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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 endedMarch 31,
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 [X]

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 | 757,879,235                  
|------------------------------ | -----------------------------
|(Class)                        | (Outstanding at May 14, 2010)

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BONANZA OIL & GAS, INC.

TABLE OF CONTENTS

|PART I        |                                                                                             |   
|------------- | ------------------------------------------------------------------------------------------- | --
|ITEM 1.       | FINANCIAL
      STATEMENTS                                                                  | 2 
|ITEM 2.       | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS | 17
|ITEM
      3. | QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            | 25
|ITEM 4.       | CONTROLS AND PROCEDURES                                                                     | 25
|              |                                                                                             |   
|PART II       |                                                                                             |   
|ITEM
      1. | LEGAL
      PROCEEDINGS                                                                     | 26
|ITEM 1A.      | RISK FACTORS                                                                                | 26
|ITEM
      2. | UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                           | 26
|ITEM 3.       | DEFAULTS UPON SENIOR SECURITIES                                                             | 27
|ITEM
      4. | REMOVED AND
      RESERVED                                                                  | 31
|ITEM 5.       | OTHER INFORMATION                                                                           | 31
|ITEM
      6. | EXHIBITS                                                                                    | 31
|              |                                                                                             |   
|SIGNATURES    |                                                                                             | 34

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BONANZA OIL AND GAS, INC. AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

|                                                                                  |   | March 31,   |   |   | December 31, |  
|--------------------------------------------------------------------------------- | - | ----------- | - | - | ------------ | -
|                                                                                  |   | 2010        |   |   | 2009         |  
|                                                                                  |   | (Unaudited) |   |   | (Audited)    |  
|ASSETS                                                                            |  
|CURRENT ASSETS:                                                                   |   |             |   |   |              |  
|Cash and cash
      equivalents                                                   | $ | 1,942       |   | $ | 9,892        |  
|Other                                                                             |   | -           |   |   | 89           |  
|                                                                                  |   | 1,942       |   |   | 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                  |   | (10,930,276 | ) |   | (10,905,081  | )
|                                                                                  |   | 1,356,033   |   |   | 1,210,701    |  
|                                                                                  | $ | 1,357,975   |   | $ | 1,220,682    |  
|LIABILITIES AND STOCKHOLDERS'
     DEFICIT                                        |  
|CURRENT LIABILITIES:                                                              |   |             |   |   |              |  
|Accounts payable                                                                  | $ | 736,774     |   | $ | 804,440      |  
|Accrued operating expenses                                                        |   | 564,955     |   |   | 419,004      |  
|Notes payable, net of
      $22,944 and $27,272 of unamortized                    |   |             |   |   |              |  
|discount at March 31,
      2010 and December 31, 2009, respectively              |   | 1,572,056   |   |   | 2,540,028    |  
|                                                                                  |   | 2,873,785   |   |   | 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;            |   |             |   |   |              |  
|591,052,034 and 124,352,034 issued and outstanding, respectively                  |   | 591,052     |   |   | 124,352      |  
|Additional paid-in capital                                                        |   | 20,963,394  |   |   | 13,268,811   |  
|Accumulated deficit                                                               |   | (23,075,256 | ) |   | (15,940,953  | )
|                                                                                  |   | (1,515,810  | ) |   | (2,542,790   | )
|                                                                                  | $ | 1,357,975   |   | $ | 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 |  
|-------------------------------------------------------------------------------------------------- | - | -------------------------- | -
|                                                                                                   |   | March 31,                  |  
|                                                                                                   |   | 2010                       |  
|REVENUES:                                                                                          |   |                            |  
|Crude oil sales                                                                                    | $ | 73,845                     |  
|                                                                                                   |   | 73,845                     |  
|OPERATING EXPENSES:                                                                                |   |                            |  
|Depreciation, depletion
      and amortization                                                     |   | 25,194                     |  
|Lease operating expenses                                                                           |   | 17,043                     |  
|Severance and other taxes                                                                          |   | 3,206                      |  
|General and administrative                                                                         |   | 290,270                    |  
|Loss on conversion of
      debt and accounts payable                                              |   | 6,709,660                  |  
|Financing costs, net                                                                               |   | 162,775                    |  
|                                                                                                   |   | 7,208,148                  |  
|                                                                                                   |   |                            |  
|OPERATING LOSS                                                                                     |   | (7,134,303                 | )
|                                                                                                   |   |                            |  
|Provision for income taxes                                                                         |   | -                          |  
|                                                                                                   |   |                            |  
|NET LOSS                                                                                           | $ | (7,134,303                 | )
|                                                                                                   |   |                            |  
|BASIC AND DILUTED LOSS PER COMMON SHARE                                                            | $ | (0.02                      | )
|                                                                                                   |   |                            |  
|Weighted average number of common shares 
             outstanding - basic and fully
      diluted |   | 314,806,479                |  

