UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549


_____________________





FORM
10-K


(Mark
One)


o
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
fiscal year ended


or





þ
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period from July 1, 2008 to December 31, 2008





Commission
file number - 000-51710


CROSS
CANYON ENERGY CORP.


(Exact
Name of Registrant as Specified in its Charter




Nevada
            
            56-2458730(State
      or Other Jurisdictionof
      Incorporation or Organization)
            
            (I.R.S.
      EmployerIdentification
      No.)6630
      Cypresswood Drive, Suite 200
              Spring,
      Texas
            
            77379(Address
      of Principal Executive Offices)
            
            (Zip
      Code)




(832)
559-6060


Registrant’s
telephone number, including area code




Securities
registered pursuant to Section 12(b) of the Act: None




Securities
registered pursuant to Section 12(g) of the Act: None (Title of
class):




Title
      of Each Class
            
            Name
      of Each Exchange on Which RegisteredCommon
      Stock, $0.001 Par Value
            
            OTC
      Bulletin Board




Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 of Section 15(d) of the Act.  [_]





Check
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 [_]





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]





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





Issuer’s
revenues for the Transition Period from September 2, 2008 through December 31,
2008 were $2,347,653.





As of
June 30, 2008, the aggregate market value of the common stock of the registrant
held by non-affiliates (excluding shares held by directors, officers and others
holding more than 5% of the outstanding shares of the class) was $9,342,284,
based upon the average high and low price as of such date ($0.764 per share) on
the OTC Bulletin Board.





The
Registrant’s common stock outstanding as of May 19, 2009, was 48,649,990
shares.




DOCUMENTS
INCORPORATED BY REFERENCE None





Transitional
Small Business Disclosure Format (Check One): Yes [_] No [X]


CROSS
CANYON ENERGY CORP.


INDEX











Page
      No.Part
      I
            Item 1.
            Business
            3Item 1A.
            Risk
      Factors
            12Item 2.
            Properties
            3Item 3.
            Legal
      Proceedings
            24Item 4.
            Submission
      of Matters to a Vote of Security Holders
            24Part
      II.
            Item 5.
            Market
      for Registrant’s Common Security, Related Stockholder Matters
      andIssuer
      Purchases of Equity Securities
            25Item 7.
            Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations
            29Item 8.
            Financial
      Statements and Supplementary Data
            45Item 9.
            Changes
      in and Disagreements with Accountants on Accounting andFinancial
      Disclosure
            45Item 9A(T).
            Controls
      and Procedures
            45Item 9B.
            Other
      Information
            46Part
      III.
            Item 10.
            Directors,
      Executive Officers and Corporate Governance
            47Item 11.
            Executive
      Compensation
            50Item 12.
            Security
      Ownership of Certain Beneficial Owners and Management andRelated
      Stockholder Matters
            57Item 13.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            58Item 14.
            Principal
      Accountant Fees and Services
            60Item 15.
            Exhibits
      and Financial Statement Schedules
            61





2


Introductory
Note
  This
Form 10-K is being filed as a Transition Report (i) to reflect the change in our
fiscal year end from June 30th to
December 31st (that
of our predecessor’s fiscal year end), as previously announced in our Current
Report on Form 8-K filed with the Commission on February 13, 2009, and (ii) to
give effect to our acquisition on September 2, 2008 of Voyager Gas Corporation
previously announced in our Current Report on Form 8-K filed with the Commission
on September 9, 2008, whereby we succeeded to substantially all of the business
operations and properties of Voyager Gas Corporation.
  As
reported in this Transition Report on Form 10-K, the Company disclosures and
related financial information for our new fiscal year ended December 31, 2008,
include the business operations and properties of each of  Voyager Gas
Corporation, as predecessor, and ABC Funding, Inc. (renamed as Cross Canyon
Energy Corp. on March 24, 2009), as audited for the period from January 1, 2008
to September 1, 2008 in the case of Voyager Gas Corporation and from September
2, 2008 to December 31, 2008, in the case of the combined successor
entity.  Results for the prior fiscal year ended December 31, 2007
represent those of our predecessor Voyager Gas Corporation.


PART
I





Items 1 and
2.                                Description
of Business and Properties





Overview





Cross
Canyon Energy Corp. (“We”, “us” or the “Company”) was incorporated as a Nevada
corporation in May 2004 under the name "ABC Funding, Inc."  On March 24,
2009, we changed our name to “Cross Canyon Energy
Corp.”




Upon the
Company succeeding to substantially all of the business operations and
properties of Voyager Gas Corporation (“Voyager”) on September 2, 2008 (the
“Voyager Acquisition”), we became an independent oil and natural gas company
engaged in the exploration, production, development, acquisition and
exploitation of natural gas and crude oil properties.  Our oil and
natural gas operations and assets are situated with Voyager Gas Corporation, our
predecessor and now wholly-owned subsidiary, acquired in the Voyager Acquisition
and consist of the oil and gas lease blocks located on approximately 14,300 net
acres located in Duval County, Texas (the “Duval County
Properties”).





As of
December 31, 2008, the Duval County Properties had independently engineered
proved reserves of 11.4 Bcfe, based upon that independent third party
engineering report prepared by Ralph E. Davis Associates, Inc. located in
Houston, Texas (the “Reserve Report”).  By category, this includes 2.4
Bcfe of proved developed producing, 3.9 Bcfe of proved developed non-producing
reserves, and 5.1 Bcfe of proved undeveloped reserves.  Approximately
72% of total proved reserves are natural gas.




On May 5,
2009, as part of a semi-annual redetermination of the borrowing base under the
Credit Facility, our senior lender notified us that our borrowing base was being
reduced to $1 million, causing our outstanding loans under the Revolving Loan to
exceed the new borrowing base by $10.5 million.  As a result of this
$10.5 million deficiency, our attached audited financial statements for the
fiscal year ended December 31, 2008, as reported on by our independent public
accountants, contain a “going concern” qualification.  Failure by us
(i) to repay the resulting $10.5 million borrowing base deficiency or readjust
the borrowing base within a sixty-day cure period or (ii) to obtain a waiver or
otherwise remedy the “going concern” qualification prior to June 11, 2009 each
constitutes, unless extended, an Event of Default under the Credit Facility,
permitting CIT Capital to declare all loans then outstanding, together with any
accrued and unpaid interest, immediately due and owing.





Corporate
Background





Prior to
the Voyager Acquisition on September 2, 2008, we were a “shell company” as that
term is defined under Rule 12b-2 under the Exchange Act, and as such, were
subject to rules of the SEC applicable to shell companies.  We had
only conducted nominal operations and had only nominal assets during this
time.  Prior to September 2, 2008, our activities primarily had
involved capital-raising activities and business planning, with the stated
intention to engage in the oil and natural gas industry by (i) acquiring
established oil and gas properties and exploiting them through the application
of conventional and specialized technology to increase production, ultimate
recoveries, or both, and (ii) participating in joint venture drilling programs
with repeatable low risk results.





We were
initially incorporated to be a mortgage brokerage firm and prior to April 2006,
under the name of ABC Funding, Inc., our operations as a mortgage broker
consisted of originating or locating possible mortgage loans, including,
conventional loans, jumbo loans, home equity and second mortgages,
non-conforming loans, sub-prime loans and construction loans that we would refer
to lending sources to fund.  However, we never funded any
loans.





On April
28, 2006, Energy Venture, Inc., a privately-held Delaware corporation (“Energy
Venture”) consummated its acquisition of shares of our common stock in
accordance with the terms of a stock purchase agreement among Energy Venture and
certain selling stockholders named therein.  Under the stock purchase
agreement, Energy Venture acquired a total of 8,200,000 shares of our common
stock, constituting, in the aggregate, 82% of our then issued and outstanding
shares of common stock.





3




On May
26, 2006, we and our wholly-owned subsidiary, EVI Acquisition Corp., a
newly-formed Nevada corporation, entered into, and consummated, an agreement and
plan of merger with Energy Venture.  Pursuant to the merger agreement,
Energy Venture merged with and into EVI Acquisition Corp. and, in return: (i)
each share of common stock of Energy Venture, par value $.0001 per share, then
issued and outstanding was exchanged for one share of our common stock; (ii)
each outstanding option to purchase shares of common stock of Energy Venture was
exchanged for an option to purchase, at the same exercise price, an equal number
of shares of our common stock; and (iii) all of the obligations and liabilities
of Energy Venture were assumed by us.  As part of the merger, EVI
Acquisition Corp. amended its Articles of Incorporation to change its name to
“Energy Venture, Inc.”  As a result of the merger, the former
stockholders of Energy Venture became our controlling stockholders. 
Effective March 24, 2009, Energy Venture, Inc. amended its Articles of
Incorporation and changed its name to CCEC Operating Company.




Since we
had no substantial assets immediately prior to the merger, the transaction was
treated for accounting purposes as a reverse acquisition and was accounted for
as a recapitalization of Energy Venture rather than a business
combination.  Consequently, the historical financial statements of
Energy Venture became the historical financial statements of the
Company.





Voyager
Acquisition and Financing; Description of Voyager Business





On
September 2, 2008, we consummated the Voyager Acquisition, whereby we purchased
all of the outstanding capital stock of Voyager Gas Corporation from its sole
stockholder, Voyager Gas Holdings, LP, and succeeded to substantially all of its
business operations and properties, including, the Duval County Properties, as
more particularly described below under “Our Properties and Core Area of
Operations,” including working and other interests in oil and gas leases,
producing wells, and properties, together with rights under related operating,
marketing, and service contracts and agreements, seismic exploration licenses
and rights, and personal property, equipment and facilities.  The
purchase price in the Voyager Acquisition consisted of cash consideration of
$35.0 million and 10,000 shares of our Series D preferred stock (the “Series D
Preferred”), having an agreed upon value of $7.0 million.   The
Series D Preferred automatically converted into 17,500,000 shares of our common
stock on March 24, 2009, representing approximately 38.7% of the shares of our
common stock outstanding at the time of the filing of this Transition
Report.





We
financed the Voyager Acquisition with proceeds from a bridge loan and our senior
credit facility, the terms and conditions of which are more particularly set
forth elsewhere in this Transition Report under“Management’s Discussion &
Analysis – Liquidity and Capital Resources.”





As our
predecessor entity, Voyager was formed in May 2004 as a Delaware corporation
engaged in the acquisition, development, production and sale of oil and natural
gas.  During April 2005, Voyager acquired the “Garza Lease” located in
Garza County, Texas for an approximate purchase price of $13.6 million which was
funded with funds from its three year asset-based borrowing facility with Bank
of Texas with an original commitment of $75 million.  On July 7, 2006,
Voyager acquired the Duval County Properties from Magnum Producing, LP for a
purchase price of approximately $40.9 million.  Voyager borrowed and
guaranteed funds under its Bank of Texas credit facility to fund the acquisition
of the Duval County Properties.





In May
2006, Voyager South Texas Holdings, LLC (“VST”) was formed in order to
facilitate a Section 1031 exchange of certain oil and natural gas lease
properties of Voyager.  Toward this end, during January 2007 Voyager
sold its interests in the Garza Lease to a non-affiliated third party for cash
consideration of approximately $29 million and recorded a gain on the sale of
approximately $13 million.  Proceeds from the sale of the Garza Lease
were used to reduce the amounts owed on Voyager’s credit facility with Bank of
Texas.  In February 2007, VST was merged with Voyager.  As a
result of the economic dependencies and debt guarantees between Voyager and VST,
the financial statements of VST were combined for financial statement
presentation purposes.





Employees





We
currently have three employees, Robert P. Munn, our Chief Executive Officer,
Carl A. Chase, our Chief Financial Officer and Jim B. Davis, our Senior Vice
President of Operations.  Going forward, it is our intention to add
additional employees as required to provide the technical expertise and
administrative support to fully develop and implement the properties acquired
from Voyager and additional oil and gas property acquisitions and drilling
programs.


4


Our
Corporate Office





We have
entered into a twelve month lease agreement effective February 1, 2009, to lease
approximately 3,500 square feet of office space at a lease rate of $5,907, $20
per square foot, per month through January 31, 2010.  Our new
corporate offices are located at 6630 Cypresswood Drive, Suite 200, Spring,
Texas 77379.  We have an option available to us to extend the lease
for either a three or five year period at lease rates of $19 and $18 per square
foot, respectively.  In order to exercise our option to extend the
lease, we must provide notice of our desire to extend the lease during November
2009.  Our new corporate offices provide space for the technical and
administrative employees we intend to employ to develop our Voyager Acquisition
and implement our business plan of growth.





Concentrations


All of
our receivables are due from oil and natural gas purchasers and the
counter-party to our oil and natural gas hedges.  We sold 99% of our
oil and natural gas production to two customers during the period from September
2, 2008 through December 31, 2008.  We have not experienced any credit
losses on receivables.  As such, we do not maintain an allowance for
doubtful accounts on our trade receivables but will monitor the creditworthiness
of our oil and natural gas purchasers and our counter-party to our oil and
natural gas hedges.





We
maintain our cash in bank deposit accounts which, at times, may exceed federally
insured limits.  Accounts are guaranteed by the Federal Deposit
Insurance Corporation (“FDIC”) up to $250,000 in 2008.  At December
31, 2008, we had approximately $778,153 in excess of FDIC insured
limits.  We have not experienced any losses in such
accounts.





Our
Properties and Core Area of Operation





Our oil
and gas properties are the Duval County Properties acquired in the Voyager
Acquisition, consisting of approximately 14,300 net acres located in Duval
County, South Texas, on trend with several prolific producing Frio, Jackson and
Yegua (Oligocene and Eocene) fields.





The Duval
County Properties have established production over a substantial acreage
position with proved reserves from over ten different horizons located at depths
ranging from 4,000 to 7,500 feet.  The designated field name by the
Railroad Commission of Texas is the Orcones (Frio Vicksburg Consolidated)
Field.  The primary producing reservoirs are the Frio, Vicksburg and
Yegua formations and the acreage has potential in the Queen City and Wilcox
formations.  We currently have approximately 3,822 net productive
acres.  According to the Reserve Report as of December 31, 2008, the
Duval County Properties had independently engineered proved reserves of 11.4
Bcfe.  By category, this includes 2.4 Bcfe of proved developed
producing, 3.9 Bcfe of proved developed non-producing, and 5.1 Bcfe of proved
undeveloped reserves.  Approximately 72% of total proved reserves are
natural gas.  In addition to proved reserves, the Company’s management
has identified additional exploration opportunities on the acquired acreage
utilizing its acquired proprietary 3-D seismic data base.


5





The term
“Successor” refers to Cross Canyon Energy Corp. following the Voyager
Acquisition and the term “Predecessor” refers to Voyager Gas Corporation prior
to the acquisition date on September 2, 2008.





Natural
Gas and Oil Reserves





The net
present value of our proved reserves (PV10) as of December 31, 2008, calculated
based on SEC rules and regulations, totaled $21.4 million as per the Reserve
Report.  We are the operator of the properties and own an approximate
100% working interest in the proved reserve base.





The
following table represents our proved reserves for the fiscal years ended
December 31, 2008 and 2007 and the period ended September 1,
2008.  The reserve schedule for the year ended December 31, 2007 was
prepared by the engineers of Voyager, as our predecessor, and the reserve
schedule for the year ended December 31, 2008 was taken from the Reserve Report
prepared by our third party independent engineer.  The reserve schedule for
the period ended September 1, 2008 was prepared by our consulting
engineer.




Successor
      Entity
                    
                    
                    Predecessor
      EntityDecember
      31, 2008
                    
                    
                    September
      1, 2008
                    
                    
                    December
      31, 2007Oil
                    
                    
                    Gas
                    
                    
                    Oil
                    
                    
                    Gas
                    
                    
                    Oil
                    
                    
                    GasProved
      reserves as of:
                    
                    (MBbls)
                    
                    
                    (Mmcf)
                    
                    
                    (MBbls)
                    
                    
                    (Mmcf)
                    
                    
                    (MBbls)
                    
                    
                    (Mmcf)Beginning
      of period
                    
                    
                    783
                    
                    
                    
                    10,918
                    
                    
                    
                    1,172
                    
                    
                    
                    19,213
                    
                    
                    
                    2,881
                    
                    
                    
                    10,453Revisions
      of previous estimates
                    
                    
                    (242
                    )
                    
                    
                    (2,515
                    )
                    
                    
                    (345
                    )
                    
                    
                    (7,779
                    )
                    
                    
                    659
                    
                    
                    
                    7,461Extensions,
      discoveries and otheradditions
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    242
                    
                    
                    
                    2,718Sales
      in place
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    (2,564
                    )
                    
                    
                    (351
                    )Production
                    
                    
                    (14
                    )
                    
                    
                    (180
                    )
                    
                    
                    (44
                    )
                    
                    
                    (516
                    )
                    
                    
                    (46
                    )
                    
                    
                    (1,068
                    )End
      of period
                    
                    
                    527
                    
                    
                    
                    8,223
                    
                    
                    
                    783
                    
                    
                    
                    10,918
                    
                    
                    
                    1,172
                    
                    
                    
                    19,213
 
  The process
of estimating oil and natural gas reserves is complex and it requires
interpretations of available technical data and many assumptions, including
assumptions relating to economic factors.  Any significant
inaccuracies in these interpretations or assumptions could materially affect the
estimated quantities and present value of our reported reserves.  In
order to prepare our estimates, we must project production rates and the timing
of development expenditures, analyze available geological, geophysical,
production and engineering data, as well as make economic assumptions about
matters such as oil and natural gas prices, drilling and operating expenses,
capital expenditures, taxes and availability of funds.  Due to the
inherent uncertainties and the limited nature of reservoir data, proved reserves
are subject to change as additional information becomes
available.  Our use of a 10% discount factor for reporting purposes
may not necessarily represent the most appropriate discount factor, given actual
interest rates and risks to which our business or the oil and natural gas
industry in general are subject.


6


Natural
Gas and Oil Volumes, Prices and Operating Expenses





The
following table sets forth certain information regarding production volumes,
revenue, average prices received and average production costs associated with
our sale of oil and natural gas for the periods September 2, 2008 through
December 31, 2008, January 1, 2008 through September 1, 2008 and for the year
ended December 31, 2007.





Successor
      Entity
            
            
            Predecessor
      EntityPeriod
      September 2 to December 31,
            
            
            Period
      January 1
              to
      September 1,
            
            
            Years
      Ended December 31,2008
            
            
            2008
            
            
            2007Net
      sales:Oil
      (Bbls)
            
            
            13,802
            
            
            
            44,412
            
            
            
            45,960Natural
      gas (Mcf)
            
            
            180,194
            
            
            
            516,249
            
            
            
            1,067,960Natural
      gas equivalent (Mcfe)
            
            
            263,006
            
            
            
            782,721
            
            
            
            1,343,720Oil
      and natural gas sales revenue (excluding
              effects
      of Predecessor hedges):Oil
            
            $
            958,275
            
            
            $
            4,877,380
            
            
            $
            4,056,527Natural
      gas
            
            
            1,389,378
            
            
            
            5,478,754
            
            
            
            7,292,050Total
            
            $
            2,347,653
            
            
            $
            10,356,134
            
            
            $
            11,348,577Weighted
      average sales prices:Oil
      ($ per Bbl)
            
            $
            69.43
            
            
            $
            109.82
            
            
            $
            88.26Natural
      gas ($ per Mcf)
            
            
            7.71
            
            
            
            10.61
            
            
            
            6.83Natural
      gas equivalent ($ per Mcfe)
            
            $
            8.93
            
            
            $
            13.23
            
            
            $
            8.45Oil
      and natural gas operating costs:Lease
      operating expenses
            
            $
            552,818
            
            
            $
            2,076,630
            
            
            $
            2,464,653Production
      taxes
            
            
            168,300
            
            
            
            636,114
            
            
            
            836,349Total
            
            $
            721,118
            
            
            $
            2,712,744
            
            
            $
            3,301,002Average
      lease operating expense per Mcfe
            
            $
            2.10
            
            
            $
            2.65
            
            
            $
            1.83Average
      production tax per Mcfe
            
            $
            0.64
            
            
            $
            0.81
            
            
            $
            0.62




Drilling
Activity





The
following table sets forth the drilling activity during the twelve month periods
ended December 31, 2008 and 2007 (excluding wells in progress at the end of the
period).  In the table, “gross” refers to the total number of wells in
which we have a working interest and “net” refers to gross wells multiplied by
the our working interest therein.  The wells drilled during the 2007
period were drilled by Voyager, our predecessor, and there were no wells drilled
during the 2008 period.





Years
      Ended December 31,2008
            
            
            2007Gross
            
            
            Net
            
            
            Gross
            
            
            NetDevelopment
      wells:Productive
            
            
            --
            
            
            
            --
            
            
            
            2
            
            
            
            2Non-productive
            
            
            --
            
            
            
            --
            
            
            
            2
            
            
            
            2Exploratory
      wells:Productive
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Non-productive
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --





7


Productive
Wells





The
following table sets forth the number of productive natural gas and oil wells in
which we owned an interest as of December 31, 2008.  Productive wells
are wells that are capable of producing natural gas or oil.





Company
      Operated
            
            
            Non-Operated
            
            
            TotalGross
            
            
            Net
            
            
            Gross
            
            
            Net
            
            
            Gross
            
            
            NetOil
            
            
            2
            
            
            
            2
            
            
            
            --
            
            
            
            --
            
            
            
            2
            
            
            
            2Natural
      gas
            
            
            12
            
            
            
            12
            
            
            
            --
            
            
            
            --
            
            
            
            12
            
            
            
            12Total
            
            
            14
            
            
            
            14
            
            
            
            --
            
            
            
            --
            
            
            
            14
            
            
            
            14





Acreage
Data





The
following table summarizes our gross and net developed and undeveloped natural
gas and oil acreage under lease as of December 31, 2008.








Developed
      Acres
            
            
            Undeveloped
      AcresGross
            
            
            Net                                               
       Gross
            
            
            NetDuval
      County Properties
            
            
            3,822.0
            
            
            
            3,822.0
            
            
            
            10,889.6
            
            
            
            10,827.1Total
            
            
            3,822.0
            
            
            
            3,822.0
            
            
            
            10,889.6
            
            
            
            10,827.1





As is
customary in the oil and natural gas industry, we can generally retain our
interest in undeveloped acreage by drilling activity that establishes commercial
production sufficient to maintain the leases or by paying delay rentals during
the remaining primary term of leases.  The oil and natural gas leases
in which we have an interest are for varying terms, and if production under a
lease continues from our developed lease acreage beyond the primary term, we are
entitled to hold the lease for as long as oil or natural gas is
produced.





The Railroad Commission of Texas has
designated our Duval County Properties as one geological structure, which is
named Orcones (Frio Vicksburg Consolidated) Field.





Competition





The oil
and natural gas industry is a highly competitive environment.  Many of
our competitors are large, well-established companies that have been engaged in
the oil and natural gas business for much longer than we have and possess
substantially larger operating staffs and greater capital resources than
us.  Our ability to explore for oil and natural gas reserves and to
acquire additional properties in the future will be dependent upon our ability
to conduct our operations, to evaluate and select suitable properties and to
consummate transactions in this highly competitive environment.  Our
ability to acquire additional prospects and to find and develop reserves in the
future will depend on our ability to evaluate and select suitable properties and
to consummate transactions in a highly competitive environment.  In
addition, there is substantial competition for capital available for investment
in the oil and natural gas industry.  We may not be able to compete
successfully in the future in acquiring prospective reserves, developing
reserves, marketing oil and natural gas, attracting and retaining quality
personnel and raising additional capital.





Regulation
of the Oil and Natural Gas Industry





With the
acquisition of the Duval County Properties under the Voyager Acquisition, our
future operations will be subject to the regulatory regime affecting the oil and
natural gas industry.





8




Regulation
of Transportation and Sale of Oil





Sales of
crude oil, condensate and natural gas liquids are not currently regulated and
are made at negotiated prices.  Nevertheless, Congress could reenact
price controls in the future.  Our sales of crude oil will be affected
by the availability, terms and cost of transportation.  The
transportation of oil in common carrier pipelines is also subject to rate
regulation.  The Federal Energy Regulatory Commission, or the FERC,
regulates interstate oil pipeline transportation rates under the Interstate
Commerce Act.  In general, interstate oil pipeline rates must be
cost-based, although settlement rates agreed to by all shippers are permitted
and market-based rates may be permitted in certain
circumstances.  Effective January 1, 1995, the FERC implemented
regulations establishing an indexing system (based on inflation) for
transportation rates for oil that allowed for an increase or decrease in the
cost of transporting oil to the purchaser.  A review of these
regulations by the FERC in 2000 was successfully challenged on appeal by an
association of oil pipelines.  On remand, the FERC in February 2003
increased the index slightly, effective July 2001.  Intrastate oil
pipeline transportation rates are subject to regulation by state regulatory
commissions.  The basis for intrastate oil pipeline regulation, and
the degree of regulatory oversight and scrutiny given to intrastate oil pipeline
rates, varies from state to state.  Insofar as effective interstate
and intrastate rates are equally applicable to all comparable shippers, the
regulation of oil transportation rates are not anticipated to affect our
operations in any way that is of material difference from those of our
competitors.





Further,
interstate and intrastate common carrier oil pipelines must provide service on a
non-discriminatory basis.  Under this open access standard, common
carriers must offer service to all similarly situated shippers requesting
service on the same terms and under the same rates.  When oil
pipelines operate at full capacity, access is governed by pro-rationing
provisions set forth in the pipelines’ published
tariffs.  Accordingly, we believe that access to oil pipeline
transportation services generally will be available to us to the same extent as
to our competitors.





Regulation
of Transportation and Sale of Natural Gas





Historically,
the transportation and sale for resale of natural gas in interstate commerce
have been regulated pursuant to the Natural Gas Act of 1938, the Natural Gas
Policy Act of 1978 and regulations issued under those Acts by the
FERC.  In the past, the federal government has regulated the prices at
which natural gas could be sold.  While sales by producers of natural
gas can currently be made at uncontrolled market prices, Congress could reenact
price controls in the future.  Deregulation of wellhead natural gas
sales began with the enactment of the Natural Gas Policy Act.  In
1989, Congress enacted the Natural Gas Wellhead Decontrol Act.  The
Decontrol Act removed all Natural Gas Act and Natural Gas Policy Act price and
non-price controls affecting wellhead sales of natural gas effective January 1,
1993.





FERC
regulates interstate natural gas transportation rates and service conditions,
which affects the marketing of natural gas that we produce, as well as the
revenues we receive for sales of our natural gas.  Since 1985, the
FERC has endeavored to make natural gas transportation more accessible to
natural gas buyers and sellers.  The FERC has stated that open access
policies are necessary to improve the competitive structure of the interstate
natural gas pipeline industry and to create a regulatory framework that will put
natural gas sellers into more direct contractual relations with natural gas
buyers by, among other things, unbundling the sale of natural gas from the sale
of transportation and storage services.  Beginning in 1992, the FERC
issued Order No. 636 and a series of related orders to implement its open access
policies.  As a result of the Order No. 636 program, the marketing and
pricing of natural gas have been significantly altered.  The
interstate pipelines’ traditional role as wholesalers of natural gas has been
eliminated and replaced by a structure under which pipelines provide
transportation and storage service on an open access basis to others who buy and
sell natural gas.  Although the FERC’s orders do not directly regulate
natural gas producers, they are intended to foster increased competition within
all phases of the natural gas industry.





In 2000,
the FERC issued Order No. 637 and subsequent orders, which imposed a number of
additional reforms designed to enhance competition in natural gas
markets.  Among other things, Order No. 637 effected changes in FERC
regulations relating to scheduling procedures, capacity segmentation, penalties,
rights of first refusal and information reporting.





We cannot
accurately predict whether the FERC’s actions will achieve the goal of
increasing competition in markets in which natural gas may be sold by
us.  Additional proposals and proceedings that might affect the
natural gas industry are pending before the FERC and the courts.  The
natural gas industry historically has been very heavily
regulated.  Therefore, we cannot provide any assurance that the less
stringent regulatory approach recently established by the FERC will
continue.  However, we do not believe that any action taken will
affect us in a way that materially differs from the way it affects other natural
gas producers.





9




Gathering
service, which occurs upstream of jurisdictional transmission services, is
regulated by the states onshore and in state waters.  Although its
policy is still in flux, the FERC has reclassified certain jurisdictional
transmission facilities as non-jurisdictional gathering facilities, which has
the tendency to increase our costs of getting natural gas to point of sale
locations.





Intrastate
natural gas transportation is also subject to regulation by state regulatory
agencies.  The basis for intrastate regulation of natural gas
transportation and the degree of regulatory oversight and scrutiny given to
intrastate natural gas pipeline rates and services varies from state to
state.  Insofar as such regulation within a particular state will
generally affect all intrastate natural gas shippers within the state on a
comparable basis, we believe that the regulation of similarly situated
intrastate natural gas transportation in any states in which we operate and ship
natural gas on an intrastate basis will not affect our operations in any way
that is of material difference from those of our competitors.  Like
the regulation of interstate transportation rates, the regulation of intrastate
transportation rates affects the marketing of natural gas that we produce, as
well as the revenues we receive for sales of our natural gas.





Regulation
of Production





The
production of oil and natural gas is subject to regulation under a wide range of
local, state and federal statutes, rules, orders and
regulations.  Federal, state and local statutes and regulations
require permits for drilling operations, drilling bonds and reports concerning
operations.  The State of Texas, in which we own and operate or plan
to own and operate properties, has regulations governing conservation matters,
including provisions for the unitization or pooling of oil and natural gas
properties, the establishment of maximum allowable rates of production from oil
and natural gas wells, the regulation of well spacing, and plugging and
abandonment of wells.  The effect of these regulations is to limit the
amount of oil and natural gas that we can produce from our wells and to limit
the number of wells or the locations at which we can drill, although we can
apply for exceptions to such regulations or to have reductions in well
spacing.  Moreover, each state generally imposes a production or
severance tax with respect to the production and sale of oil, natural gas and
natural gas liquids within its jurisdiction.





The
failure to comply with these rules and regulations can result in substantial
penalties.  Our competitors in the oil and natural gas industry are
subject to the same regulatory requirements and restrictions that affect our
operations.





Environmental
Matters and Other Regulation





Our
currently anticipated business operations will be subject to stringent and
complex federal, state and local laws and regulations governing environmental
protection as well as the discharge of materials into the
environment.  These laws and regulations may, among other
things:





·
            require
      the acquisition of various permits before drilling
    commences;·
            restrict
      the types, quantities and concentration of various substances that can be
      released into the environment in connection with oil and natural gas
      drilling and production activities;·
            limit
      or prohibit drilling activities on certain lands lying within wilderness,
      wetlands and other protected areas; and·
            require
      remedial measures to mitigate pollution from former and ongoing
      operations, such as requirements to close pits and plug abandoned
      wells.





These
laws and regulations may also restrict the rate of oil and natural gas
production below the rate that would otherwise be possible.  The
regulatory burden on the oil and gas industry increases the cost of doing
business in the industry and consequently affects
profitability.  Additionally, Congress and federal and state agencies
frequently revise environmental laws and regulations, and any changes that
result in more stringent and costly waste handling, disposal and cleanup
requirements for the oil and gas industry could have a significant impact on our
operating costs.





10




The
following is a summary of some of the pertinent laws, rules and regulations to
which our business operations will be subject.





Waste
Handling.  The Resource Conservation and Recovery Act, or RCRA,
and comparable state statutes, regulate the generation, transportation,
treatment, storage, disposal and cleanup of hazardous and non-hazardous
wastes.  Under the auspices of the federal Environmental Protection
Agency, or EPA, the individual states administer some or all of the provisions
of RCRA, sometimes in conjunction with their own, more stringent
requirements.  Drilling fluids, produced waters and most of the other
wastes associated with the exploration, development and production of crude oil
or natural gas are currently regulated under RCRA or state non-hazardous waste
provisions.  Releases or spills of these regulated materials may
result in remediation liabilities under these statutes.  It is
possible that certain oil and natural gas exploration and production wastes now
classified as non-hazardous could be classified as hazardous wastes in the
future.  Any such change could result in an increase in our costs to
manage and dispose of wastes, which could have a material adverse effect on our
currently projected results of operations and financial position.





Comprehensive Environmental
Response, Compensation, and Liability Act.  The Comprehensive
Environmental Response, Compensation, and Liability Act, or CERCLA, also known
as the Superfund Law, imposes joint and several liability, without regard to
fault or legality of conduct, on classes of persons who are considered to be
responsible for the release of a hazardous substance into the
environment.  These persons include the current or former owner or
operator of the site where the release occurred and anyone who disposed or
arranged for the disposal of a hazardous substance released at the
site.  Under CERCLA, such persons may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment, for damages to natural resources and for the
costs of certain health studies.  In addition, it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.





In the
course of our future operations, we expect to generate wastes that may fall
within CERCLA’s definition of hazardous substances.  As a result of
the Voyager Acquisition, we now own, lease or operate properties that have been
used for oil and natural gas exploration and production for many
years.  Hazardous substances or petroleum may have been released on,
at or under the Duval County Properties or on, at or under other locations,
including off-site locations, where such hazardous substances or other wastes
have been taken for disposal.  In addition, to the extent the Duval
County Properties have been operated by third parties or by previous owners or
operators whose handling, treatment and disposal of hazardous substances,
petroleum, or other materials or wastes were not under our control, such
properties and the substances or materials disposed or released on, at or under
them may be subject to CERCLA, RCRA or analogous or other state
laws.  Under such laws, we could be required to remove previously
disposed substances and wastes or released petroleum, remediate contaminated
property or perform remedial plugging or pit closure operations to prevent
future contamination.





Water
Discharges.  The Federal Water Pollution Control Act, or the
Clean Water Act, and analogous state laws, impose restrictions and strict
controls with respect to the discharge of pollutants, including spills and leaks
of oil and other substances into waters of the United States or state
waters.  Under these laws, the discharge of pollutants into regulated
waters is prohibited except in accordance with the terms of a permit issued by
EPA or an analogous state agency.  Federal and state regulatory
agencies can impose administrative, civil and criminal penalties for
non-compliance with discharge permits or other requirements of the Clean Water
Act and analogous state laws and regulations.  The Oil Pollution Act
of 1990, or OPA, which amends and augments the Clean Water Act, establishes
strict liability for owners and operators of facilities that are the site of a
release of oil into waters of the United States.  In addition, OPA and
regulations promulgated pursuant thereto impose a variety of regulations on
responsible parties related to the prevention of oil spills and liability for
damages resulting from such spills.  OPA also requires certain oil and
natural gas operators to develop, implement and maintain facility response
plans, conduct annual spill training for certain employees and provide varying
degrees of financial assurance.





At this
time, it is not possible to accurately estimate how potential future laws or
regulations addressing greenhouse gas emissions would impact our
business.  We are not aware of any environmental claims existing as of
the date of this Annual Report, which would have a material impact on our
financial position or results of operations.  There can be no
assurance, however, that current regulatory requirements will not change, or
past non-compliance with environmental laws will not be discovered on our
properties.





11




Item
1A.                      Risk
Factors.





You
should carefully consider each of the risks described below, together with all
of the other information contained in this Transition Report before deciding to
invest in our securities.  If any of the following risks develop into
actual events, our business, financial condition or results of operations could
be materially adversely affected and you may lose all or part of your
investment.





Risks
Related to Our Business





We
are a company with limited operating history and limited resources.





Since our
inception in May 2004, we have had limited operations and nominal
revenues.  To date, we have been engaged principally in organization,
capital-raising activities and early business development planning matters
related primarily to making acquisitions or participating in strategic joint
ventures in the oil and natural gas industry.  Except for the Voyager
Acquisition, to date we have made no acquisitions or entered into any joint
ventures.  Our prospects must be considered in light of the risks,
expenses, delays, problems and difficulties frequently encountered in the
establishment of a new business in the energy industry, given the volatile
nature of the energy markets.  We also anticipate significant expenses
relating to the development of our infrastructure and business.  Our
ability to realize revenues or generate net income through oil and natural gas
production from our newly-acquired interests in the Duval County Properties and
such other properties as we may acquire in the future will be strongly affected
by, among other factors, our ability to successfully drill undeveloped reserves
as well as the market price of crude oil and natural gas.





If
adequate funds are unavailable from our anticipated operations from the Duval
County Properties, the Credit Facility or additional sources of financing, we
might be forced to reduce or delay acquisitions or capital expenditures, sell
assets, reduce operating expenses, refinance all or a portion of our debt, or
delay or reduce important drilling or enhanced production
initiatives.  In the future we may seek to raise any necessary
additional funds through equity or debt financings, convertible debt financings,
joint ventures with corporate partners or other sources, which may be dilutive
to our existing shareholders and may cause the price of our common stock to
decline.





We
have future capital needs and without adequate capital we may go out of
business.





As a
result of the Voyager Acquisition, we anticipate that we will experience
substantial capital needs to exploit the Duval County Properties pursuant to our
planned development program.  We also expect that additional external
financing will be required in the future to fund our growth.





Under our
credit facility with CIT Capital USA Inc., as administrative agent and lender
(“CIT Capital”), entered into by us on September 2, 2008 (the “Credit
Facility”), of the initial borrowing base of $14.0 million under the Revolving
Loan at May 19, 2009, we had borrowed $11.5 million on the Revolving
Loan.  As a condition of obtaining waivers of certain financial ratios
from CIT Capital, we agreed not to request any additional borrowings or loans
unless and until the lenders shall agree in writing.  As of May 19,
2009, we had borrowed $33.5 million to finance the Voyager Acquisition, to repay
the bridge loan and related transaction expenses, and to fund capital
expenditures generally.  In connection with the Voyager Acquisition,
we drew down the full $22.0 million under the term loan portion of the Credit
Facility.  On May 5,
2009, as part of a semi-annual redetermination of the borrowing base under the
Credit Facility, our senior lender notified us that our borrowing base was being
reduced to $1 million, causing our outstanding loans under the Revolving Loan to
exceed the new borrowing base by $10.5 million. As a
result of this $10.5 million deficiency, our attached audited financial
statements for the fiscal year ended December 31, 2008, as reported on by our
independent public accountant, contain a “going concern”
qualification.  Failure by us (i) to repay the resulting $10.5 million
borrowing base deficiency or readjust the borrowing base within a sixty-day cure
period or (ii) to obtain a waiver or otherwise remedy the “going concern”
qualification prior to June 11, 2009 each constitutes, unless extended, an Event
of Default under the Credit Facility, permitting CIT Capital to declare all
loans then outstanding, together with any accrued and unpaid interest,
immediately due and owing.




Our
growth and continued operations could be impaired by limitations on our access
to the capital markets or traditional secured sources of
credit.  Because of the unprecedented volatility and disruption
experienced in the capital and credit markets, adequate capital may not be
available to us, or if available, would not be adequate for the long-range
growth of the Company or obtainable by us on acceptable terms.  If
financing is available, it may involve issuing securities senior to our shares
or equity financings which are dilutive to holders of our shares.  In
addition, in the event we do not raise additional capital from conventional
sources, such as our existing investors or commercial banks, there is every
likelihood that our growth will be restricted and we may need to scale back or
curtail implementing our business plan.  Even if we are successful in
raising capital, we will likely need to raise additional capital to continue
and/or expand our operations.





