, Inc. dated October 23,
          2007 (incorporated by reference to the Form 8-K Current Report filed
      with the Securities and Exchange Commission on October 24, 2007)10.2
      Agreement and Plan of Merger between
          Bonanza Oil & Gas, Inc., Borland Good North, Inc., Black Pearl Energy,
          Inc. and the shareholders holding a majority of the issued and outstanding
          shares of Black Pearl Energy, Inc. dated July 18, 2008 (incorporated
          by reference to the Form 8-K Current Report filed with the Securities
      and Exchange Commission on July 18, 2008)10.3
      Executive Employment Agreement
          between G. Wade Stubblefield and Bonanza Oil and Gas, Inc. (incorporated
          by reference to the Form 8-K Current Report filed with the Securities
      and Exchange Commission on March 31, 2009)10.4
      Executive Employment Agreement
          between William Wiseman and Bonanza Oil and Gas, Inc., (incorporated
          by reference to the Form 10-Q Quarterly Report filed with the Securities
      and Exchange Commission on September 21, 2009)10.5
      Executive Employment Agreement between
          Robert L. Teague and Bonanza Oil and Gas, Inc., (incorporated by reference
          to the Form 10-Q Quarterly Report filed with the Securities and Exchange
      Commission on September 21, 2009)10.6
      Conversion Agreement between Bonanza
          Oil & Gas, Inc. and Robert Teague dated December 2, 2009, (incorporated
          by reference to the Form 8-K Current Report filed with the Securities
      and Exchange Commission on December 4, 2009)10.7
      Letter Agreement between Bonanza
          Oil & Gas, Inc. and Triumph Small Cap Fund Ltd. dated December 2,
          2009, (incorporated by reference to the Form 8-K Current Report filed
      with the Securities and Exchange Commission on December 4, 2009)10.8
      Agreement between Bonanza Oil &
          Gas, Inc. and Whalehaven Capital Fund Limited, (incorporated by reference
          to the Form 8-K Current Report filed with the Securities and Exchange
      Commission on December 4, 2009)10.9
      Letter Agreement between Bonanza
          Oil & Gas, Inc. and Triumph Small Cap Fund Ltd. dated January 29,
          2010, (incorporated by reference to the Form 8-K Current Report filed
      with the Securities and Exchange Commission on February 9, 2010)10.10
      Contract by and between Bonanza
          Oil & Gas, Inc. and Diversified Group, LLC dated March 24, 2010,
          (incorporated by reference to the Form 8-K Current Report filed with
      the Securities and Exchange Commission on March 31, 2010)10.11
      Assignment by and between Bonanza
          Oil & Gas, Inc. and Diversified Group, LLC dated March 18, 2010,
          (incorporated by reference to the Form 8-K Current Report filed with
      the Securities and Exchange Commission on March 31, 2010)10.12
      Bonanza Accounts Receivable Agreement
          by and between Westerly Exploration, Inc. and Bonanza Oil and Gas, Inc.
          (incorporated by reference to the Form 10-K Annual Report filed with
      the Securities and Exchange Commission on April 15, 2010)10.13
      Form of Westerly Debt Conversion Agreement
          (incorporated by reference to the Form 10-K Annual Report filed with
      the Securities and Exchange Commission on April 15, 2010)10.14
      Purchase Agreement by and between
          Bonanza Oil & Gas, Inc. and Superior Oil and Gas Co. dated March
          25, 2010 (incorporated by reference to the Form 10-Q Quarterly Report
      filed with the Securities and Exchange Commission on May 17, 2010)10.15
      Agreement and Release by and between
          Bonanza Oil & Gas, Inc. and Paul DiFrancesco dated April 27, 2010
          (incorporated by reference to the Form 10-Q Quarterly Report filed with
      the Securities and Exchange Commission on May 17, 2010)10.16
      Letter Agreement by and between
          Bonanza Oil & Gas., Inc. and Eric Dale dated May 13, 2010 (incorporated
          by reference to the Form 10-Q Quarterly Report filed with the Securities
      and Exchange Commission on May 17, 2010)10.17*
      Purchase
      and Sale and Exploration Agreement dated August 13, 2010


---

38

14.1
      Code of Ethics and Business Conduct
          for Officers, Directors and Employees of Bonanza Oil & Gas, Inc.
          (incorporated by reference to the Amendment No. 1 to the Annual Report
          on Form 10-K/A filed with the Securities and Exchange Commission on
      April 29, 2009)31.1*
      Certification
      of Principal Executive Officer31.2*
      Certification
      of Principal Financial Officer32.1*
      Certification of Principal
        Executive Officer and Principal Financial Officer


*Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf of
the undersigned thereunto duly authorized.

BONANZA OIL AND GAS, INC.
(Registrant)

|Date: August 20, 2010 | By: | /s/
      William Wiseman                   
|--------------------- | --- | --------------------------------------------
|                      |     | William Wiseman                             
|                      |     | President and Chief Executive Officer       
|                      |     | (Principal Executive Officer)               
|                      |     |                                             
|                      |     |                                             
|                      |     |                                             
|Date: August 20, 2010 | By: | /s/
      Robert Teague                     
|                      |     | Robert Teague                               
|                      |     | Vice President                              
|                      |     | (Principal Financial and Accounting Officer)

39

---