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)

|                                                        |                                    |  |                      |        |  |             |  |   |             |  |   |               |  |   |             |   |   | Total      |  
|------------------------------------------------------- | ---------------------------------- |  | -------------------- | ------ |  | ----------- |  | - | ----------- |  | - | ------------- |  | - | ----------- | - | - | ---------- | -
|                                                        | Preferred
        Stock - Series A |  | Common
        Stock |        |  | Paid-In     |  |   | Accumulated |  |   | Stockholders' | 
|                                                        | Shares                             |  |                      | Amount |  | Shares      |  |   | Amount      |  |   | Capital       |  |   | Deficit     |   |   | Deficit    |  
|BALANCE 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                       | -                                  |  |                      | -      |  | -           |  |   | -           |  |   | 17,612        |  |   | -           |   |   | 17,612     |  
|Fair value of warrants to acquire common
        shares |                                    |  |                      |        |  |             |  |   |             |  |   |               |  |   |             |   |   |            |  
|issued with the October 2008 Note                       | -                                  |  |                      | -      |  | -           |  |   | -           |  |   | 1,761         |  |   | -           |   |   | 1,761      |  
|Common shares issued in conversion                      |                                    |  |                      |        |  |             |  |   |             |  |   |               |  |   |             |   |   |            |  
|of notes payable and accounts payable                   | -                                  |  |                      | -      |  | 446,700,000 |  |   | 446,700     |  |   | 7,529,710     |  |   | -           |   |   | 7,976,410  |  
|Fair value of beneficial conversion feature             |                                    |  |                      |        |  |             |  |   |             |  |   |               |  |   |             |   |   |            |  
|of Convertible Notes                                    | -                                  |  |                      | -      |  | -           |  |   | -           |  |   | 25,000        |  |   | -           |   |   | 25,000     |  
|Common shares issued in property acquisitions           | -                                  |  |                      | -      |  | 20,000,000  |  |   | 20,000      |  |   | 120,500       |  |   | -           |   |   | 140,500    |  
|Net loss                                                | -                                  |  |                      | -      |  | -           |  |   | -           |  |   | -             |  |   | (7,134,303  | ) |   | (7,134,303 | )
|BALANCE AT MARCH 31, 2010                               | 5,000,000                          |  | $                    | 5,000  |  | 591,052,034 |  | $ | 591,052     |  | $ | 20,963,394    |  | $ | (23,075,256 | ) | $ | (1,515,810 | )