12




Without
adequate capital resources or funding on acceptable terms, we may be forced to
limit our planned oil and natural gas acquisition and development activities and
thereby adversely affect the recoverability and ultimate value of our oil and
natural gas properties.  If we are unable to service our indebtedness,
we may also be forced to adopt an alternative strategy that may include actions
such as reducing or delaying acquisitions and capital expenditures, selling
assets, restructuring or refinancing our indebtedness or seeking equity
capital.  Because of today’s deteriorating capital market conditions,
these alternative strategies may fail to yield sufficient funds to make required
payments on our indebtedness.





If
we are unable to realize the perceived potential of the Voyager Acquisition or
successfully integrate such other companies or assets we acquire in the future
into our operations on a timely basis, our profitability could be negatively
affected.





Our
growth and operating strategies for businesses or assets we acquire, including
the Voyager Acquisition, may be different from the strategies currently pursued
by such businesses or the current owners of such assets.  If our
strategies are not successful for the Duval County Properties or such company or
other assets we acquire, it could have a material adverse effect on our
business, financial condition and results of operations.  In addition,
our strategies may fail to maintain or enhance the profitability of any acquired
business or consolidate the operations of any acquired business to achieve cost
savings.





In
addition, there may be risks and liabilities that we failed, or were unable, to
discover in the course of performing due diligence investigations in the Voyager
Acquisition or with respect to any other business or property we may acquire in
the future.  Such risks include the possibility of title defects or
liabilities not discovered by our due diligence review.  Such
liabilities could include those arising from employee benefits contribution
obligations of a prior owner or non-compliance with, or liability pursuant to,
applicable federal, state or local environmental requirements by prior owners
for which we, as a successor owner, may be responsible.  We cannot
assure you that rights to indemnification, even if obtained, will be
enforceable, collectible or sufficient in amount, scope or duration to fully
offset the possible liabilities associated with the business or property
acquired, including the Voyager Acquisition.  Any such liabilities,
individually or in the aggregate, could have a material adverse effect on our
business.





Our
failure to realize any perceived value from the Duval County Properties or to
integrate acquired properties successfully into our existing business, or the
expense incurred in consummating future acquisitions, could result in our
incurring unanticipated expenses and losses.  In addition, we may have
to assume cleanup or reclamation obligations or other unanticipated liabilities
in connection with these acquisitions, and the scope and cost of these
obligations may ultimately be materially greater than estimated at the time of
the acquisition.





We
depend on successful exploration, development and acquisitions to maintain
revenue in the future.





In
general, the volume of production from natural gas and oil properties declines
as reserves are depleted, with the rate of decline depending on reservoir
characteristics.  Except to the extent that we conduct successful
exploration and development activities with respect to the Duval County
Properties or acquire properties containing proved reserves, or both, our proved
reserves will decline as reserves are produced.  Our future natural
gas and oil production is, therefore, highly dependent on our level of success
in finding or acquiring additional reserves.  Additionally, the
business of exploring for, developing, or acquiring reserves is capital
intensive.  Recovery of our reserves, particularly undeveloped
reserves, will require significant additional capital expenditures and
successful drilling operations.  To the extent cash flow from
operations is reduced and external sources of capital become limited or
unavailable, our ability to make the necessary capital investment to maintain or
expand our asset base of natural gas and oil reserves would be
impaired.  In addition, we may be required to find partners for any
future exploratory activity.  To the extent that others in the
industry do not have the financial resources or choose not to participate in our
exploration activities, we will be adversely affected.





13




The
Duval County Properties and our future acquired properties may yield revenues or
production that varies significantly from our projections.





Our
assessments of the recoverable reserves, future natural gas and oil prices,
operating costs, potential liabilities and other factors relating to the Duval
County Properties and other producing properties that may be acquired in the
future are necessarily inexact and their accuracy is inherently
uncertain.  A review of properties will not reveal all existing or
potential problems or permit us to become sufficiently familiar with the
property to assess fully its deficiencies and capabilities.  We may
not inspect every well, and we may not be able to identify structural and
environmental problems even when we do inspect a well.  If problems
are identified, the seller may be unwilling or unable to provide effective
contractual protection against all or part of those problems.  Any
acquisition of property interests may not be economically successful, and
unsuccessful acquisitions may have a material adverse effect on our financial
condition and future results of operations.





If
our access to markets is restricted, it could negatively impact our production,
our income and ultimately our ability to retain our leases.





Market
conditions or the unavailability of satisfactory oil and natural gas
transportation arrangements may hinder our access to oil and natural gas markets
or delay our production.  The availability of a ready market for our
oil and natural gas production depends on a number of factors, including the
demand for and supply of oil and natural gas and the proximity of reserves to
pipelines and terminal facilities.  Our ability to market our
production depends in substantial part on the availability and capacity of
gathering systems, pipelines and processing facilities owned and operated by
third parties.  Our failure to obtain such services on acceptable
terms could materially harm our business.





Our
productive properties may be located in areas with limited or no access to
pipelines, thereby necessitating delivery by other means, such as trucking, or
requiring compression facilities.  Such restrictions on our ability to
sell our oil or natural gas could have several adverse affects, including higher
transportation costs, fewer potential purchasers (thereby potentially resulting
in a lower selling price) or, in the event we were unable to market and sustain
production from a particular lease for an extended time, possibly causing us to
lose a lease due to lack of production.





If
oil and natural gas prices decrease, we may be required to take write-downs of
the carrying values of our oil and natural gas properties, potentially reducing
funds available under the Credit Facility and negatively impacting the trading
value of our securities.





Accounting
rules require that we periodically review the carrying value of our oil and
natural gas properties for possible impairment.  Based on specific
market factors and circumstances at the time of prospective impairment reviews,
and the continuing evaluation of development plans, production data, economics
and other factors, we may be required to write down the carrying value of our
oil and natural gas properties.  Because our properties will serve as
collateral for advances under the Credit Facility, a write-down in the carrying
values of our properties could require us to repay debt earlier than would
otherwise be required.  A write-down would also constitute a non-cash
charge to earnings.  It is likely that the effect of such a write-down
could also negatively impact the trading price of our securities.





We
account for our oil and gas properties using the successful efforts method of
accounting.  Oil and gas exploration and production companies choose
one of two acceptable accounting methods, successful efforts or full
cost.  The most significant difference between the two methods relates
to the accounting treatment of drilling costs for unsuccessful exploration wells
and exploration costs.  Under the successful efforts method,
exploration costs and dry hole costs (the primary uncertainty affecting this
method) are recognized as expenses when incurred and the costs of successful
exploration wells are capitalized as oil and gas properties. Entities that
follow the full cost method capitalize all drilling and exploration costs
including dry hole costs into one pool of total oil and gas property
costs.





14




The
calculation of depreciation, depletion and amortization of capitalized costs
under the successful efforts method of accounting differs from the full cost
method in that the successful efforts method requires us to calculate
depreciation, depletion and amortization expense on individual properties rather
than one pool of costs.  In addition, under the successful efforts
method we assess our properties individually for impairment compared to one pool
of costs under the full cost method.  Excluded from amounts subject to
depletion are costs associated with unevaluated properties.  We
evaluate impairment of our proved oil and natural gas properties whenever events
or changes in circumstances indicate an asset’s carrying amount may not be
recoverable.  The risk that we will be required to write down the
carrying value of our oil and natural gas properties increases when oil and
natural gas prices are low or volatile.  In addition, write-downs
would occur if we were to experience sufficient downward adjustments to our
estimated proved reserves or the present value of estimated future net
revenues.





Hedging
activities we engage in may prevent us from benefiting from price increases and
may expose us to other risks.





Following
our entry into the Credit Facility on September 2, 2008, we executed
arrangements to use derivative instruments to hedge the impact of market
fluctuations on crude oil and natural gas prices.  To the extent that
we engage in hedging activities, we may be prevented from realizing the benefits
of future price increases above the levels of the hedges.  This is
particularly relevant given the precipitous drop in natural gas prices in the
weeks prior to our September 2nd entry
into such hedging arrangements.  In addition, we will be subject to
risks associated with differences in prices received at different locations,
particularly where transportation constraints restrict our ability to deliver
oil and natural gas volumes to the delivery point to which the hedging
transaction is indexed.





Our
Credit Facility imposes significant operating and financial restrictions on us
that may prevent us from pursuing certain business opportunities and restrict
our ability to operate our business.





The
Credit Facility contains covenants that restrict our ability and the ability of
our subsidiaries to take various actions, such as:





·
            incurring
      or generating additional indebtedness or issuing certain preferred
      stock;·
            paying
      dividends on our capital stock or redeeming, repurchasing or retiring our
      capital stock or subordinated indebtedness or making other restricted
      payments;·
            entering
      into certain transactions with affiliates;·
            creating
      or incurring liens on our assets;·
            transferring
      or selling assets;·
            incurring
      dividend or other payment restrictions affecting certain of our future
      subsidiaries; and·
            consummating
      a merger, consolidation or sale of all or substantially all of our
      assets.





In
addition, the Credit Facility includes other and more restrictive covenants
including those that will restrict our ability to prepay our other indebtedness,
while borrowings under the Credit Facility remain outstanding.  The
Credit Facility also requires us to achieve specified financial and operating
results and maintain compliance with specified financial ratios.  Our
ability to comply with these ratios may be affected by events beyond our
control.





The
restrictions contained in the Credit Facility could:





·
            limit
      our ability to plan for or react to market conditions or meet capital
      needs or otherwise restrict our activities or business plans;
      and·
            adversely
      affect our ability to finance our operations, strategic acquisitions,
      investments or alliances or other capital needs or to engage in other
      business activities that would be in our best
  interest.





A breach
of any of the restrictive covenants or our inability to comply with the required
financial ratios could result in a default under the Credit
Facility.


15


If a
default occurs, the lenders under the Credit Facility may elect to:





·
            declare
      all borrowings outstanding thereunder, together with accrued interest and
      other fees, to be immediately due and payable; or·
            exercise
      their remedies against our assets subject to their first
      liens.





The
lenders under the Credit Facility would also have the right in these
circumstances to terminate any commitments they have to provide us with further
borrowings. On April
21, 2009, in consideration of our lenders waiving compliance with certain
financial covenants for the remainder of the 2009 fiscal year, we agreed that no
further borrowings or loans may be requested or made under the Credit Agreement
unless and until the lenders, in their sole and absolute discretion, shall
otherwise agree in writing.




Our
principal stockholder and one of our directors possess significant control over
our operations based, in large part, upon their respective ownership of our
capital stock, and because of this they could choose a plan of action which
could devalue our outstanding securities.





At May
19, 2009, a principal stockholder, Natural Gas Partners VII, LP (“NGP”), holds
17,500,000 shares of our common stock, or 36.0% of our outstanding shares, and
one of our directors, Alan D. Gaines, holds 11,151,000 shares of common stock,
or 22.9% of our outstanding shares.  Accordingly, until such time as
their ownership is sufficiently diluted by the issuance of additional shares of
common stock, NGP and Mr. Gaines could significantly influence the Company on
matters submitted to the stockholders for approval.  These matters
include the election of directors, mergers, consolidations, the sale of all or
substantially all of our assets, and also the power to prevent or cause a change
in control.





The
amount of control yielded by NGP and Gaines, separately or combined, gives
either of them the ability to determine the future of the Company, and as such,
could cause us to close the business, change the business plan or make any
number of other major business decisions without the approval of other
stockholders.  This control may significantly reduce the value of our
shares.





We
may not be able to retain the services of our Chief Executive Officer, Chief
Financial Officer and Senior Vice President of Operations, or we may be unable
to successfully recruit qualified managerial and field personnel having
experience in oil and gas exploration and development.





Our
success also depends to a significant extent upon the continued services of
Robert P. Munn, our Chief Executive Officer, Carl A. Chase, our Chief Financial
Officer, and Jim B. Davis, our Senior Vice President of
Operations.  Loss of the services of any of Mr. Munn, Mr. Chase or Mr.
Davis could have a material adverse effect on our growth, revenues, and
prospective business.  We do not have key-man insurance on the lives
of Messrs. Munn, Chase and Davis.  In addition, in order to
successfully implement and manage our business plan, we will be dependent upon,
among other things, successfully recruiting qualified managerial and field
personnel having experience in the oil and gas exploration and production
business.  Competition for qualified individuals is intense and we may
be unable to retain existing employees or find, attract and retain qualified
personnel on acceptable terms.





Our
Articles of Incorporation provide for indemnification of officers and directors
at our expense and limit their liability.





Our
Articles of Incorporation and applicable Nevada law provide for the
indemnification of our directors, officers, employees, and agents, under certain
circumstances, against attorney's fees and other expenses incurred by them in
any litigation to which they become a party arising from their association with
or activities on behalf of the Company.  We will also bear the
expenses of such litigation for any of our directors, officers, employees, or
agents, upon such person's promise to repay us therefore if it is ultimately
determined that any such person shall not have been entitled to
indemnification.  This indemnification policy could result in
substantial expenditures by us which we will be unable to recoup.





We have
been advised that in the opinion of the SEC, this type of indemnification is
against public policy as expressed in the Securities Act of 1933, as amended,
(the “Securities Act’), and is, therefore, unenforceable.  In the
event that a claim for indemnification against these types of liabilities, other
than the payment by us of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding,
is asserted by a director, officer or controlling person in connection with the
securities being registered, we will (unless in the opinion of our counsel, the
matter has been settled by controlling precedent) submit to a court of
appropriate jurisdiction, the question whether indemnification by us is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.





16




Risk
Factors Related to the Oil and Gas Industry





Oil
and natural gas prices are volatile.





The
prices we receive for future oil and natural gas production will heavily
influence our revenue, profitability, access to capital and rate of
growth.  Oil and natural gas are commodities and their prices are
subject to wide fluctuations in response to relatively minor changes in supply
and demand or global macroeconomic disruptions.  Historically, the
markets for oil and natural gas have been volatile.  These markets
will likely continue to be volatile in the future.  The prices we may
receive for any future production, and the levels of this production, depend on
numerous factors beyond our control.  These factors include the
following:





·
            changes
      in global supply and demand for oil and natural gas;·
            the
      actions of the Organization of Petroleum Exporting Countries, or
      OPEC;·
            the
      price and quantity of imports of foreign oil and natural gas in the
      U.S.;·
            political
      conditions, including embargoes, which affect other oil-producing
      activities;·
            the
      level of global oil and natural gas exploration and production
      activity;·
            the
      level of global oil and natural gas inventories;·
            weather
      conditions affecting energy consumption;·
            technological
      advances affecting energy consumption; and·
            the
      price and availability of alternative
fuels.





Lower oil
and natural gas prices may not only decrease our revenues on a per unit basis
but also may reduce the amount of oil and natural gas that we can produce
economically.  Lower prices will also negatively impact the value of
our proved reserves.  A substantial or extended decline in oil or
natural gas prices may materially and adversely affect our future business,
financial condition, results of operations, liquidity or ability to finance
planned capital expenditures.





Competition
in the oil and natural gas industry is intense.





We
operate in a highly competitive environment for developing properties, marketing
of oil and natural gas and securing trained personnel.  Many of our
competitors possess and employ financial, technical and personnel resources
substantially greater than ours, which can be particularly important in the
areas in which we operate.  Those companies may be able to pay more
for productive oil and natural gas properties and prospects and to evaluate, bid
for and purchase a greater number of properties and prospects than our financial
or personnel resources permit.  Our ability to acquire additional
prospects and to find and develop reserves in the future will depend on our
ability to evaluate and select suitable properties and to consummate
transactions in a highly competitive environment.  In addition, there
is substantial competition for capital available for investment in the oil and
natural gas industry.  We may not be able to compete successfully in
the future in acquiring prospective reserves, developing reserves, marketing oil
and natural gas, attracting and retaining quality personnel and raising
additional capital.





Drilling
for and producing oil and natural gas are high risk activities with many
uncertainties that could adversely affect our business, financial condition or
results of operations.





Oil and
natural gas exploration and production activities are subject to numerous risks
beyond our control, including the risk that drilling will not result in
commercially viable oil or natural gas production.  Decisions to
purchase, explore, develop or otherwise exploit prospects or properties depend
in part on the evaluation of data obtained through geophysical and geological
analyses, production data and engineering studies, the results of which are
often inconclusive or subject to varying interpretations.  Please read
"- Reserve estimates depend on
many assumptions that may turn out to be inaccurate" below for a
discussion of the uncertainties involved in these processes.  Costs of
drilling, completing and operating wells are often uncertain before drilling
commences.  Overruns in budgeted expenditures are common risks that
can make a particular project uneconomical.  Further, many factors may
curtail, delay or cancel drilling, including the following:




17






·
            delays
      imposed by or resulting from compliance with regulatory
      requirements;·
            pressure
      or irregularities in geological formations;·
            shortages
      of or delays in obtaining equipment and qualified
    personnel;·
            equipment
      failures or accidents;·
            adverse
      weather conditions;·
            reductions
      in oil and natural gas prices;·
            oil
      and natural gas property title problems; and·
            market
      limitations for oil and natural
gas.





In
addition, there is no way to predict in advance of drilling and testing whether
any particular prospect will yield oil or natural gas in sufficient quantities
to recover drilling or completion costs or to be economically
viable.  The use of seismic data and other technologies and the study
of producing fields in the same area do not permit conclusive knowledge prior to
drilling whether oil or natural gas will be present or, if present, whether oil
or natural gas will be present in commercial quantities.  Seismic
indications of hydrocarbon saturation are generally not reliable indicators of
productive reservoir rock and modern technologies such as well logs are not
always reliable indicators of hydrocarbon productivity or drilling
prospects.





Reserve
estimates depend on many assumptions that may turn out to be
inaccurate.  Any material inaccuracies in these reserve estimates or
underlying assumptions will materially affect the quantities and present value
of our reserves acquired under the Voyager Acquisition.





The
process of estimating oil and natural gas reserves is complex.  It
requires interpretations of available technical data and many assumptions,
including assumptions relating to economic factors.  Any significant
inaccuracies in these interpretations or assumptions could materially affect the
estimated quantities and present value of our reported reserves.  In
order to prepare our estimates, we must project production rates and the timing
of development expenditures.  We must also analyze available
geological, geophysical, production and engineering data.  The extent,
quality and reliability of this data can vary.  The process also
requires that economic assumptions be made about matters such as oil and natural
gas prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds.  Therefore, estimates of oil and natural gas
reserves are inherently imprecise.





Actual
future production, oil and natural gas prices received, revenues, taxes,
development expenditures, operating expenses and quantities of recoverable oil
and natural gas reserves most likely will vary from our
estimates.  Any significant variance could materially affect the
estimated quantities and present value of our reported reserves.  In
addition, we may adjust estimates of proved reserves to reflect production
history, results of exploration and development, prevailing oil and natural gas
prices and other factors, many of which are beyond our control.


18


We
may incur substantial losses and be subject to substantial liability claims as a
result of our oil and natural gas operations.





Losses
and liabilities arising from uninsured and underinsured events could materially
and adversely affect our business, financial condition or results of
operations.  Our oil and natural gas exploration and production
activities will be subject to all of the operating risks associated with
drilling for and producing oil and natural gas, including the possibility
of:





·
            environmental
      hazards, such as uncontrollable flows of oil, natural gas, brine, well
      fluids, toxic gas or other pollution into the environment, including
      groundwater and shoreline contamination;·
            abnormally
      pressured formations;·
            mechanical
      difficulties, such as stuck oil field drilling and service tools and
      casing collapses;·
            fires
      and explosions;·
            personal
      injuries and death; and·
            natural
      disasters.





Any of
these risks could adversely affect our ability to conduct operations or result
in substantial losses to the Company.  We may elect not to obtain
insurance if we believe that the cost of available insurance is excessive
relative to the risks presented.  In addition, pollution and
environmental risks generally are not fully insurable.  If a
significant accident or other event occurs and is not fully covered by
insurance, then that accident or other event could adversely affect our results
of operations, financial condition and cash flows.





In
accordance with customary industry practices, we maintain insurance coverage
against some, but not all, potential losses in order to protect against the
risks we face.  We do not carry business interruption
insurance.  We may elect not to carry insurance if our management
believes that the cost of available insurance is excessive relative to the risks
presented.  In addition, we cannot insure fully against pollution and
environmental risks.  The occurrence of an event not fully covered by
insurance could have a material adverse effect on our financial condition and
results of operations.





Our
operations may cause us to incur substantial liabilities for failure to comply
with environmental laws and regulations.





Oil and
natural gas operations are subject to stringent federal, state and local laws
and regulations relating to the release or disposal of materials into the
environment or otherwise relating to environmental protection.  These
laws and regulations may require the acquisition of a permit before drilling
commences, restrict the types, quantities and concentration of substances that
can be released into the environment in connection with drilling and production
activities, limit or prohibit drilling activities on certain lands lying within
wilderness, wetlands and other protected areas, and impose substantial
liabilities for pollution resulting from operations.  Failure to
comply with these laws and regulations may result in the assessment of
administrative, civil and criminal penalties, incurrence of investigatory or
remedial obligations or the imposition of injunctive relief.  Changes
in environmental laws and regulations occur frequently, and any changes that
result in more stringent or costly waste handling, storage, transport, disposal
or cleanup requirements could require us to make significant expenditures to
maintain compliance, and may otherwise have a material adverse effect on our
results of operations, competitive position or financial condition as well as
the industry in general.  Under these environmental laws and
regulations, we could be held strictly liable for the removal or remediation of
previously released materials or property contamination regardless of whether we
were responsible for the release or if our operations were standard in the
industry at the time they were performed.





We
are subject to complex laws that can affect the cost, manner or feasibility of
doing business.





The
exploration, development, production and sale of oil and natural gas are subject
to extensive federal, state, local and international regulation.  We
may be required to make large expenditures to comply with such governmental
regulations.  Matters subject to regulation include:




19





·
            permits
      for drilling operations;·
            drilling
      and plugging bonds;·
            reports
      concerning operations;·
            the
      spacing and density of wells;·
            unitization
      and pooling of properties;·
            environmental
      maintenance and cleanup of drill sites and surface facilities;
      and·
            taxation.





Under
these laws, we could be liable for personal injuries, property damage and other
damages.  Failure to comply with these laws also may result in the
suspension or termination of our operations and subject us to administrative,
civil and criminal penalties.  Moreover, these laws could change in
ways that substantially increase our costs.  Any such liabilities,
penalties, suspensions, terminations or regulatory changes could materially
adversely affect our financial condition and results of operations.





We
may not be able to keep pace with technological developments in our
industry.





The oil
and natural gas industry is characterized by rapid and significant technological
advancements and introduction of new products and services which utilize new
technologies.  As others use or develop new technologies, we may be
placed at a competitive disadvantage or competitive pressures may force us to
implement those new technologies at substantial costs.  In addition,
other oil and natural gas companies may have greater financial, technical, and
personnel resources that allow them to enjoy technological advantages and may in
the future allow them to implement new technologies before we are able
to.  We may not be able to respond to these competitive pressures and
implement new technologies on a timely basis or at an acceptable
cost.  If one or more of the technologies we use now or in the future
were to become obsolete or if we are unable to use the most advanced
commercially available technology, our business, financial condition, and
results of operations could be materially adversely affected.





Risks
Related to Our Shares of Common Stock





We
have not and do not anticipate paying any cash dividends on our common
stock.  Because of this our securities could face devaluation in the
market.





We have
paid no cash dividends on our common stock to date and it is not anticipated
that any cash dividends will be paid to holders of our common stock in the
foreseeable future.  The Credit Facility disallows us paying
dividends, except under certain circumstances.  Under the
Nevada Revised Statutes, cash dividends on capital stock may not be paid if,
after given effect to any such dividend, we would not be able to pay our debts
as they become due in the usual course of business or our total assets would be
less than the sum of our total liabilities plus any amount needed to satisfy
preferential rights upon dissolution of the Company. While
our dividend policy will be based on the operating results and capital needs of
the business, it is anticipated that any earnings will be retained to finance
our future expansion.  As an investor, you should take note of the
fact that a lack of a dividend can further affect the market value of our stock,
and could significantly affect the value of any investment in the
Company.





We
will continue to incur significant increased costs as a result of operating as a
public company and our management will be required to devote substantial time to
new compliance requirements.





In
January 2006, we registered our common stock under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), and thereby became subject to the
reporting requirements promulgated by the SEC thereunder.  As a public
company, we incur significant legal, accounting and other expenses under the
Sarbanes-Oxley Act of 2002, together with rules implemented by the SEC and
applicable market regulators.  These rules impose various requirements
on public companies, including requiring certain corporate governance
practices.  Our management and other personnel will need to devote a
substantial amount of time to these new compliance
requirements.  Moreover, these rules and regulations will increase our
legal and financial compliance costs and will make some activities more
time-consuming and costly.





20




In
addition, the Sarbanes-Oxley Act requires, among other things, that we maintain
effective internal controls for financial reporting and disclosure controls and
procedures.  In particular, for fiscal years ending on or after
December 15, 2007, we must perform system and process evaluation and testing of
our internal controls over financial reporting to allow management to report on
the effectiveness of our internal controls over financial reporting, as required
by Section 404 of the Sarbanes-Oxley Act.  For fiscal years ending on
or after December 15, 2008, we must perform system and process evaluation and
testing of our internal controls over financial reporting to allow management
and our independent registered public accounting firm to report on the
effectiveness of our internal controls over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act.  Our testing, or the subsequent
testing by our independent registered public accounting firm, may reveal
deficiencies in our internal controls over financial reporting that are deemed
to be material weaknesses.  Compliance with Section 404 may require
that we incur substantial accounting expense and expend significant management
efforts.  If we are not able to comply with the requirements of
Section 404 in a timely manner or if our independent registered public
accounting firm later identifies deficiencies in our internal controls over
financial reporting that are deemed to be material weaknesses, the market price
of our stock could decline and we could be subject to sanctions or
investigations by the SEC or other applicable regulatory
authorities.





Our
common stock is listed on the OTC Bulletin Board.





Our
common stock is not quoted on the NASDAQ National Market System or listed on a
national securities exchange.  The NASDAQ National Market System and
national securities exchanges require companies to fulfill certain requirements
in order for their shares to be listed and to continue to be
listed.  The securities of a company may be ineligible for listing or,
if listed, may be considered for delisting if the company fails to meet certain
financial thresholds, including if the company has sustained losses from
continuing operations and/or net losses in recent fiscal years.  Our
current losses preclude us from listing or having our common stock quoted on the
NASDAQ National Market or a national securities exchange, which may adversely
affect our ability to raise capital in the future by issuing common stock or
securities convertible into or exercisable for our common stock.





The
resale of our common stock by you may be limited because of its low price which
could make it more difficult for broker-dealers to sell our common
stock.





The
Securities Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure relating to the market for penny stocks in connection with trades in
any stock defined as a penny stock.  Regulations enacted by the SEC
generally define a penny stock as an equity security that has a market price of
less than $5.00 per share, subject to some exceptions.  Unless an
exception applies, a disclosure schedule explaining the penny stock market and
the risks associated with investing in penny stocks must be delivered before any
transaction in a penny stock can occur.





Our
common stock is currently subject to the Securities and Exchange Commission's
"penny stock" rules and it is anticipated that trading in our common stock will
continue to be subject to the penny stock rules for the foreseeable
future.  Until such time as our common stock meets an exception to the
penny stock regulations cited above, trading in our securities is covered by
Rule 15g-9 promulgated under the Securities Exchange Act of
1934.  Under this rule, broker/dealers who recommend penny stocks to
persons other than established customers and accredited investors, which are
generally institutions with assets in excess of $5,000,000, or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 jointly with their spouse, must make a special determination in writing
for the purchaser that the investment is suitable, and must also obtain the
purchaser's written agreement to a transaction before the
sale.  Consequently, the rule may affect the ability of broker/dealers
to sell our securities, and also may affect the ability of purchasers of our
common stock to sell their shares in the secondary market.  It may
also cause fewer broker/dealers to be willing to make a market in our common
stock, and it may affect the level of news coverage we receive.





Our
Board of Directors has the authority, without stockholder approval, to issue
preferred stock with terms that may not be beneficial to common stock holders
and with the ability to adversely affect stockholder voting power and perpetuate
our Board's control over the Company.





Our
Articles of Incorporation authorizes the issuance of up to 1,000,000 shares of
preferred stock, par value $ .001 per share, of which up to 522,000 aggregate
shares have been designated as Series A, B, C, D and E preferred
stock.  As such, our Board of Directors (the “Board”) is currently
entitled to authorize the issuance of an additional 478,000 shares of preferred
stock in one or more series with such designations; preferences; conversion
rights; cumulative, relative; participating; and optional or other rights,
including: voting rights; qualifications; limitations; or restrictions as may be
determined in its sole discretion, with no further authorization by security
holders required for the issuance thereof.





21




The
issuance of additional preferred stock from the shares available could adversely
affect the voting power and other rights of the holders of common
stock.  Preferred stock may be issued quickly with terms calculated to
discourage, make more difficult, delay or prevent a change in control of the
Company or make removal of management more difficult.  As a result,
our Board's ability to issue preferred stock may discourage the potential
hostile acquirer, possibly resulting in beneficial
negotiations.  Negotiating with an unfriendly acquirer may result in,
among other things, terms more favorable to us and our
stockholders.





We
may issue securities that could dilute your ownership.





We may
decide to raise additional funds through public or private debt or equity
financing to fund our operations.  If we raise funds by issuing equity
securities, the percentage ownership of our current stockholders will be reduced
and the new equity securities may have rights prior to those of the common stock
issuable upon conversion of public or private debt.  We may not obtain
sufficient financing on terms that are favorable to you or us.  We may
also issue equity securities as consideration for acquisitions we may
make.





Holders
of our common stock may experience dilution of their ownership interests due to
(1) our registration for resale of the Registered Securities and (2) any future
issuance of additional shares of our common stock.





By that
registration rights agreement entered into by us in connection with the Voyager
Acquisition and related financing, we are currently obligated to register for
resale up to 46,288,632 aggregate shares of our common stock, consisting of (i)
18,863,636 shares of common stock and (ii) 27,424,996 shares of our common stock
underlying outstanding warrants.





The total
number of securities to be registered or registerable for resale under the
registration rights agreement is greater than the number of shares of our common
stock currently issued and outstanding, which at May 19, 2009, consists of
48,649,990 shares of issued common stock and an additional 13,675,000 shares of
common stock currently issuable under exercise or conversion, as the case may
be, of outstanding options and warrants, and will result in an immediate
dilution of the ownership interests of the holders of our common
stock.  In addition to the foregoing, certain warrants underlying
shares of common stock to be included for resale in any registration statement
contain provisions that will result in the issuance of additional shares in the
event we sell shares of common stock at prices less than the applicable
conversion prices set forth therein.





We may
also in the future issue additional shares of our authorized and unissued common
stock in connection with the hiring of personnel, future acquisitions, future
private placements of our securities for capital raising purposes, or for other
business purposes, all of which will result in the dilution of the ownership
interests of holders of our common stock.  We currently have
149,000,000 shares of common stock authorized under our Articles of
Incorporation.  Issuance of additional shares of common stock may also
create downward pressure on the trading price of our existing common stock that
may in turn require us to issue additional shares to raise funds through sales
of our securities.  This will further dilute the holders of our common
stock.




We
may incur monetary penalties upon our untimely failure to register for resale
shares of our common stock issuable in connection with the Voyager Acquisition
and the related financing.
  On March 1, 2009, we failed to file and
have declared effective by the SEC a registration statement registering for
resale the common stock underlying the Series D Preferred issued to the seller
in the Voyager Acquisition and the common stock underlying the warrants issued
to CIT Capital in the related acquisition financing.   As set
forth below, our failure triggered potential monetary penalties under the
registration statement governing our obligation to register such shares for
resale.
  Under the
registration rights agreement, if we fail to have declared effective by the SEC
a registration statement registering for resale the aforementioned shares of
common stock within 180 days of the closing of the Voyager Acquisition, or by
March 1, 2009, we are obligated to pay to the seller and CIT Capital, as partial
liquidated damages and not as a penalty, cash, in the aggregate equal to (i) two
percent (2%) of the product of $0.40 (the agreed upon valuation of underlying
common stock) and the number of registerable securities, as defined in the
registration rights agreement, held by such seller and (i) 0.8855% of the
product of (A) $0.35 (the overlying warrant exercise price) and (B) the number
of registerable securities held by CIT Capital on such
date.  Furthermore, if the registration statement has not been
declared effective by the SEC after 90 days have elapsed from the above 180 day
registration requirement, we are further obligated to pay the seller, as partial
damages and not as a penalty, additional cash, in the aggregate equal to (i)
three percent (3%) of the product of $0.40 and the number of registerable
securities held by the seller and (ii) 2.48% of the product of (A) $0.35 and (B)
the number of registerable securities held by CIT Capital on such
date.  Upon a registration statement being declared effective, we may
also be subject to certain additional penalties for failing to maintain the
effectiveness of such registration statement.
  The
foregoing provisions notwithstanding, CIT Capital had agreed in the registration
rights agreement that we shall not be liable for liquidated damages with respect
to any unexercised warrants and the seller’s designee  in the Voyager
Acquisition has subsequently agreed to waive the penalties with respect to the
registration statement not be declared effective within the initial 180 day
period.  At this time, the warrants remain “out-of-the-money” and have
not been exercised.  Although we do not anticipate the warrants being
exercised at the current exercise price, we may become subject to the
above-described monetary penalties should the holders choose to exercise the
warrants.   In addition, the waiver obtained by us does not
preclude us from incurring penalties upon May 29, 2009, the 90th day
after the initial 180-day period absent us filing and having a registration
statement declared effective by such date or obtaining a further
waiver.


22




Our
common stock may experience price volatility and, as a result, its market value
may also be volatile.  The limited trading volume of our common stock
may contribute to this price volatility.





The
trading price of our common stock is highly volatile.  We believe the
volatility of the trading price of our common stock is due to, among other
things, the results of our drilling program, current expectations of our future
financial performance, prices of oil and natural gas and the volatility of the
stock market in general.





Moreover,
our common stock does not have substantial trading volume.  As a
result, relatively small trades of our common stock may have a significant
impact on the price of our common stock and, therefore, may contribute to the
price volatility of our common stock.





Because
of the limited trading volume of our common stock and the price volatility of
our common stock, you may be unable to sell your shares of our common stock when
you desire or at the price you desire.  Moreover, the inability to
sell your shares of our common stock in a declining market because of such
illiquidity or at a price you desire may substantially increase your risk of
loss.





Our
common stock may experience price volatility and, as a result, its market value
may also be volatile.  The limited trading volume of our common stock
may contribute to this price volatility.





The
trading price of our common stock is highly volatile.  We believe the
volatility of the trading price of our common stock is due to, among other
things, the results of our drilling program, current expectations of our future
financial performance, prices of oil and natural gas and the volatility of the
stock market in general.




Moreover,
our common stock does not have substantial trading volume.  As a
result, relatively small trades of our common stock may have a significant
impact on the price of our common stock and, therefore, may contribute to the
price volatility of our common stock.





Because
of the limited trading volume of our common stock and the price volatility of
our common stock, you may be unable to sell your shares of our common stock when
you desire or at the price you desire.  Moreover, the inability to
sell your shares of our common stock in a declining market because of such
illiquidity or at a price you desire may substantially increase your risk of
loss.





The
trading price of our common stock could be adversely affected by sales and
issuances of our common stock in the public markets.





At May
19, 2009, the three largest stockholders beneficially owned approximately 36.0%,
33.2% and 22.9%, respectively, and our directors and executive officers, as a
group, beneficially owned approximately 30.0%, of the then-outstanding shares of
our common stock (inclusive of options and warrants exercisable into shares of
our common stock).  Sales of our common stock by these stockholders,
or the perception that such sales might occur, could have a material adverse
effect on the trading price of our common stock or could impair our ability to
obtain capital through future offerings of equity securities.





Provisions
in our Articles of Incorporation may inhibit a takeover of the
Company.





Under our
certificate of incorporation, our Board of Directors is authorized to issue
shares of our capital stock without the approval of our
stockholders.  Issuance of such shares could make it more difficult to
acquire the Company without the approval of our Board of Directors as more
shares would have to be acquired to gain control.  This may deter
hostile takeover attempts that could result in an acquisition of us that would
have been financially beneficial to our stockholders.




23




Item
3.                                Legal
Proceedings.





There are
no pending legal proceedings, and we are not aware of any threatened legal
proceedings, to which we are a party or to which our property is
subject.




Item
4.                                Submission
of Matters to a Vote of Security Holders.





During
the six month transition period ended December 31, 2008, stockholders of the
Company ratified their previous authorization to amend our Articles of
Incorporation to (i) increase to 149,000,000 the authorized number of shares of
common stock of the Company and (ii) change the name of the Company to “Cross
Canyon Energy Corp.”  (collectively, the “Charter
Amendment”).  Authorization consisted of the written consent of record
holders of 14,151,000 shares of our common stock, representing 60.6% of the
issued and outstanding shares of  our common stock outstanding at the
initial consent of March 4, 2008 and subsequent ratifications given on each of
August 19, 2008, November 19, 2008 and again, on January 29, 2009.





On March
3, 2009 in accordance with the securities laws, the Company filed with the
Securities and Exchange Commission (“SEC”) and mailed to the stockholders of
record a definitive Information Statement on Schedule 14C, together with a copy
of the Certificate of Amendment, disclosing such consent and providing material
information regarding the Charter Amendment.





The
Charter Amendment became effective on March 24, 2009, upon the filing of the
Certificate of Amendment with the Secretary of State of the State of
Nevada.





24


PART II





Item
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.





Market
Information





Our common
stock is quoted on the OTC Bulletin Board (OTCBB) under the trading symbol
"CCYE."   Before our name change from ABC Funding, Inc. to Cross
Canyon Energy Corp. was effected by the OTCBB on May 5, 2009, we traded under
the old trading symbol “AFDG.”





Quarterly
      Period Ended:
            
            High
            
            
            Low2008December
      31
            
            $
            0.75
            
            
            $
            0.07September
      30
            
            $
            0.92
            
            
            $
            0.25June
      30
            
            $
            0.76
            
            
            $
            0.46March
      31
            
            $
            0.60
            
            
            $
            0.352007December
      31
            
            $
            0.50
            
            
            $
            0.30September
      30
            
            $
            0.57
            
            
            $
            0.37June
      30
            
            $
            0.51
            
            
            $
            0.28March
      31
            
            $
            0.55
            
            
            $
            0.35





The
closing sales price of our common stock on the OTC Bulletin Board on
December 31, 2008 was $0.07 per share.  On April 30, 2009, the
date of the last reported sale of our common stock, the closing sale price was
$0.10 per share.





There
were no repurchases of securities during the year ended and six-month transition
period ended December 31, 2008.