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 Three Months Ended |  
|------------------------------------------------------------------------------------------------ | - | -------------------------- | -
|                                                                                                 |   | March
      31,            |  
|                                                                                                 |   | 2010                       |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                            |   |                            |  
|Net loss                                                                                         | $ | (7,134,303                 | )
|Adjustments to reconcile net
      loss to net cash         used
      in operating activities:  |   |                            |  
|Depreciation, depletion and amortization                                                         |   | 25,194                     |  
|Amortization
      of deferred financing costs                                                   |   | 48,701                     |  
|Loss on conversion of debt and accounts payable                                                  |   | 6,709,660                  |  
|Stock-based
      compensation                                                                   |   | -                          |  
|Fair value of shares issued for consulting services                                              |   | -                          |  
|Changes in operating assets and
      liabilities:                                               |   |                            |  
|Accounts receivable                                                                              |   | -                          |  
|Other current
      assets                                                                       |   | 64                         |  
|Accounts payable and accrued expenses                                                            |   | 317,734                    |  
|Net
      cash used in operating activities                                                      |   | (32,950                    | )
|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                                                    |   | 25,000                     |  
|Repayment of notes payable                                                                       |   | -                          |  
|Debt issue costs                                                                                 |   | -                          |  
|Net cash provided by financing activities                                                        |   | 25,000                     |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                             |   | (7,950                     | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                                   |   | 9,892                      |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                       | $ | 1,942                      |  
|                                                                                                 |   |                            |  
|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 | $ | 7,976,410                  |  
|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 March 31, 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 $23,075,256 at March 31,
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 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. To date,
management has not considered this alternative, nor does management view it as a
likely occurrence.

***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

6

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BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS March 31, 2010 (Unaudited)

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.

2. NOTES PAYABLE

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

March 31,
    
    
      December 31,2010
    
    
      2009January 2008 Notes
    $
      50,000
    
    $
      724,800May 2008 Convertible Note
    
      482,500
    
    
      750,000August 2008 Notes
    
      445,000
    
    
      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 Note
    
      25,000
    
    
      -Total
    
      1,595,000
    
    
      2,567,300Unamortized discount
    
      (22,944
    )
    
      (27,272
    )Balance, net of discount
    $
      1,572,056
    
    $
      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 March 31, 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.

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 three
months ended March 31, 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 March 31, 2010, the Company had total accrued and
unpaid interest of $161,954 on the January 2008 Notes.

7

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BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS March 31, 2010 (Unaudited)

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
three months ended March 31, 2010, the holder converted an additional $756,250,
including $81,450 of accrued and unpaid interest, into 302,500,000 shares of the
Companys Common Stock. The Company recognized a loss of  $5,322,600 and
$347,720 on conversion during  the three months
ended March 31, 2010, and the year ended December 31, 2009,  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.

As of March 31, 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

8

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BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS March 31, 2010 (Unaudited)

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 March 31, 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.

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 three months ended March
31, 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 March
31, 2010, the Company had total accrued and unpaid interest of $114,139 on the
May 2008 Convertible Note.

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 three months ended March 31, 2010, the
holder converted $267,500 of the principal balance outstanding into 107,000,000
shares of the Companys Common Stock. The Company recognized a loss of $987,100
on conversion during the three months ended March 31, 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.

As of March 31, 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 Note***

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

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BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS March 31, 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 an aggregate of 250,000
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 March 31, 2010 a total of 4,750,000 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 243.21% to 246.98%, a risk-free interest
rate of ranging from 1.36% to 1.60% and a 0% dividend yield, the 750,000
Additional Warrants issued during 2010 were determined to have an aggregate fair
value of $17,612, with such value recorded as additional interest expense and to
additional paid-in capital.

As of March 31, 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. During the three months
ended March 31, 2010, the lenders converted an aggregate of $55,000 of unpaid
principal into 22,000,000 shares of the Companys Common Stock. The Company
recognized a loss of $328,200 on conversion during the three months ended March
31, 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.

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, a total of 250,000
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 $79,759associated with the August 2008
Notes at March 31, 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

10

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BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS March 31, 2010 (Unaudited)

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 March 31, 2010, a total of 425,000 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 243.21% to 246.98%, a risk-free interest rate of ranging
from 1.36% to 1.60% and a 0% dividend yield, the 75,000 Additional Warrants
issued during 2010 were determined to have an aggregate fair value of $1,761,
with such value recorded as additional interest expense and to additional
paid-in capital.

As of March 31, 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 $8,712 in accrued and unpaid
interest on the October 2008 Note at March 31, 2010.

***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 March 31, 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 March 31, 2010, was fully amortized.

11

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BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS March 31, 2010 (Unaudited)

As of March 31, 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 $54,615 in accrued
and unpaid interest on the May 2009 Note at March 31, 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 March 31, 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 $3,687 in accrued
and unpaid interest on the July 2009 Note at March 31, 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 $3,483 in accrued and unpaid interest on the September 2009 Note at
March 31, 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.

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,
as of March 31, 2010, had an unamortized balance of $2,381.

As of May 17, 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 $1,176 in accrued and unpaid interest on the October 2009
Convertible Notes at March 31, 2010.

12

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BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS March 31, 2010 (Unaudited)

***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 bears 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 March 31, 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 $2,490 in
accrued and unpaid interest on the November 10, 2009 Note at March 31, 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%) . The Company has a total of $600 in accrued and unpaid interest on
the November 30, 2009 Note at March 31, 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 matures on May 14, 2010, and bear interest at 18% per annum. In
the event that the December 2009 Convertible Note was not repaid on May 14,
2010, the interest rate increases 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.

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 is being
amortized using the effective interest rate method over the term of the
indebtedness and, as of March 31, 2010, had an unamortized balance of $5,828.
The Company has a total of $1,055 in accrued and unpaid interest on the December
2009 Convertible Note at March 31, 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 May 17, 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

13

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BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS March 31, 2010 (Unaudited)

assurances that the lender will continue to delay the
enforcement of their remedies under the December 2009 Note. The Company has a
total of $225 in accrued and unpaid interest on the December 2009 Note at March
31, 2010.

***January 2010 Note***

On January 28, 2010, the Company
issued a $25,000 Convertible Note (January 2010 Convertible Note). The January
2010 Convertible Note matures on June 28, 2010, and bears interest at an annual
rate of 18%. 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 is being
amortized using the effective interest rate method over the term of the
indebtedness and, as of March 31, 2010, had an unamortized balance of $14,735.
The Company has a total of $764 in accrued and unpaid interest on the January
2010 Convertible Note at March 31, 2010.

3. EQUITY TRANSACTIONS

During 2010, the Company issued
15,200,000 common shares in settlement of $188,000 of accounts payable. The
Company recognized a loss of $71,760 on conversion during the three months ended
March 31, 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 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 non-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.

14

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BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS March 31, 2010 (Unaudited)

As of March 31, 2010, the Company
had the following dilutive securities outstanding:

Number
      
      
      Exercise
      
      Expirationof Shares
      
      
      Price
      
      DateCommon Shares issuable:Upon conversion of the amended January
        2008 Note
      58,130,800
      
      
      -
      
      -In connection with the
        May 2008 Convertible Note:Upon conversion of May 2008 Convertible
        Note
      238,655,600
      
      
      -
      
      -Upon exercise
        of the Series A May Warrants
      1,650,000
      
      $
      0.38
      
      May 14, 2010Upon exercise of the Series B
        May Warrants
      1,650,000
      
      $
      0.50
      
      May 14, 2010In connection with the
        June 2008 Unit Offering:Upon exercise of Series A June
        Warrants
      3,704,165
      
      $
      0.50
      
      June 30, 2010Upon exercise
        of Series A June Warrants
      833,334
      
      $
      0.0005
      
      June 30, 2010Upon exercise of Series B June
        Warrants
      3,704,165
      
      $
      0.50
      
      June 30, 2010Upon exercise
        of Series B June Warrants
      833,334
      
      $
      0.0005
      
      June 30, 2010Upon exercise of Series C June
        Warrants
      12,000,000
      
      $
      0.0005
      
      November 30, 2012In connection with the
        August 2008 Notes:Upon exercise of the August 2008
        Warrants
      1,000,000
      