Our
common stock is covered by an SEC rule that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors, which are generally institutions
with assets in excess of $5,000,000, or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouse. For transactions covered by the rule, the broker-dealer must make a
special suitability determination for the purchaser and transaction prior to the
sale. Consequently, the rule may affect the ability of broker-dealers to
sell our securities, and also may affect the ability of purchasers of our common
stock to sell their shares in the secondary market. It may also cause fewer
broker-dealers to be willing to make a market in our common stock, and it may
affect the level of news coverage we receive.


25


Holders
of Securities





At May
19, 2009, there were approximately 160 holders of record of our common
stock.





We have
outstanding as of May 19, 2009: (i) employee stock options exercisable, subject
to vesting schedules in some cases, to purchase up to an aggregate 4,775,000
shares of common stock, (ii) warrants exercisable to purchase up to 36,324,996
shares of common stock, and (iii) a convertible promissory note in the principal
amount of $25,000, convertible into shares of common stock at $0.50 per
share. Under our outstanding restricted stock agreements which provide for
the issuance of an aggregate of 3,375,000 shares of common stock to our
executive officers, 1,125,000 automatically vested on March 24, 2009, upon
the effectiveness of the Charter Amendment in the State of Nevada.





Dividends


We have
not declared or paid any cash dividends on our common stock since our inception,
and our Board of Directors currently intends to retain all earnings for use in
the business for the foreseeable future. Any future payment of dividends
will depend upon our results of operations, financial condition, cash
requirements and other factors deemed relevant by our Board of
Directors. Pursuant to the Credit Facility, as long as there is outstanding
indebtedness thereunder, we may not declare or pay a cash dividend on our common
stock without the consent of our lender.




Recent
Sales of Unregistered Securities





We have
reported all sales of our unregistered equity securities that occurred during
the six month transition period ended December 31, 2008 in our Reports on Form
10-Q or Form 8-K, as applicable.





Equity
Compensation Plan Information





The
following table provides information as of our fiscal year ended December 31,
2008, about our equity compensation plans and arrangements:





Number
      of Securities
              To
      be Issued Upon
              Exercise
      of
              Outstanding
      Options,
              Warrants
      and Rights
            
            Weighted
      Average
              Exercise
      Price of
              Outstanding
      Options,
              Warrants
      and Rights
            Number
      of Securities
              Remaining
      Available
              For
      Future Issuance
              Under
      Equity
              Compensation
      Plans
              (Excluding
      Securities
              Reflected
      in Columns (a))Plan
      Category
            (a)
            
            (b)
            (c)Equity
      compensation plans approved bysecurity
      holders
            --
            
            $       --
            8,500,000Equity
      compensation plans not approvedby
      security holders
            10,875,000
            (3)
            0.40
            29,449,996
            (4)(5)Total
            10,875,000
            
            $   0.40
            37,949,996





26





(1)
            Excludes
      1,500,000 shares of our common stock reserved for issuance under our 2004
      Non-Statutory Stock Option Plan (the “2004 Plan”), which plan was
      terminated by our Board on September 19, 2008 in favor of our 2008 Stock
      Incentive Plan.  No options were granted under the 2004
      Plan.(2)
            Includes
      an aggregate of: (i) 750,000 shares of our common stock underlying
      restrictive stock awards not yet vested with respect to such shares
      pursuant to a Restricted Stock Agreement dated October 1, 2008, between us
      and our Senior Vice President of Operations, which awards vest with
      respect to one-third of the shares on each of the effective date of the
      Charter Amendment (March 24, 2009) and each of October 1, 2009 and 2010;
      and (ii) 1,000,000 shares of our common stock underlying options granted
      but not yet vested with respect to such shares pursuant to Option
      Agreements, each dated October 1, 2008, between us and our Senior Vice
      President of Operations, which options vest with respect to one-third of
      the shares on each of the effective date of the Charter Amendment (March
      24, 2009) and October 1, 2009 and 2010.  Each of these awards
      were granted pursuant to the Company’s 2008 Stock Option Plan which was
      approved by shareholders on January 29, 2009.(3)
            Consists
      of warrants and options granted to our employees, officers, directors and
      consultants, to the extent vested and exercisable (within the meaning of
      Rule 13d-3(d)(1) promulgated by the Commission under the Exchange Act as
      amended) as of December 31, 2008.(4)
            Includes
      an aggregate of: (i) 2,625,000 shares of our common stock underlying
      restrictive stock awards not yet vested with respect to such shares
      pursuant to Restricted Stock Agreements, each dated May 22, 2008, between
      us and our Chief Executive Officer and Chief Financial Officer,
      respectively, which awards vest with respect to one-third of the shares on
      each of the effective date of the Charter Amendment (March 24, 2009) and
      May 22, 2009 and 2010; and (ii) 2,625,000 shares of our common stock
      underlying options granted but not yet vested with respect to such shares
      pursuant to Option Agreements, each dated May 22, 2008, between us and our
      Chief Executive Officer and Chief Financial Officer, respectively, which
      options vest with respect to one-third of the shares on each of the
      effective date of the Charter Amendment (March 24, 2009) and May 22, 2009
      and 2010.(5)
            Also
      includes 24,199,996 shares or our common stock underlying warrant granted
      but not yet vested with respect to such shares pursuant to a warrant dated
      September 2, 2008 to a non-employee in consideration of services
      performed, which warrant expires five years from grant date and is
      exercisable, commencing upon the effective date of the Charter Amendment
      (March 24, 2009) to purchase up to 24,199,996 shares or our common at an
      exercise price of $0.35 per share.





Set forth
below is a description of the individual compensation arrangements or equity
compensation plans not currently approved by our security holders pursuant to
which the 10,875,000 shares of our common stock included in the chart above were
issuable as of December 31, 2008:





·
            Warrant
      granted by Energy Venture on March 1, 2006 (and assumed by us under the
      May 2006 Merger) to a non-employee in consideration of services performed,
      which warrant expires five years from grant date and is currently
      exercisable to purchase up to 350,000 shares of our common stock at an
      exercise price of $0.05 per share;


·
            Warrants
      granted by Energy Venture on March 1, 2006 (and assumed by us under the
      May 2006 Merger) to two non-employees in consideration of services
      performed, which warrants expire five years from grant date and are
      currently exercisable to purchase up to 750,000 shares of our common stock
      at an exercise price of $0.60 per
share;


·
            Warrants
      granted on December 28, 2006 to four non-employees in consideration of
      services performed, which warrants expire five years from grant date and
      are currently exercisable to purchase up to 1,500,000 shares of our common
      stock at an exercise price of $0.25 per
share;


·
            Warrants
      granted on May 22, 2007 to two non-employees in consideration of services
      performed, which warrants expire five years from grant date and are
      currently exercisable to purchase up to 900,000 shares of our common stock
      at an exercise price of $0.30 per
share;


·
            Option
      granted on May 22, 2007 to our former Chief Financial Officer in
      consideration of services performed, which option expires five years from
      grant date and is currently exercisable to purchase up to 150,000 shares
      of our common stock at an exercise price of $0.30 per
    share;


·
            Warrants
      granted on October 26, 2007 to two non-employees in consideration of
      services performed, which warrants expire five years from grant date and
      are currently exercisable to purchase up to 1,000,000 shares of our common
      stock at an exercise price of $0.35 per
share;


·
            Option
      granted on October 26, 2007 to our former Chief Financial Officer in
      consideration of services performed, which option expires five years from
      grant date and is currently exercisable to purchase up to 250,000 shares
      of our common stock at an exercise price of $0.35 per
    share;




27




·
            Warrants
      granted on December 19, 2007 to two non-employees in consideration of
      services performed, which warrants expire five years from grant date and
      are currently exercisable to purchase up to 1,100,000 shares of our common
      stock at an exercise price of $0.35 per
share;


·
            Option
      granted on December 29, 2007 to our former Chief Executive Officer in
      consideration of services performed, which option expires five years from
      grant date and is currently exercisable to purchase up to 500,000 shares
      of our common stock at an exercise price of $0.35 per
    share;


·
            Option
      granted on February 28, 2008 to a non-employee in consideration of
      services performed, which option expires five years from grant date and is
      currently exercisable to purchase up to 3,300,000 shares of our common
      stock at an exercise price of $0.54 per
share;


·
            Option
      granted on February 28, 2008 to our former Chief Executive Officer in
      consideration of services performed, which option expires five years from
      grant date and is currently exercisable to purchase up to 250,000 shares
      of our common stock at an exercise price of $0.54 per
    share;


·
            Warrant
      granted on May 21, 2008 to a non-employee in consideration of services
      performed, which warrant expires five years from the grant date and is
      currently exercisable to purchase up to 600,000 shares of our common stock
      at an exercise price of $0.33 per share; and·
            Warrant
      granted on May 22, 2008 to a non-employee in consideration of services
      performed, which warrant expires five years from grant date and is
      currently exercisable to purchase up to 225,000 shares or our common stock
      at an exercise price of $0.33 per
share.






28






Item 7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.




CAUTIONARY NOTE REGARDING FORWARDING-LOOKING
STATEMENTS
  The
Company desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.  This report contains a
number of forward-looking statements that reflect management's current views and
expectations with respect to our business, strategies, future results and events
and financial performance.  All statements made in this report other
than statements of historical fact, including statements that address operating
performance, events or developments that management expects or anticipates will
or may occur in the future, including statements related to future reserves,
projections, cash flows, revenues, profitability, adequacy of funds from
operations, statements expressing general optimism about future operating
results and non-historical information, are forward-looking
statements.  In particular, the words "believe," "expect," "intend," "
anticipate," "estimate," "may," "will," variations of such words and similar
expressions identify forward-looking statements, but are not the exclusive means
of identifying such statements and their absence does not mean that the
statement is not forward-looking.  Forward-looking statements are
subject to certain risks, uncertainties and assumptions, including those
discussed below and elsewhere in this report under “ Risk Factors” and apply
only as of the date of this report.  Our actual results, performance
or achievements could differ materially from historical results as well as those
expressed in, anticipated or implied by these forward-looking
statements.  Factors that could cause or contribute to such
differences include, but are not limited to those discussed elsewhere in this
report, and the risks discussed in our press releases and other communications
to shareholders issued by us from time to time, which attempt to advise
interested parties of the risks and factors that may affect our
business.  We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.


General
Overview





On
September 2, 2008, we completed the Voyager Acquisition, whereby Voyager was
designated as our predecessor and we succeeded to substantially all of its
business operations and properties, including the Duval County Properties,
consisting of ownership interests in oil and natural gas lease blocks in Duval
County, Texas (the “Duval County Properties”) covering approximately 14,300 net
acres. Since completing the Voyager Acquisition, we are engaged in the
exploration, production, development and exploitation of the crude oil and
natural gas reserves located in the Duval County Properties. We believe
that these properties and other assets acquired in the Voyager Acquisition will
provide us a number of opportunities to realize increased production and
revenues. We also believe that the reserve base located in the Duval County
Properties can be further developed through infill and step-out drilling of new
wells, workovers targeting proved reserves and stimulating existing
wells. As such, we plan to investigate and evaluate various formations
therein to potentially recover additional incremental oil and natural gas
reserves and to create new drilling programs to exploit the full reserve
potential of the reservoirs located therein.





To date,
we have performed recompletions and/or remedial workovers on seven of
the wells acquired in the Voyager Acquisition.  Three of the wells
acquired were not producing on the date of acquisition and two of these wells
have been successfully recompleted to new formations and returned to a
productive status.  Attempts to return the third well to a productive
status were unsuccessful and we will now convert this well to a salt water
disposal well with the goal of reducing our salt water disposal costs, a
significant component of our lease operating expenses, by approximately $40,000
per month.  Of the remaining four wells, one of the recompletion
attempts was unsuccessful and three were successful.  Since the date
of the acquisition, we have incurred approximately $882,000 in capital
expenditures on this program.





We have a
180 day drilling clause on one of our major leases with the initial well to
begin drilling operations by March 31, 2009, or at our option, renew the lease
by paying a significant amount for a lease renewal.  Based upon our
acquired 3-D seismic database, we identified a shallow, 3,000 foot prospect with
potential for 0.5 Bcf of natural gas reserves.  On March 26, 2009, we
began drilling operations and on March 31, 2009, ran electric logs on the well
and determined the target reserves had been pressure depleted.  We
elected to plug and abandon the well on April 1, 2009.  By drilling
this well, we successfully extended the large lease by 180 days.  We
incurred approximately $180,000 in drilling costs on this well. We believe
there are additional shallow well opportunities on the acquired acreage and,
with the assistance of our consulting geoscientist, are continuing to analyze
the sub-surface structure.  Our next drilling operations on this lease
must begin within 180 days of the plugging and abandonment date, or September
29, 2009.





29




We intend
to utilize 3-D seismic analysis from our acquired seismic database and other
modern technologies and production techniques to enhance our production and
returns, and, although seismic indications of hydrocarbon saturation are
generally not reliable indicators of productive reservoir rock and other modern
technologies such as well logs are not always reliable indicators of hydrocarbon
productivity, we believe use of such technologies and production techniques in
exploring for, developing and exploiting oil and natural gas properties will
help us reduce drilling risks, lower finding costs and provide for more
efficient production of oil and natural gas from our properties.  This
proprietary 3-D seismic data has been reprocessed by us and has improved the
subsurface imaging over our acreage position.





We also
intend to continue to review opportunities to acquire additional producing
properties, leasehold acreage and drilling prospects that are located in and
around the Duval County Properties, or which might result in the establishment
of new drilling areas. When identifying acquisition candidates, we focus
primarily on underdeveloped assets with significant growth potential. We
seek acquisitions which allow us to absorb, enhance and exploit properties
without taking on significant geologic, exploration or integration
risk.




The
implementation of our foregoing strategy will require that we make significant
capital expenditures in order to replace current production and find and develop
new oil and gas reserves. In order to finance our capital program, we will
depend on cash flow from anticipated operations, cash or cash equivalents on
hand, or committed credit facilities, as discussed below in “Liquidity and Capital
Resources.”




On May 5, 2009, as part of a
semi-annual redetermination of the borrowing base under the Credit Facility, our
senior lender notified us that our borrowing base was being reduced to $1
million, causing our outstanding loans under the Revolving Loan to exceed the
new borrowing base by $10.5 million.





If we are
unable to raise additional capital from conventional sources, including lines of
credit and sales of stock in the future, we may be forced to curtail or cease
our business operations. We may also be required to seek additional capital
by selling debt or equity securities, selling assets, or otherwise be required
to bring cash flows in balance when we approach a condition of cash
insufficiency. We cannot assure you, however, that financing will be
available in amounts or on terms acceptable to us, or at all. This is
particularly a concern in light of the current illiquidity in the credit
markets, as well as the current suppressed oil and natural gas pricing
levels. Even if we are able to continue our operations, the failure to
obtain sufficient financing could have a substantial adverse effect on our
business prospects and financial results.





Our
forecasted operating needs and funding requirements, as well as our projected
ability to obtain adequate financial resources, involve risks and uncertainties,
and actual results could vary as a result of a number of factors.





Our
business and prospects must also be considered in light of the risks and
uncertainties frequently encountered by companies in the oil and gas
industry. The successful development of oil and natural gas fields is
highly uncertain and we cannot reasonably estimate or know the nature, timing
and estimated expenses of the efforts necessary to complete the development of,
or the period in which material net cash inflows are expected to commence from,
any oil and natural gas production from our existing fields or other fields, if
any, acquired in the future. Risks and uncertainties associated with oil
and natural gas production include:





·
            reservoir
      performance and natural field
decline;


·
            changes
      in operating conditions and costs, including costs of third party
      equipment or services such as drilling rigs and
  shipping;


·
            the
      occurrence of unforeseen technical difficulties, including technical
      problems that may delay start-up or interrupt
  production;


·
            the
      outcome of negotiations with co-venturers, governments, suppliers, or
      other third party operators;


·
            our
      ability to manage expenses
successfully;


·
            regulatory
      developments, such as deregulation of certain energy markets or
      restrictions on exploration and production under laws and regulations
      related to environmental or energy security matters;
  and


·
            volatility
      in crude oil and natural gas prices, actions taken by the Organization of
      Petroleum Exporting Countries to increase or decrease production and
      demand for oil and gas affected by general economic growth rates and
      conditions, supply disruptions, new supply sources and the competitiveness
      of alternative hydrocarbon or other energy
  sources.


30


Revenue
and Expense Drivers





Revenue
Drivers





Crude Oil and Natural Gas
Sales.Our
revenues are generated from production of crude oil and natural gas which are
substantially dependent upon prevailing prices. Our future production is
impacted by our drilling and workover success, acquisitions and decline curves
on our existing production. Prices for oil and natural gas are subject to
large fluctuations in response to relatively minor changes in the supply of or
demand for oil and natural gas, market uncertainty and a variety of additional
factors beyond our control. We enter into derivative instruments for a
portion of our oil and natural gas production to achieve a more predictable cash
flow and to reduce our exposure to adverse fluctuations in the prices of oil and
natural gas.





We sell
all of our oil and natural gas at current market prices determined at the
wellhead. We are required to pay gathering, compression and transportation
costs with respect to substantially all of our products or incur such costs to
deliver our products to a sales point. We market our products in several
different ways depending upon a number of factors, including the availability of
purchasers for the product at the wellhead, the availability and cost of
pipelines near the well, market prices, pipeline constraints and operational
flexibility.





Operating
Expenses





Our
operating expenses primarily involve the expense of operating and maintaining
our wells.





·
            Lease Operating.Our lease
      operating expenses include repair and maintenance costs, contract labor
      and supervision, salt water disposal costs, expense workover costs,
      compression, electrical power and fuel costs and other expenses necessary
      to maintain our operations. Our lease operating expenses are driven
      in part by the type of commodity produced and the level of maintenance
      activity. Ad valorem taxes represent property taxes on our
      properties.


·
            Production
      Taxes.Production taxes represent the taxes paid on
      produced oil and gas on a percentage of market (our price received from
      the purchaser) or at fixed rates established by federal, state or local
      taxing authorities.


·
            ExplorationExpense.  We
      use the successful efforts method of accounting for our oil and natural
      gas operations.  As such, exploration costs and dry hole costs
      are recognized as expenses when incurred.  These costs include
      the costs of acquiring seismic data and the interpretation of the data,
      delay rental payments incurred in extending leased acreage and other
      exploration costs.


·
            General and Administrative
      Expenses.General and
      administrative expenses include employee compensation and benefits,
      non-cash compensation expense of restricted stock awards and stock
      options, professional fees for legal, accounting and advisory services and
      corporate overhead.


·
            Depreciation, Depletion and
      Amortization.  Depreciation, depletion and amortization
      represent the expensing of the capitalized cost of our oil and gas
      properties using the unit of production method and our other property and
      equipment using the straight-line
method.





Other
Income and Expenses





Other
income and expenses consist of the following:





·
            Interest Income.We generate
      interest income from our cash
deposits.


·
            Interest Expense.Our
      interest expense reflects our borrowings under our CIT Credit Facility,
      other short-term notes and amortization of debt discounts and deferred
      financing costs.


·
            Risk Management.The
      results of operations and operating cash flows are impacted by changes in
      market prices for oil and natural gas.  To mitigate a portion of
      this exposure, we have entered into certain derivative instruments which
      have not been elected to be designated as cash flow hedges for financial
      reporting purposes.  Generally, our derivative instruments are
      comprised of fixed price swaps as defined in the instruments. These
      instruments are recorded at fair value and changes in fair value,
      including settlements, have been reported as risk management in the
      consolidated statements of
operations.


·
            Change in Fair Value of
      Derivatives.We mark-to-market
      our derivative liabilities each reporting period and record the change in
      the derivative liability to change in fair value of derivatives in the
      consolidated statements of
operations.




31




Oil
and Natural Gas Properties – Impairment





We test
for impairment of our properties based on estimates of proved
reserves.  Proved oil and natural gas properties are reviewed for
impairment whenever events or circumstances indicate that the carrying amount
may not be recoverable.  We estimate the future undiscounted cash
flows of the affected properties to judge the recoverability of the carrying
amounts.  This analysis is based on proved reserves.  An
asset would be impaired if the undiscounted cash flows were less than its
carrying value.  Impairments are measured by the amount by which the
carrying value exceeds its fair value.





Impairment
analysis is performed on an ongoing basis.  In addition to using
estimates of oil and natural gas reserve volumes in conducting impairment
analysis, it is also necessary to estimate future oil and natural gas prices and
costs, considering all available evidence at the date of review.  The
impairment evaluation triggers include a significant long-term decrease in
current and projected prices or reserve volumes, an accumulation of project
costs significantly in excess of the amount originally expected and historical
and current negative operating losses.  Although we evaluate future
oil and natural gas prices as part of the impairment analysis, we do not view
short-term decreases in prices, even if significant, as impairment triggering
events.





Basis
of Presentation





For management discussion and analysis
purposes, the operational data for the year ended December 31, 2008
represents the mathematical addition of the results of Voyager, as predecessor,
for the period January 1, 2008 through September 1, 2008 and for us, as
successor, for the period September 2, 2008 through December 31, 2008, referred
to as the “Combined Entity”.  Although this approach is not consistent
with generally accepted accounting principles, we believe it is the most
meaningful way to review the operational data for the year ended December
31, 2008 compared to the year ended December 31, 2007.  A discussion
of the partial period January 1, 2008 through September 1, 2008, separately from
the period September 2, 2008 compared to the year ended December 31, 2007 would
not be meaningful.


32


Operational
Data





Operational
      data follow for the years ended December 31, 2008 and 2007
      follow:





Years
      Ended December 31,2008
            
            
            2007Oil
      and natural gas revenue
            
            $
            12,703,787
            
            
            $
            11,348,577Operating
      costs and expenses:Lease
      operating expenses
            
            
            2,629,448
            
            
            
            2,464,653Production
      taxes
            
            
            804,414
            
            
            
            836,349Exploration
      expense
            
            
            20,652
            
            
            
            9,399Accretion
      of asset retirement obligation
            
            
            61,174
            
            
            
            --Depletion,
      depreciation and amortization
            
            
            2,704,993
            
            
            
            1,758,320General
      and administrative expense
            
            
            2,030,556
            
            
            
            970,701Total
      operating costs and expenses
            
            
            8,251,237
            
            
            
            6,039,422Income
      from operations
            
            
            4,452,550
            
            
            
            5,309,155Other
      income (expense):Interest
      expense, net
            
            
            (2,531,020
            )
            
            
            (979,832
            )Risk
      management
            
            
            2,203,749
            
            
            
            (609,225
            )Loss
      on extinguishment of debt
            
            
            (547,045
            )
            
            
            --Gain
      on sale of oil and gas properties
            
            
            --
            
            
            
            12,702,811Change
      in fair value of derivatives
            
            
            18,235,468
            
            
            
            --Total
      other income (expense)
            
            
            17,361,152
            
            
            
            11,113,754Income
      before income taxes
            
            
            21,813,702
            
            
            
            16,422,909Income
      taxes
            
            
            577,194
            
            
            
            5,843,533Net
      income
            
            $
            21,236,508
            
            
            $
            10,579,376




Years Ended December 31, 2008 and 2007




The
following table represents sales of oil and natural gas and realized prices for
the years ended December 31, 2008 and 2007:





Years
      Ended December 31,2008
            
            
            2007Net
      sales:Oil
      (Bbls)
            
            
            58,214
            
            
            
            45,960Natural
      gas (Mcf)
            
            
            696,443
            
            
            
            1,067,960Weighted
      average sales prices:Oil
      ($ per Bbl)
            
            $
            100.24
            
            
            $
            88.26Natural
      gas ($ per Mcf)
            
            $
            9.86
            
            
            $
            6.83





Revenue.  Revenue
for the Combined Entity for the year ended December 31, 2008 was $12,703,787
compared to the Predecessor Entity revenue of $11,348,577 for the year ended
December 31, 2007.  This was an increase of $1,355,210, or 12%, over
the 2007 period.  Net production of crude oil for the 2008 period
increased to 58,214 barrels (159 BOPD) compared to 45,960 (126 BOPD) for the
2007 period.  During 2007, the Predecessor Entity added additional
perforations to an oil zone in its Marchbanks-Cadena Well No. 115.  A
significant increase in production occurred and as a result, the well produced
approximately 27,000 more net barrels of crude oil in 2008 when compared to
2007.  The Marchbanks-Cadena Well No. 131 was drilled during the 2007
period and added net oil production of 3,552 barrels to the 2008
period.  The Combined Entity experienced a decline of net production
of approximately 18,000 barrels during 2008 when compared to 2007 as a result of
normal production decline.  Based upon our third party engineering
report prepared as of December 31, 2008, we are projecting net crude oil
production from our proved producing Duval County Properties for fiscal year
2009 of approximately 28,260 barrels.





33




The
Combined Entity realized an average price for the sale of our crude oil during
the 2008 period of $100.24 per barrel compared to $88.26 per barrel during the
2007 period.  We have experienced a significant decrease in realized
prices for the sale of our crude oil during 2009 and do not believe that the
price of crude oil will return to its previous 2008 levels in the near
future.  Our third party engineering report was prepared using a crude
oil price of $42.41 per barrel, adjusted for transportation differentials of
$1.25 per barrel, on December 31, 2008.





Net production of natural gas for the
2008 period was 696,443 Mcf’s (1,908 Mcf/d) compared to 1,067,960 Mcf’s (2,926
Mcf/d) for the 2007 period.  During 2007, our Predecessor Entity
drilled the Marchbanks-Cadena Well No. 131 which added approximately 60,000 net
Mcf’s to our production during the 2008 period.  In addition,
additional perforations were added to the Hilda Parr Well No. 102 during the
2007 period which production remained the same when compared to the 2007
period.  The producing zones of two wells depleted during the 2008
period.  We were unable to recomplete these wells to producing zones
which accounted for approximately 113,000 Mcf’s of the decline in net
production.  The balance of the decrease of approximately 318,000 net
Mcf’s was due to normal production declines in the remaining producing
wells.  Based upon our third party engineering report prepared as of
December 31, 2008, we are projecting net natural gas production from our proved
producing Duval County Properties for fiscal year 2009 of approximately 398,570
Mcf’s.





The
Combined Entity realized an average price for the sale of our natural gas during
the 2008 period of $9.86 per Mcf compared to $6.83 per Mcf during the 2007
period.  As with the price of crude oil, we have experienced a
significant decrease in realized prices for the sale of our natural gas during
2009 and do not believe that the price of natural gas will return to its
previous 2008 levels in the near future.  Our third party engineering
report was prepared using a natural gas price of $6.01 per Mcf, adjusted for
contract terms and Btu content, on December 31, 2008.





Lease Operating
Expenses.  Lease operating expenses are primarily comprised of
well and lease surface and sub-surface maintenance and repair, contract labor
and supervision, salt water disposal costs, natural gas compression, ad valorem
taxes and other expenses necessary to maintain our operations.  Lease
operating expenses for the Combined Entity for the year ended December 31, 2008,
were $2,629,448 compared to $2,464,653 for the year ended December 31,
2007.  A significant portion of lease operating expenses for both the
2008 and 2007 periods were attributable to well workover
expenses.  During the year ended December 31, 2008, the Predecessor
Entity incurred approximately $1,508,000 in well workover
expenses.  Three wells received remedial subsurface workovers in an
attempt to increase production by adding perforations and
fracing.  All three of these workovers were deemed
unsuccessful.  During the 2007 period the Predecessor Entity performed
well workovers on six wells and incurred workover expenses of approximately
$1,628,000.  The workovers primarily included adding additional
perforations to existing productive zones and performing fracing operations
within existing zones.  Of these six workovers, three were performed
successfully.





We lease four compressors to compress
our natural gas and deliver to our purchaser.  Natural gas compression
fees are a significant component of our lease operating expenses and amounted to
approximately $330,000 and $372,000 for each the years ended 2008 and 2007,
respectively.  We have negotiated a reduction in the rental rates for
three of the four rental compressors and expect to realize a monthly savings of
approximately $10,000 beginning in April 2009.  Another significant
component of lease operating expenses is the cost of hauling produced salt water
to an offsite facility for disposal.  Those costs were approximately
$507,000 and $205,000 for the years ended December 31, 2008 and 2007,
respectively.  The increase for the 2008 period resulted from
increased salt water production associated with the increased oil production
from the Marchbanks-Cadena Well No. 115.  We have identified a
non-productive wellbore which, during fiscal 2009, we will convert to a salt
water disposal well to significantly reduce our salt water disposal
fees.  We have filed our application for conversion of this well with
the Railroad Commission of Texas and received approval on April 23, 2009. 
We estimate the capital cost to convert this wellbore to a salt water disposal
well to be approximately $150,000.





34




Ad valorem taxes associated with the Duval County Properties increased from
approximately $162,000 for the 2007 period to approximately $209,000 for the
2008 period.  The increase was a result of increased reserve values
associated with the significant increase in product prices.  We
believe we can reduce our ad valorem taxes for fiscal 2009 as a result of a
reduction in proved producing reserves and lower product prices and are working
with our ad valorem tax consultants to file the necessary renditions with the
Duval County tax assessor to reduce the valuations.





Other costs of operating our Duval
County Properties are the costs of daily well gauging, lease surface
maintenance, chemicals and supplies.  These costs for the 2008 period
approximated $122,000 compared to $97,653 for the 2007 period.





Production
Taxes.  Production taxes are comprised of theamounts we are
obligated to pay to various regulatory agencies, which taxes are based on the
value we receive from the sale of our oil and natural gas.  Production
taxes for the Combined Entity for the year ended December 31, 2008 were
$804,414 compared to $836,349 for the year ended December 31, 2007.  All of
our revenue is attributable to the State of Texas. Severance taxes in the
State of Texas are based upon the value of crude oil sold and natural gas
produced and sold. Crude oil is taxed at the rate of 4.6% of the value sold
and natural gas is taxed at the rate of 7.5% of the value of the natural gas
produced. The difference in the tax rates on crude oil and natural gas
resulted in a decrease in production taxes for the 2008 period, even though
revenue for the 2008 period was greater than the 2007 period..





Exploration
Expense.  Exploration expense is comprised of costs of finding
and exploring for oil and natural gas and the cost of exploratory wells which do
not find oil and natural gas reserves in commercial quantities.  The
Combined Entity reported exploration expenses of $20,652 for the year ended
December 31, 2008 compared to $9,399 for the 2007 period.  The 2008
period expenses were attributable to fees paid to our consulting geoscientist
who is performing geophysical interpretations of our acquired 3-D seismic
database.  We anticipate our exploration expenses will increase in the
future as we continue to analyze our 3-D seismic database for additional
drilling opportunities.





Accretion of Asset Retirement
Obligation.  We have recorded the fair value of the asset
retirement obligation relating to dismantlement and plugging and abandonment
costs, excluding salvage values, of the Voyager Acquisition.  Over
time, accretion of this liability is recognized each period, and the capitalized
cost is amortized over the useful life of the related assets.  For the
year ended December 31, 2008 the Combined Entity recorded accretion expense of
$61,174.  Our Predecessor Entity established its asset retirement
obligation as of December 31, 2007, and consequently did not
record accretion of its asset retirement obligationduring the year ended
December 31, 2007.





Depletion, Depreciation and
Amortization.  We use the unit-of-production method to charge
to expense the capitalized costs of our proved oil and natural gas properties on
a field by field basis.  Under this method, depletion is calculated by
multiplying our capitalized costs of proved oil and natural gas properties by a
fraction, the numerator being the equivalent production during the period and
the denominator being the total proved equivalent oil and natural gas
reserves.  Depletion expense for the Combined Entity for the year
ended December 31, 2008, was $2,695,421, or $2.58 per equivalent Mcf (“Mcfe”),
compared to depletion expense of the Predecessor Entity of $1,750,808, or $1.30
per Mcfe for the 2007 period.  The increase in the depletion rate per
Mcfe for the 2008 period was attributable to the increased value of our proved
properties and decrease in proved reserves.  We depreciate our fixed
assets on a straight-line basis over the useful lives of the assets ranging from
one to seven years.


35


General and Administrative
Expenses.  The following table summarizes general and
administrative expenses for each of the years ended December 31, 2008 and
2007:





Years
      Ended December 31,2008
            
            
            2007Payroll
      and related expenses
            
            $
            1,264,154
            
            
            $
            495,666Office
      administration
            
            
            85,475
            
            
            
            49,523Professional
      fees
            
            
            312,577
            
            
            
            149,479Financial
      advisory and directors fees
            
            
            78,750
            
            
            
            105,000Other
      expenses
            
            
            289,600
            
            
            
            171,033Total
      general and administrative expenses
            
            $
            2,030,556
            
            
            $
            970,701





General
and administrative expenses for the year ended December 31, 2008 were $2,030,556
compared to $970,701 for the year ended December 31, 2007.  Payroll
and related expenses increased by $768,488 to $1,264,154 for the year ended
December 31, 2008 compared to $495,666 for the year ended December 31,
2007.  In accordance with the employment agreements we entered into
with our Chief Executive Officer, Chief Financial Officer and Senior Vice
President of Operations, we granted restricted stock awards and stock options to
each of these individuals and recorded compensation expense of $716,588 for the
period September 2, 2008 to December 31, 2008.  Our Predecessor Entity
was not a publicly traded company and had no restricted stock or stock option
compensation expense during the period January 1, 2008 to September 1, 2008 or
the year ended December 31, 2007.  Additional increases resulted from
the successor company having four employees subsequent to September 1,
2008.





Office administration expenses for the
2008 period totaled $85,475 which was comprised of office rent, telephone and
communications and other office expenses.  This was an increase of
$35,952 when compared to the 2007 period.  Office administration
expenses will increase in the future, primarily due to us relocating to our new
corporate offices and increased levels of activity.





Professional fees which are comprised
of legal, accounting and audit, engineering and other consulting fees were
$312,577 for the 2008 period compared to $149,479 for the 2007
period.  We experienced an increase in accounting and audit fees over
the 2007 period primarily as a result of our public company reporting to the
SEC.  We also experienced an increase in our legal fees due to a
significant increase in matters requiring increased involvement by our outside
legal firm, which activities included increased assistance in complying with our
SEC filings and general corporate matters.  As we do not employ a
reservoir engineer, we incurred increased reservoir engineering fees directly
related to our entry into the oil and natural gas business.  We also
incurred other professional fees from outside consultants assisting us with the
valuation of our derivative assets and liabilities and updated filings with the
Railroad Commission of Texas.





Financial advisory and director fees
are fees incurred by our predecessor entity pursuant to an agreement between
Voyager and Natural Gas Partners.  Upon closing of the Voyager
Acquisition, the financial advisory agreement between Voyager and Natural Gas
Partners was terminated.





Other expenses increased from $171,033
for the 2007 period to $289,600 for the 2008 period.  Included in
other expenses are the cost of travel and entertainment, directors’ and
officers’ liability insurance, investor relations, state franchise taxes and
property taxes.  The increase was primarily attributable to increased
state franchise taxes for the 2008 period.





Income from
Operations.  For the year ended December 31, 2008, we reported
income from operations of $4,452,550 compared to income of $5,309,155 for the
year ended December 31, 2007.


36


Interest Expense,
net.  The following table lists in comparative format the
details of interest expense for the years  ended December 31, 2008 and
2007:





Years
      Ended December 31,2008
            
            
            2007Interest
      on convertible notes
            
            $
            1,000
            
            
            $
            --Amortization
      of deferred financing costs and debtdiscounts
      on convertible debentures
            
            
            480,103
            
            
            
            --Interest
      on BOT Credit Facility
            
            
            508,966
            
            
            
            979,832Interest
      on CIT Credit Facility
            
            
            760,728
            
            
            
            --CIT
      Credit Facility commitment fees
            
            
            3,311
            
            
            
            --Amortization
      of CIT Credit Facility deferred financing costs
            
            
            181,938
            
            
            
            --Amortization
      of CIT Credit Facility debt discounts
            
            
            585,924
            
            
            
            --Other
            
            
            9,050
            
            
            
            --$
            2,531,020
            
            
            $
            979,832





We
incurred interest expense for the year ended December 31, 2008, of $2,531,020
compared to $979,832 for the year ended December 31, 2007.  The
primary component of interest expense for the 2008 period is interest incurred
on our CIT Credit Facility and Voyager’s BOT Credit Facility.  Other
significant components of interest expense are the write-off due to the
repayment of the convertible debentures made up of deferred financing costs and
debt discounts totaling $480,103 and the amortization of deferred financing
costs and debt discounts as a result of our CIT Credit Facility of $181,938 and
$585,924, respectively.





Risk
Management.  The gain recorded from our risk management
position for 2008 was $2,203,749 compared to a loss for the 2007 period of
$609,225. We mark-to-market our open swap positions at the end of each
period and record the net unrealized gain or loss during the period as risk
management in our consolidated statements of operations. At December 31,
2008, we recorded an unrealized gain of $2,169,063 related to our swap
contracts. These swap contracts are related to an agreement entered into on
September 2, 2008, with Macquarie Bank Limited. In the first contract we
agreed to be the floating price payer (based on Inside FERC Houston Ship
Channel) on specific quantities of natural gas over the period beginning October
1, 2008 through December 31, 2011 and receive a fixed payment of $7.82 per
MMBTU. In the second contract we agreed to be the floating price payer
(based on the NYMEX WTI Nearby Month Future Contract) on specific monthly
quantities of oil over the period beginning October 1, 2008 through December 31,
2011 and receive a fixed payment of $110.35 per barrel.





Fair
value is estimated based on forward market prices and approximates the net gains
and losses that would have been realized if the contracts had been closed out at
period-end. When forward market prices are not available, they are
estimated using spot prices adjusted based on risk-free rates, carrying costs,
and counterparty risk.


During
the period September 2, 2008 through December 31, 2008, we recorded realized
gains on our crude oil and natural gas swap contracts of $180,121 and $189,049,
respectively.  In addition to the above, we were required to unwind
Voyager’s hedge positions upon closing of the Voyager Acquisition on September
2, 2008. We recorded a gain from unwinding Voyager’s natural gas hedge
position of $48,864.





Loss on Extinguishment of
Debt.  We recorded a loss on the extinguishment of debt for the
year ended December 31, 2008 of $547,045.  On September 2, 2008, we
converted $450,000 principal amount of the convertible debentures to 10,000
shares of our Series E Preferred stock which automatically converted into
1,363,636 shares of our common stock on March 24, 2009, the effectiveness of our
Charter Amendment filed with the State of Nevada. We fair valued the common
stock at September 2, 2008, and recorded a loss on extinguishment of debt of
$804,545.  On September 2, 2008, as part of a commission due to Global
Hunter Securities, LLC (“GHS”) in relation to us entering into the Credit
Facility, we issued to GHS a non-interest bearing promissory not in the
principal amount of $557,500 due on March 15, 2009.  On October 6,
2008, GHS agreed to a lump sum payment of $300,000 as full payment of the
promissory note.  We recorded a gain on extinguishment of debt of
$257,500 pursuant to this note repayment.