      $
      0.50
      
      August 28, 2011Upon exercise
        of the Penalty Warrants (9/08 - 12/09)
      4,750,000
      
      $
      0.50
      
      September 30, 2011
        - March 31, 2013In connection with the October 2008 Notes:Upon exercise
        of the October 2008 Warrants
      100,000
      
      $
      0.50
      
      October 17, 2011Upon exercise of the Penalty Warrants
        (11/08 - 12/09)
      425,000
      
      $
      0.50
      
      November 17, 2011 - March 17, 2013In connection with the
        May 2009 Note:Upon exercise of the May 2009
        Warrants
      1,000,000
      
      $
      0.05
      
      May 26, 2012Upon 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 March 31, 2010
      359,236,398


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 months ended March 31, 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 March 31, 2010, the Company
entered into conversion agreements converting a total of $112,500 of accrued
interest on the January 2008 Notes into 45,000,000 shares of the Companys
Common Stock.

Since March 31, 2010, the Company
entered into conversion agreements converting a total of $112,500 of principal
of the May 2008 Convertible Note into 45,000,000 shares of the Companys Common
Stock.

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%.

15

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BONANZA OIL AND GAS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS March 31, 2010 (Unaudited)

On April 12, 2010, the Company
entered into an Accounts Receivable Agreement with Westerly Exploration, Inc.
the operator of the Companys Apclark producing field (Operator) whereby
Operator is willing to settle all amounts then outstanding. Concurrent with
entering into the Accounts Receivable Agreement, Operator sold $200,000 of the
then outstanding amounts due to several accredited investors who, in turn,
entered into conversion agreements with the Company to convert the amount due
into shares of the Companys Common Stock at a conversion price of $0.005 per
share. The Company issued a total of 40,000,000 shares of its Common Stock as a
result of this transaction subsequent to March 31, 2010.

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.

On May 13, 2010, the Company
entered a Letter Agreement with the holder 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.

Since March 31, 2010, the Company
issued a total of 36,827,201 shares of its Common Stock in conversion of
approximately $163,400 of principal and accrued interest on its August 2008
Notes.

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 $23,075,256 at March 31, 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 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. To date,
we have not considered this alternative, nor do we view it as a likely
occurrence.

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Results of Operations

| |                                                       |   | For the Three Months Ended |  
| | ----------------------------------------------------- | - | -------------------------- | -
| |                                                       |   | March
      31,            |  
| |                                                       |   | 2010                       |  
| | REVENUES:                                             |   |                            |  
| | Crude oil sales                                       | $ | 73,845                     |  
| |                                                       |   | 73,845                     |  
| | OPERATING EXPENSES:                                   |   |                            |  
| | Depreciation, depletion
      and amortization        |   | 25,194                     |  
| | Lease operating expenses                              |   | 17,043                     |  
| | Severance and other taxes                             |   | 3,206                      |  
| | General and administrative                            |   | 290,270                    |  
| | Loss on conversion of
      debt and accounts payable |   | 6,709,660                  |  
| | Financing costs, net                                  |   | 162,775                    |  
| |                                                       |   | 7,208,148                  |  
| | OPERATING LOSS                                        |   | (7,134,303                 | )

***Three
months ended March 31, 2010 compared to the three months ended March 31, 2009***

During
the three months ended March 31, 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 March
31, 2010 and 2009, the Company had total sales, net to its interest, of 921 and
1,575 barrels of crude oil, respectively, and realized average prices of $80.14
and $37.77, respectively. During the same periods, lease operating expenses,
including severance and other taxes and transportation costs, totaled $21.98 and
$22.46 per barrel, respectively, resulting in netbacks to the Company of $58.16
and $15.31 per barrel, respectively.