37




Change in Fair Value of Derivative
Liabilities.  We mark-to-market our derivative liabilities each
period to report the change in fair value. For the period from September 2,
2008 through December 31, 2008, the change in fair value of our derivative
liabilities was a gain of $18,235,468. The derivative liabilities exist
because at December 31, 2008, we have insufficient authorized and unissued
shares of our common stock to settle our contracts including the outstanding
preferred stock (Series A, B, D, and E), our outstanding warrants and stock
options and our outstanding convertible debt. On March 24, 2009, we filed
the Charter Amendment and increased our number of authorized shares of common
stock from 24,000,000 to 149,000,000, and we now have sufficient authorized and
unissued shares to settle these contracts.





Net Income.  For
2008, we realized net income of $21,236,508 compared to net income of
$10,579,376 for the year ended December 31, 2007.





Liquidity
and Capital Resources





Our main
sources of liquidity and capital resources for the fiscal year 2009 will be cash
on hand, internally generated cash flows from operations following the Voyager
Acquisition and our Credit Facility.  As of December 31, 2008, we had
cash on hand in unrestricted accounts of $1,273,077 and working capital,
excluding restricted cash and the effects of derivative assets and liabilities,
of $241,141.





Cash
Flows





The
following table summarizes the Combined Entity and Predecessor Entity cash
flows for the years ended December 31, 2008 and 2007:





Years
      Ended December 31,2008
            
            
            2007Net
      cash provided by operating activities
            
            $
            5,758,726
            
            
            $
            7,067,430Net
      cash provided by investing activities
            
            
            1,059,825
            
            
            
            21,833,878Net
      cash used in financing activities
            
            
            (3,707,244
            )
            
            
            (29,533,063
            )Net
      increase (decrease) in cash
            
            $
            3,111,307
            
            
            $
            (631,755
            )





Net Cash Provided by Operating
Activities.  Net cash provided by operating activities
decreased by $1,308,704 for the year ended December 31, 2008 to $5,758,726 as
compared $7,067,430 for our fiscal 2007.  The Combined Entity reported
net income of $21,236,508, which is partially offset by a gain in the change of
the fair value of energy swap derivatives of $1,960,767 and a gain in the change
in the fair value of derivative liabilities of $18,235,468.  The
Combined Entity also reported non-cash charges totaling $4,277,961 comprised of
depletion, depreciation and amortization of $2,704,992, accretion of asset
retirement obligation of $61,174, shared based compensation of $719,588,
amortization of deferred financing fees and debt discounts
of  $230,356 and $1,032,163, respectively, a loss on extinguishment of
debt of $547,045 and deferred income tax benefit of
$1,017,357.  Subsequent to the Voyager Acquisition, we began
operations as an oil and gas producing company.  As such, the Combined
Entity experienced an increase in its accounts receivable due to oil and natural
gas sales to its purchasers of $230,937.  Prepaid assets and other assets
decreased by $6,737 and other long-term assets decreased by $13,107 for the
Combined Entity.  The Combined Entity’s accounts payable decreased by
$504,932 primarily as a result of our payments of legal and accounting fees
incurred prior to closing the Voyager Acquisition and Voyager paying off its
accounts payable prior to closing.  Accrued liabilities, which
includes royalties payable, severance taxes payable, accrued interest payable
and income taxes currently payable increased by $1,156,537.  We
assumed $597,926 of Voyager’s accrued liabilities upon closing of the Voyager
Acquisition.





38




For the year ended December 31, 2007, net cash provided by operating activities
was $7,067,430.  The Predecessor Entity reported net income of
$10,579,376 which was more than offset by the gain on the sale of its West Texas
properties of $12,702,811.  Non-cash charges totaled $8,757,942 and
were comprised of depletion, depreciation and amortization of $1,758,320,
deferred income taxes of $5,759,858 and an unrealized loss on its energy swap
hedges of $1,239,764.  Voyager experienced an increase in accounts
payable as a result of increased drilling activity and income taxes payable as a
result of its gain on the sale of assets of $327,730 and $86,007,
respectively.





Net Cash Provided by Investing
Activities.  Net cash provided by investing activities for the
year ended December 31, 2008, was $1,059,825.  Upon closing of the
Voyager Acquisition, we immediately began implementing our well workover program
on the Duval County Properties and incurred capital costs of approximately
$451,440 during the period.  During the period January 1 to September
1, 2008, Voyager incurred capital expenditures on its Duval County Properties of
approximately $318,053.  In addition, we acquired certain computer
software and hardware and other office furniture and fixtures for $35,128 to
provide the tools needed for our employees and we assumed cash of $1,864,446 in
the acquisition of Voyager.





During the year ended December 31,
2007, Voyager sold its West Texas properties and received cash proceeds of
$29,029,038.  During 2007, Voyager drilled four wells on the Duval
County Properties and incurred capital expenditures totaling
$7,195,160.  Of these four wells, two were considered successful and
are currently producing.  Two of the wells were considered
unsuccessful as a result of mechanical problems subsequent to drilling
operations.  These wells were not plugged and abandoned and we are
currently evaluating these two wells to determine if they can be salvaged and
placed on production.





Net Cash Used in Financing
Activities.  Net cash used in financing activities for the year
ended December 31, 2008 for the Combined Entity was $3,707,244.  We
received net proceeds of $3,027,855 after payment of the cash portion of the
Voyager Acquisition in the amount of $33.5 million, repaid $450,000
principal amount of the Debentures and paid debt issuance costs of $1,108,005 on
our Credit Facility.   In addition, we made a payment of $300,000
principal amount on a promissory note to Global Hunter Securities,
LLC.  Our Predecessor Entity incurred a net reduction in its
borrowings under its BOT Credit Facility of $3,877,094.  During the
year ended December 31, 2007 with the proceeds from the sale of its West Texas
properties, the Predecessor Entity paid down its BOT Credit Facility by
$29,849,302 and incurred a bank overdraft at December 31, 2007 of
$316,239.





Credit
Facility





On
September 2, 2008 we entered into the Credit Facility, consisting of a $50
million senior secured revolving loan (“Revolving Loan”) and a $22 million term
loan (“Term Loan”).





The
Revolving Loan is subject to an initial borrowing base of $14.0 million, or an
amount determined based on semi-annual reviews of our proved oil and gas
reserves. As of September 2, 2008, we had borrowed $11.5 million under the
Revolving Loan to finance the Voyager Acquisition, to repay the related bridge
loan and transaction expenses, and to fund capital expenditures
generally. Monies advanced under the Revolving Loan mature on September 1,
2011 and bear interest at a rate equal to LIBOR plus 1.75% to 2.50%, as the case
may be.  On January 22, 2009, we obtained a six month LIBOR rate
expiring July 22, 2009 on $1.0 million principal amount of the Revolving Loan,
resulting in an annual interest rate of 4.045%.  On March 4, 2009, we
obtained a three month LIBOR rate expiring June 4, 2009 on $10.5 million
principal amount of the Revolving Loan, resulting in an annual interest rate of
3.77%. On September 30, 2008, we repaid $1 million of principal on the
Revolving Loan and on October 22, 2008, we borrowed $1 million on the Revolving
Loan.





The Term
Loan provides for a one-time advance to us of $22.0 million. We drew down
the full amount on September 2, 2008, to finance the Voyager Acquisition and to
repay the related bridge loan and transaction expenses. Monies borrowed
under the Term Loan mature on March 1, 2012 and bear interest at a rate equal to
LIBOR plus 5% during the first twelve months after closing and LIBOR plus 7.50%,
thereafter. On March 4, 2009, we obtained a three month LIBOR rate expiring
June 4, 2009, resulting in an annual interest rate of 6.27%.





39




On May 5, 2009, as
part of a semi-annual redetermination of the borrowing base under the Credit
Facility, our senior lender notified us that our borrowing base was being
reduced to $1.0 million, causing our outstanding loans under the Revolving Loan
to exceed the new borrowing base by $10.5 million.  Our credit
agreement provides that we repay such revolving loan amount in excess of the
reduced borrowing base within sixty days of such notification.  We are
currently in discussions with our senior lender to extend the sixty-day cure
period to enable us to negotiate a readjustment to our borrowing base and a
schedule for repaying any then-remaining borrowing base
deficit.  During such sixty-day period and for any additional
forbearance period, we intend to apply our excess cash flow toward prepayment of
such outstanding loan amounts in excess of the new borrowing
base.




On April
21, 2009, the administrative agent and lenders agreed to waive our failure to
comply with certain financial ratios, measured as of December 31, 2008, in the
Credit Facility with respect to (i) our ratio of EBITDAX to interest expense and
our ratio of total debt to EBITDAX under the Revolving Loan and (ii) our ratio
of total reserve value to total debt under the Term Loan.  Such agent
and lenders also waived compliance by us of these ratios for and during each
fiscal period ending in 2009.  As a condition to these waivers, we
agreed that no further borrowings or loans may be requested or made under the
Credit Facility unless and until the lenders, in their sole and absolute
discretion, shall otherwise agree in writing.
  In
addition to financial covenants, the Company is subject to various reporting
obligations under the credit agreement.  As part of the Company’s
aforementioned discussions with its senior lender with respect to the adjusted
borrowing base, the Company has obtained a waiver from its senior lender with
respect to certain covenants under the credit agreement.  The credit
agreement includes the requirement that none of the audited financial statements
for the Company, as reported on by its independent public accountants, contain a
“going concern” or like qualification or exception.  As a result of
the senior lender reducing the Company’s borrowing base to $1 million resulting
in the Company having a borrowing base excess of $10.5 million, the Company’s
independent public accountants have reported a “going concern”
qualification.  The Company is in discussions with its senior lender
to enter into a forbearance agreement and obtain a waiver of the going concern
opinion, however, as of the date of this filing the Company has not received a
waiver or entered into a forbearance agreement.  As a result, all of
the Company’s debt pursuant to the CIT Credit Agreement has been classified as
current on the Company’s balance sheet.  Failure
to obtain a waiver or otherwise remedy the “going concern” qualification by June
19, 2009 constitutes an Event of Default under our credit facility, permitting
our senior lender to declare all outstanding loans to the Company, together with
any accrued and unpaid interest thereon, immediately due and
payable.




All
borrowings under the Revolving Loan are secured by a first lien on all of our
assets and those of our subsidiaries. All borrowings under the Term Loan
are secured by a second lien on all of our assets and those of our
subsidiaries.





The loan
instruments evidencing the Revolving Loan contain various restrictive covenants,
including financial covenants requiring that we will not: (i) as of the last day
of any fiscal quarter, permit our ratio of EBITDAX (earnings before interest,
taxes depreciation amortization and exploration expenses) for the period of four
fiscal quarters then ending to interest expense for such period to be less than
2.0 to 1.0; (ii) at any time permit our ratio of total debt as of such time to
EBITDAX for the four fiscal quarters ending on the last day of the fiscal
quarter immediately preceding the date of determination for which financial
statements are available to be greater than 4.0 to 1.0; and (iii) permit, as of
the last day of any fiscal quarter, our ratio of (a) consolidated current assets
(including the unused amount of the total commitments, but excluding non-cash
assets under FAS 133) to (b) consolidated current liabilities (excluding
non-cash obligations under SFAS No. 133 and current maturities under the Credit
Facility) to be less than 1.0 to 1.0.





The loan
instruments evidencing the Term Loan also contain various restrictive covenants,
including financial covenants requiring that we will not: (i) permit, as of the
last day of any fiscal quarter, our ratio of (a) consolidated current assets
(including the unused amount of the total commitments, but excluding non-cash
assets under SFAS No. 133) to (b) consolidated current liabilities (excluding
non-cash obligations under FAS 133 and current maturities under the Credit
Facility) to be less than 1.0 to 1.0; and (ii) as of the date of any
determination permit our ratio of total reserve value as in effect on such date
of determination to total debt as of such date of determination to be less than
2.0 to 1.0.





As part
of the consideration for entry into the Credit Facility, on September 2, 2008 we
granted CIT Capital a warrant, exercisable for up to 24,199,996 shares of our
common stock, at an exercise price of $0.35 per share (the “CIT
Warrant”).  The CIT Warrant expires on September 2, 2013 and became
automatically exercisable on March 24, 2009, with the effectiveness of the
Charter Amendment.  We fair valued the warrants based upon the average
closing price of our common stock for the three days prior to executing the
Stock Purchase and Sale Agreement at $0.52 per share and recorded a discount to
the Term Loan of $9,952,336 based upon the estimated fair value of the
warrants.  We are amortizing this discount to interest expense over
the term of the Term Loan.  As of December 31, 2008, $566,305 of this
discount had been amortized as a component of interest expense.




CIT
Capital, as lender, received a one percent (1%) overriding royalty interest
(“ORRI”) of our net revenue interest in the oil and gas properties acquired in
the Voyager Acquisition.  The overriding royalty interest is
applicable to any renewal, extension or new lease taken by us within one year
after the date of termination of the ORRI Properties, as defined in the
overriding royalty agreement covering the same property, horizons and
minerals.  We recorded a discount of $206,000 based upon the estimated
fair value of the overriding royalty interest that was conveyed to the lender
upon closing. We are amortizing this discount to interest expense over the
term of the Term Loan.  As of December 31, 2008, $19,619 of this
discount had been amortized as a component of interest expense.





40




CIT
Capital also received, and is entitled to receive in its capacity as
administrative agent, various fees from us while monies advanced or loaned
remain outstanding, including an annual administrative agent fee of $20,000 for
each of the Revolving Loan and Term Loan and a commitment fee ranging from
0.375% to 0.5% of any unused portion of the borrowing base available under the
Revolving Loan.





Under the
Credit Facility, we were required to enter into hedging arrangements mutually
agreeable between us and CIT Capital. On September 2, 2008 and effective
October 1, 2008, we entered into hedging arrangements with a Macquarie Bank
Limited whereby we hedged 65% of our then proved developed producing natural gas
production and 25% of our then proved developed producing oil production from
October 1, 2008 through December 31, 2011 at $7.82 per Mmbtu and $110.35 per
barrel, respectively.





Series
C Preferred





On August 20, 2008 we issued 500 shares
of our newly designated Series C Preferred to Alan D. Gaines, a director of the
Company, in exchange for the cancellation of a promissory note made by us in
favor of Mr. Gaines, in the principal amount of $50,000.  In addition
to these shares of Series C Preferred, on August 20, 2008, we also issued an
additional 500 shares of Series C Preferred to Mr. Gaines for cash consideration
of $50,000, the net proceeds of which were used as a deposit on the legal fees
incurred with our Credit Facility.  The Series C Preferred are
automatically redeemable by us at the rate of $100 for every one share of Series
C Preferred being redeemed upon the closing of a debt or equity financing
whereby the Company realizes gross proceeds in excess of
$5,000,000.  Our lender in the Credit Facility did not permit us to
redeem the Series C Preferred upon funding, with the understanding that, based
upon the success of our workover program and increased production resulting from
the Voyager Acquisition, the lender would permit a subsequent distribution to
Mr. Gaines for his Series C Preferred.





Convertible
Debentures (Bridge Loan)





On May
21, 2008, we entered into the bridge loan, whereby we issued the debentures and
used the proceeds to fund our payment of the deposit required under the Voyager
Acquisition.





The
debentures matured the earlier of September 29, 2008 and the completion of the
Voyager Acquisition, and may be satisfied in full by our payment of the
aggregate redemption price of $900,000 or, at the election of the purchasers, by
the conversion of the debentures into shares of our common stock, at an initial
conversion price of $0.33 subject to adjustments and full-ratchet protection
under certain circumstances.





On
September 2, 2008, we repaid $450,000 principal amount of the debentures in cash
from our Credit Facility and issued, in full satisfaction of our obligation with
respect to the other $450,000 principal amount, 10,000 shares of our Series E
Preferred. Each share of preferred stock automatically converted into
136.3636 shares of our common stock, for an aggregate of 1,363,636 shares of our
common stock, on March 24, 2009, effective date of the Charter Amendment, as
provided by the Certificate of Designation governing the Series E
Preferred.





2007
Convertible Notes





On
November 1, 2007, we sold $350,000 in convertible notes (the "2007 Notes"),
which 2007 Notes matured on October 31, 2008 and bear interest at 10% per annum,
payable in either cash or shares of our common stock based upon a conversion
price of $0.35 per share. The investors in the 2007 Notes also received
200,004 shares of common stock. During May 2008, we exchanged 37,100 shares
of our Series B Preferred in full satisfaction of our obligation under the 2007
Notes to pay $350,000 of principal and $21,000 of interest, with each share of
such preferred stock automatically converting into 28.58 shares of our common
stock, for an aggregate of 1,060,318 shares of our common stock, on March 24,
2009, the effective date of the Charter Amendment.





41




2006
Convertible Notes





As a
result of the May 2006 Merger, we assumed $1,500,000 of convertible promissory
notes (the "2006 Notes") previously sold by Energy Venture. The 2006 Notes
had an original maturity date of August 31, 2007, carried an interest rate of
10% per annum, payable in either cash or shares, and were convertible into
shares of common stock at a conversion price of $0.50 per share at the option of
the investor. Each investor also received a number of shares of common
stock equal to 20% of his or her investment divided by $0.50. Thus, a total
of 600,000 shares were initially issued to investors in the 2006
Notes.





On August
31, 2007 (the original maturity date), we repaid in cash six of the holders of
the 2006 Notes an aggregate amount of $424,637, of which $410,000 represented
principal and $14,637 represented accrued interest. On September 4, 2007,
an additional $44,624 of accrued and current period interest was repaid through
the issuance of 89,248 shares of our common stock. The remaining holders of
the 2006 Notes entered into an agreement with us whereby the maturity date of
the 2006 Notes was extended to February 28, 2008 and, beginning September 1,
2007 until the 2006 Notes are paid in full, the interest rate on the outstanding
principal increased to 12% per annum. In addition, we agreed to issue to
the remaining holders of the 2006 Notes, 218,000 shares of our common stock with
a value of $98,100 as consideration for extending the 2006 Note's maturity
date.





On
February 28, 2008, $1,090,000 of the 2006 Notes came due and we were unable to
repay them. We continued to accrue interest on the notes at 12%, the agreed
upon rate for the extension period. On March 6, 2008, we issued 130,449
shares of common stock in lieu of cash in payment of $65,221 of accrued and
current period interest to holders of 2006 Notes. On April 22, 2008, we
repaid $100,000 principal amount in cash to one of the holders of the 2006 Notes
in satisfaction thereof. During May 2008, we exchanged 99,395 shares of our
Series A Preferred for the remaining 2006 Notes in payment of the $965,000 of
principal and $28,950 of interest thereunder. Each share of Series A
Preferred automatically converted into 20 shares of our common stock, for an
aggregate of 1,987,900 shares of our common stock, on March 24, 2009, the
effective date of the Charter Amendment, as provided by the Certificate of
Designation with respect to the Series A Preferred filed with the State of
Nevada on May 15, 2008. At December 31, 2008, $25,000 principal amount of
the 2006 Notes held by one note holder remained outstanding.





**********





We
generally will rely on cash generated from operations and cash on hand to fund
our operations during the next twelve-month period.  As previously
discussed, as a condition to obtain waivers of certain financial covenants,
we agreed that no further borrowings or loans may be requested or made under the
Credit Facility unless and until the lenders, in their sole and absolute
discretion, shall otherwise agree in writing.  Our cash flow from
operations is driven by commodity prices and production volumes and the effect
of our energy swap hedges.  Whereas we have no control over commodity
prices, we do have control over a significant portion of our operating costs and
expenses.  We have identified two specific opportunities at the Duval
County Properties were we can reduce our salt water disposal costs by
approximately $40,000 per month through the conversion of an idle wellbore to a
salt water disposal well and are renegotiating the rental fees charged for
our rental compressors producing a monthly savings of approximately
$10,000.  We are constantly reviewing our field operations to identify
areas that would generate cost savings and will continue to monitor those costs
throughout fiscal 2009.  Additionally,
we were notified by our senior lender on May 5, 2009, that our borrowing base
had been reduced to $1.0 million and we have a borrowing base deficiency of
$10.5 million.  We are currently in discussions with our senior lender
to extend the sixty-day cure period to enable us to negotiate a readjustment to
our borrowing base and a schedule for repaying any then outstanding borrowing
base deficiency.  We can give you no assurance that we will be
successful in extending the sixty-day cure priod or entering into a forbearance
agreement that is acceptable to us.  In
addition to the deficiency under our Revolving Loan, the capital expenditures
required to maintain and/or grow production and reserves are
substantial.  Our stock price has significantly declined over the past
year with its last reported sale price at April 30, 2009 being $0.10 per share,
which makes it more difficult to obtain equity financing on acceptable terms to
address its liquidity issues.  In addition, as a result of reporting
our total debt pursuant to the Credit Facility as a current liability, we are
reporting negative working capital at December 31, 2008.  We are
currently in discussions with our senior lender to extend the sixty-day cure
period to enable us to negotiate a readjustment to our borrowing base and a
schedule for repaying any then-remaining borrowing base
deficit.  Whereas management believes it will be successful in
obtaining an acceptable forbearance agreement with our senior lender, there can
be no assurance we will be successful in this regard.  Therefore,
there is substantial doubt as to our ability to continue as a going concern for
a period longer than the current fiscal year.  Should we be
unsuccessful in obtaining an acceptable forbearance agreement with our senior
lender, we will be required to seek other financial and strategic alternative
processes, which may include the sale of some or all of our assets, a merger or
other business combination involving the Company or the restructuring or
recapitalization of the Company.  Until the possible completion of the
financial and strategic alternatives process, the Company's future remains
uncertain and there can be no assurance that its efforts in this regard will be
successful.


42




Our cash flow from operations is driven by commodity prices and production
volumes and the effect of our energy swap hedges.  Whereas we have no
control over commodity prices, we do have control over a significant portion of
our operating costs and expenses.  We have identified two specific
opportunities at the Duval County Properties were we can reduce our salt water
disposal costs by approximately $40,000 per month through the conversion of an
idle wellbore to a salt water disposal well and are renegotiating the rental
fees charged for our rental compressors producing a monthly savings of
approximately $10,000.  We also believe we can significantly reduce
our ad valorem taxes from the levels experienced in fiscal 2008 as a result of
lower commodity prices and reserve quantities experienced to date during fiscal
2009.  We are constantly reviewing our field operations to identify
areas that would generate cost savings and will continue to monitor those costs
throughout fiscal 2009.




Our CEO
and CFO have agreed to defer guaranteed bonuses and salary increases which were
to be effective during our second fiscal quarter until such time as we are
generating sufficient cash flow to make such payments.  In addition,
we have negotiated reduced consulting fees from some of our critical consultants
and postponed hiring of any additional technical and administrative
personnel.





We have
postponed drilling any of our proved and probable well locations during fiscal
2009, except for those that are required to hold our lease acreage, which is
comprised of one additional well to begin drilling operations prior to September
29, 2009.





We
believe that based upon the above actions we have taken, our short-term
liquidity is adequate to fund our operations, provide the required capital
expenditures to hold our significant acreage position in tact and make our
interest payments to our lender during this fiscal year.





Should
our estimated capital needs prove to be greater than we currently anticipate,
our cash flow from operating activities be less than we currently anticipate or
should we change our current operations plan in a manner that will increase or
accelerate our anticipated costs and expenses, the depletion of our working
capital would be accelerated. To the extent it becomes necessary to raise
additional cash in the future if our current cash and working capital resources
are depleted, we will seek to raise it through the public or private sale of
debt or our equity securities, funding from joint venture or strategic partners,
or a combination of the foregoing. We may also seek to satisfy indebtedness
without any cash outlay through the private issuance of debt or equity
securities. The sale of additional equity securities or convertible debt
securities would result in dilution to our shareholders. We cannot give you
any assurance that we will be able to secure the additional cash or working
capital we may require to continue our operations in such
circumstances. Any assurance as to our present ability to raise additional
capital outside of our existing credit facility and business operations is
particularly uncertain given the current instability in the financial and equity
markets and current oil and natural gas pricing levels.





Recent
Accounting and Reporting Pronouncements







On
December 31, 2008, the Securities and Exchange Commission (SEC) issued the final
rule, “Modernization of Oil and Gas Reporting” (“Final Rule”).  The
Final Rule adopts revisions to the SEC’s oil and gas reporting disclosure
requirements and is effective for annual reports on Form 10-K for years ending
on or after December 31, 2009.  The revisions are intended to provide
investors with a more meaningful and comprehensive understanding of oil and
natural gas reserves to help investors evaluate their investments in oil and gas
companies.  The amendments are also designed to modernize the oil and
natural gas disclosure requirements to align them with current practices and
technological advances.  Revised requirements in the Final Rule
include, but are not limited to:




·
            Oil
      and gas reserves must be reported using a 12-month average of the closing
      prices on the first day of each of such months, rather than a single day
      year-end price;


·
            Companies
      will be allowed to report, on a voluntary basis, probable and possible
      reserves, previously prohibited by SEC rules;
  and


·
            Easing
      the standard for the inclusion of proved undeveloped reserves (“PUD’s”)
      and requiring disclosure of information indicating any progress toward the
      development of PUD’s.




We are
currently evaluating the potential impact of adopting the Final
Rule.  The SEC is discussing the Final Rule with the FASB and IASB
staffs to align accounting standards with the Final Rule.  These
discussions may delay the required compliance date.  Absent any change
in such date, we will begin complying with the disclosure requirements in our
annual report on Form 10-K for the year ended December 31,
2009.  Voluntary early compliance is not permitted.




43




In June
2008, the FASB ratified the consensus reached by the EITF on Issue 07-5,
“Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entity’s Own Stock” (Issue 07-5).  Under Issue 07-5, an instrument (or
embedded feature) would not be considered indexed to an entity’s own stock if
its settlement amount is affected by variables other than those used to
determine the fair value of a “plain vanilla” option or forward contract on
equity shares, or if the instrument contains a feature (such as a leverage
factor) that increases exposure to those variables.  An equity-linked
financial instrument (or embedded feature) would not be considered indexed to
the entity’s own stock if the strike price is denominated in a currency other
than the issuer’s functional currency.  This Issue is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years.  Early application is
not permitted. We are currently evaluating the impact that EITF 07-5 will have
on our consolidated financial position or results of operations.




In June
2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
Changes to Issue No. 98-5 (“EITF No. 08-4”).  The objective of EITF
No. 08-4 is to provide transition guidance for conforming changes made to EITF
No. 98-5, “Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios”, that result from EITF
No. 00-27 “Application of Issue No. 98-5 to Certain Convertible Instruments”,
and SFAS No. 150, “Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity”. This Issue is effective for
financial statements issued for fiscal years ending after December 15,
2008.  The adoption did not have a material impact on our financial
statements.




In March
2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and
Hedging Activities” (“SFAS 161”).  SFAS 161 is effective beginning
January 1, 2009 and requires entities to provide expanded disclosures about
derivative instruments and hedging activities including (1) the ways in which an
entity uses derivatives, (2) the accounting for derivatives and hedging
activities, and (3) the impact that derivatives have (or could have) on an
entity’s financial position, financial performance, and cash
flows.  SFAS 161 requires expanded disclosures and does not change the
accounting for derivatives.  We are currently evaluating the impact of
SFAS 161, but we do not expect the adoption of this standard to have a material
impact on its financial results.





Off-Balance-Sheet
Arrangements.





We
currently have no off balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures, or capital resources that is material to any investor in
our securities.





44





Item
      8.
            Financial
      Statements and Supplementary Data.




The
response to this item is included in Item 15 - Financial
Statements.





Item 9.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.












Item 9A(T).
            Controls
      and Procedures.





Evaluation
of Disclosure Controls and Procedures





Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), is accumulated and communicated to the issuer's
management, including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.  As of the end of the
six-month period covered by this Transition Report, we carried out an
evaluation, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer of the effectiveness of the design
and operation of our disclosure controls and procedures. Based on this
evaluation, our CEO and CFO have concluded that our disclosure controls and
procedures are not effective because of the identification of a material
weakness in our internal control over financial reporting which is identified
below, which we view as an integral part of our disclosure controls and
procedures.





Management’s
Annual Report on Internal Controls over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act. Our internal control system was designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes, in accordance
with generally accepted accounting principles. Because of inherent
limitations, a system of internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate due to change in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.





Our
management carried out an assessment of the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2008, using the
criteria set forth in the framework in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on that assessment, management concluded that our internal
control over financial reporting was not effective as of December 31,
2008. This conclusion results from the continued existence of material
weaknesses in our internal control over financial reporting including a lack of
segregation of duties in financial reporting, a lack of accounting expertise at
the Chief Executive Officer level, a general lack of entity level controls and
an overreliance on consultants in the financial reporting process,
specifically with regard to the valuation and reporting of our embedded
derivative liabilities.. A material weakness is a deficiency, or a
combination of control deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements will not be
prevented or detected on a timely basis.





45




These
weaknesses stem primarily from the early stage of our business operations and
related lack of working capital to hire additional staff during the periods
covered by this Transition Report and our last report on Form 10-KSB filed in
August 2008. With the completion of the Voyager Acquisition and its
operations on September 2, 2008, there is an ever greater risk that a material
misstatement of the financial statements could be caused, or at least not
detected in a timely manner, due to our limited staff and insufficient
segregation of duties.





In light
of the foregoing, and as we integrate the assets and business operations
succeeded to in the Voyager Acquisition, we intend to implement a number of
measures to remediate such ineffectiveness and strengthen our internal controls
environment. Planned action includes our retention of an outside consulting
firm to assist us in the evaluation and testing of our internal control system
and the identification of opportunities to improve the efficacy of our
accounting and financial reporting processes. Additional anticipated
remedial action will involve organizational and process changes to address the
identified deficiencies, including (i) hiring additional personnel to assist
with financial reporting and business operations as soon as our finances will
allow, (ii) establishing and complying with delegation of authority guidelines
to be prepared for approval by the Board of Directors, (iii) modifying
analytical procedures to ensure the accurate, timely and complete reconciliation
of all major accounts; (iv) ensuring proper segregation of duty controls
throughout the Company, and (v) implementing formal processes requiring periodic
self-assessments and independent tests.





Along
these lines, on October 1, 2008 we retained a senior officer of operations and,
as a result, separated the responsibility of our CFO to pay operational invoices
from the review and approval of such invoices, a process now within the purview
of the senior operating officer. We have also approached potential
candidates to serve as additional members to our Board of Directors, including
candidates having accounting backgrounds to form an audit
committee.





At this
time, our management recognizes that many of the intended actions and
enhancements will require continual monitoring and evaluation for effectiveness,
and will necessarily evolve as we continue to evaluate and improve our internal
controls over financial reporting. Management will accordingly review
progress on activities taken on a consistent and ongoing basis at the CEO and
senior management level in conjunction with our Board of Directors.





This
Transition Report does not include an attestation report of the Company’s
registered public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to the attestation by the
Company’s registered public accounting firm pursuant to temporary rules of
the SEC that permit the Company to provide only management’s report in this
annual report.





Changes
in Internal Controls over Financial Reporting





Aside
from undertaking certain activity in anticipation of implementing remedial steps
during the current and subsequent reporting periods, there have been no changes
in our internal controls over financial reporting during the fiscal quarter just
ended that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.





Item 9B.
            Other
      Information.




None.





46


PART
      III





Item 10.
            Directors,
      Executive Officers and Corporate
Governance.





The
following table sets forth as of May 19, 2009 certain information regarding our
directors and executive officers:





Name
      of Individual
            Age
            Position
      with CompanyRobert
      P. Munn
            50
            President,
      Chief Executive Officer, Chairman and DirectorCarl
      A. Chase
            59
            Chief
      Financial Officer and SecretaryJim
      B. Davis
            46
            Senior
      Vice President of OperationsAlan
      D. Gaines
            52
            Director





The
business experience of each director and named executive officer of the Company
is set forth below:





Robert P. Munn.Mr. Munn joined the
Company on May 22, 2008, as Chief Executive Officer and also serves as a member
of our Board, and Chairman. His work experience spans over 27 years'
involvement in the United States and International oil and gas arenas, where he
has worked for both small and large independent E&P companies in different
basins throughout the United States, the Gulf of Mexico and offshore West
Africa. Prior to joining us, Mr. Munn served as President, Chief Executive
Officer and a director of Striker Oil & Gas, Inc. (formerly Unicorp, Inc.),
a publicly traded independent E&P company from September 2007 until his
resignation in February 2008. In 2003, he opened the U.S. office for
Sterling Energy, PLC and, until September 2007, served as Executive
Vice-President and director for Sterling, where he managed the growth of its
U.S. operations by successfully adding oil and gas reserves through drilling and
acquiring producing properties. Prior to his tenure with Sterling, Mr. Munn
served as Vice-President of Exploration for FW Oil. From 1987 through 2001,
he served in supervisory and senior technical roles with Amerada Hess working in
oil and gas basins located both onshore and offshore the United
States. From 1981 to 1987, Mr. Munn worked as an exploration and
exploitation geologist for Buckhorn Petroleum and Harper Oil Company in Denver,
Colorado. Mr. Munn received a B.A. degree in Geology from the University of
Colorado in 1981.





Carl A. Chase. Mr. Chase
joined the Company on May 22, 2008, as Chief Financial Officer, Secretary and
Treasurer. He has over 33 years' experience with major and independent
E&P companies and has held various financial and administrative positions
with publicly traded companies. Most recently, he served as Chief Financial
Officer and a director of Striker Oil & Gas, Inc. (formerly Unicorp, Inc.),
a publicly traded independent E&P company from August 2004 until his
resignation in April 2008. From May 2007 until March 2008, he served as a
consultant and director of Oncolin Therapeutics, Inc., a publicly-traded
bio-technology company involved in developing products to treat cancer,
infectious diseases and other medical conditions associated with compromised
immune systems. From August 2000 to May 2006, Mr. Chase served as both a
consultant and senior vice president to Rockport Healthcare Group, Inc., a
publicly-traded preferred provider organization (PPO) for work-related injuries
and illnesses. From 2003 until 2006, Mr. Chase served as a director of
eLinear, Inc., an integrated technology solutions provider of security, IP
telephony and network and storage solutions infrastructure. In September
2006, eLinear filed a voluntary petition in the United States Bankruptcy Court
for the Southern District of Texas, Houston Division, seeking relief under
Chapter 7 of the United States Code. From August 1999 to May 2000, Mr.
Chase was Chief Financial Officer of ClearWorks.net, Inc., an information
technology company providing IT consulting and computer hardware and software
solutions. From December 1992 to August 1999, Mr. Chase served as Chief
Financial Officer of Bannon Energy Incorporated, a privately held, independent
E&P company, where his responsibilities included acquisitions, financing and
accounting and administration. Mr. Chase has held various financial and
administrative positions with various oil and gas companies, including Amoco
Production Company and Union Pacific Resources Corporation. Mr. Chase
received a Bachelor of Accountancy degree from the University of Oklahoma in
1975.





47




Jim B. Davis.Mr. Davis joined the
Company on October 1, 2008, as Senior Vice-President of Operations. He has
over 21 years’ experience with major and independent E&P
companies. From September 2007 until joining us, Mr. Davis served as an
independent consulting drilling engineer for Apache Australia Ltd., designing
wells in the Gippsland and Carnorvoran Basins located offshore Australia, and
for El Paso Corp., designing and drilling high pressure/high temperature wells
in Duval, Lavaca, Starr and Hidalgo counties of South Texas, as well as
supervising two to three drilling rigs. From April 2002 until his
resignation in August 2007, Mr. Davis held positions of increasing
responsibility as manager, vice president and senior vice president of
engineering and operations for Goodrich Petroleum Corp. Mr. Davis was
instrumental in growing Goodrich, both through increased reserves and cash flow,
during his tenure at Goodrich. From May 2001 until March 2002, Mr. Davis
consulted as the senior drilling engineer (and acting drilling manager during
the Forest Oil acquisition) for Forcenergy, Inc. and from January 2000 to May
2001 was responsible for Forcenergy’s daily drilling and engineering activities
for its Gulf of Mexico projects. From November 1987 until December 1999,
Mr. Davis held various production, development and drilling engineering
positions with Texaco E&P, Inc. in fields throughout Southeast Louisiana and
the Gulf of Mexico. Mr. Davis is a licensed Professional Engineer in the
States of Louisiana and Texas and received a Master of Engineering Degree and a
Bachelor of Science Degree in Petroleum Engineering in 1987 and 1985,
respectively, from Louisiana State University.





Alan D. Gaines.Mr. Gaines served as
our Chief Executive Officer from April 2006 to September 2007, as Chairman from
April 2006 to May 2008 and a director of the Company since April 2006. He
is currently the Chairman of the Board, a position he has held since May 2001,
of Dune Energy, Inc., an independent E&P company engaged in the development,
exploration and acquisition of oil and gas properties, with operations presently
concentrated onshore the Louisiana and Texas Gulf Coasts. From May 2001 to
April 17, 2007, Mr. Gaines served as Chief Executive Officer of Dune Energy,
Inc. He served from April 2005 until August 2008 as Vice-Chairman and from
April 2005 until July 18, 2008 as a director of Baseline Oil & Gas Corp., a
public company engaged in the development, exploration and acquisition of oil
and gas properties. Mr. Gaines has 25 years’ of experience as an energy
investment and merchant banker. In 1983, he co-founded Gaines, Berland
Inc., an investment bank and brokerage firm, specializing in global energy
markets, with particular emphasis given to small to medium capitalization
companies involved in exploration and production, pipelines, refining and
marketing, and oilfield services. Prior to selling his interest in Gaines,
Berland, the firm managed or co-managed, and participated in $4 billion of
equity and debt financings during a three year period. He has acted as an
advisor to financier Carl Icahn during such corporate takeovers as USX
Corporation (Marathon Oil) and Texaco. Mr. Gaines has provided funding
and/or advisory services to Parker & Parsley (now -NYSE listed Pioneer
Natural Resources), Lomak Petroleum (now NYSE - listed Range Resources), Devon
Energy (now NYSE - listed), and Comstock Resources (now NYSE - listed). Mr.
Gaines holds a BBA in Finance from Baruch College, and an MBA in Finance (with
distinction) from Zarb School, Hofstra University School of Graduate
Management.





No
Familial Relationships or Legal Proceedings





There are
no family relationships among any of our current executive officers or
directors.





Except as
disclosed above with respect to the September 2006 voluntary petition in the
United States Bankruptcy Court for the Southern District of Texas, Houston
Division of eLinear, Inc., at which company Mr. Chase, our current CFO, served
as a director, at no time in the last five years has any bankruptcy petition
been filed by or against any business of which any of our current executive
officers or directors was a general partner or executive officer at the time of
such bankruptcy or within two years prior to that time.





48




None of
our current executive officers or directors has, during the last five years,
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).  None of our current executive officers or directors has,
during the last five years, been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and, as a result of such
proceeding, was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to, federal
or state securities laws, or finding any violation with respect to such
laws.




Section
16(a) Beneficial Ownership Reporting Compliance





Section 16(a)
of the Exchange Act requires our directors, executive officers and beneficial
owners of more than 10% of our common stock, or “reporting persons” to file with
the SEC reports of their holdings of, and transactions in, our common
stock.  Reporting persons are required by SEC regulations to furnish
us with copies of all Section 16(a) forms they file.  Based solely on our
review of copies of these reports furnished to the Company, we believe that all
reports required to be filed by reporting persons pursuant to Section 16(a)
of the Exchange Act were filed for the six-month transition period and year
ended December 31, 2008 on a timely basis, except with respect to the
reports on Forms 4 relating to the vesting of previously disclosed restricted
stock awards upon the effectiveness of the Charter Amendment on March 24, 2009,
for each of Robert P. Munn, Carl A. Chase and Jim B. Davis, our CEO, CFO and
Vice-President of Operations,  respectively, which reports were filed
on April 15, 2009.




Code
of Business Conduct and Ethics





We have
not yet adopted a Code of Ethics with respect to our directors or officers
(including our chief executive officer, chief financial officer, chief
accounting officer and any person performing similar functions).  Our
delay in adopting such a code stems chiefly as a result of us not having been an
operating company prior to the Voyager Acquisition, and since then, our on-going
efforts to ramp up those business operations acquired in the Voyager Acquisition
as well as the related integration of the financial accounting for the Company
and Voyager, as our predecessor.




Corporate
Governance





The OTC
Bulletin Board does not require that we establish or maintain an audit
committee.  We do not presently maintain an audit
committee.  Rather, management has the primary responsibility for the
preparation of financial statements and the reporting process, including the
system of internal controls, with the Board of Directors exercising oversight of
the Company’s financial reporting process.





The rules
of the OTC Bulletin Board, on which automated system our common stock is
currently traded, does not require that we establish or maintain a nominations
committee.  Currently the Board identifies and selects director nominees
for election at our annual meetings or for fulfilling vacancy(ies) on the Board,
based upon qualifying criteria established by the Board.  Under such
criteria, directors are expected to bring a range of experience, knowledge and
judgment and to act with integrity and commitment to our Company, our business
plans and long-term stockholder value.  Directors are also expected to have
relevant business and industry experience in order to provide a useful
perspective on significant risks and competitive issues facing us, and in
particular, to demonstrate competence in one or more of the following areas:
accounting or finance, markets, business or management experience, oil and gas
industry knowledge, end-user experience or perspective, crisis management, or
leadership and strategic planning.  Directors will also be expected to
become familiar with the qualitative requirements necessary to serve as a
director of a corporation engaged in the oil and gas
industry.


49


Item 11.
            Executive
      Compensation.





The
following sets forth the annual and long-term compensation received during our
fiscal years ended December 31, 2008 and 2007 by (i) our Chief Executive Officer
("CEO"); (ii) our two most highly compensated executive officers, if any, other
than the CEO, whose total compensation during the year ended December 31, 2008
exceeded $100,000 and who were serving as executive officers at December 31,
2008; and (iii) the two most highly compensated former officers for whom
disclosure would have been provided pursuant to item (ii) above but for the fact
that such individuals were not serving as an executive officer at December 31,
2008 (collectively, the "Named Executive Officers").





SUMMARY
      COMPENSATION TABLEName
      and Principal Position
            Year
            
            Salary
              ($)
            
            
            Bonus
              ($)
            
            
            Stock
              Awards
              ($)
            
            
            Option
              Awards
              ($)
            
            
            Non-Equity
              Incentive
              Plan
              Compensation
              ($)
            
            
            Change
      in
              Pension
      Value
              And
      Nonquali
              -fied
      Deferred
              Compensation
              Earnings
              ($)
            
            
            All
              Other
              Compensation
              ($)
            
            
            Total
              ($)Robert
      P. Munn,Chief
      Executive Officer (1)
            2008
            
            
            137,216
            
            
            
            --
            
            
            
            780,000
            
            
            
            738,674
            
            
            
            --
            
            
            
            --
            
            
            
            4,550
            (2)
            
            
            1,660,440Carl
      A. Chase,Chief
      Financial Officer (3)
            2008
            
            
            109,773
            
            
            
            --
            
            
            
            585,000
            
            
            
            554,006
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1,248,779Jim
      B. Davis,Senior
      VP of Operations (4)
            2008
            
            
            47,500
            
            
            
            --
            
            
            
            525,000
            
            
            
            365,634
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            938,134Steven
      Barrenechea,Former
      CEO (5)
            2008
            
            
            62,667
            
            
            
            --
            
            
            
            --
            
            
            
            114,426
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            177,0932007
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            124,997
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            124,997Richard
      Cohen,Former
      CFO (6)
            2007
            
            
            72,000
            
            
            
            --
            
            
            
            --
            
            
            
            72,654
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            144,654


_______________





(A)
            See
      Note 13 to Cross Canyon Energy Corp.’s audited financial
      statements for the assumptions used in the valuation of the
      stock and option awards listed
above.


(1)
            Mr.
      Munn was employed as our Chief Executive Officer on May 22,
      2008.


(2)
            Includes
      $650 monthly car allowance.


(3)
            Mr.
      Chase was employed as our Chief Financial Officer on May 22,
      2008.


(4)
            Mr.
      Davis was employed as our Senior Vice President of Operations on October
      1, 2008.


(5)
            Mr.
      Barrenechea served as our Chief Executive Officer and a director from
      September 2007 until his resignation on May 22, 2008, and as an advisor to
      us until his departure in February
2009.


(6)
            Mr.
      Cohen served as our Chief Financial Officer until his resignation in
      January 2008.


50


The
following table indicates the total number and value of exercisable stock
options and restricted stock awards held by the Named Executive Officers at the
end of our fiscal year on December 31, 2008:





OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-ENDName
            
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Exercisable
            
            
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
            
            
            Equity
              Incentive
              Plan
              Awards:
              Number
              of
              Securities
              Underlying
              Unexercised
              Unearned
              Options
              (#)
            
            
            Option
              Exercise
              Price
              ($)
            
            Option
              Expiration
              Date)
            
            Number
              of
      Shares
              or
      Units
              of
      Stock
              That
      Have
              Not
              Vested
              (#)
            
            
            Market
              Value
      of
              Shares
      or
              Units
      of
              Stock
              That
      Have
              Not
              Vested
              ($)
            
            
            Equity
              Incentive
              Plan
      Awards:
              Number
              of
              Unearned
              Shares,
              Units
      or
              Other
      Rights
              That
      Have
              Not
              Vested
              (#)
            
            
            Equity
              Incentive
              Plan
      Awards
              Market
      or
              Payout
              Value
              of
              Unearned
              Shares,
              Units
      or
              Other
              Rights
              That
      Have
              Not
              Vested
              ($)(a)
            
            (b)
            
            
            (c)
            
            
            (d)
            
            
            (e)
            
            (f)
            
            (g)
            
            
            (h)
            
            
            (i)
            
            
            (j)Robert
      P. Munn (1)
            
            
            --
            
            
            
            500,000
            
            
            
            --
            
            
            $
            0.52
            
            5/20/15
            
            
            1,500,000
            (2)
            
            
            105,000
            
            
            
            --
            
            
            
            ----
            
            
            
            500,000
            
            
            
            --
            
            
            $
            0.57
            
            5/20/15
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            ----
            
            
            
            500,000
            
            
            
            --
            
            
            $
            0.62
            
            5/20/15
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Carl
      A. Chase (3)
            
            
            --
            
            
            
            375,000
            
            
            
            --
            
            
            $
            0.52
            
            5/20/15
            
            
            1,125,000
            (4)
            
            
            78,750
            
            
            
            --
            
            
            
            ----
            
            
            
            375,000
            
            
            
            --
            
            
            $
            0.57
            
            5/20/15
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            ----
            
            
            
            375,000
            
            
            
            --
            
            
            $
            0.62
            
            5/20/15
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Jim
      B. Davis (5)
            
            
            --
            
            
            
            333,334
            
            
            
            --
            
            
            $
            0.54
            
            10/1/15
            
            
            750,000
            (6)
            
            
            52,500
            
            
            
            --
            
            
            
            ----
            
            
            
            333,333
            
            
            
            --
            
            
            $
            0.59
            
            10/1/15
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            ----
            
            
            
            333,333
            
            
            
            --
            
            
            $
            0.65
            
            10/1/15
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Steven
      Barrenechea (7)
            
            
            --
            
            
            
            500,000
            
            
            
            --
            
            
            $
            0.35
            
            12/29/12
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            ----
            
            
            
            250,000
            
            
            
            --
            
            
            $
            0.52
            
            2/17/13
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Richard
      Cohen (8)
            
            
            --
            
            
            
            250,000
            
            
            
            --
            
            
            $
            0.30
            
            5/22/12
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            ----
            
            
            
            250,000
            
            
            
            --
            
            
            $
            0.35
            
            10/26/12
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --


_______________





(1)
            Mr.
      Munn was employed as our Chief Executive Officer on May 22,
      2008.


(2)
            Restricted
      Stock Awards vest with respect to 1/3rd of the total shares, or 500,000
      shares, awarded on each of the effectiveness of the Charter Amendment
      (March 24, 2009) and the first and second year anniversary of the grant
      date, or May 22, 2009 and 2010,
respectively.


(3)
            Mr.
      Chase was employed as our Chief Financial Officer on May 22,
      2008.


(4)
            Restricted
      Stock Awards vest with respect to 1/3rd of the total shares, or 375,000
      shares, awarded on each of the effectiveness of the Charter Amendment
      (March 24, 2009) and the first and second year anniversary of the grant
      date, or May 22, 2009 and 2010,
respectively.


(5)
            Mr.
      Davis was employed as our Senior Vice President of Operations on October
      1, 2008.


(6)
            Restricted
      Stock Awards vest with respect to 1/3rd of the total shares, or 250,000
      shares, awarded on each of the effectiveness of the Charter Amendment
      (March 24, 2009) and the first and second year anniversary of the grant
      date, or October 1, 2009 and 2010,
respectively.


(7)
            Mr.
      Barrenechea served as our Chief Executive Officer and a director from
      September 2007 until his resignation on May 22,
  2008.


(8)
            Mr.
      Cohen served as our Chief Financial Officer until his resignation in
      January 2008.





51




On May
22, 2008, Steven Barrenechea resigned as our President, Chief Executive Officer
and acting Chief Financial Officer and Robert P. Munn and Carl A. Chase were
appointed our President and Chief Executive Officer, and Chief Financial
Officer, respectively. Mr. Barrenechea continued to serve as an advisor to
the Company until his departure in February 2009.





We
currently have in place employment agreements with respect to our principal
executive officer, principal financial officer and Senior Vice President of
Operations, providing for the following:





·
            Robert
      P. Munn to serve as our President and Chief Executive Officer, commencing
      May 22, 2008, at an initial annual base salary of $225,000, which base
      salary shall increase to $260,000 at the first anniversary date of his
      employment, subject to increase upon review of our
  Board;


·
            Carl
      A. Chase to serve as our Chief Financial Officer, commencing May 22, 2008,
      at an initial annual base salary of $180,000, which base salary shall
      increase to $210,000 at the first anniversary date of his employment,
      subject to increase upon review of our Board;
  and


·
            Jim
      B. Davis to serve as our Senior Vice President of Operations, commencing
      October 1, 2008, at an initial annual base salary of $190,000, which base
      salary shall be subject to increase at the first anniversary date of his
      employment upon review of our
Board.





The
initial term of employment under their respective employment agreements is two
(2) years, unless earlier terminated by us or the executive officer by reason of
death, disability, without cause, for cause, for "good reason," change of
control or otherwise.





In
addition to their base salaries, Messrs. Munn, Chase and Davis are guaranteed an
annual bonus of $45,000, $36,000 and $38,000, respectively, on the first year
anniversary and an amount up to 100%, 75% and 75%, respectively, of such
officer's then applicable base salary, as determined by our Board or committee
thereof, based on such officer's performance and achievement of
quantitative and qualitative criteria set by our Board, for such year. Each
of Messrs. Munn, Chase and Davis is further eligible under his employment
agreement to participate, subject to any eligibility, co-payment and waiting
period requirements, in all employee health and/or benefit plans offered or made
available to our senior officers.





Messrs. Munn and Chase have both
verbally agreed to defer (i) their guaranteed annual bonus due them on their
first year anniversary, May 22, 2009; and (ii) their respective base salary
increase due them on their first year anniversary, May 22, 2009, until such time
as we have sufficient cash flow from operations to provide such
payments.





Upon
termination of an officer without "cause", upon the resignation of either
officer for "good reason", or upon his termination following a "change of
control" (each as defined in the employment agreements), such officer will be
entitled to receive from us, in addition to his then current base salary through
the date of resignation or termination, as applicable, and pro rata bonus and
fringe benefits otherwise due and unpaid at the time of resignation or
termination, a severance payment equal to twelve (12) months base salary at the
then current rate plus pro rata performance bonus earned and unpaid through the
date of termination or resignation, as applicable. Each such officer shall
also be entitled to any unpaid bonus from the preceding year of employment, and
any restricted stock granted to him shall immediately vest and all other stock
options or grants, if any, made to him pursuant to any incentive or benefit
plans then in effect shall vest and be exercisable, as applicable, in accordance
with the terms of any such plans or agreements.





52




We have
also agreed to pay Messrs. Munn, Chase and Davis an additional gross-up amount
equal to all federal, state or local taxes that may be imposed upon them by
reason of the severance payments.





Each of
Messrs. Munn, Chase and Davis have agreed that, during the respective term of
his employment and for a one-year period after his termination (other than
termination by him for good reason or by us without cause or following a change
of control), not to engage, directly or indirectly, as an owner, employee,
consultant or otherwise, in any business engaged in the exploration, drilling or
production of natural gas or oil within any five (5) mile radius from any
property that we then have an ownership, leasehold or participation
interest. Each officer is further prohibited during the above time period
from soliciting or inducing, directly or indirectly, any of our then-current
employees or customers, or any customers of ours during the one year preceding
the termination of his employment.





Restricted
Stock Agreements





Pursuant
to the restricted stock agreements, we agreed to grant upon the effectiveness of
the Charter Amendment (March 24, 2009) restricted stock awards to each of
Messrs. Munn, Chase and Davis, as follows:





·
            1,500,000
      shares of our common stock to Mr. Munn, which vest equally as to one-third
      of the shares over a two year period, commencing on the March 24, 2009
      effective date of the Charter Amendment in the State of Nevada and each of
      the first and second year anniversary of the grant
  date;


·
            1,125,000
      shares of our common stock to Mr. Chase, which vest equally as to
      one-third of the shares over a two year period, commencing on the March
      24, 2009 effective date of the Charter Amendment in the State of Nevada
      and each of the first and second year anniversary of the grant date;
      and


·
            750,000
      shares of our common stock to Mr. Davis, which vest equally as to
      one-third of the shares over a two year period, commencing on the March
      24, 2009 effective date of the Charter Amendment in the State of Nevada
      and at each of the first and second year anniversary of the grant
      date.





The above
vesting schedule is subject to the officer being continuously employed by us at
the applicable vesting date.





As
provided in the restricted stock agreements, we have also agreed to pay Messrs.
Munn and Chase an additional gross-up amount equal to all federal, state or
local taxes imposed upon him by reason of the restricted stock
awards.





Each
officer has, with respect to all of the restricted shares (whether then vested
or not), all of the rights of a holder of our Common Stock, including the right
to vote such shares and to receive dividends as may be
declared. Notwithstanding the preceding sentence, the restricted stock
shall not be transferable until and unless they have become vested in accordance
with the vesting schedule.





Option
Agreements





As part
of the employment agreement with Mr. Munn, on May 22, 2008, we granted stock
options, exercisable for up to 1,500,000 shares of our Common Stock, as
follows:





·
            option
      exercisable for up to 500,000 shares, at an exercise price of $0.52 per
      share (the closing price of our Common Stock, as reported by the OTC
      Bulletin Board on May 22, 2008), which option vests with respect to these
      shares on the March 24, 2009 effective date of the Charter Amendment in
      the State of Nevada;


·
            option
      exercisable for up to 500,000 shares, at an exercise price of $0.57 per
      share, which option vests with respect to these shares on May 22, 2009;
      and


·
            option
      exercisable for up to 500,000 shares, at an exercise price of $0.62 per
      share, which option vests with respect to these shares on May 22,
      2010.





53




As part
of the Employment Agreement with Mr. Chase, on May 22, 2008 we granted stock
options, exercisable for up to 1,125,000 shares of our Common Stock, as
follows:





·
            option
      to Mr. Chase for up to 375,000 shares, at an exercise price of $0.52 per
      share (the closing price of our Common Stock, as reported by the OTC
      Bulletin Board on May 22, 2008), which option vests with respect to these
      shares upon the March 24, 2009 effective date of the Charter Amendment in
      the State of Nevada;


·
            option
      to Mr. Chase for up to 375,000 shares, at an exercise price of $0.57 per
      share, which option vests with respect to these shares on May 22, 2009;
      and


·
            option
      to Mr. Chase for up to 375,000 shares, at an exercise price of $0.62 per
      share, which option vests with respect to these shares on May 22,
      2010.





As part
of the Employment Agreement with Mr. Davis, on October 1, 2008 we granted stock
options, exercisable for up to 1,000,000 shares of our common stock, as
follows:





·
            option
      to Mr. Davis for up to 333,334 shares, at an exercise price of $0.54 per
      share, which option vests with respect to these shares upon the March 24,
      2009 effective date of the Charter
Amendment;


·
            option
      to Mr. Davis for up to 333,333 shares, at an exercise price of $0.59 per
      share, which option vests with respect to these shares on October 1, 2009;
      and


·
            option
      to Mr. Davis for up to 333,333 shares, at an exercise price of $0.65 per
      share, which option vests with respect to these shares on October 1,
      2010.





Options
vesting on May 22 and October 1, 2009 and May 22 and October 1, 2010 are subject
to acceleration in the event we undergo a "change of control" while such
executive officer is still employed by us. All options expire on May 22,
2015 and October 1, 2015.





The
holders of the options shall have none of the rights and privileges of a
stockholder of the Company with respect to any of the underlying shares of
Common Stock, in whole or in part, prior to the exercise of the options with
respect to such underlying shares.





We
granted "piggy-back" registration rights to Messrs. Munn and Chase affording
each of them the opportunity to include for sale in any registration statement
under the Securities Act (other than in connection with a Form S-8 or any
successor form registering any employee benefit plan) we propose to file with
respect to our securities any time during the next five (5) years, commencing
May 22, 2009.





2004
Non-Statutory Stock Option Plan





Pursuant
to the May 14, 2004 Board’s approval and subsequent stockholder approval, the
Company adopted our 2004 Non-Statutory Stock Option Plan (the "2004 Plan")
whereby we reserved for issuance up to 1,500,000 shares of our Common
Stock. On September 19, 2008, our Board terminated the 2004 Plan in favor
of the 2008 Plan. At the time of its termination, no options had been
granted under the 2004 Plan.





54




2008
Stock Incentive Plan





On
September 19, 2008 our Board authorized the adoption of the 2008 Stock Incentive
Plan (the “2008 Plan”), which was subsequently approved by a majority of the
votes of shareholders on January 29, 2009.





As of May
19, 2009, no options have been issued under the 2008 Plan other than options and
restricted stock award issued to Mr. Davis, our Senior Vice President of
Operations, on October 1, 2008.





The
purpose of the Plan is to provide directors, officers and employees of, as well
as consultants, attorneys and advisors to, the Company and our subsidiaries,
with additional incentives by increasing their ownership interest in the
Company. Directors, officers and other employees of the Company are
eligible to participate in the Plan. In addition, individuals who have
agreed to become an employee of, director of or an attorney, consultant or
advisor to us and/or our subsidiaries are eligible for option grants,
conditional in each case on actual employment, directorship or attorney, advisor
and/or consultant status.





The 2008
Plan is initially to be administered by our Board until such time as replaced by
a compensation committee to be appointed by our Board. Under the 2008 Plan,
we may grant any one or a combination of incentive options, non-qualified stock
options, restricted stock, stock appreciation rights and phantom stock awards,
as well as purchased stock, bonus stock and other performance awards
(collectively, “Awards”). The Board or committee, as appropriate, shall set
the terms and conditions of the Awards. Except for Incentive Options which
may only be granted to our employees, Awards under the 2008 Plan may be granted
to employees and non-employee directors (as such terms are defined in the 2008
Plan). The aggregate number of shares of common stock that may be issued or
transferred to grantees under the 2008 Plan shall not exceed 8,500,000
shares.





The
principal terms of the 2008 Plan are summarized below; however, it is not
intended to be a complete description thereof and such summary is qualified in
its entirety by the actual text of the 2008 Plan, a copy of which was previously
filed as Exhibit B to our Definitive Information Statement on Schedule 14C filed
with the SEC on March 3, 2009.





Awards
under the 2008 Plan include:





·
            options
      qualifying as incentive stock options under the Internal Revenue Code of
      1986, as amended (the “Code”) and nonqualified stock options, provided
      that no option price shall be less than the fair market value of our
      common stock on the date of grant or, in the case of an award of incentive
      options to an employee possessing more than 10% of the total combined
      voting power of the Company, not less than 110% of the fair market value
      of the common stock on the date of
grant;


·
            restricted
      stock (within the meaning of Rule 144 of the Securities Act), typically
      subject to a vesting schedule during which the grantee must remain in our
      employ in order to retain the shares under
  grant;


·
            stock
      appreciation rights (“SARs”), either singly or in combination with an
      underlying stock option under the 2008 Plan, entitling the recipient to
      receive, upon exercise, the excess of the fair market value per share on
      the date of exercise over the grant price, subject to a specified cap
      amount, and are designed to give the grantee the same economic value that
      would have been derived from exercise of an
  option;


·
            phantom
      stock awards granted to a recipient to receive cash or common stock equal
      to the fair market value of a specified number of shares of common stock
      at the end of a specified deferral
period;


·
            bonus
      stock in consideration of services performed or performance awards, under
      which payment may be made in shares of our common stock, a combination of
      shares and cash or cash if the performance of the Company meets certain
      goals established during an award period;
and


·
            shares
      of common stock or performance based Awards on the terms and conditions we
      determine in our discretion, as well as other rights not an Award
      otherwise described in the 2008 Plan but is denominated or payable in,
      valued in whole or in part by reference to, or otherwise based on or
      related to, shares of common stock or cash as are deemed by the Board to
      be consistent with the purposes of the 2008
  Plan.





55




Our Board
may amend, suspend or terminate the 2008 Plan at any time, but such amendment,
suspension or termination shall not adversely affect any Award then outstanding
without the participant’s consent. Any amendment that would be a “material
amendment” of the 2008 Plan (as determined by the Committee, in their sole
discretion, subject to the rules and regulations of the OTC Bulletin Board, if
any, governing the use of such term in the context of an employee benefit plan),
as amended, shall be subject to stockholder approval. Likewise, if the
Exchange Act requires the Company to obtain stockholder approval, then such
approval will be sought.





Director
Compensation





Directors
of the Company are not compensated in cash for their services but are reimbursed
for out-of-pocket expenses incurred in furtherance of our
business. Directors are also eligible to Awards under our 2008 Plan or
otherwise, as offered by the Company from time to time.





56


Item 12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.





The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of May 19, 2009, and (i) each person who, to
our knowledge, beneficially owns more than five percent (5%) of the outstanding
shares of our Common Stock; (ii) each of our Named Executive Officers; and (iii)
all of our current directors and executive officers as a group. Unless
otherwise noted below, we believe that all persons named in the table have sole
voting and investment power with respect to all shares of common stock
beneficially owned by them.





Name
      and Address of Beneficial Owner
            Amount
      and Nature of
              Beneficial
      Ownership (2)
            Percent
      of ClassDirectors
      and Executive Officers (3)Robert
      P. Munn, Chief Executive Officer and Director
            2,000,000
      (4)
            4.0%Carl
      A. Chase, Chief Financial Officer
            1,500,000
      (5)
            3.0%Jim
      B. Davis, Senior Vice President of Operations
            583,334
      (6)
            1.2%Alan
      D. Gaines, Director
            11,151,000
      (7)
            22.9%Officers
      and Directors as a Group (4 persons)
            15,234,334
      (4)
      (5) (6) (7)
            30.0%Holders
      of 5% or GreaterCIT
      Capital USA Inc.
              505
      Fifth Avenue, 10th Floor,
              New
      York, NY 10017.
            24,199,996
      (8)
            33.2%Natural
      Gas Partners VII, LP
              c/o
      Natural Gas Partners
              125
      E. John Carpenter Freeway, Ste. 600
              Irving,
      TX 75062
            17,500,000
            36.0%Amiel
      David
              5707
      Spanish Oak Drive,
              Houston,
      TX 77066
            5,000,000
      (9)
            9.4%Whalehaven
      Capital Fund Limited
              160
      Summit Avenue
              Montvale,
      NJ 07645
            2,563,636
      (10)
            5.1%





(1)
            At
      May 19, 2009, a total of 48,649,990 shares of our common stock were issued
      and outstanding.


(2)
            For
      purposes hereof, a person is deemed to be the beneficial owner of
      securities that can be acquired by such person within sixty (60) days from
      the Record Date, upon the exercise of warrants or options or the
      conversion of convertible securities. Each beneficial owner's
      percentage ownership is determined by assuming that any warrants, options
      or convertible securities that are held by such person (but not those held
      by any other person) and which are exercisable or convertible within sixty
      (60) days from the Record Date have been exercised or converted, as the
      case may be.


(3)
            The
      address for each of our executive officers and directors is c/o Cross
      Canyon Energy Corp., 6630 Cypresswood Drive, Suite 200, Spring, Texas
      77379.


(4)
            Represents
      (i) option exercisable to purchase 500,000 shares of our common stock at a
      purchase price of $0.52 per share, which option became exercisable on
      March 24, 2009, with the filing of the Charter Amendment, (ii) option
      exercisable to purchase 500,000 shares of our common stock at a
      purchase price of $0.57 per share, which option becomes exercisable on May
      22, 2009, (iii) 500,000 shares of restricted stock awarded May 22, 2008,
      issuable on March 24, 2009, with the filing of the Charter Amendment, and
      (iv) 500,000 shares of restricted stock awarded May 22, 2008, that vest on
      May 22, 2009. Excludes (i) option to purchase 500,000 shares of
      our common stock at purchase price of $0.62 per share, which option
      becomes exercisable on May 22, 2010, and (ii) 500,000 shares of restricted
      stock that vest on May 22, 2010.




57




(5)
            Represents
      (i) option exercisable to purchase 375,000 shares of our common stock at a
      purchase price of $0.52 per share, which option became exercisable on
      March 24, 2009, with the filing of the Charter Amendment, (ii) option
      exercisable to purchase 375,000 shares of our common stock at a
      purchase price of $0.57 per share, which option becomes exercisable on May
      22, 2009, (iii) 375,000 shares of restricted stock awarded May 22, 2008,
      issuable on March 24, 2009, with the filing of the Charter Amendment, and
      (iv) 375,000 shares of restricted stock awarded May 22, 2008, that vest on
      May 22, 2009. Excludes (i) option to purchase 375,000 shares of
      our common stock at a purchase price of $0.62 per share, which option
      becomes exercisable on May 22, 2010, and (ii) 375,000 shares of restricted
      stock that vest on May 22, 2010.


(6)
            Represents
      (i) option exercisable to purchase 333,334 shares of our common stock at a
      purchase price of $0.54 per share, which option became exercisable on
      March 24, 2009 with the filing of the Charter Amendment and (ii) 250,000
      shares of restricted stock awarded October 1, 2008, issuable on March 24,
      2009, with the filing of the Charter Amendment. Excludes (i) option
      to purchase 333,333 shares of our common stock at a purchase price of
      $0.59 per share and option to purchase 333,333 shares of our common stock
      at a purchase price of $0.65 per share, which options become exercisable
      on October 1, 2009 and 2010, respectively, and (ii) 250,000 shares of
      restricted stock that vest on October 1, 2009 and 250,000 shares of
      restricted stock that vest on October 1,
2010.


(7)
            Excludes
      an aggregate of 3,000,000 shares of common stock held by two sons and a
      daughter of Mr. Gaines, each of whom is greater than 18 years of age,
      which shares Mr. Gaines may be deemed a beneficial owner thereof because
      of such relationship. Mr. Gaines expressly disclaims beneficial
      ownership of these securities, and this report shall not be deemed to be
      an admission that he is the beneficial owner of these securities for
      purposes of Sections 13(d) or 16 or for any other
  purpose.


(8)
            Represents
      up to 24,199,996 shares of our common stock underlying a warrant granted
      by us in connection with the CIT Credit Facility, which warrant became
      exercisable on March 24, 2009, upon the filing of the Charter Amendment at
      an exercise price of $0.35 per share, subject to adjustments and
      full-ratchet protection under certain
  circumstances.


(9)
            Includes
      (i) warrant currently exercisable at $0.35 per share for an aggregate of
      1,500,000 shares of our common stock and (ii) warrant currently
      exercisable at $0.53 per share for 3,300,00 shares of our common
      stock.


(10)
            Includes
      warrant exercisable to purchase up to 1,200,000 shares of our common stock
      at a warrant purchase price of $0.33 per share subject to adjustments and
      full-ratchet protection under certain
  circumstances.





Item
13.                             Certain
Relationships and Related Transactions, and Director Independence.





Relationships
and Related Transactions.





Except as
set forth below, since January 1, 2007, there have been no transactions, or
currently proposed transactions, of an amount exceeding or to exceed $120,000,or
one percent (1%) of the average of the Company’s total assets at year end, to
which we were or are to be a party, in which any of our executive officers,
directors or other Related Party (as defined below) had or is to have a direct
or indirect material interest.





As
previously disclosed in our Current Report filed with the SEC on May 23, 2008,
on May 22, 2008 we entered into a Stock Purchase and Sale Agreement with Voyager
Gas Holdings, LP to purchase all of the capital stock held by it in
Voyager. As part of that transaction, on September 2, 2008, we paid $35
million in cash and issued 10,000 shares of our then outstanding Series D
Preferred, having an agreed upon value of $7 million, to Natural Gas Partners
VII, LP, as the designee of the seller. On March 24, 2009, shares of Series
D Preferred automatically converted into 17,500,000 shares of our Common Stock,
making Natural Gas Partners VII, LP one of our principal stockholders, with
approximately 38.7% of our shares of common stock then.





58




As
previously disclosed in our Current Report filed with the SEC on September 9,
2008, on September 2, 2008 we entered into the Credit Facility with CIT Capital,
as lender and administrative agent for the lenders from time to time who are
party to the credit agreement of even date therewith. As part of our entry
into the Credit Facility, we paid CIT Capital fees in the amount of $510,000 and
granted a warrant, currently exercisable to purchase up to 24,199,996 shares of
our common stock at an initial exercise price of $0.35 per share, subject to
adjustment. Giving effect to the exercise of such warrants, CIT Capital
would hold 34.8% of our shares of common stock outstanding on May 19,
2009.





As
previously disclosed in our Current Report filed with the SEC on August 21,
2008, on August 20, 2008 we issued 500 shares of our newly designated Series C
Preferred (defined below) to Alan D. Gaines, on that date our largest
stockholder and a director of the Company, in exchange for the cancellation of a
promissory note made by us in favor of Mr. Gaines, in the principal amount of
$50,000. In addition to these shares of Series C Preferred, on August 20,
2008 we also issued an additional 500 shares of Series C Preferred to Mr. Gaines
for cash consideration of $50,000. The Series C Preferred are automatically
redeemable by the Company at the rate of $100 for every one (1) share of Series
C Preferred being redeemed upon the closing of a debt or equity financing
whereby we realize gross proceeds in excess of $5,000,000.  Our lender
in the Credit Facility did not permit us to redeem the Series C Preferred upon
funding, with the understanding that, based upon the success of our workover
program and increased production resulting from the Voyager Acquisition, the
lender would permit a subsequent distribution to Mr. Gaines for his Series C
Preferred. Shares of preferred stock, $.001 par value, designated out of
our authorized “blank check preferred stock” by our Board as “Series C Preferred
Stock” (the “Series C Preferred”), have the rights, preferences, powers,
restrictions and obligations set forth in the Certificate of Designation filed
with the Secretary of State of the State of Nevada on August 20, 2008, including
the automatic redemption rights referenced above.  However, holders of
the Series C Preferred are not entitled to any dividends, preemption, voting,
conversion or other rights as a stockholder of the Company.





For
purposes hereof, “Related Party” includes (a) any person who is or was (at any
time during the last fiscal year) an executive officer, director or nominee for
election as a director; (b) any person or group who is a beneficial owner of
more than 5% of the Company’s voting securities; (c) any immediate family member
of a person described in provisions (a) or (b) of this sentence; or (d) any
entity in which any of the foregoing persons is employed, is a partner or has a
greater than 5% beneficial ownership interest.





The
foregoing transactions, by which the person became a Related Party in all but
the transaction involving Mr. Gaines, were the product of arms-length
negotiations resulting in terms we believe to have been no less favorable than
could have been obtained from non-affiliated parties.





Director
Independence.





None of
our current directors are considered to be independent, as one director is also
an executive officer or employee of the Company and the other director is a
greater than 10% shareholder of the Company.





The above
determination as to “independent” directors is based upon the corporate
governance rules of the NYSE Amex, a national securities exchange that requires
a majority of the board of directors to be independent.  Such
corporate governance rules provide, however, that our status as a “smaller
reporting company” only requires that we maintain a board of directors comprised
ofat least50%
independent directors and an audit committee of at least two members, comprised
solely of independent directors.





The OTC
Bulletin Board, on which our common stock is currently traded, does not maintain
director independence standards.





59




Item 14.
            Principal
      Accountant Fees and Services.




For the
two years ended December 31, 2008 (including the six-month transition period
then ended) and December 31, 2007, the aggregate fees billed by Malone &
Bailey, PC, our principal independent accounting firm, for professional services
were as follows:
 
 Years
      Ended December 31,2008
              
              
              2007Audit
      fees
              
              $
              84,070
              
              
              $Audit-related
      fees
              
              $
              25,000
              
              
              $Tax
      fees
              
              $
              [____]
              
              
              $All
      other fees
              
              $
              15,850
              
              
              $




As of
December 31, 2008, we did not have a formal documented pre-approval policy for
the fees of our principal accounting firm.





60


PART
      IV





Item 15.
            Exhibits
      and Financial Statement Schedules.







(a)(1)
Financial Statements




The
response to this item is submitted in the “F” pages incorporated into this
Transition Report.




(a)(3)
Exhibits





Exhibit
      Nos.
            Description
      of Exhibit2.1
            Agreement
      and Plan of Merger, dated as of May 26, 2006, among the Company, Energy
      Venture and EVI Acquisition Corp. (incorporated herein by reference to
      Exhibit 2.1 of the Company's Form 8-K report, filed June 2,
      2006).3.1
            Articles
      of Incorporation of the Company (incorporated herein by reference to
      Exhibit 3.1 to the Company's Registration Statement on Form SB-2, filed
      December 8, 2004).3.1.1
            Certificate
      of Amendment of Articles of Incorporation of the Company (incorporated
      herein by reference to Exhibit 3.1.1 to the Company's Form 8-K report,
      filed March 27,  2009).3.2
            By-Laws
      of the Company (incorporated herein by reference to Exhibit 3.2 of
      Company's Registration Statement on Form SB-2, filed December 8,
      2004).4.1
            Form
      of 10% Convertible Promissory Note, issued by Energy Venture (and assumed
      by the Company ) in March 2005 (incorporated herein by reference to
      Exhibit 4.1 of the Company's Form 8-K report, filed June 2,
      2006).4.2
            Certificate
      of Designation, dated May 15, 2008, with respect to Series A Preferred
      Stock (incorporated herein by reference to Exhibit 99.1 to the Company’s
      Form 8-K report, filed May 21, 2008).4.3
            Certificate
      of Designation, dated May 15, 2008, with respect to Series B Preferred
      Stock (incorporated herein by reference to Exhibit 99.2 to the Company’s
      Form 8-K report, filed May 21, 2008).4.4
            Certificate
      of Designation, dated August 19, 2008, with respect to Series C Preferred
      Stock (incorporated herein by reference to Exhibit 99.1 to the Company’s
      Form 8-K report, filed August 21, 2008).4.5
            Certificate
      of Designation, dated August 27, 2008, with respect to Series D Preferred
      Stock (incorporated herein by reference to Exhibit 99.12 to the Company’s
      Form 8-K report, filed September 9, 2008).4.6
            Certificate
      of Designation, dated August 29, 2008, with respect to Series E Preferred
      Stock (incorporated herein by reference to Exhibit 99.13 to the Company’s
      Form 8-K report, filed September 9, 2008).10.1
            2008
      Stock Incentive Option Plan of the Company (incorporated herein by
      reference to Exhibit B to the Company's Definitive Information Statement
      on Schedule 14C, filed March 3, 2009).10.2
            Stock
      Purchase Agreement dated as of April 3, 2006 among Energy Venture, as
      buyer, and the named selling stockholders of the Company (incorporated
      herein by reference to Exhibit 10.1 of the Company's Form 8-K report,
      filed April 28, 2006).10.2.2
            Amendment
      to Stock Purchase Agreement dated April 28, 2006 among Energy Venture and
      each of the named selling stockholders of the Company (incorporated herein
      by reference to Exhibit 10.2 of the Company's Form 8-K report, filed April
      28, 2006).10.3
            Form
      of Stock Option Agreement issued by Energy Venture (and assumed by the
      Company) to the Optionees (incorporated herein by reference to Exhibit
      10.4 of the Company's Annual Report on Form 10-KSB, filed September 28,
      2006).





61


Item
      15.
            Exhibits
      and Financial Statement Schedules.
(continued)





Exhibit
      Nos.
            Description
      of Exhibit10.4
            Form
      of Agreement between the Company and the holders of the Company's 10%
      Convertible Promissory Note (incorporated herein by reference to Exhibit
      10.5 of the Company’s Annual Report on Form 10-KSB, filed September 27,
      2007).10.5
            Stock
      Purchase and Sale Agreement, dated May 22, 2008, among the Company,
      Voyager Gas Holdings, L.P. and Voyager Gas Corporation (incorporated
      herein by reference to Exhibit 99.1 to the Company’s Form 8-K report,
      filed May 23, 2008).10.5.1
            First
      Amendment to Purchase and Sale Agreement, dated August 15, 2008, among the
      Company, Voyager Gas Holdings, L.P. and Voyager Gas Corporation
      (incorporated herein by reference to Exhibit 99.16 to the Company’s Form
      8-K report, filed September 9, 2008).10.5.2
            Second
      Amendment to Purchase and Sale Agreement, dated September 2, 2008, among
      the Company, Voyager Gas Holdings, L.P. and Voyager Gas Corporation
      (incorporated herein by reference to Exhibit 99.17 to the Company’s Form
      8-K report, filed September 9, 2008).10.6
            Form
      of Exchange Agreement between the Company and the 12% Note holders, with
      respect to Series A Preferred (incorporated herein by reference to Exhibit
      99.2 to the Company’s Form 8-K report, filed May 23,
  2008).10.7
            Form
      of Exchange Agreement between the Company and the 10% Note holder, with
      respect to Series B Preferred (incorporated herein by reference to Exhibit
      99.3 to the Company’s Form 8-K report, filed May 23,
  2008).10.8
            Form
      of Securities Purchase Agreement, dated May 21, 2008, among the Company
      and the purchasers named therein (the "Purchasers") (incorporated herein
      by reference to Exhibit 99.4 to the Company’s Form 8-K report, filed May
      23, 2008).10.9
            Form
      of Senior Secured Convertible Debenture due September 29, 2008, from the
      Company to the Purchasers (incorporated herein by reference to Exhibit
      99.5 to the Company’s Form 8-K report, filed May 23,
  2008).10.10
            Form
      of Common Stock Purchase Warrant, dated May 21, 2008, from the Company to
      the Purchasers (incorporated herein by reference to Exhibit 99.6 to the
      Company’s Form 8-K report, filed May 23, 2008).10.11
            Form
      of Security Agreement, dated May 21, 2008, among the Company, Energy
      Venture, Inc. and the Purchasers (incorporated herein by reference to
      Exhibit 99.7 to the Company’s Form 8-K report, filed May 23,
      2008).10.12
            Form
      of Subsidiary Guarantee, dated May 21, 2008, by Energy Venture, Inc. for
      the benefit of the Purchasers (incorporated herein by reference to Exhibit
      99.8 to the Company’s Form 8-K report, filed May 23,
  2008).10.13
            Form
      of Security and Pledge Agreement, dated May 21, 2008, among the Company,
      each of Alan Gaines, Brent Gaines, Derek Gaines and Ilana Gaines, as
      Pledgors, and the Purchasers (incorporated herein by reference to Exhibit
      99.9 to the Company’s Form 8-K report, filed May 23,
  2008).10.14
            Form
      of Registration Rights Agreement, dated May 21, 2008, among the Company
      and the purchasers named therein (incorporated herein by reference to
      Exhibit 99.10 to the Company’s Form 8-K report, filed May 23,
      2008).10.15
            Employment
      Agreement, dated May 22, 2008, between the Company and Robert P. Munn
      (incorporated herein by reference to Exhibit 99.11 to the Company’s Form
      8-K report, filed May 23, 2008).