Depreciation,
depletion and amortization expense totaled $25,194 and $32,075 for the three
months ended March 31, 2010 and 2009, respectively, most of which is
attributable to depletion on our Apclark field.

For
the three months ended March 31, 2010 and 2009, general and administrative
expenses totaled $290,270 and $323,405, respectively. For 2010, these expenses
were comprised primarily of payroll and other personnel expenses ($108,000),
consulting fees ($80,470), audit and accounting services ($16,000), legal
services ($18,000), transfer agent fees ($32,549) and rent expense ($23,807).
For 2009, these expenses were comprised primarily of payroll and other personnel
expenses ($190,596), audit and accounting services ($46,000), legal services
($18,000) and rent expense ($14,813).

For
the three months ended March 31, 2010, the loss on conversion of debt and
accounts payable resulted from the conversion of $756,250 of principal and
accrued interest on the January 2008 Notes into 302,500,000 shares of the
Companys Common Stock, the conversion of $267,500 of principal of the May 2008
Convertible Note into 107,000,000 shares of the Companys Common Stock, the
conversion of $55,000 of principal of the August 2008 Notes into 22,000,000
shares of the Companys Common Stock and $188,000 of accounts payable into
15,200,000 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 three months ended March 31, 2010, totaled $162,775 and
$260,433, respectively. The Company capitalized $84,013 of interest associated
with unproved properties during the three months ended March 31, 2009.

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No interest was capitalized during the three months ended March
31, 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
March 31, 2010, we had a working capital deficit of $2,871,843 consisting of
principally of $1,572,056 of short-term debt and $1,301,729 of accounts payable
and accrued expenses.

We
have raised net proceeds of $6,118,723 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 three months ended March 31, 2010,
totaled $32,950 and consisted primarily of the net loss of $7,134,303, net of
non-cash charges of a $6,709,660 loss on conversion of debt and accounts payable
into shares of the Companys common stock, $48,701 related to the amortization
of deferred financing fees and discount on outstanding debt, and $25,194 related
to depreciation, depletion and amortization expense. The Company also had
$317,798 of other working capital changes. Net cash used in operating activities
for the three months ended March 31, 2009, totaled $112,030 and consisted
primarily of the net loss of $592,408, net of non-cash charges of $260,058
related to the amortization of deferred financing fees and discount on
outstanding debt, $65,000 related to stock-based compensation, $32,075 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 $107,348 of other working capital changes.

The
Company had no cash flow activity related to investing activities during the
three months ended March 31, 2010. Net cash used in investing activities for the
three months ended March 31, 2009, totaled $13,969 and consisted primarily of
payments due from the 2008 drilling activity in the Apclark field.

Net
cash provided by financing activities for the three months ended March 30, 2010,
totaled $25,000 and consisted of the issuance by the Company of the January 2010
Note. Net cash provided by financing activities for the three months ended March
31, 2009, totaled $128,276 from the issuance of our February 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

19

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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 three months ended March 31, 2010, the holder converted an additional
$756,250, including $81,450 of accrued and unpaid interest, into 302,500,000
shares of the Companys Common Stock. As of May 17, 2010, we have entered into
conversion agreements whereby an additional $112,500 of unpaid accrued interest
on the January 2008 Notes has been converted into 45,000,000 million shares of
our 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.

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 three months ended March 31, 2010, the
holder converted $267,500 of the principal balance outstanding into 107,000,000
shares of the Companys Common Stock. As of May 17, 2010, we have entered into
conversion agreements whereby an additional $112,500 of principal of the May
2008 Convertible Note has been converted into 45,000,000 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.

20

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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, in order to reduce the Companys
debt and avoid potentially filing for bankruptcy, we 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 our Common Stock. During the three months ended March 31, 2010, the lenders
converted an aggregate of $55,000 of unpaid principal into 22,000,000 shares of
the Companys Common Stock. As of May 17, 2010, we have entered into conversion
agreements whereby an additional approximate $163,400 of principal and accrued
interest of the August 2008 Notes has been converted into 36,827,201 shares of
our 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.