62


Item
      15.
            Exhibits
      and Financial Statement Schedules.
(continued)





Exhibit
      Nos.
            Description
      of Exhibit10.16
            Employment
      Agreement, dated May 22, 2008, between the Company and Carl A. Chase
      (incorporated herein by reference to Exhibit 99.12 to the Company’s Form
      8-K report, filed May 23, 2008).10.17
            Restricted
      Stock Agreement, dated May 22, 2008, between the Company and Robert P.
      Munn (incorporated herein by reference to Exhibit 99.13 to the Company’s
      Form 8-K report, filed May 23, 2008).10.18
            Restricted
      Stock Agreement, dated May 22, 2008, between the Company and Carl A. Chase
      (incorporated herein by reference to Exhibit 99.14 to the Company’s Form
      8-K report, filed May 23, 2008).10.19
            Stock
      Option Agreement, dated May 22, 2008, between the Company and Robert P.
      Munn (incorporated herein by reference to Exhibit 99.15 to the Company’s
      Form 8-K report, filed May 23, 2008).10.20
            Stock
      Option Agreement, dated May 22, 2008, between the Company and Robert P.
      Munn (incorporated herein by reference to Exhibit 99.16 to the Company’s
      Form 8-K report, filed May 23, 2008).10.21
            Stock
      Option Agreement, dated May 22, 2008, between the Company and Robert P.
      Munn (incorporated herein by reference to Exhibit 99.17 to the Company’s
      Form 8-K report, filed May 23, 2008).10.22
            Stock
      Option Agreement, dated May 22, 2008, between the Company and Carl A.
      Chase (incorporated herein by reference to Exhibit 99.18 to the Company’s
      Form 8-K report, filed May 23, 2008).10.23
            Stock
      Option Agreement, dated May 22, 2008, between the Company and Carl A.
      Chase (incorporated herein by reference to Exhibit 99.19 to the Company’s
      Form 8-K report, filed May 23, 2008).10.24
            Stock
      Option Agreement, dated May 22, 2008, between the Company and Carl A.
      Chase (incorporated herein by reference to Exhibit 99.20 to the Company’s
      Form 8-K report, filed May 23, 2008).10.25
            Credit
      Agreement, dated as of September 2, 2008, among the Company, as borrower,
      CIT Capital USA Inc., as administrative agent, and the lenders party
      thereto (the “Revolving Loan”) (incorporated herein by reference to
      Exhibit 99.2 to the Company’s Form 8-K report, filed September 9,
      2008).10.26
            Second
      Lien Term Loan Agreement, dated as of September 2, 2008, among the
      Company, as borrower, CIT Capital USA, Inc., as administrative agent, and
      the lenders party thereto (the “Term Loan”) (incorporated herein by
      reference to Exhibit 99.2 to the Company’s Form 8-K report, filed
      September 9, 2008).10.27
            Form
      of $50.0 million Note, issued under the Revolving Loan  on
      September 2, 2008 to CIT Capital USA Inc., as lender (incorporated herein
      by reference to Exhibit 99.4 to the Company’s Form 8-K report, filed
      September 9, 2008).10.28
            Form
      of $22.0 million Note, issued under the Term Loan  on September
      2, 2008 to CIT Capital USA Inc., as lender (incorporated herein by
      reference to Exhibit 99.5 to the Company’s Form 8-K report, filed
      September 9, 2008).10.29
            Intercreditor
      Agreement, dated as of September 2, 2008, among the Company, as borrower,
      its subsidiaries, CIT Capital USA, Inc., as first lien and second lien
      administrative agents (incorporated herein by reference to Exhibit 99.6 to
      the Company’s Form 8-K report, filed September 9,
2008).10.30
            Guaranty
      and Collateral Agreement, dated as of September 2, 2008, made by the
      Company and guarantors named therein for the benefit of CIT Capital USA,
      Inc., as administrative agent (incorporated herein by reference to Exhibit
      99.7 to the Company’s Form 8-K report, filed September 9,
      2008).





63


Item
      15.
            Exhibits
      and Financial Statement Schedules.
(continued)





Exhibit
      Nos.
            Description
      of Exhibit10.31
            Second
      Lien Guaranty and Collateral Agreement, dated as of September 2, 2008,
      made by the Company and guarantors named therein for the benefit of CIT
      Capital USA, Inc., as administrative agent (incorporated herein by
      reference to Exhibit 99.8 to the Company’s Form 8-K report, filed
      September 9, 2008).10.32
            Form
      of $557,500 Note, issued September 2, 2008 to Global Hunter Securities,
      LLC (incorporated herein by reference to Exhibit 99.9 to the Company’s
      Form 8-K report, filed September 9, 2008).10.33
            Registration
      Rights Agreement, dated September 2, 2008, among the Company, Voyager Gas
      Holdings, L.P. and CIT Capital USA, Inc. (incorporated herein by reference
      to Exhibit 99.14 to the Company’s Form 8-K report, filed September 9,
      2008).10.34
            Warrant,
      dated September 2, 2008, from the Company to CIT Capital USA, Inc. 
      (incorporated herein by reference to Exhibit 99.10 to the Company’s Form
      8-K report, filed September 9, 2008).10.35
            Warrant,
      dated September 2, 2008, from the Company to Global Hunter Securities, LLC
      (incorporated herein by reference to Exhibit 99.11 to the Company’s Form
      8-K report, filed September 9, 2008).10.36
            Employment
      Agreement, dated October 1, 2008, between the Company and Jim B. Davis
      (incorporated herein by reference to Exhibit 99.1 to the Company’s Form
      8-K report, filed October 6, 2008).10.37
            Restricted
      Stock Agreement, dated October 1, 2008, between the Company and Jim B.
      Davis (incorporated herein by reference to Exhibit 99.2 to the Company’s
      Form 8-K report, filed October 6, 2008).10.38
            Stock
      Option Agreement, dated October 1, 2008, between the Company and Jim B.
      Davis (incorporated herein by reference to Exhibit 99.3 to the Company’s
      Form 8-K report, filed October 6, 2008).10.39
            Stock
      Option Agreement, dated October 1, 2008, between the Company and Jim B.
      Davis (incorporated herein by reference to Exhibit 99.4 to the Company’s
      Form 8-K report, filed October 6, 2008).10.40
            Stock
      Option Agreement, dated October 1, 2008, between the Company and Iim B.
      Davis (incorporated herein by reference to Exhibit 99.5 to the Company’s
      Form 8-K report, filed October 6, 2008).23.1 **
            Consent
      of Ralph E. Davis Associates, Inc., independent petroleum
      engineer.31.1 **
            Certification
      of Chief Executive Officer required by Rule 13a-14(a) under the Exchange
      Act.31.2 **
            Certification
      of Chief Financial Officer required by Rule 13a-14(a) under the Exchange
      Act.32.1 **
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
      adopted32.2 **
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
      adopted99.1 **
            Independent
      Petroleum Engineer Report.





**  Filed
      herewith.





64


SIGNATURES





Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.








CROSS
      CANYON ENERGY CORP.By:  /s/
      Robert P. MunnRobert
      P. Munn
              Chief
      Executive OfficerMay
      20, 2009





Pursuant to the requirements of the
Securities and Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.





By:  /s/
      Robert P. Munn
            May
      20, 2009Robert
      P. MunnChief
      Executive Officer and DirectorPrincipal Executive OfficerBy:  /s/
      Carl A. Chase
            May
      20, 2009Carl
      A. ChaseChief
      Financial Officer and
              Principal
      Financial and Accounting OfficerBy:  /s/
      Alan D. Gaines
            May
      20, 2009Alan
      D. GainesDirector








65


CROSS CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)


INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
            F-2Report
      of Independent Registered Public Accounting Firm
            F-3Report
      of Independent Registered Public Accounting Firm
            F-4Consolidated
      Balance Sheets at December 31, 2008 (successor entity) and December 31,
      2007 (predecessor entity)
            F-5Consolidated
      Statements of Operations for the Period from September 2, 2008 through
      December 31, 2008 (successor entity)
              and the Period January 1 to September 1, 2008 and the Year Ended December
      31, 2007 (predecessor entity)
            F-6Consolidated
      Statements of Cash Flows for Period from September 2, 2008 through
      December 31, 2008 (successor entity)
              and the Period January 1 to September 1, 2008 and the Year Ended December
      31, 2007 (predecessor entity)
            F-7Consolidated
      Statements of Changes in Stockholders’ Equity (Deficit) for the Period
      September 1 to December 31, 2008 (successor entity)
              and the Period December 31, 2006 to September 1, 2008 (predecessor
      entity)
            F-9Notes
      to Consolidated Financial Statements
            F-10





F-1


REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors


Cross
Canyon Energy Corp.


Spring,
Texas





We have
audited the accompanying consolidated balance sheet of Cross Canyon Energy Corp.
(the "Successor Company") as of December 31, 2008, the related consolidated
statements of operations, cash flows and changes in stockholders’ equity for the
period from September 2, 2008 through December 31, 2008. We have also
audited the consolidated statements of operations and changes in stockholders’
equity for the period from July 1, 2008 through September 1, 2008 (the
“Transition Period”) reported in Note 2. These consolidated financial
statements are the responsibility of the Successor Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.





We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Successor
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Successor
Company's internal control over financial reporting. Accordingly, we
express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Successor
Company as of December 31, 2008, and the consolidated results of its operations
and its cash flows for the periods described in conformity with accounting
principles generally accepted in the United States of America.





The
accompanying financial statements have been prepared assuming that the Successor
Company will continue as a going concern.  As discussed in Note 2 to
the financial statements, the Successor Company was notified by their lender
that the borrowing base on their credit agreement dated September 2, 2008 was
reduced to $1,000,000, which created a borrowing base deficit of
$10,500,000.  This raises substantial doubt about its ability to
continue as a going concern.  Management’s plans regarding those
matters are also described in Note 2.  The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.





/s/
Malone & Bailey, PC


www.malone-bailey.com


Houston,
Texas





May 20,
2009









F-2


REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors


Voyager
Gas Corporation


Spring,
Texas





We have
audited the accompanying consolidated statements of operations, cash flows and
changes in stockholders’ equity of Voyager Gas Corporation (the "Predecessor
Company") for the period from January 1, 2008 through September 1,
2008. These financial statements are the responsibility of the Predecessor
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.





We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The
Predecessor Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Predecessor
Company's internal control over financial reporting. Accordingly, we
express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the results of its operations and its cash flows for
the period described in conformity with accounting principles
generally accepted in the United States of America.











/s/
Malone & Bailey, PC


www.malone-bailey.com


Houston,
Texas





May 20,
2009









F-3


MONTGOMERY
COSCIA GREILICH LLP





Certified
Public Accountants


2701
Dallas Parkway, Suite 300


Plano,
Texas 75093


972.378.0400
p


972.378.0416
f





Thomas A.
Montgomery, CPA


Matthew
R. Coscia, CPA


Paul E.
Greilich, CPA


Jeanette
A. Musacchio


James M.
Lyngholm


Chris C.
Johnson, CPA





INDEPENDENT
AUDITOR’S REPORT





To the
Board of Directors


Voyager
Gas Corporation





We have
audited the accompanying balance sheet of Voyager Gas Corporation (the
“Predecessor Company”) as of December 31, 2007 and the related statements of
operations, changes in stockholders’ equity and cash flows for the year ended
December 31, 2007.  These financial statements are the responsibility of
the Predecessor Company’s management.  Our responsibility is to express an
opinion on these financial statements based on our audit.




We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no such
opinion.  An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Voyager Gas Corporation as of
December 31, 2007, and the results of its operations and its cash flows for the
year ended December 31, 2007, in conformity with accounting principles generally
accepted in the United States of America.




As
further discussed in Note 4 to the financial statements, errors were discovered
in financial statements as of and for the year ended December 31, 2007 with
regard to an overstatement of depletion expense of $3,076,032, understatement of
an asset retirement obligation of $765,658 and understatement of income tax
expense of $1,079,199.




/s/ Montgomery Coscia
Greilich LLP




Montgomery
Coscia Greilich LLP


Plano,
Texas




May 8,
2008 except for Note 4, which is dated May 20, 2009


F-4


CROSS
CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)


CONSOLIDATED
BALANCE SHEETS


Successor
      Entity
                                    
                                    
                                    Predecessor
      EntityDecember
      31,
                                    
                                    
                                    December
      31,2008
                                    
                                    
                                    2007ASSETS
                                    
                                    
                                    
                                    
                                    (Restated)Current
      assets:Cash
      and cash equivalents
                                    
                                    $
                                    1,323,077
                                    
                                    
                                    $
                                    --Accounts
      receivable
                                    
                                    
                                    616,754
                                    
                                    
                                    
                                    1,791,519Current
      portion of derivative asset
                                    
                                    
                                    1,356,279
                                    
                                    
                                    
                                    205,639Prepaid
      expenses and other current assets
                                    
                                    
                                    11,564
                                    
                                    
                                    
                                    7,933Total
      current assets
                                    
                                    
                                    3,307,674
                                    
                                    
                                    
                                    2,005,091Oil
      and gas properties, using successful efforts method:Proved
      properties
                                    
                                    
                                    40,280,739
                                    
                                    
                                    
                                    35,178,337Unproved
      properties
                                    
                                    
                                    11,989,150
                                    
                                    
                                    
                                    13,299,340Less
      accumulated depletion and depreciation
                                    
                                    
                                    (991,003
                                    )
                                    
                                    
                                    (5,859,997
                                    )Net
      oil and gas properties
                                    
                                    
                                    51,278,886
                                    
                                    
                                    
                                    42,617,680Other
      property and equipment, net
                                    
                                    
                                    40,950
                                    
                                    
                                    
                                    22,457Deferred
      financing costs, net
                                    
                                    
                                    1,728,411
                                    
                                    
                                    
                                    --Derivative
      asset
                                    
                                    
                                    812,784
                                    
                                    
                                    
                                    --Other
      assets
                                    
                                    
                                    --
                                    
                                    
                                    
                                    16,728TOTAL
      ASSETS
                                    
                                    $
                                    57,168,705
                                    
                                    
                                    $
                                    44,661,956LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                                    
                                    $
                                    576,619
                                    
                                    
                                    $
                                    251,633Bank
      overdraft
                                    
                                    
                                    --
                                    
                                    
                                    
                                    316,239Deferred
      taxes, current
                                    
                                    
                                    416,212
                                    
                                    
                                    
                                    --Accrued
      liabilities
                                    
                                    
                                    522,000
                                    
                                    
                                    
                                    1,266,178Convertible
      debt
                                    
                                    
                                    25,000
                                    
                                    
                                    
                                    --Credit facility - revolving loan
                                    
                                    
                                    11,500,000
                                    
                                    
                                    
                                    --Credit facility - term loan, net of amortized discounts of
      $9,572,412
                                    
                                    
                                    12,427,588
                                    
                                    
                                    
                                    --Series
      C Preferred stock, $0.001 par value, 1,000 shares authorized and
      outstanding atDecember
      31, 2008, with mandatory redemption
                                    
                                    
                                    100,000
                                    
                                    
                                    
                                    --Derivative
      liabilities
                                    
                                    
                                    554,181
                                    
                                    
                                    
                                    --Income
      taxes currently payable
                                    
                                    
                                    508,991
                                    
                                    
                                    
                                    86,007Total
      current liabilities
                                    
                                    
                                    26,630,591
                                    
                                    
                                    
                                    1,920,057Credit
      facility – revolving loan
                                    
                                    
                                    --
                                    
                                    
                                    
                                    15,116,287Asset
      retirement obligation
                                    
                                    
                                    878,621
                                    
                                    
                                    
                                    765,658Deferred
      income taxes
                                    
                                    
                                    9,855,816
                                    
                                    
                                    
                                    6,640,811Total
      liabilities
                                    
                                    
                                    37,365,028
                                    
                                    
                                    
                                    24,442,813Commitments
      and contingencies – Note 16
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --Stockholders’ equity:Preferred
      stock, $0.001 par value, 1,000,000 shares authorized, 842,505undesignated
      authorized at December 31, 2008Series
      A Preferred stock, $0.001 par value, 99,395 shares authorized and
      outstanding
                                    
                                    
                                    99
                                    
                                    
                                    
                                    --Series
      B Preferred stock, $0.001 par value, 37,100 shares authorized and
      outstanding
                                    
                                    
                                    37
                                    
                                    
                                    
                                    --Series
      D Preferred stock, $0.001 par value, 10,000 shares authorized and
      outstanding
                                    
                                    
                                    10
                                    
                                    
                                    
                                    --Series
      E Preferred stock, $0.001 par value, 10,000 shares authorized and
      outstanding
                                    
                                    
                                    10
                                    
                                    
                                    
                                    --Common
      stock, $0.001 par value, 149,000,000 shares authorized,
      25,264,260 outstandingat
      December 31, 2008 (successor)
                                    
                                    
                                    25,264
                                    
                                    
                                    
                                    --Common
      stock, $0.01 par value, 10 shares authorized, issued and
      outstandingat
      December 31, 2007 (predecessor)
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --Additional
      paid-in capital
                                    
                                    
                                    14,782,392
                                    
                                    
                                    
                                    7,140,000Retained
      earnings
                                    
                                    
                                    4,995,865
                                    
                                    
                                    
                                    13,079,143Total
      stockholders’ equity
                                    
                                    
                                    19,803,677
                                    
                                    
                                    
                                    20,219,143TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                                    
                                    $
                                    57,168,705
                                    
                                    
                                    $
                                    44,661,956




See notes
to consolidated financial statements.


F-5


CROSS
CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)


CONSOLIDATED
STATEMENTS OF OPERATIONS








Successor
      Entity
                              
                              
                              Predecessor
      EntityPeriod
      September 2
                                to
      December 31,
                              
                              
                              Period
      January 1
                                to September
      1,
                              
                              
                              Year
      Ended
                                December
      31,2008
                              
                              
                              2008
                              
                              
                              2007(Restated)Oil
      and natural gas revenue
                              
                              $
                              2,347,653
                              
                              
                              $
                              10,356,134
                              
                              
                              $
                              11,348,577Operating
      costs and expenses:Lease
      operating expenses
                              
                              
                              552,818
                              
                              
                              
                              2,076,630
                              
                              
                              
                              2,464,653Production
      taxes
                              
                              
                              168,300
                              
                              
                              
                              636,114
                              
                              
                              
                              836,349Exploration
      expense
                              
                              
                              20,652
                              
                              
                              
                              --
                              
                              
                              
                              9,399Accretion
      of asset retirement obligation
                              
                              
                              20,088
                              
                              
                              
                              41,086
                              
                              
                              
                              --Depletion,
      depreciation and amortization
                              
                              
                              992,735
                              
                              
                              
                              1,712,258
                              
                              
                              
                              1,758,320General
      and administrative expense
                              
                              
                              1,379,885
                              
                              
                              
                              650,671
                              
                              
                              
                              970,701Total
      operating costs and expenses
                              
                              
                              3,134,478
                              
                              
                              
                              5,116,759
                              
                              
                              
                              6,039,422Income
      (loss) from operations
                              
                              
                              (786,825
                              )
                              
                              
                              5,239,375
                              
                              
                              
                              5,309,155Other
      income (expense):Interest
      expense, net
                              
                              
                              (2,022,054
                              )
                              
                              
                              (508,966
                              )
                              
                              
                              (979,832
                              )Risk
      management
                              
                              
                              2,587,097
                              
                              
                              
                              (383,348
                              )
                              
                              
                              (609,225
                              )Loss
      on extinguishment of debt
                              
                              
                              (547,045
                              )
                              
                              
                              --
                              
                              
                              
                              --Gain
      on sale of oil and gas properties
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              12,702,811Change
      in fair value of derivatives
                              
                              
                              18,235,468
                              
                              
                              
                              --
                              
                              
                              
                              --Total
      other income (expense)
                              
                              
                              18,253,466
                              
                              
                              
                              (892,314
                              )
                              
                              
                              11,113,754Income
      before income taxes
                              
                              
                              17,466,641
                              
                              
                              
                              4,347,061
                              
                              
                              
                              16,422,909Income
      tax provision (benefit)
                              
                              
                              (163,429
                              )
                              
                              
                              740,623
                              
                              
                              
                              5,843,533Net
      income
                              
                              $
                              17,630,070
                              
                              
                              $
                              3,606,438
                              
                              
                              $
                              10,579,376Net
      income per share:Basic
                              
                              $
                              0.71
                              
                              
                              $
                              360,644
                              
                              
                              $
                              1,057,938Diluted
                              
                              $
                              0.70
                              
                              
                              $
                              360,644
                              
                              
                              $
                              1,057,938Weighted
      average number of common shares outstanding:Basic
                              
                              
                              24,826,430
                              
                              
                              
                              10
                              
                              
                              
                              10Diluted
                              
                              
                              25,176,430
                              
                              
                              
                              10
                              
                              
                              
                              10





See notes
to consolidated financial statements.





F-6


CROSS
CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Successor
      Entity
                                            
                                            
                                            Predecessor
      EntityPeriod
      September 2
                                              to
      December 31,
                                            
                                            
                                            Period
      January 1
                                              to
      September 1,
                                            
                                            
                                            Year
      Ended
                                              December
      31,2008
                                            
                                            
                                            2008
                                            
                                            
                                            2007Cash
      flows from operating activities:
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (Restated)Net
      income
                                            
                                            $
                                            17,630,070
                                            
                                            
                                            $
                                            3,606,438
                                            
                                            
                                            $
                                            10,579,376Adjustments
      to reconcile net income to cash provided byoperating
      activities:Depreciation,
      depletion and amortization
                                            
                                            
                                            992,735
                                            
                                            
                                            
                                            1,712,258
                                            
                                            
                                            
                                            1,758,320Accretion
      of asset retirement obligation
                                            
                                            
                                            20,088
                                            
                                            
                                            
                                            41,086
                                            
                                            
                                            
                                            --Deferred
      income taxes
                                            
                                            
                                            (601,998
                                            )
                                            
                                            
                                            (415,359
                                            )
                                            
                                            
                                            5,759,858Share
      based compensation
                                            
                                            
                                            719,588
                                            
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --Amortization
      of deferred financing costs
                                            
                                            
                                            230,356
                                            
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --Amortization
      of debt discounts
                                            
                                            
                                            1,032,163
                                            
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --Gain
      on the sale of oil and gas properties
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --
                                            
                                            
                                            
                                            (12,702,811
                                            )Change
      in fair value of energy swap derivatives
                                            
                                            
                                            (2,169,063
                                            )
                                            
                                            
                                            208,296
                                            
                                            
                                            
                                            1,239,764Change
      in fair value of derivatives
                                            
                                            
                                            (18,235,468
                                            )
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --Loss
      on extinguishment of debt
                                            
                                            
                                            547,045
                                            
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --Changes
      in assets and liabilities:Accounts
      receivable
                                            
                                            
                                            (577,344
                                            )
                                            
                                            
                                            346,407
                                            
                                            
                                            
                                            19,800Prepaid
      and other current assets
                                            
                                            
                                            16,228
                                            
                                            
                                            
                                            (9,511
                                            )
                                            
                                            
                                            (1,600
                                            )Other
      long-term assets
                                            
                                            
                                            --
                                            
                                            
                                            
                                            13,107
                                            
                                            
                                            
                                            986Accounts
      payable
                                            
                                            
                                            (195,636
                                            )
                                            
                                            
                                            (251,633
                                            )
                                            
                                            
                                            327,730Accounts
      payable - related parties
                                            
                                            
                                            (57,663
                                            )
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --Accrued
      liabilities and income taxes payable
                                            
                                            
                                            417,522
                                            
                                            
                                            
                                            739,014
                                            
                                            
                                            
                                            86,007Net
      cash provided by (used in) operating activities
                                            
                                            
                                            (231,377
                                            )
                                            
                                            
                                            5,990,103
                                            
                                            
                                            
                                            7,067,430Cash
      flows from investing activities:Proceeds
      from sale of oil and gas properties
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --
                                            
                                            
                                            
                                            29,029,038Oil
      and natural gas property additions
                                            
                                            
                                            (451,440
                                            )
                                            
                                            
                                            (318,053
                                            )
                                            
                                            
                                            (7,195,160
                                            )Cash
      assumed in acquisition
                                            
                                            
                                            1,864,446
                                            
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --Purchase
      of other property and equipment
                                            
                                            
                                            (35,128
                                            )
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --Net
      cash provided by (used in) investing activities
                                            
                                            
                                            1,377,878
                                            
                                            
                                            
                                            (318,053
                                            )
                                            
                                            
                                            21,833,878Cash
      flows from financing activities:Repayment
      of convertible debenture
                                            
                                            
                                            (450,000
                                            )
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --Proceeds
      from credit facility
                                            
                                            
                                            3,027,855
                                            
                                            
                                            
                                            4,731,574
                                            
                                            
                                            
                                            --Repayment
      of credit facility
                                            
                                            
                                            (1,000,000
                                            )
                                            
                                            
                                            (8,608,668
                                            )
                                            
                                            
                                            (29,849,302
                                            )Payment
      of note issued for debt issuance costs
                                            
                                            
                                            (300,000
                                            )
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --Bank
      overdraft
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --
                                            
                                            
                                            
                                            316,239Debt
      issuance costs
                                            
                                            
                                            (1,108,005
                                            )
                                            
                                            
                                            --
                                            
                                            
                                            
                                            --Net
      cash provided by (used in) financing activities
                                            
                                            
                                            169,850
                                            
                                            
                                            
                                            (3,877,094
                                            )
                                            
                                            
                                            (29,533,063
                                            )Net
      increase (decrease) in cash
                                            
                                            
                                            1,316,351
                                            
                                            
                                            
                                            1,794,956
                                            
                                            
                                            
                                            (631,755
                                            )Cash
      at beginning of period
                                            
                                            
                                            6,726
                                            
                                            
                                            
                                            --
                                            
                                            
                                            
                                            631,755Cash
      at end of period
                                            
                                            $
                                            1,323,077
                                            
                                            
                                            $
                                            1,794,956
                                            
                                            
                                            $
                                            --Supplemental
      information:Cash
      paid for interest
                                            
                                            $
                                            597,141
                                            
                                            
                                            $
                                            507,268
                                            
                                            
                                            $
                                            1,255,923Cash
      paid for income taxes
                                            
                                            $
                                            74,408
                                            
                                            
                                            $
                                            --
                                            
                                            
                                            $
                                            --





See notes
to consolidated financial statements.


F-7


CROSS
CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Continued)








Successor
      Entity
                    
                    
                    Predecessor
      EntityPeriod
      September 2
                      to
      December 31,
                    
                    
                    Period
      January 1
                      to
      September 1,
                    
                    
                    Year
      Ended
                      December
      31,2008
                    
                    
                    2008
                    
                    
                    2007(Restated)Non-cash
      investing and financing activities:Preferred
      shares issued for acquisition of oil and gas properties
                    
                    $
                    9,100,000
                    
                    
                    $
                    --
                    
                    
                    $
                    --Debt
      used to acquire oil and gas properties
                    
                    
                    31,472,145Current
      assets acquired with acquisition
                    
                    
                    43,032
                    
                    
                    
                    --
                    
                    
                    
                    --Current
      liabilities assumed with acquisition
                    
                    
                    597,926
                    
                    
                    
                    --
                    
                    
                    
                    --Deferred
      taxes in purchase allocation
                    
                    
                    10,874,026
                    
                    
                    
                    --
                    
                    
                    
                    --Preferred
      shares issued in payment of convertible debenture
                    
                    
                    450,000
                    
                    
                    
                    --
                    
                    
                    
                    --Note
      issued for debt issuance costs
                    
                    
                    557,500
                    
                    
                    
                    --
                    
                    
                    
                    --Removal
      of derivative liability due to repayment of debt
                    
                    
                    1,099,287
                    
                    
                    
                    --
                    
                    
                    
                    --Debt
      discount due to imputed interest
                    
                    
                    16,977
                    
                    
                    
                    --
                    
                    
                    
                    --Debt
      discount due to warrants issued with debt
                    
                    
                    9,952,336
                    
                    
                    
                    --
                    
                    
                    
                    --Debt
      discount due to assignment of overriding royalty interest
                    
                    
                    206,000
                    
                    
                    
                    --
                    
                    
                    
                    --Asset
      retirement obligation assumed
                    
                    
                    765,658
                    
                    
                    
                    --
                    
                    
                    
                    765,658Upward
      revision of asset retirement obligation
                    
                    
                    92,875Earnest
      money deposit on sale of oil and gas properties
                    
                    
                    --
                    
                    
                    
                    803,873
                    
                    
                    
                    --Debt
      issuance costs accrued
                    
                    
                    31,749
                    
                    
                    
                    --
                    
                    
                    
                    --








See notes
to consolidated financial statements.





F-8


CROSS
CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)


CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)




TotalPreferred
      Stock
                  
                  
                  
                  
                  
                  Additional
                  
                  
                  Retained
                  
                  
                  Stockholders’Series
      A
                  
                  
                  Series
      B
                  
                  
                  Series
      D
                  
                  
                  Series
      E
                  
                  
                  Common
      Stock
                  
                  
                  Paid-In
                  
                  
                  Earnings
                  
                  
                  EquityShares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  (Deficit)
                  
                  
                  (Deficit)Predecessor
      EntityBalances,
      December 31, 2006
                  
                  
                  --
                  
                  
                  $
                  --
                  
                  
                  
                  
                  
                  $
                  --
                  
                  
                  
                  
                  
                  $
                  --
                  
                  
                  
                  
                  
                  $
                  --
                  
                  
                  
                  10
                  
                  
                  $
                  --
                  
                  
                  $
                  7,140,000
                  
                  
                  $
                  2,499,767
                  
                  
                  $
                  9,639,767Net
      income
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  10,579,376
                  
                  
                  
                  10,579,376Balances,
      December 31, 2007  (Restated)
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  10
                  
                  
                  
                  --
                  
                  
                  
                  7,140,000
                  
                  
                  
                  13,079,143
                  
                  
                  
                  20,219,143Net
      income
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  3,606,438
                  
                  
                  
                  3,606,438Balances,
      September 1, 2008
                  
                  
                  --
                  
                  
                  $
                  --
                  
                  
                  
                  
                  
                  
                  $
                  --
                  
                  
                  
                  
                  
                  
                  $
                  --
                  
                  
                  
                  
                  
                  
                  $
                  --
                  
                  
                  
                  10
                  
                  
                  $
                  --
                  
                  
                  $
                  7,140,000
                  
                  
                  $
                  16,685,581
                  
                  
                  $
                  23,825,581Successor
      EntityBalances,
      September 2, 2008
                  
                  
                  99,395
                  
                  
                  $
                  99
                  
                  
                  
                  37,100
                  
                  
                  $
                  37
                  
                  
                  
                  --
                  
                  
                  $
                  --
                  
                  
                  
                  --
                  
                  
                  $
                  --
                  
                  
                  
                  24,598,924
                  
                  
                  $
                  24,598
                  
                  
                  $
                  2,609,658
                  
                  
                  $
                  (12,634,205
                  )
                  
                  $
                  (9,999,813
                  )Preferred
      stock issued foracquisition
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  10,000
                  
                  
                  
                  10
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  9,099,990
                  
                  
                  
                  --
                  
                  
                  
                  9,100,000Preferred
      stock issued for paymentof
      debenture
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  10,000
                  
                  
                  
                  10
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  1,254,535
                  
                  
                  
                  --
                  
                  
                  
                  1,254,545Stock
      based compensation
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  665,336
                  
                  
                  
                  666
                  
                  
                  
                  718,922
                  
                  
                  
                  --
                  
                  
                  
                  719,588Removal
      of derivative liability dueto
                    debt being repaid
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  1,099,287
                  
                  
                  
                  --
                  
                  
                  
                  1,099,287Net
      income
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  17,630,070
                  
                  
                  
                  17,630,070Balances,
      December 31, 2008
                  
                  
                  99,395
                  
                  
                  $
                  99
                  
                  
                  
                  37,100
                  
                  
                  $
                  37
                  
                  
                  
                  10,000
                  
                  
                  $
                  10
                  
                  
                  
                  10,000
                  
                  
                  $
                  10
                  
                  
                  
                  25,264,260
                  
                  
                  $
                  25,264
                  
                  
                  $
                  14,782,392
                  
                  
                  $
                  4,995,865
                  
                  
                  $
                  19,803,677





See notes
to consolidated financial statements.


F-9


CROSS
CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1.                      
ORGANIZATION AND BASIS OF PRESENTATION





Cross
Canyon Energy Corp. (the “Company” or “Cross Canyon” or “Successor Entity), is
incorporated under the laws of the State of Nevada, with its primary business
focus to engage in the acquisition, exploitation and development of properties
for the production of crude oil and natural gas.  Effective March 24,
2009, ABC Funding, Inc. filed an amendment to its Articles of Incorporation with
the State of Nevada and changed its name from ABC Funding, Inc. to Cross Canyon
Energy Corp.  The Company’s stock is traded on the OTC Bulletin Board
(“OTCBB”) under the ticker symbol “CCYE.”  Prior to May 5, 2009, the
Company traded under the symbol “AFDG.”





The
Company intends to explore for oil and gas reserves through the drill bit and
acquire established oil and gas properties as demonstrated by its recent
acquisition of Voyager Gas Corporation.  Cross Canyon intends then to
exploit such properties through the application of conventional and specialized
technology to increase production, ultimate recoveries, or both, and participate
in joint venture drilling programs with repeatable low risk
results.





On September 2, 2008, the Company
consummated the acquisition of Voyager Gas Corporation (“Voyager” or
“Predecessor Entity”), a Delaware corporation, (the “Voyager Acquisition”),
whereby it purchased all of the outstanding capital stock of Voyager Gas
Corporation, the owner of interests in oil and gas lease blocks located in Duval
County, Texas, including working and other interests in oil and gas leases,
producing wells, and properties, together with rights under related operating,
marketing, and service contracts and agreements, seismic exploration licenses
and rights, and personal property, equipment and facilities.  Upon the
completion of the Voyager Acquisition, Voyager Gas Corporation became a
wholly-owned subsidiary of Cross Canyon (See Note. 3) and the Successor Entity
no longer qualified as a development stage enterprise as defined under SFAS No.
7 “Accounting and Reporting by Development Stage Enterprises.”





Voyager Gas Corporation (“Voyager”)
was formed in May 2004 as a Delaware corporation.  Voyager is engaged
in the acquisition, development, production and sale of oil and natural
gas.  Voyager sells its oil and natural gas production primarily to
domestic pipelines and refineries.





As of December 31, 2008, the Company
had two subsidiaries, CCEC Operating Company (formerly Energy Venture,
Inc.), and
Voyager Gas Corporation.  The Company has begun using CCEC Operating
Company as an operating company to perform the operations of its oil and gas
business.





The
consolidated financial statements herein have been prepared in accordance with
generally accepted accounting principles (“GAAP”) and include the accounts of
Cross Canyon Energy Corp. and its wholly-owned subsidiaries.  All
inter-company transactions are eliminated upon consolidation.





F-10


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE
2.                      GOING
CONCERN UNCERTAINTY




As
discussed in Note 8, the Company had $11.5 million outstanding under the CIT
Revolving Loan agreement.  The borrowing capacity under this credit
agreement is determined by a borrowing base calculation, which is reviewed and
re-determined semi-annually.  On May 5, 2009, the Company was notified
that the borrowing base was reduced from $11.5 million to $1.0 million, which
created a borrowing base deficit of $10.5 million.  Under the terms of
the credit facility, any borrowing base deficit must be repaid within sixty days
of notification.  The borrowing base deficit notification resulted in
the issuance of a going concern audit opinion, which will cause the Company to
breach a covenant under the Revolvong Loan and Term Loan
agreements.  Consequently, the balance under the CIT Revolving Loan
and the Term Loan agreements are reported as current liabilities in the
accompanying financial statements.
  The
Company is negotiating an extension on the sixty-day cure period so that it can
negotiate a forbearance agreement or a readjustment to the borrowing base, and a
schedule for repaying any remaining borrowing base deficit.  There can
be no assurance that negotiations with the lenders will be successful in this
regard.
  In
addition, the Company requires substantial capital expenditures to maintain
and/or grow production and reserves.  As a result of the sharp decline
in the stock price, down to $0.07 at December 31, 2008; negative working
capital; and a going concern audit opinion, the Company may find it more
difficult to obtain equity financing, on acceptable terms, to address its
liquidity needs.
  As a
result of the above conditions, there is substantial doubt as to the Company's
ability to continue as a going concern.  Should the Company be
unsuccessful in obtaining an acceptable forbearance agreement with its senior
lender, it will be required to seek other financial and strategic alternative
processes, which may include the sale of some or all of its assets, a merger or
other business combination involving the Company or the restructuring or
recapitalization of the Company.  Until the possible completion of the
financial and strategic alternatives process, the Company's future remains
uncertain and there can be no assurance that its efforts in this regard will be
successful.  The accompanying consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
applicable to a going concern, which implies that the Company will continue to
meet its obligations and continue its operations for the next twelve
months.  Realization values may be substantially different from
carrying values as shown, and these consolidated financial statements do not
include any adjustments relating to the recoverability or classification of
recorded asset amounts or the amount and classification of liabilities that
might be necessary as a result of this uncertainty.
 F-11


CROSS
CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


NOTE
3.                      CHANGE
IN FISCAL YEAR END





On
February 13, 2008, the Company’s board of directors approved a change in fiscal
year-end from June 30th to
December 31st.