On May 13, 2010, the Company entered a Letter Agreement with the holder 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.

*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.

21

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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 Notes matured on April 30, 2010,

As of May 17, 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.

*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.

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.

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 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.

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As of May 17, 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.

*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 September 30, 2009, 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.

***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.

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*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 March 31,
2010, our asset retirement obligation was not significant.

*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,

24

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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.

**Item 4.****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.

25

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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 March 31, 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.

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 March 31, 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 not involved currently 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.

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.

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 three months ended
March 31, 2010, the holder converted an additional $756,250, including $81,450
of accrued and unpaid interest, into 302,500,000 shares of the Companys Common
Stock. As of May 17, 2010, we have entered into conversion agreements whereby an
additional $112,500 of accrued interest on the January 2008 Notes has been
converted into 45,000,000 million shares of our 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

26

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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 three
months ended March 31, 2010, the holder converted $267,500 of the principal
balance outstanding into 107,000,000 shares of the Companys Common Stock. As of
May 17, 2010, we have entered into conversion agreements whereby an additional
$112,500 of principal of the May 2008 Convertible Note has been converted into
45,000,000 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. During the three months ended March
31, 2010, the lenders converted an aggregate of $55,000 of unpaid principal into
22,000,000 shares of the Companys Common Stock. As of May 17, 2010, we have
entered into conversion agreements whereby an additional approximate $163,400 of
principal and accrued interest of the August 2008 Notes has been converted into
36,827,201 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 three months ended March 31, 2010, the Company issued 15,200,000
common shares in settlement of $188,000 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*

27

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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
three months ended March 31, 2010, the holder converted an additional $756,250,
including $81,450 of accrued and unpaid interest, into 302,500,000 shares of the
Companys Common Stock. As of May 17, 2010, we have entered into conversion
agreements whereby an additional $112,500 of principal and accrued interest on
the January 2008 Notes has been converted into 45,000,000 million shares of our
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.

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 three months ended March 31, 2010, the
holder converted $267,500 of the principal balance

29

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outstanding into 107,000,000 shares of the Companys Common
Stock. As of May 17, 2010, we have entered into conversion agreements whereby an
additional $112,500 of principal and accrued interest of the May 2008
Convertible Note has been converted into 45,000,000 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, in order to reduce the Companys debt and
avoid potentially filing for bankruptcy, we 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 our
Common Stock. During the three months ended March 31, 2010, the lenders
converted an aggregate of $55,000 of unpaid principal into 22,000,000 shares of
the Companys Common Stock. As of May 17, 2010, we have entered into conversion
agreements whereby an additional approximate $163,400 of principal and accrued
interest of the August 2008 Notes has been converted into 36,827,201 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.

29

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*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 Notes matured on April 30, 2010,

As of May 17, 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.

*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.

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.

30

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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 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.

As
of May 17, 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.

Item 4.   Removed and Reserved

Item 5.   Other Information

On May 13, 2010, the Company entered a Letter Agreement with the holder 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.

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)4.5
    Securities Purchase Agreement dated
      May 14, 2008 (incorporated by reference to the Form 8-K Current


31

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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)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)


32

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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, 201010.15*
      Agreement
          and Release by and between Bonanza Oil & Gas, Inc. and Paul DiFrancesco
          dated April 27, 201010.16*
      Letter
          Agreement by and between Bonanza Oil & Gas., Inc. and Eric Dale
          dated May 13, 201014.1
      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

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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.**
|------------------ | -----------------------------
|                   |                              
|                   |                              
|                   |                              
|Date: May 17, 2010 | By:                          
|                   |                              
|                   |                              
|                   |                              
|                   |                              
|                   |                              
|                   |                              
|                   |                              
|Date: May 17, 2010 | By:                          
|                   |                              
|                   |                              
|                   |                              

34

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