The
following statement of stockholders’ deficit, for the Successor Entity, is
provided for the Transition Period from July 1, 2008 through September 1, 2008
(the date immediately preceding the Voyager Acquisition):





TotalPreferred
      Stock
                
                
                
                
                
                Additional
                
                
                Retained
                
                
                Stockholders’Series
      A
                
                
                Series
      B
                
                
                Series
      D
                
                
                Series
      E
                
                
                Common
      Stock
                
                
                Paid-In
                
                
                Earnings
                
                
                EquityShares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                (Deficit)
                
                
                (Deficit)Balance,
      June 30, 2008
                
                
                99,395
                
                
                $
                99
                
                
                
                37,100
                
                
                $
                37
                
                
                
                --
                
                
                $
                --
                
                
                
                --
                
                
                $
                --
                
                
                
                24,378,376
                
                
                $
                24,378
                
                
                $
                2,384,556
                
                
                $
                (11,388,330
                )
                
                $
                (8,979,260
                )Stock
      based
                  compensation
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                220,548
                
                
                
                220
                
                
                
                225,102
                
                
                
                --
                
                
                
                225,322Net
      loss
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                (1,245,875
                )
                
                
                (1,245,875
                )Balance,
      September 1,
                  2008
                
                
                99,395
                
                
                $
                99
                
                
                
                37,100
                
                
                $
                37
                
                
                
                --
                
                
                $
                --
                
                
                
                --
                
                
                $
                --
                
                
                
                24,598,924
                
                
                $
                24,598
                
                
                $
                2,609,658
                
                
                $
                (12,634,205
                )
                
                $
                (9,999,813
                )





The
following statement of operations, for the Successor Entity, is provided for the
Transition Period from July 1, 2008 through September 1, 2008 (the date
immediately preceding the Voyager Acquisition):





Period
      July 1, 2008
                    to
      September 1, 2008Oil
      and natural gas revenue
                  
                  $
                  --Operating
      costs and expenses:Depreciation
      and amortization
                  
                  
                  328General
      and administrative expense
                  
                  
                  441,042Total
      operating costs and expenses
                  
                  
                  441,370Loss
      from operations
                  
                  
                  (441,370
                  )Other
      expense:Interest
      expense
                  
                  
                  (445,288
                  )Change
      in fair value of derivatives
                  
                  
                  (359,217
                  )Total
      other expense
                  
                  
                  (804,505
                  )Loss
      before income taxes
                  
                  
                  (1,245,875
                  )Income
      taxes
                  
                  
                  --Net
      loss
                  
                  $
                  (1,245,875
                  )





F-12


CROSS
CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


NOTE
      4.
            RESTATEMENT
      OF PREVIOUSLY ISSUED AUDIT REPORT – PREDECESSOR
  ENTITY





In connection with the audit of the
Predecessor Entity for the period January 1, 2008 through September 1, 2008, an
error was identified in that the Predecessor Entity did not record an asset
retirement obligation for the year ended December 31, 2007 in accordance with
SFAS No. 143 and an error occurred in computing depletion of the Predecessor
Entity’s oil and gas properties for the year ended December 31,
2007.  The effects of the restatement on reported amounts for the year
ended December 31, 2007 are presented in the following tables:





December
      31, 2007As
      Reported
                            
                            
                            Adjustments
                            
                            
                            As
      RestatedASSETSOil
      and gas properties:Proved
      properties
                            
                            $
                            34,412,679
                            
                            
                            $
                            765,658
                            
                            
                            $
                            35,178,337Unproved
      properties
                            
                            
                            13,299,340
                            
                            
                            
                            --
                            
                            
                            
                            13,299,340Less
      accumulated depletion and depreciation
                            
                            
                            (8,936,029
                            )
                            
                            
                            3,076,032
                            
                            
                            
                            (5,859,997
                            )Net
      oil and gas properties
                            
                            
                            38,775,990
                            
                            
                            
                            3,841,690
                            
                            
                            
                            42,617,680Total
      assets
                            
                            $
                            40,820,266
                            
                            
                            $
                            3,841,690
                            
                            
                            $
                            44,661,956LIABILITIES
      AND STOCKHOLDERS’ EQUITYIncome
      taxes currently payable
                            
                            $
                            771,352
                            
                            
                            
                            (685,345
                            )
                            
                            $
                            86,007Asset
      retirement obligation
                            
                            
                            --
                            
                            
                            
                            765,658
                            
                            
                            
                            765,658Deferred
      income taxes
                            
                            
                            4,876,267
                            
                            
                            
                            1,764,544
                            
                            
                            
                            6,640,811Total
      liabilities
                            
                            
                            22,597,956
                            
                            
                            
                            1,844,857
                            
                            
                            
                            24,442,813Stockholders’
      equity:Retained
      earnings
                            
                            
                            11,082,310
                            
                            
                            
                            1,996,833
                            
                            
                            
                            13,079,143Total
      stockholders’ equity
                            
                            
                            18,222,310
                            
                            
                            
                            1,996,833
                            
                            
                            
                            20,219,143Total
      liabilities and stockholders’ equity
                            
                            $
                            40,820,266
                            
                            
                            $
                            3,841,690
                            
                            
                            $
                            44,661,956Year
      Ended December 31, 2007Operating
      costs and expenses:Lease
      operating expenses
                            
                            $
                            2,464,653
                            
                            
                            
                            
                            
                            
                            $
                            2,464,653Production
      taxes
                            
                            
                            836,349
                            
                            
                            
                            
                            
                            
                            
                            836,349Exploration
      expense
                            
                            
                            9,399
                            
                            
                            
                            
                            
                            
                            
                            9,399Depletion,
      depreciation and amortization
                            
                            
                            4,834,352
                            
                            
                            
                            (3,076,032
                            )
                            
                            
                            1,758,320General
      and administrative expense
                            
                            
                            970,701
                            
                            
                            
                            
                            
                            
                            
                            970,701Total
      operating costs and expenses
                            
                            
                            9,115,454
                            
                            
                            
                            (3,076,032
                            )
                            
                            
                            6,039,422Income
      tax expense
                            
                            
                            (4,764,334
                            )
                            
                            
                            (1,079,199
                            )
                            
                            
                            (5,843,533
                            )Net
      income
                            
                            $
                            8,582,543
                            
                            
                            $
                            1,996,833
                            
                            
                            $
                            10,579,376





NOTE
5.                            SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES





Oil
and gas properties





With the
acquisition of Voyager, Cross Canyon elected to use the successful efforts
method of accounting for its investment in oil and gas
properties.  The successful efforts method is the preferable method of
accounting for oil and gas properties.  Under the successful efforts
method, exploration costs and dry hole costs (the primary uncertainty affecting
this method) are recognized as expenses when incurred and the costs of
successful exploration wells are capitalized as oil and gas
properties.  The Company believes that, in light of the Voyager
Acquisition and its increased level of development and exploration activities,
the successful efforts method of accounting provides a better matching of
expenses to the period in which oil and gas production is realized.





Property acquisition
costs.Oil and gas leasehold acquisition costs are capitalized
and included in the balance sheet caption “Oil and gas
properties.”  Leasehold impairment is recognized based on exploratory
experience and management’s judgment.  Upon achievement of all
conditions necessary for the classification of reserves as proved, the
associated leasehold costs are reclassified from unproved properties to proved
properties.





Exploratory
costs.Geological and geophysical costs and the costs of
carrying and retaining undeveloped properties are expensed as
incurred.  Exploratory well costs are capitalized on the balance sheet
pending further evaluation of whether economically recoverable reserves have
been found.  If economically recoverable reserves are not found,
exploratory well costs are expensed as dry holes.  If exploratory
wells encounter potentially economic quantities of oil and natural gas, the well
costs remain capitalized on the balance sheet as long as sufficient progress
assessing the reserves and the economic and operating viability of the project
is being made.





F-13


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Development
costs.Costs incurred to drill and equip development wells,
including unsuccessful development wells, are capitalized.





Depletion and
amortization.Costs of drilling and equipping successful
exploratory wells, development wells, costs to construct or acquire facilities
and associated asset retirement costs are depreciated using the
unit-of-production method based on total estimated proved developed oil and
natural gas reserves.  Costs of acquiring proved properties, including
leasehold acquisition costs transferred from unproved leaseholds are depleted
using the unit-of-production method based on total estimated proved developed
and undeveloped reserves.  Mineral properties are depleted using the
unit-of-production method.





Depletion
and depreciation expense for the Successor Entity amounted to $990,675 and
$2,060 for the period September 2, 2008 through December 31, 2008, respectively;
and $1,704,746 and $7,512, respectively, for the Predecessor Entity for the
period from January 1, 2008 through September 1, 2008; and $1,750,808 and $7,512
for the year ended December 31, 2007.  The depletion rate per
equivalent Mcf produced for the period from September 2, 2008 through December
31, 2008, was approximately $3.79 per Mcfe.  The depletion rate per
equivalent Mcf produced for the period from January 1, 2008 through September 1,
2008 and for the year ended December 31, 2007 was approximately $2.19 per Mcfe
and $1.30 per Mcfe, respectively.





Capitalized
interest.Interest from external borrowings is capitalized on
major projects with an expected construction period of one year or longer.
Capitalized interest is added to the cost of the underlying asset and is
amortized over the useful lives of the assets in the same manner as the
underlying assets.





Impairment.The
Company tests for impairment of its properties based on estimates of proved
reserves.  Proved oil and natural gas properties are reviewed for
impairment whenever events or circumstances indicate that the carrying amount
may not be recoverable.  The Company estimates the future undiscounted
cash flows of the affected properties to judge the recoverability of the
carrying amounts.  This analysis is based on proved
reserves.  An asset would be impaired if the undiscounted cash flows
were less than its carrying value.  Impairments are measured by the
amount by which the carrying value exceeds its fair value.





Impairment
analysis is performed on an ongoing basis.  In addition to using
estimates of oil and natural gas reserve volumes in conducting impairment
analysis, it is also necessary to estimate future oil and natural gas prices and
costs, considering all available evidence at the date of review.  The
impairment evaluation triggers include a significant long-term decrease in
current and projected prices or reserve volumes, an accumulation of project
costs significantly in excess of the amount originally expected and historical
and current negative operating losses.  Although the Company evaluates
future oil and natural gas prices as part of the impairment analysis, it does
not view short-term decreases in prices, even if significant, as impairment
triggering events.





Based
upon the Company’s impairment analysis at December 31, 2008, the Company did not
incur an impairment charge for its proved oil and natural gas properties as the
future undiscounted cash flows, based upon year-end strip prices adjusted for
the Company’s energy swap hedges, exceeded its oil and natural gas properties’
carrying amount.  Additionally, Voyager performed an impairment
analysis of its proved oil and natural gas properties at December 31, 2007 and
there was no impairment loss recognized.





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.  The Company assesses the realizability of unproved
properties on at least an annual basis or when there has been an indication that
an 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 the Company 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 charged to
expense.  There was no impairment of unproved properties during the
year ended December 31, 2008.





F-14


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Asset
retirement obligation





The
Company follows SFAS No. 143, “Accounting for Asset Retirement Obligations,”
which requires entities to record the fair value of a liability for legal
obligations associated with the retirement obligations of tangible long-lived
assets in the period in which it is incurred.  This standard requires
the Company to record a liability for the fair value of the dismantlement and
plugging and abandonment costs excluding salvage values.  When the
liability is initially recorded, the entity increases the carrying amount of the
related long-lived asset.  Over time, accretion of the liability is
recognized each period, and the capitalized cost is amortized over the useful
life of the related asset or assets.  Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement.





Concentrations
of credit risk and allowance





All of
the Company’s receivables are due from oil and natural gas purchasers and the
counter-party to its oil and natural gas hedges.  The Company sold 99%
of its oil and natural gas production to two customers during the period from
September 2, 2008 through December 31, 2008.  The Company has not
experienced any credit losses on receivables.  As such, the Company
does not maintain an allowance for doubtful accounts on its trade receivables
but will monitor the creditworthiness of its oil and natural gas purchasers and
its counter-party to its oil and natural gas hedges.





The
Company maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits.  Accounts are guaranteed by the Federal
Deposit Insurance Corporation (“FDIC”) up to $250,000 in 2008.  At
December 31, 2008, the Company had approximately $778,153 in excess of FDIC
insured limits.  The Company has not experienced any losses in such
accounts.





Revenue
recognition





The
Company recognizes sales revenues for oil and natural gas based on the amount of
oil and natural gas sold to purchasers when delivery to the purchaser has
occurred and title has transferred.  This occurs when production has
been delivered to a pipeline or as the crude oil passes from the outlet flange
of the lease tankage or meter.  The Company follows the sales method
of accounting for natural gas production imbalances.  If the Company’s
excess sales of production volumes for a well exceed the estimated remaining
recoverable reserves of the well, a liability is recognized.  The
Company did not have an imbalance position in terms of volumes or values at
December 31, 2008.





Cash
and cash equivalents





Cash and
cash equivalents include cash in banks and highly liquid investments which
mature within three months of the date of purchase.





Use
of estimates





The
preparation of these financial statements in conformity with accounting
principles generally accepted in the United States of America 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 amount of revenues and
expenses during the reporting period.  Actual results could differ
from those estimates.





The most
critical estimate the Company makes is the engineering estimate of proved oil
and natural gas reserves.  This estimate affects the application of
the successful efforts method of accounting, the calculation of depreciation,
depletion and amortization of oil and natural gas properties and the estimate of
the impairment of the Company’s oil and natural gas properties.  It
also affects the estimated lives used to determine the asset retirement
obligation.  In addition, the estimates of proved oil and natural gas
reserves are the basis for the related standardized measure of discounted future
net cash flows.





F-15


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Property
and equipment





Property
and equipment is valued at cost.  Depreciation is computed using the
straight-line method over estimated useful lives of 3 to 7
years.  Additions are capitalized and maintenance and repairs are
charged to expense as incurred.  Gains and losses on dispositions of
equipment are reflected in other income in the statements of
operations.





Deferred
financing costs





In
connection with the Company’s CIT Credit Facility, it incurred $1,910,349 in
fees upon closing.  These fees were recorded as deferred financing
costs and those that relate to the Term Loan are being amortized over the life
of the loans using the effective interest rate method and those that relate to
the Revolving Loan are being amortized using the straight-line
method.





Amortization
of deferred financing costs and debt discounts from the CIT Credit Facility for
the period from September 2, 2008 through December 31, 2008, amounted to
$181,938 and $585,924, respectively.





Long-lived
assets





Long-lived
assets, including investments to be held and used or disposed of other than by
sale, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.  When
required, impairment losses on assets to be held and used or disposed of other
than by sale are recognized based on the fair value of the asset.





Derivatives





The
Company follows the provisions of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities (“SFAS 133”).  SFAS 133 requires
the accounting recognition of all derivative instruments as either assets or
liabilities at fair value.  Under the provisions of SFAS 133, the
Company may or may not elect to designate a derivative instrument as a hedge
against changes in the fair value of an asset or a liability (a “fair value
hedge”) or against exposure to variability in expected future cash flows (a
“cash flow hedge”).  The Company does not designate its derivative
instruments as “cash flow hedges.”





Valuation
of embedded and warrant derivatives





The valuation of the Company’s
embedded derivatives and warrant derivatives is determined primarily by a
lattice model using probability weighted discounted cash flow based upon future
projections over a range of potential outcomes and the Black-Scholes option
pricing model.  An embedded debenture derivative is a derivative
instrument that is embedded within a contract, which under the convertible
debenture (the host contract) includes the right to convert the debenture by the
holder, reset provisions with respect to the conversion provisions,
call/redemption options and liquidated damages.  In accordance with
SFAS No. 133, as amended, these embedded derivatives are marked-to-market each
reporting period, with a corresponding non-cash gain or loss charged to the
current period.  A warrant derivative liability is determined in
accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-19, “Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock” (“EITF 00-19”).  Based on EITF 00-19, warrants
which are determined to be classified as derivative liabilities are
marked-to-market each reporting period, with a corresponding non-cash gain or
loss charged to the current period.  The practical effect of this has
been that when the Company’s stock price increases so does its derivative
liability, resulting in a non-cash loss charge that reduces earnings and
earnings per shares.  When the Company’s stock price declines, it
records a non-cash gain, increasing its earnings and earnings per
share.





To determine the fair value of its
embedded derivatives, management evaluates assumptions regarding the probability
of certain events.  Other factors used to determine fair value include
the Company’s period-end stock price, historical stock volatility, risk free
interest rate and derivative term.  The fair value recorded for the
derivative liability varies from period to period.  This variability
may result in the actual derivative liability for a period either above or below
the estimates recorded on the Company’s consolidated financial statements,
resulting in significant fluctuations in other income (expense) because of the
corresponding non-cash gain or loss recorded.





F-16


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Stock-based
compensation





In December 2004, the Financial
Accounting Standards Board (“FASB”) issued SFAS No. 123(R), "Share-Based
Payments,” (“SFAS No. 123(R).”)  The Company adopted the disclosure
requirements of SFAS No. 123(R) as of July 1, 2006, using the modified
prospective transition method approach as allowed under SFAS
123(R).  SFAS 123(R) establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services.  SFAS 123(R) focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions.  SFAS 123R requires that the fair value of such equity
instruments be recognized as expense in the historical financial statements as
services are performed.





Effective
July 1, 2006, the Company adopted the fair value recognition provisions of SFAS
123(R) using the modified prospective transition method.  In addition,
the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107
“Share-Based Payment”
(“SAB 107”) in March 2005, which provides supplemental SFAS 123(R) application
guidance based on the views of the SEC.  Under the modified
prospective transition method, compensation cost recognized in the fiscal year
ended June 30, 2007, includes: (a) compensation cost for all share-based
payments granted prior to, but not yet vested as of July 1, 2006, based on the
grant date fair value estimated in accordance with the original provisions of
SFAS No. 123, and (b) compensation cost for all share-based payments granted
beginning July 1, 2006, based on the grant date fair value estimated in
accordance with the provisions of SFAS 123(R).  In accordance with the
modified prospective transition method, results for prior periods have not been
restated.





Income
taxes





Pursuant to Statement of Financial
Accounting Standards No. 109, “Accounting for Income Taxes,” (“SFAS No. 109”),
the Company follows the asset and liability method of accounting for income
taxes, under which the Company recognizes deferred tax assets and liabilities
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.  Deferred tax assets and liabilities are
measured using the enacted tax rates expected to apply to taxable income in the
years in which the Company expects to recover or settle those temporary
differences.





As changes in tax laws or rates are
enacted, deferred income tax assets and liabilities are adjusted through the
provision for income taxes.  Deferred tax assets are reduced by a
valuation allowance if, based on available evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be
realized.  The classification of current and noncurrent deferred tax
assets and liabilities is based primarily on the classification of the assets
and liabilities generating the difference.





Basic
and diluted net income per share





The Company computes net income per
share pursuant to Statement of Financial Accounting Standards No. 128 “Earnings
per Share,” (“SFAS No. 128”.)  Basic earnings per share is computed by
dividing income or loss applicable to common shareholders by the weighted
average number of shares of the Company’s common stock outstanding during the
period.  Diluted earnings per share is determined in the same manner
as basic earnings per share except that the number of shares is increased
assuming exercise of dilutive stock options, warrants and convertible debt using
the treasury stock method and dilutive conversion of the Company’s convertible
preferred stock.





Diluted
earnings per share for the period from September 2, 2008 through December 31,
2008 (Successor Entity) included 350,000 of common stock equivalents related to
warrants.  However, common stock equivalents of 38,333,330 shares were
excluded for the same period because the grant prices were greater than the
average market price of the common shares and the effect would have been
anti-dilutive.  In addition, common stock equivalents of 53,000 shares
related to convertible debt were excluded for the same period because inclusion
of these shares would have been anti-dilutive.  There were no dilutive
common stock equivalents for the period from January 1, 2008 through September
1, 2008 or the year ended December 31, 2007 (Predecessor Entity).





F-17


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Fair
value of financial instruments





The
Company’s financial instruments consist of cash and cash equivalents, accounts
receivable, accounts payable, notes payable and derivative liabilities/assets
associated with the Company’s oil and natural gas hedging activities and certain
embedded derivative instruments (see Note 9).  The carrying amounts of
cash and cash equivalents, accounts receivable, accounts payable and notes
payable approximate fair value due to the highly liquid nature of these
short-term instruments.  The derivative liabilities/assets have been
marked-to-market as of December 31, 2008.





Impact
of recently issued accounting standards





On
December 31, 2008, the Securities and Exchange Commission (SEC) issued the final
rule, “Modernization of Oil and Gas Reporting” (“Final Rule”).  The
Final Rule adopts revisions to the SEC’s oil and gas reporting disclosure
requirements and is effective for annual reports on Form 10-K for years ending
on or after December 31, 2009.  The revisions are intended to provide
investors with a more meaningful and comprehensive understanding of oil and
natural gas reserves to help investors evaluate their investments in oil and gas
companies.  The amendments are also designed to modernize the oil and
natural gas disclosure requirements to align them with current practices and
technological advances.  Revised requirements in the Final Rule
include, but are not limited to:





·
            Oil
      and gas reserves must be reported using a 12-month average of the closing
      prices on the first day of each of such months, rather than a single day
      year-end price;


·
            Companies
      will be allowed to report, on a voluntary basis, probable and possible
      reserves, previously prohibited by SEC rules;
  and


·
            Easing
      the standard for the inclusion of proved undeveloped reserves (“PUD’s”)
      and requiring disclosure of information indicating any progress toward the
      development of PUD’s.





The
Company is currently evaluating the potential impact of adopting the Final
Rule.  The SEC is discussing the Final Rule with the FASB and IASB
staffs to align accounting standards with the Final Rule.  These
discussions may delay the required compliance date.  Absent any change
in such date, the Company will begin complying with the disclosure requirements
in its annual report on Form 10-K for the year ended December 31,
2009.  Voluntary early compliance is not permitted.





In June
2008, the FASB ratified the consensus reached by the EITF on Issue 07-5,
“Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entity’s Own Stock” (Issue 07-5).  Under Issue 07-5, an instrument (or
embedded feature) would not be considered indexed to an entity’s own stock if
its settlement amount is affected by variables other than those used to
determine the fair value of a “plain vanilla” option or forward contract on
equity shares, or if the instrument contains a feature (such as a leverage
factor) that increases exposure to those variables.  An equity-linked
financial instrument (or embedded feature) would not be considered indexed to
the entity’s own stock if the strike price is denominated in a currency other
than the issuer’s functional currency.  This Issue is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years.  Early application is
not permitted. The Company is currently evaluating the impact that EITF 07-5
will have on its consolidated financial position or results of
operations.





In June
2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
Changes to Issue No. 98-5 (“EITF No. 08-4”).  The objective of EITF
No. 08-4 is to provide transition guidance for conforming changes made to EITF
No. 98-5, “Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios”, that result from EITF
No. 00-27 “Application of Issue No. 98-5 to Certain Convertible Instruments”,
and SFAS No. 150, “Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.” This Issue is effective for
financial statements issued for fiscal years ending after December 15,
2008.  The adoption did not have a material impact on the Company’s
financial statements.





In March
2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and
Hedging Activities” (“SFAS 161”).  SFAS 161 is effective beginning
January 1, 2009 and requires entities to provide expanded disclosures about
derivative instruments and hedging activities including (1) the ways in which an
entity uses derivatives, (2) the accounting for derivatives and hedging
activities, and (3) the impact that derivatives have (or could have) on an
entity’s financial position, financial performance, and cash
flows.  SFAS 161 requires expanded disclosures and does not change the
accounting for derivatives.  The Company is currently evaluating the
impact of SFAS 161, but it does not expect the adoption of this standard to have
a material impact on its financial results.





F-18


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 Reclassifications





Certain
prior period amounts have been reclassified to conform to the current year
presentation.





NOTE
6.                            ACQUISITION
OF BUSINESS





On
September 2, 2008, the Company consummated the acquisition of Voyager Gas
Corporation, a Delaware corporation, (the “Voyager Acquisition”), whereby it
purchased all of the outstanding capital stock of Voyager Gas Corporation, the
owner of interests in oil and gas lease blocks located in Duval County, Texas,
including working and other interests in oil and gas leases, producing wells,
and properties, together with rights under related operating, marketing, and
service contracts and agreements, seismic exploration licenses and rights, and
personal property, equipment and facilities.





Upon the
completion of the Voyager Acquisition, Voyager Gas Corporation became a
wholly-owned subsidiary of Cross Canyon.  The newly acquired
subsidiary’s properties consist of approximately 14,300 net acres located in
Duval County, Texas.  The purchase price also included a proprietary
3-D seismic data base covering a majority of the acquired
properties.





The
purchase price paid in the Voyager Acquisition consisted of cash consideration
of $33.0 million and 10,000 newly issued shares of the Company’s preferred stock
designated as Series D Preferred with a fair value of $9.1 million based on the
Company’s average stock price for the five days prior to the execution of the
agreement ($0.52 per share).  In addition, the Company granted a 1%
overriding royalty interest to its senior lender valued at $206,000, incurred
$347,816 of acquisition costs and recognized a $729,599 purchase price
adjustment related to net revenue collected from the effective date of April 1,
2008 through the date of closing.  On March 24, 2009, the effective
date of the amendment to the Company’s Articles of Incorporation increasing the
number of shares of common stock that it may issue (the “Charter Amendment”),
the Series D Preferred automatically converted into 17.5 million shares of Cross
Canyon’s common stock.  (see Note 19)





The
acquired properties have established production over a substantial acreage
position with proved reserves from over ten different horizons located at depths
ranging from 4,000 to 7,500 feet.  As of December 31, 2008, the Duval
County Properties had independently engineered proved reserves of 11.4
Bcfe.  By category, this includes 2.4 Bcfe of proved developed
producing, 3.9 Bcfe of proved developed non-producing, and 5.1 Bcfe of proved
undeveloped reserves.  Approximately 72% of total proved reserves is
natural gas.  In addition to proved reserves, the Company’s management
has identified additional exploration opportunities on the acquired acreage
utilizing its acquired 3-D seismic data base.





The calculation of the purchase price
is shown below:





Cash
      paid to Voyager Gas Holdings, LP
                
                $
                32,946,227Series
      D Preferred
                
                
                9,100,000Acquisition
      costs
                
                
                347,816Fair
      value of CIT Capital overriding royalty interest
                
                
                (206,000
                )Net
      revenue adjustment
                
                
                (792,599
                )Purchase
      price
                
                $
                41,395,444





F-19


CROSS
CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


The preliminary allocation of the
purchase price and the estimated fair market values of the assets acquired and
liabilities assumed are subject to modification and are shown
below.





Cash
                
                $
                1,864,446Accounts
      receivable
                
                
                39,410Security
      deposit
                
                
                3,622Oil
      and gas properties
                
                
                51,725,576Total
      assets acquired
                
                
                53,633,054Severance
      taxes payable
                
                
                65,418Royalties
      payable
                
                
                405,714Ad
      valorem taxes payable
                
                
                126,794Federal
      income tax payable
                
                
                1,242,562Deferred
      tax liability
                
                
                9,631,464Asset
      retirement obligation assumed
                
                
                765,658Total
      liabilities assumed
                
                
                12,237,610Net
      assets acquired
                
                $
                41,395,444





The following summary presents
unaudited pro forma consolidated results for the years ended December 31, 2008
and 2007, respectively, as if the Voyager Acquisition had occurred as of January
1, 2007.  The pro forma results are for illustrative purposes only and
include adjustments in addition to the pre-acquisition historical results, such
as changes in depreciation, depletion and amortization expense resulting from
the allocation of fair value to the oil and natural gas properties
acquired.  The unaudited pro forma information is not necessarily
indicative of the operating results that would have occurred if the acquisition
had been consummated at that date, nor is it necessarily indicative of future
operating results.





Pro
      FormaYears
      Ended December 31,2008
                
                
                2007Revenue
                
                $
                12,703,787
                
                
                $
                11,348,577Operating
      costs and expenses
                
                
                9,526,425
                
                
                
                9,449,342Income
      from operations
                
                
                3,177,362
                
                
                
                1,899,235Other
      income
                
                
                15,687,217
                
                
                
                6,071,305Income
      before income taxes
                
                
                18,864,579
                
                
                
                7,970,540Income
      tax
                
                
                577,194
                
                
                
                5,843,533Net
      income
                
                $
                18,287,385
                
                
                $
                2,127,007Net
      income per share:Basic
                
                $
                0.74
                
                
                $
                0.09Diluted
                
                $
                0.73
                
                
                $
                0.09





NOTE
7.                      ACCRUED
LIABILITIES





Accrued liabilities consisted of the
following:





Successor
      Entity
                  
                  
                  Predecessor
      EntityDecember
      31,
                    2008
                  
                  
                  December
      31,
                    2007Royalties
      payable
                  
                  $
                  289,261
                  
                  
                  $
                  906,519Severance
      taxes payable
                  
                  
                  62,057
                  
                  
                  
                  125,080Accrued
      interest payable
                  
                  
                  170,294
                  
                  
                  
                  67,909Accrued
      ad valorem taxes
                  
                  
                  --
                  
                  
                  
                  116,670Other
                  
                  
                  388
                  
                  
                  
                  50,000$
                  522,000
                  
                  
                  $
                  1,266,178





F-20


CROSS
CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


NOTE
8.                      NOTES
PAYABLE





Notes payable consisted of the
following:





Successor
      Entity
                      
                      
                      Predecessor
                        EntityDecember
      31,
                        2008
                      
                      
                      December
      31,
                        20072006
      convertible notes, convertible at $0.50 per share into50,000
      shares of common stock due February 28, 2008
                      
                      $
                      25,000
                      
                      
                      $
                      --First
      lien revolving credit facility with CIT Capital USA Inc.,as
      administrative agent, bearing interest at an adjusted rateas
      defined in the agreement (4.90% at December 31, 2008)
                        payable
      quarterly, principal and unpaid interest due onSeptember
      1, 2011, collateralized by a first mortgage on theCompany’s
      oil and gas properties.
                      
                      
                      11,500,000
                      
                      
                      
                      --Second
      lien term credit facility with CIT Capital USA Inc.,as
      administrative agent, bearing interest at an adjusted rateas
      defined in the agreement (7.21% at December 31, 2008)
                        payablequarterly,
      principal and unpaid interest due on March 1, 2012,collateralized
      by a second mortgage on the Company’s oil andgas
      properties.
                      
                      
                      22,000,000
                      
                      
                      
                      --Unamortized
      discount on second lien term credit facility
                      
                      
                      (9,572,412
                      )
                      
                      
                      --Revolving
      credit facility with Bank of Texas bearing interest at anadjusted
      rate as defined in the agreement (weighted average interest
      rateof
      6.72% at December 31, 2007)
                        payable quarterly, principal and unpaidinterest
      due on July 31, 2009, collateralized by a first mortgage onVoyager’s
      oil and gas properties
                      
                      
                      --
                      
                      
                      
                      15,116,287$
                      23,952,588
                      
                      
                      $
                      15,116,287





Successor
Entity





CIT
Credit Facility - Revolving and Term Loans





On
September 2, 2008, the Company entered into (i) a credit agreement (the
“Revolving Loan”) among the Company, CIT Capital USA Inc. (“CIT Capital”), as
Administrative Agent and the lender named therein and (ii) a second lien term
loan agreement (the “Term Loan”) among the Company, CIT Capital and the
lender.  The Revolving Loan and Term Loan are collectively referred to
herein as the “CIT Credit Facility.”





The
Revolving Loan provides for a $50.0 million senior secured revolving credit
facility which is subject to an initial borrowing base of $14.0 million, or an
amount determined based on semi-annual review of the Company’s proved oil and
gas reserves.  As of December 31, 2008, the Company had $11.5 million
borrowed to finance the Voyager Acquisition, to repay the related bridge loan
and transaction expenses, and to fund capital expenditures
generally.  Monies advanced under the Revolving Loan mature on
September 1, 2011, and bear interest at a rate equal to LIBOR plus 1.75% to
2.50%, as the case may be.





The Term Loan provides for a one-time advance to the Company of $22.0
million.  The Company drew down the full amount on September 2, 2008
to finance the Voyager Acquisition and to repay the related bridge loan and
transaction expenses.  Monies borrowed under the Term Loan mature on
March 1, 2012, and bear interest at a rate equal to LIBOR plus 5% during the
first twelve months after closing and LIBOR plus 7.50%, thereafter.




The loan
instruments evidencing the Revolving Loan contain various restrictive covenants,
including financial covenants requiring that the Company will not: (i) as of the
last day of any fiscal quarter, permit its ratio of EBITDAX (earnings before
interest, taxes, depreciation and amortization and exploration expenses) for the
period of four fiscal quarters then ending to interest expense for such period
to be less than 2.0 to 1.0; (ii) at any time permit its ratio of total debt as
of such time to EBITDAX for the four fiscal quarters ending on the last day of
the fiscal quarter immediately preceding the date of determination for which
financial statements are available to be greater than 4.0 to 1.0; and (iii)
permit, as of the last day of any fiscal quarter, its ratio of (a) consolidated
current assets (including the unused amount of the total commitments, but
excluding non-cash assets under FASB Statement No. 133) to (b) consolidated
current liabilities (excluding non-cash obligations under FAS 133 and current
maturities under the CIT Credit Facility) to be less than 1.0 to
1.0.





F-21


CROSS CANYON ENERGY
CORP. (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




The loan
instruments evidencing the Term Loan contain various restrictive covenants,
including financial covenants requiring that the Company will not: (i) permit,
as of the last day of any fiscal quarter, its ratio of (a) consolidated current
assets (including the unused amount of the total commitments, but excluding
non-cash assets under FASB Statement No. 133) to (b) consolidated current
liabilities (excluding non-cash obligations under FAS 133 and current maturities
under the CIT Credit Facility) to be less than 1.0 to 1.0; and (ii) as of the
date of any determination permit its ratio of total reserve value as in effect
on such date of determination to total debt as of such date of determination to
be less than 2.0 to 1.0.





On May 5,
2009, as part of a semi-annual redetermination of the borrowing base under the
CIT Credit Facility, the Company’s senior lender notified it that its borrowing
base was being reduced to $1 million, causing the Company’s outstanding loans
under the Revolving Loan to exceed the new borrowing base by $10.5
million.  The Company’s credit agreement provides that it repay such
revolving loan amount in excess of the reduced borrowing base within sixty days
of such notification.  The Company is currently in discussions with
its senior lender to extend the sixty-day cure period to enable it to negotiate
a readjustment to its borrowing base and a schedule for repaying any
then-remaining borrowing base deficit.  In
addition, as a result of reporting the Company’s total debt pursuant to the CIT
Credit Facility as a current liability, the Company is reporting negative
working capital.  Whereas management believes it will be successful in
obtaining an acceptable forbearance agreement with its senior lender, there can
be no assurance it will be successful in this regard.  Therefore,
there is substantial doubt as to the Company’s ability to continue as a going
concern for a period longer than the current fiscal year.  On
April 21, 2009, the administrative agent and lenders agreed to waive the
Company’s failure to comply with certain financial ratios, measured as of
December 31, 2008, in the CIT Credit Facility with respect to (i) the ratio of
EBITDAX to interest expense and the ratio of total debt to EBITDAX under the
Revolving Loan and (ii) the ratio of total reserve value to total debt under the
Term Loan.  Such agent and lenders also waived compliance by the
Company of these ratios for and during each fiscal period ending in
2009.  As a condition to these waivers, the Company agreed that no
further borrowings or loans may be requested or made under the CIT Credit
Facility unless and until the lenders, in their sole and absolute discretion,
shall otherwise agree in writing.




In addition to financial covenants, the Company is subject to various reporting
obligations under the credit agreement.  As part of the Company’s
aforementioned discussions with its senior lender with respect to the adjusted
borrowing base, the Company has obtained a waiver from its senior lender with
respect to certain covenants under the credit agreement.  The credit
agreement includes the requirement that none of the audited financial statements
for the Company, as reported on by its independent public accountants, contain a
“going concern” or like qualification or exception.  As a result of
the senior lender reducing the Company’s borrowing base to $1 million resulting
in the Company having a borrowing base excess of $10.5 million, the Company’s
independent public accountants have reported a “going concern”
qualification.  The Company is in discussions with its senior lender
to enter into a forbearance agreement and obtain a waiver of the going concern
opinion, however, as of the date of this filing the Company has not received a
waiver or entered into a forbearance agreement.  As a result, all of
the Company’s debt pursuant to the CIT Credit Agreement has been classified as
current on the Company’s balance sheet.  The
Company’s failure to obtain a waiver or otherwise remedy the “going concern”
qualification by June 19, 2009 constitutes an Event of Default under the CIT
Credit Facility, permitting CIT Capital to declare all loans then outstanding,
together with any accrued and unpaid interest thereon, immediately due and
owing.


All
borrowings under the Revolving Loan are secured by a first lien on all of the
Company’s assets and those of its subsidiaries.  All borrowings under
the Term Loan are secured by a second lien on all of the Company’s assets and
those of its subsidiaries.





Under the
CIT Credit Facility, the Company was required to enter into hedging arrangements
mutually agreeable between the Company and CIT Capital.  Effective on
September 2, 2008, the Company entered into hedging arrangements with Macquarie
Bank Limited whereby effective October 1, 2008, the Company hedged 65% of its
then proved developed producing natural gas production and 25% of its proved
developed producing oil production through December 2011 at $7.82 per Mmbtu and
$110.35 per barrel, respectively.  (See Note 8).





As part of the consideration for entry into the CIT Credit Facility on September
2, 2008, the Company granted CIT Capital a warrant, exercisable for up to
24,199,996 shares of the Company’s common stock, at an exercise price of $0.35
per share (the “CIT Warrant”).  The CIT Warrant expires on September
2, 2013 and became exercisable upon the effectiveness of the Charter Amendment,
March 24, 2009.  (see Note 7, Embedded Derivative
Instruments).  The Company recorded a discount to the Term Loan of
$9,952,336 based upon the relative fair value of the CIT Warrant.  The
Company is amortizing this discount to interest expense over the term of the
Term Loan using the effective interest rate method.  For the period
September 2, 2008 through December 31, 2008, $566,306 of this discount had been
amortized as a component of interest expense.






F-22
 CROSS CANYON ENERGY
CORP.


(formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


CIT
Capital received a one percent (1%) overriding royalty interest (“ORRI”) of the
Company’s net revenue interest in the oil and gas properties acquired in the
Voyager Acquisition.  The ORRI is applicable to any renewal, extension
or new lease taken by the Company within one year after the date of termination
of the ORRI Properties, as defined in the ORRI agreement covering the same
property, horizons and minerals.  The Company recorded a discount of
$206,000 based upon the estimated fair value of the ORRI that was conveyed to
the lender upon closing.  The Company is amortizing this discount to
interest expense over the term of the Term Loan using the effective interest
rate method.  For the period from September 2, 2008 through
December 31, 2008, $19,618 of this discount had been amortized as a component of
interest expense.





CIT
Capital also received, and is entitled to receive in its capacity as
administrative agent, various fees from the Company while monies advanced or
loaned remain outstanding, including an annual administrative agent fee of
$20,000 for each of the Revolving Loan and Term Loan and a commitment fee
ranging from 0.375% to 0.5% of any unused portion of the borrowing base
available under the Revolving Loan.





In connection with the Company’s
entering into the CIT Credit Facility, upon closing the Voyager Acquisition, the
Company paid its investment banker, Global Hunter Securities, LLC (“GHS”), the
sum of $557,500 and delivered to GHS a non-interest bearing promissory note,
payable on or before March 15, 2009, in the principal amount of
$557,500.  Pursuant to an agreement between the Company and GHS, the
Company paid GHS $300,000 in October 2008 as full satisfaction of the promissory
note and recorded a gain on extinguishment of debt of $257,500.





The
Company incurred debt issuance costs of $1,910,349 associated with the CIT
Credit Facility.  These costs were capitalized as deferred financing
costs and are being amortized over the life of the CIT Credit Facility. The
costs that related to the Term Loan are being amortized using the effective
interest rate method and those that relate to the Revolving Loan are being
amortized using the straight line method.  Amortization expense
related to the CIT Credit Facility was $181,938 for the period September 2, 2008
to December 31, 2008.





Convertible
Debentures





On May
21, 2008, the Company entered into a Securities Purchase Agreement with those
purchasers identified therein (the “Bridge Financing”), whereby the Company
received proceeds of $800,000 evidenced by senior secured convertible debentures
(the “Debentures”).  The proceeds from the Debentures were used to
fund the Company’s payment of the deposit for the Voyager
Acquisition.





The
Debentures were to mature the earlier of September 29, 2008, or the closing date
under the Voyager Agreement, and were to be satisfied in full by the Company’s
payment of the aggregate redemption price of $900,000 or, at the election of the
purchasers, by the conversion of the Debentures into shares of the Company’s
common stock (the “Conversion Shares”), at an initial conversion price of $0.33,
subject to adjustments and full-ratchet protection under certain
circumstances.





On
September 2, 2008, the Company satisfied in full the Debentures by repayment of
$450,000 of principal with funds advanced under the CIT Credit Facility and by
delivery of shares of the Company’s Series E Preferred in exchange for the
principal amount of $450,000, which shares of preferred stock automatically
converted into an aggregate of 1,363,636 shares of the Company’s common stock,
based upon an implied conversion price of $0.33 per share of common stock on
March 24, 2009, the effective date of the Charter Amendment (see Note
9, Derivative Financial Instruments).





As
additional consideration for the bridge loan evidenced by the Debentures, the
Company issued common stock purchase warrants to the purchasers and their
affiliates, exercisable to purchase up to 3,000,000 shares of the Company’s
common stock (the “Warrant Shares”), based upon an initial exercise price of
$0.33 subject to adjustments and full-ratchet protection under certain
circumstances.  These warrants remain outstanding as of December 31,
2008 (see Note 9, Derivative Financial Instruments).





The
Company incurred debt issuance costs of $199,343 associated with the issuance of
the Debentures.  These costs were capitalized as deferred financing
costs and were being amortized over the life of the Debentures using the
effective interest rate method.  Amortization expense related to the
deferred financing costs was $55,872 for the period May 21, 2008 (inception)
through June 30, 2008, and the remaining balance of $143,471 was charged to
expense during the six months ended December 31, 2008 of which $48,418 was
amortized between September 2, 2008 and December 31, 2008.





F-23


CROSS CANYON ENERGY CORP. (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


2006
Convertible Notes





During 2006, EV Delaware sold
$1,500,000 of convertible promissory notes (the "2006 Notes") which were
expressly assumed by the Company in the May 2006 merger of EV Delaware into its
wholly-owned subsidiary.  The 2006 Notes had an original maturity date
of August 31, 2007, carried an interest rate of 10% per annum, payable in either
cash or shares, and were convertible into shares of common stock at a conversion
rate of $0.50 per share at the option of the investor.  Each investor
also received a number of shares of common stock equal to 20% of his or her
investment divided by $0.50.  Thus, a total of 600,000 shares were
initially issued to investors in the 2006 Notes.  The relative fair
value of these shares was $250,000 and was recorded as a debt discount and as
additional paid-in capital.  The debt discount was amortized over the
original term of the notes using the effective interest method.  The
original issue discount rate was 23.44%.  During the period from
February 21, 2006 (inception) to August 31, 2007, the entire discount of
$250,000 was amortized and recorded as interest expense.





The Company evaluated the application
of SFAS No. 133 and EITF 00-19.  Based on the guidance of SFAS No. 133
and EITF 00-19, it concluded that these instruments were not required to be
accounted for as derivatives.





On August 31, 2007 (the original
Maturity Date), the Company repaid six of the 2006 Notes for an
aggregate amount of $424,637, of which $410,000 represented principal and
$14,637 represented accrued interest.  On September 4, 2007, an
additional $44,624 of accrued and current period interest was repaid through the
issuance of 89,248 shares of the Company’s common stock.  The
remaining holders of the 2006 Notes entered into an agreement with the Company
whereby the maturity date of the 2006 Notes was extended to February 28, 2008
and, beginning September 1, 2007 until the 2006 Notes are paid in full, the
interest rate on the outstanding principal increased to 12% per
annum.  In addition, the Company agreed to issue to the remaining
holders of the 2006 Notes, 218,000 shares of its common stock with a value of
$98,100 as consideration for extending the 2006 Notes’ maturity
date.  The Company evaluated the application of EITF 96-19, "Debtor's
Accounting for a Modification or Exchange of Debt Instruments" and concluded
that the revised terms constituted a debt modification rather than a debt
extinguishment and accordingly, the value of the common stock has been treated
as interest expense in the accompanying statements of operations.





On February 28, 2008, $1,090,000 of
the 2006 Notes came due which the Company was unable to repay.  The
Company continued to accrue interest on the notes at 12%, the agreed upon rate
for the extension period.  On March 6, 2008, the Company issued
130,449 shares of common stock in lieu of cash in payment of $65,221 of accrued
and current period interest to holders of 2006 Notes.  On April 22,
2008, the Company repaid $100,000 principal amount in cash to one of the holders
of the notes.  During May 2008, the Company exchanged 99,395 shares of
its Series A Preferred in full satisfaction of its obligation under the notes to
pay $965,000 of principal and $28,950 of interest, with each share of such
preferred stock being automatically convertible into 20 shares of its common
stock, for an aggregate of 1,987,900 shares of common stock.  The
Series A Preferred automatically converted into shares of the Company’s common
stock on March 24, 2009, the effective date of the Charter
Amendment.  At December 31, 2008, the Company has outstanding $25,000
principal amount of the 2006 Notes with on note holder.





2007
Convertible Notes





On November 1, 2007, the Company sold
$350,000 in convertible notes (the "2007 Notes") on the following terms: each
note matures October 31, 2008 and a 10% interest rate payable in shares of the
Company’s common stock based upon a conversion price of $ 0.35 per
share.  The investors in the 2007 Notes also received 200,004 shares
of common stock.  The total proceeds from the sale of the 2007 Notes
were allocated between the 2007 Notes and the related common stock based upon
the relative fair value, which resulted in the allocation of $58,333 to the
common stock and $291,667 to the 2007 Notes.  The $58,333 was recorded
as a discount to the 2007 Notes and as additional paid in
capital.  The debt discount was being amortized over the term of the
2007 Notes using the effective interest method.





F-24
 CROSS CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


The Company evaluated the
application of SFAS 133 and EITF 00-19 for the 2007 Notes and concluded these
instruments were not required to be accounted for as derivatives.  The
Company also evaluated the application of EITF 98-05, "Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios," and EITF 00-27, "Application of Issue No. 98-5 to
Certain Convertible Instruments" and concluded that the conversion option was a
beneficial conversion feature with intrinsic value.  After allocation
of the proceeds between the 2007 Notes and the common stock, the conversion
option had an intrinsic value of $58,333.  This resulted in an
additional discount to be amortized over the term of the 2007 Notes as
additional interest expense using the effective interest method.  The
original issue discount rate was 53.83%.





During May 2008, the Company
exchanged 37,100 shares of its Series B Preferred in full satisfaction of its
obligation under the notes to pay $350,000 of principal and $21,000 of interest,
with each share of such preferred stock being automatically convertible into
28.58 shares of the Company’s common stock, for an aggregate of 1,060,318 shares
of common stock.  The Series B Preferred automatically converted into
shares of the Company’s common stock on March 24, 2009, the effective date of
the Charter Amendment.





Predecessor
Entity





On March 25, 2005, Voyager entered
into a three-year asset-based borrowing facility with Bank of Texas (the “BOT
Credit Facility”).  The total commitment under the BOT Credit Facility
was $75,000,000.  The borrowing base was set by the bank every March
1st
and September 1st of each
year and was based on the present value of future net income accruing to the
property.  At December 31, 2007 the borrowing base was $17.0 million
and on March 1, 2008, the bank reaffirmed the borrowing base of $17.0
million.





Interest on the BOT Credit Facility
is payable quarterly and is based upon the prime rate or LIBOR rate, in each
case plus an applicable margin, at the option of Voyager (6.72% weighted average
interest rates at December 31, 2007).  Voyager had outstanding
borrowings of $11,239,193 and $15,116,287 at September 1, 2008 and December 31,
2007, respectively, and amounts available for borrowings of $5,760,807 and
$1,883,713 at September 2, 2008 and December 31, 2007,
respectively.  Voyager was subject to a floating unused borrowing base
commitment fee of between 0.25% and 0.50% (0.375% at September 2, 2008 and
December 31, 2007).  The BOT Credit Facility was to mature on July 31,
2009, at which time all unpaid principal and interest were due.  The
BOT Credit Facility was collateralized by all of Voyager’s
assets.  Upon closing of the Voyager Acquisition on September 2, 2008,
the Company retired the BOT Credit Facility by paying the principal balance of
$11,239,193 and unpaid interest and non-use fees of $60,518.





The BOT Credit Facility contained
various affirmative covenants and negative covenants.  These
covenants, among other things, limit additional indebtedness, the sale of assets
and require Voyager to meet certain financial ratios.  Specifically,
Voyager must maintain a current ratio greater than or equal to 1.0, an interest
coverage ratio greater than or equal to 3.0 and a funded debt EBITDA less than
3.5.  As of September 2, 2008 and December 31, 2007, Voyager was in
compliance with regard to these covenants.





The BOT Credit Facility required
Voyager to enter into option contracts to hedge crude oil and natural gas prices
which were acceptable to the lender (See Note 7).  The BOT Credit
Facility allowed for additional lines of credit not to exceed $500,000 securing
obligations of Voyager under its option contracts with other
parties.





NOTE
9.                            DERIVATIVE
FINANCIAL INSTRUMENTS





The
Debentures issued on May 21, 2008 and the other outstanding convertible
instruments of the Company, specifically the common stock warrants and the
convertible note, if converted, would exceed the number of authorized shares the
Company had available for issuance.  In addition, the Debentures
contained more than one embedded derivative feature which would individually
warrant separate accounting as derivative instruments under SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock.”  The Company evaluated the
application of SFAS No. 133 and EITF 00-19 and determined the various embedded
derivative features have been bundled together as a single, compound embedded
derivative instrument that had been bifurcated from the debt host contract, and
referred to as the "Single Compound Embedded Derivatives within Convertible
Note.”


The
single compound embedded derivative features include the conversion feature with
the reset provisions within the Debentures, the call/redemption options, the
interest rate adjustment and liquidated damages.  The value of the
single compound embedded derivative liability was bifurcated from the debt host
contract and recorded as a derivative liability, which results in a reduction of
the initial carrying amount (debt discount) of the Debentures at
inception.  The value of the embedded derivative at issuance exceeded
the notional amount of the loan, and the excess amount of $1,468,316 was
expensed immediately to interest expense.  The unamortized discount of
$900,000 was amortized to interest expense using the effective interest rate
method over the life of the Debentures.  At June 30, 2008, $121,638
had been amortized. The remaining balance of $778,362 was accreted to interest
expense during the six months ended December 31, 2008, with $444,153 of this
amount accreted in the period from July 1, 2008 through September 1,
2008.  The remaining amount was charged to interest expense in the
period from September 2, 2008 through December 31, 2008.  The
Debentures were settled in September 2008 and the effective interest rate was
1,551.9%.





F-25
 CROSS CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Due to
the insufficient unissued authorized shares to settle the Debentures, other
outstanding convertible instruments of the Company, specifically the convertible
note and non-employee warrants, have been classified as derivative liabilities
under SFAS No. 133.  Additional warrants were issued on September 2,
2008 in connection with the Company’s CIT Credit Facility, and the fair value of
$9,952,336 was recorded as a derivative liability and debt
discount.  Each reporting period, this derivative liability is
marked-to-market with the non-cash gain or loss recorded in the period as a
change in fair value of derivatives.  At December 31, 2008, the
aggregate derivative liability was $554,181.  For the period from
September 2, 2008 through December 31, 2008, the aggregate fair value of the
derivative liabilities decreased $18,235,468, which is recorded as other income
under the caption “Change in fair value of derivatives” in the statement of
operations.





On
September 2, 2008, the Company satisfied in full the Debentures by repayment of
$450,000 of principal with funds advanced under the CIT Credit Facility and by
delivery of shares of the Company’s Series E Preferred in exchange for the
principal amount of $450,000, which shares of preferred stock automatically
converted into an aggregate of 1,363,636 shares of the Company’s common stock,
based upon an implied conversion price of $0.33 per share of common stock on
March 24, 2009, the effective date of the Charter Amendment.  Upon
conversion, certain compound embedded derivative liabilities were settled and
the associated value of $1,099,287 was recorded as additional paid in
capital.





At June
30, 2008, the conversion feature of the Series A and B Preferred was bifurcated
and the fair value of this embedded derivative was included in the derivative
liability.  It was subsequently determined that conversion of these
preferred shares is contingent upon the availability of sufficient authorized
shares.  Furthermore, the preferred stock instrument is more akin to
equity, and therefore, the economic characteristics of the embedded derivative
are clearly and closely related to the economic characteristics of the host
instrument.  As a result, the Series A and B Preferred embedded
derivative should not have been bifurcated and included in the derivative
liability at June 30, 2008.  This resulted in an overstatement of the
derivative liability and an understatement of equity of approximately
$2,300,000; and an overstatement of net loss of $700,952 related to the
non-cash, mark-to-market loss recorded in other income.  This error
was corrected in 2008 and is reflected in the opening equity balance reported in
Note 2 – “Change in Fiscal Year End” in accordance with Staff Accounting
Bulletin 108,





The fair
value of the underlying shares of common stock on September 2, 2008, the date of
the conversion into Series E Preferred exceeded the conversion price of $0.33
per share and the company recorded a loss on the extinguishment of debt of
$804,545 during the period from September 2, 2008 through December 31,
2008.


F-26


(formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


The
assumptions used in the lattice model are as follows:





Probability
- Weighted Expected Cash Flow Methodology





Assumptions:  Single
Compound Embedded Derivative within Debentures





Inception
                
                
                As
      ofMay
      21, 2008
                
                
                December
      31, 2008Risk
      free interest rate
                
                
                4.53
                %
                
                
                3.05
                %Timely
      registration
                
                
                95.00
                %
                
                
                95.00
                %Default
      status
                
                
                5.00
                %
                
                
                5.00
                %Alternative
      financing available and exercised
                
                
                0.00
                %
                
                
                0.00
                %Trading
      volume, gross monthly dollars monthly rate increase
                
                
                1.00
                %
                
                
                1.00
                %Annual
      growth rate stock price
                
                
                29.14
                %
                
                
                29.05
                %Future
      projected volatility
                
                
                150.00
                %
                
                
                60.00
                %





The stock
purchase warrants are freestanding derivative financial instruments which were
valued using the Black-Scholes method.  The fair value of the compound
embedded derivatives, the warrants issued with the Debentures and the other
tainted convertible instruments was initially recorded on May 21, 2008 at values
of $797,447, $5,721,677 and $101,541, respectively. These derivative liabilities
have been marked to market at the end of each reporting period, with the total
value reported in the balance sheet and the change in fair value recorded as
either a gain or loss in the statements of operations.  During the
period from September 2 through December 31, 2008, the change in fair value of
$18,235,468 was recorded as other income under the caption “Change in fair value
of derivatives.”





Variables
used in the Black-Scholes option-pricing model include: (1) 0.76% to 3.34%
risk-free interest rate; (2) expected warrant life is the actual remaining life
of the warrant as of each period end; (3) expected volatility 60% to 150%; and
(4) zero expected dividends.





Both the
embedded and freestanding derivative financial instruments were recorded as
liabilities in the consolidated balance sheet and measured at fair
value.  These derivative liabilities will be marked-to-market each
quarter with the change in fair value recorded as either a gain or loss in the
statements of operations.





The
impact of the application of SFAS No. 133 and EITF 00-19 in regards to the
derivative liabilities on the balance sheet and statements of operations as of
inception (May 21, 2008) and through December 31, 2008 are as
follows:





Transaction
                  Date
                
                
                Liability
      as ofMay
      21, 2008
                
                
                June
      30, 2008
                
                
                December
      31, 2008Derivative
      liability – single compound embedded derivativeswithin
      the debentures
                
                $
                797,447
                
                
                $
                1,060,366
                
                
                $
                --Derivative
      liability – other tainted convertible instruments
                
                
                5,823,218
                
                
                
                8,517,017
                
                
                
                554,181Net
      change in fair value of derivatives
                
                
                --
                
                
                
                2,956,718
                
                
                
                (18,235,468
                )(a)Derivative
      liabilities
                
                $
                6,620,665
                
                
                $
                9,577,383
                
                
                $
                554,181





(a)
            Represents
      the change in fair value of derivatives for the period from September 2,
      2008 through December 31, 2008.  Additional warrants were issued
      in connection with the CIT Credit Facility in September
      2008.  The initial fair value of $9,952,336 was recorded as a
      derivative liability and is included in the net change in fair value of
      derivatives.  In addition, $1,099,287 of certain derivative
      liabilities were settled when the Debentures were converted to preferred
      stock.




The Company will adopt the provisions of EITF 07-5, “Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” during its
first fiscal quarter of 2009.  It is currently evaluating the impact
that EITF 07-5 will have on its consolidated financial position or results of
operations.


F-27


CROSS
CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


NOTE
10.                            COMMODITY
FINANCIAL INSTRUMENTS





Successor
Entity







The
Company, in an effort to manage its crude oil and natural gas commodity price
risk exposures utilizes derivative financial instruments.  The
Company, from time to time, enters into over-the-counter swap transactions that
convert its variable-based crude oil and natural gas sales arrangements to
fixed-price arrangements.  The Company accounts for its derivative
instruments in accordance with SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended.  SFAS No. 133
requires the recognition of all derivatives as either assets or liabilities in
the consolidated balance sheet and the measurement of those instruments at fair
value.  The Company entered into various derivative instruments on
September 2, 2008, and effective on October 1, 2008.  These swap
contracts are not being accounted for as cash flow hedges under SFAS No. 133,
but are recognized as derivatives and fair valued.









The
Company marks-to-market its open swap positions at the end of each period and
records the net unrealized gain or loss during the period in derivative gains or
losses in the consolidated statements of operations under the caption "Risk
management.”  For the period from September 2, 2008 through December
31, 2008, the Company recorded unrealized gains of $2,169,063, related to its
swap contracts in the consolidated statements of operations.  These
swap contracts were related to an agreement entered into on September 2, 2008,
with Macquarie Bank Limited (“Macquarie”), and were entered into as a condition
of the CIT Credit Facility.  In the first contract the Company agreed
to be the floating price payer (based on Inside FERC Houston Ship Channel) on
specific quantities of natural gas over the period beginning October 1, 2008
through December 31, 2011 and receive a fixed payment of $7.82 per
MMBTU.  In the second contract, the Company agreed to be the floating
price payer (based on the NYMEX WTI Nearby Month Future Contract) on specific
monthly quantities of crude oil over the period beginning October 1, 2008
through December 31, 2011 and receive a fixed payment of $110.35 per
barrel.  During the period from September 2, 2008 through December 31,
2008, the Company recorded realized gains on its hedging contracts with
Macquarie of $369,170.









Fair
value is estimated based on forward market prices and approximates the net gains
and losses that would have been realized if the contracts had been closed out at
period-end.  When forward market prices are not available, they are
estimated using spot prices adjusted based on risk-free rates, carrying costs,
and counterparty risk.





As of December 31, 2008, the Company
had the following hedge contracts outstanding:





Crude
Oil





Total
      BarrelsInstrument
              BeginningDate
              EndingDate
              Fixed
              2009
              2010
              2011Swap
              Oct-08
              Dec-11
              $  110.35
              10,762
              7,575
              5,712Indexed
      to NYMEX WTI





Natural
Gas





Total
      MMBtu’sInstrument
              BeginningDate
              EndingDate
              Fixed
              2009
              2010
              2011Swap
              Oct-08
              Dec-11
              $  7.82
              427,953
              328,203
              262,080Indexed
      to Inside FERC Houston Ship Channel





Predecessor
Entity







Voyager
marks-to-market its open swap positions at the end of each period and, prior to
its acquisition by the Company, recorded the net unrealized gain or loss during
the period in oil and natural gas revenues in the statements of
operations.  For the period January 1 to September 1, 2008, Voyager
recorded an unrealized loss of $208,296 related to its swap contracts in the
statements of operations and for the year ended December 31, 2007, Voyager
recorded an unrealized loss of $1,239,764.  The BOT Credit Facility
required Voyager to enter into hedge transactions covering crude oil and natural
gas that are satisfactory to the lender.





F-28
 CROSS
CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


As of September 1, 2008,
Voyager had the following hedge contracts outstanding:





Crude
Oil





Instrument
            BeginningDate
            EndingDate
            Floor
            Ceiling
            Total
      Barrels2008Collar
            Sep-08
            Dec-08
            $100.00
            $  129.00
            12,000Indexed
      to NYMEX Light Sweet Crude West Texas
  Intermediate





Natural
Gas





Instrument
            BeginningDate
            EndingDate
            Floor
            Ceiling
            Total
      MMBtu’s2008Collar
            Sep-08
            Dec-08
            $7.25
            $  10.25
            160,000Indexed
      to Inside FERC Houston Ship Channel





Upon closing of the Voyager
Acquisition, the Company terminated the hedge contracts relative to the BOT
Credit Facility and replaced Voyager’s hedges with those of
Macquarie.  The Company recorded a realized gain of $48,864 as a
result of the BOT Credit Facility hedge contract terminations.





NOTE
11.                                FAIR
VALUE




Due to the insufficient unissued
authorized shares to settle the Debentures, the other outstanding convertible
instruments of the Company, specifically the convertible note and non-employee
warrants, have been classified as derivative liabilities under SFAS No.
133.  Each reporting period, this derivative liability is
marked-to-market with the non-cash gain or loss recorded in the period as a
change in fair value of derivatives.  At December 31, 2008, the
aggregate derivative liability was $554,181.  The valuation of the
Company’s embedded derivatives and warrant derivatives are determined by the
Black-Scholes option pricing model.




The Company, in an effort to manage its crude oil and natural gas commodity
price risk exposures utilizes derivative financial instruments.  The
Company, from time to time, enters into over-the-counter swap transactions that
convert its variable-based crude oil and natural gas sales arrangements to
fixed-price arrangements.  The Company accounts for its derivative
instruments in accordance with SFAS No. 133.  The Company
marks-to-market its open swap positions at the end of each period and records
the net unrealized gain or loss during the period in derivative gains or losses
in the consolidated statements of operations.





Effective January 1, 2008, the Company
adopted the provisions of SFAS No. 157, Fair Value Measurements, (“SFAS No.
157”) for all financial instruments.  SFAS No. 157 establishes a
three-level valuation hierarchy for disclosure of fair value
measurements.  The valuation hierarchy is based upon the transparency
of inputs to the valuation of an asset or liability as of the measurement
date.  The three levels are defined as follows:





Level
      1
            Quoted
      prices (unadjusted for identical assets or liabilities in active
      markets;Level
      2
            Quoted
      prices for similar assets or liabilities in active markets; quoted prices
      for identical or similar assets or liabilities in markets that are not
      active; and model-derived valuations whose inputs or significant value
      drivers are observable; orLevel
      3
            Significant
      inputs to the valuation model are
unobservable.







At December 31, 2008, the Company has
the following derivative assets and liabilities:




Level
      1
                
                
                Level
      2
                
                
                Level
      3
                
                
                TotalAssets
                
                $
                --
                
                
                $
                2,169,063
                
                
                $
                --
                
                
                $
                2,169,063Derivative
      assets
                
                $
                --
                
                
                $
                2,169,063
                
                
                $
                --
                
                
                $
                2,169,063Liabilities
                
                $
                --
                
                
                $
                554,181
                
                
                $
                --
                
                
                $
                554,181Derivative
      liabilities
                
                $
                --
                
                
                $
                554,181
                
                
                $
                --
                
                
                $
                554,181





F-29


CROSS CANYON ENERGY
CORP.


(formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


NOTE
12.                            PREFERRED
STOCK AND COMMON STOCK





Successor
Entity





Preferred
Stock





Certain of the Company’s outstanding
(i) convertible promissory notes, in the aggregate principal amount of $965,000
and bearing interest at 12% per annum from September 1, 2007 and (ii)
convertible promissory notes, in the aggregate principal amount of $350,000 and
bearing interest at 10% per annum, due October 31, 2008, were exchanged for
shares of the Company’s Series A and Series B Preferred in full satisfaction of
its obligations under the notes including, without limitation, the repayment of
principal and accrued unpaid interest thereon.





Pursuant to the exchange transaction,
the Company issued 99,395 shares of Series A Preferred in exchange for the
redemption of $965,000 of principal and $28,950 of accrued interest on the 12%
notes, with each share of such preferred stock being automatically convertible
into 20 shares of the Company’s common stock, for an aggregate of 1,987,900
shares of common stock.  Additionally, the Company issued 37,100
shares of Series B Preferred in exchange for the redemption of $350,000 of
principal and $21,000 of accrued interest on the 10% notes, with each share of
such preferred stock automatically convertible into 28.58 shares of the
Company’s common stock, for an aggregate of 1,060,318 shares of its common
stock.  The Series A and Series B Preferred automatically converted
into shares of the Company’s common stock on March 24, 2009, the effective of
the Charter Amendment and the availability of sufficient authorized common
shares.  The 12% notes matured on February 28, 2008 and the 10% notes
were due to mature on October 31, 2008.





On August 20, 2008 the Company issued
500 shares of its newly designated Series C Preferred to Alan D. Gaines, a
director of the Company, in exchange for the cancellation of a promissory note
made by the Company in favor of Mr. Gaines, in the principal amount of
$50,000.  In addition to these shares of Series C Preferred, on August
20, 2008, the Company also issued an additional 500 shares of Series C Preferred
to Mr. Gaines for cash consideration of $50,000.  The Series C
Preferred are automatically redeemable by the Company at the rate of $100 for
every one share of Series C Preferred being redeemed upon the closing of a debt
or equity financing whereby the Company realizes gross proceeds in excess of
$5,000,000.  The Company’s lender in the CIT Credit Facility did not
permit the Company to redeem the Series C Preferred upon funding, with the
understanding that, based upon the success of the Company’s workover program and
increased production resulting from the Voyager Acquisition, the lender would
permit a subsequent distribution to Mr. Gaines for his Series C
Preferred.





As set
forth above in Note 3, the Company issued 10,000 shares of Series D Preferred to
the seller in the Voyager Acquisition.  As set forth in the
Certificate of Designations filed with the State of Nevada on August 27, 2008
with respect to the Series D Preferred, upon the effectiveness of the Charter
Amendment on March 24, 2009, and the availability of sufficient authorized
common shares, each share of Series D Preferred automatically converted into
1,750 shares of common stock for an aggregate of 17,500,000 shares of the
Company’s common stock.  The Company entered into a registration
rights agreement with the seller to register for resale on Form S-1 with the SEC
17,500,000 shares of common stock to which the Series D Preferred is
convertible.  Pursuant to the registration rights agreement, the
Company is to have the registration statement declared effective by the SEC
within 180 days of the closing of the Voyager Acquisition, or March 1, 2009, or
the Company would incur certain penalties.  If the registration
statement has not been declared effective by the SEC within the 180 day period
following closing, the Company is obligated to pay the seller, as partial
liquidated damages and not as a penalty, cash, in the aggregate equal to two
percent (2%) of the product of $0.40 and the number of registerable securities,
as defined in the registration rights agreement, held by the
seller.  Furthermore, if the registration statement has not been
declared effective by the SEC after 90 days have elapsed from the 180 day
registration requirement, the Company is obligated to pay the seller, as partial
liquidated damages and not as a penalty, cash, in the aggregate equal to three
percent (3%) of the product of $0.40 and the number of registerable securities
held by the seller.  The Company has obtained a waiver of the
penalties from the seller for the initial 180 day period that the registration
statement was not declared effective.





Concurrent
with the closing of the Voyager Acquisition, the Company issued 10,000 shares of
its newly designated Series E Preferred to the former holder of a $450,000
debenture in satisfaction of the Company’s obligations under such
debenture.  As set forth in the Certificate of Designations filed with
the State of Nevada on August 29, 2008, with respect to the Series E Preferred,
upon the effectiveness of the Charter Amendment on March 24, 2009, each share of
Series E Preferred automatically converted into 136.3636 shares of common stock
for an aggregate of 1,363,636 shares of the Company’s common stock.





F-30
 CROSS CANYON ENERGY
CORP.


(formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




As
mentioned in Note 9, the Preferred Stock was evaluated under SFAS No. 133 and
EITF 00-19 and it was concluded that these instruments were not required to be
accounted for as derivatives.





In
addition, the preferred stock was evaluated under EITF 98-5 and EITF 00-27 and
it was determined that the Series A Preferred, Series B Preferred and Series D
Preferred contain beneficial conversion features.  Because the
conversion feature is contingent upon a future event, the effectiveness of the
Charter Amendment and the availability of sufficient authorized common shares,
the contingent beneficial conversion feature was measured using the commitment
date stock price but will not recognized until the contingency is
resolved.  Based on the commitment date stock price, the beneficial
conversion feature associated with the Series A, B and C Preferred is
$5,767,975, which will be recognized as a deemed dividend upon the effectiveness
of the Charter Amendment and the availability of sufficient authorized common
shares, which event occurred on March 24, 2009.





The
shares of Series D Preferred and Series E Preferred rank senior to all other
shares of the Company’s capital stock and are on parity with each
other.





Common
Stock





On August 21, 2007, the Company issued
100,000 shares of its common stock with a value of $45,000 to a non-employee as
compensation for services rendered.





On September 4, 2007, the Company
issued 89,248 shares of its common stock in lieu of cash in payment of accrued
and current period interest to note holders who chose to redeem their
notes.





On September 4, 2007 the Company issued
218,000 shares of its common stock with a value of $98,100 as consideration to
those note holders who chose to extend the maturity date of their notes to
February 28, 2008.





On September 17, 2007, the Company
issued 100,000 shares of its common stock with a value of $45,000 to a
non-employee as compensation for services rendered.





On September 19, 2007, the Company
issued 150,000 shares of its common stock with a value of $55,500 to a former
member of the Board of Directors and Chief Executive Officer as compensation for
assuming the role of Chief Executive Officer.





On November 1, 2007, the Company issued
200,004 shares of its common stock with a relative fair market value of $58,333
to purchasers of $350,000 of the Company’s newly issued convertible
notes.





On November 7, 2007, the Company issued
310,435 shares of its common stock in lieu of cash payment of $155,215 of
accrued interest to holders of convertible notes issued in 2006, who chose to
extend the maturity date of their notes through February 28, 2008.





On March 4, 2008, the Company’s Board
of Directors approved the Charter Amendment providing for, among other things,
an increase in the number of authorized common shares that the Company may issue
from 24,000,000 to 149,000,000 shares.  The holders of a majority of
the Company’s outstanding shares of common stock consented to the Charter
Amendment on March 4, 2008, which consent was subsequently ratified on August
29, 2008, November 19, 2008 and January 28, 2009.  On March 24, 2009,
the Company filed an amendment to its Articles of Incorporation with the State
of Nevada and increased the number of authorized shares of common stock it may
issue to 149,000,000 and changed its name to Cross Canyon Energy
Corp.





On March 6, 2008, the Company issued
130,449 shares of its common stock in lieu of cash in payment of $65,221 of
accrued and current period interest to holders of its 2006 Notes.





F-31
 CROSS CANYON ENERGY
CORP.


(formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)




Pursuant to restricted stock
agreements entered into with the Company’s executive officers, Robert P. Munn,
Chief Executive Officer, Carl A. Chase, Chief Financial Officer and Jim B.
Davis, Senior Vice President of Operations, the Company has agreed, upon the
effectiveness of the Charter Amendment, to grant restricted stock to each of
Messrs. Munn, Chase and Davis. Mr. Munn is to receive 1,500,000 shares, Mr.
Chase is to receive 1,125,000 shares, and Mr. Davis is to receive 750,000 shares
of the Company’s common stock, each which vests equally as to one-third of the
shares over a two year period, commencing on the effectiveness of the Charter
Amendment and each of the first and second year anniversary of the grant
dates.  The Company valued the restricted stock issuances on the grant
date of each respective restricted stock agreement, May 22, 2008 for Messrs.
Munn and Chase and October 1, 2208 for Mr. Davis.  Messrs. Munn and
Chase restricted stock was valued at $0.52 per share and Mr. Davis’ restricted
stock was valued at $0.70 per share and the Company recorded compensation
expense for the vested portion of their stock awards of $131,069, $98,301
and $156,968 for Messrs. Munn, Chase and Davis, respectively, for the period
from September 2, 2008 through December 31, 2008.  In addition, the
Company represents on its consolidated balance sheets and consolidated statement
of changes in stockholders’ equity (deficit) the issuance of 958,219 shares of
restricted stock to Mr. Munn, 718,664 shares of restricted stock to Mr. Chase
and 224,240 shares of restricted stock to Mr. Davis through December 31,
2008.





Predecessor
Entity





Authorized and outstanding shares of
common stock of Voyager at September 1, 2008 and December 31, 2007 are as
follows:





Authorized
              Outstanding
              Par
      ValueCommon
      stock
              10
              10
              $     0.01





Holders of the common stock have
exclusive voting rights and powers at shareholders’ meetings, including the
exclusive right to notice of such shareholders’ meeting.





NOTE
13.                      GRANTS
OF WARRANTS AND EMPLOYEE STOCK OPTIONS





The
Company uses the Black-Scholes option-pricing model to estimate option fair
values.  The option-pricing model requires a number of assumptions, of
which the most significant are: expected stock price volatility, the expected
pre-vesting forfeiture rate and the expected option term (the amount of time
from the grant date until the options are exercised or expire.





Volatilities
are based on the historical volatility of the Company’s closing common stock
price.  Expected term of options and warrants granted represents the
period of time that options and warrants granted are expected to be
outstanding.  The risk-free rate for periods within the contractual
life of the options and warrants is based on the comparable U.S. Treasury rates
in effect at the time of each grant.  The weighted average grant date
fair value of options granted during the six months ended December 31, 20008 and
the twelve months ended June 30, 2008, was $2.73 and $2.26,
respectively.  The weighted average grant date fair value of warrants
granted during the six month period ended December 31, 2008 and twelve month
period ended June 30, 2008 was $2.43 and $2.36, respectively.  There
have been no employee options or warrants exercised during the period May 12,
2006 (inception) through December 31, 2008.





On March 24, 2009, the Company filed
the Charter Amendment to its Articles of Incorporation with the State of Nevada
to increase its authorized shares of common stock to 149,000,000 and all of the
vested stock options and warrants listed below are now exercisable.





On
December 28, 2006, the Company granted two non-employees warrants to purchase up
to an aggregate of 1,500,000 shares of its common stock at an exercise price of
$0.25 per share for services rendered.  The warrants vested
immediately and terminate on December 28, 2011.  The fair value of the
warrants was determined utilizing the Black-Scholes stock option valuation
model.  The significant assumptions used in the valuation were: the
exercise price as noted above; the market value of the Company’s common stock on
December 28, 2006, $0.25; expected volatility of 105%; risk free interest rate
of 4.69%; and a term of five years.  The fair value of the warrants
was $294,722 at December 28, 2006 and was recorded as share based
compensation.





On May
22, 2007, the Company granted three non-employees warrants to purchase up to an
aggregate of 1,050,000 shares of its common stock at an exercise price of $0.30
per share for services rendered.  The warrants vested immediately and
terminate on May 22, 2012.  The fair value of the warrants was
determined utilizing the Black-Scholes option-pricing model.  The
significant assumptions used in the valuation were: the exercise price as noted
above; the market value of the Company’s common stock on May 22, 2007, $0.30;
expected volatility of 160%; risk free interest rate of 4.76%; and a term of
five years.  The fair value of the warrants was $294,623 at May 22,
2007 and was recorded as share based compensation.





F-32


CROSS CANYON ENERGY
CORP. (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


On October 26, 2007, the
Company granted three non-employees warrants to purchase up to an aggregate of
1,250,000 shares of its common stock at an exercise price of $0.35 per share for
services rendered.  The warrants vested immediately and terminate on
October 26, 2012.  The fair value of the warrants of $362,822, which
was expensed immediately due to the vesting provisions and the lack of a future
service requirement, was determined utilizing the Black-Scholes option-pricing
model.  The significant assumptions used in the valuation were: the
exercise price as noted above; the market value of the Company’s common stock on
October 26, 2007, $0.35; expected volatility of 170%; risk free interest rate of
4.04%; and an expected term of 2.5 years.  Due to the limited trading
history of the Company’s common stock, the volatility assumption was estimated
by averaging the volatility of two active companies that have operations similar
to the Company’s.





On December 19, 2007, the Company
granted its former CEO, options to purchase up to 500,000 shares of its common
stock at an exercise price of $0.35 per share for services
rendered.  The options vested immediately and terminate on December
19, 2012.  The fair value of the options of $124,997, which was
expensed immediately due to the vesting provisions and the lack of a future
service requirement, was determined utilizing the Black-Scholes option-pricing
model.  The significant assumptions used in the valuation were: the
exercise price as noted above; the market value of the Company’s common stock on
December 19, 2007, $0.30; expected volatility of 177%; risk free interest rate
of 3.46%; and a term of 2.5 years.  Due to the limited trading history
of the Company’s common stock, the volatility assumption was estimated by
averaging the volatility of two active companies that have operations similar to
the Company’s.  The options qualify as “plain vanilla” options under
the provisions of Staff Accounting Bulletin No. 107 ("SAB 107") and, due to
limited option exercise data available to the Company, the term was estimated
pursuant to the provisions of SAB 107.





On December 19, 2007, the Company
granted two non-employees warrants to purchase up to an aggregate of 1,100,000
shares of its common stock at an exercise price of $0.35 per share for services
rendered.  The warrants vested immediately and terminate on December
19, 2012.  The fair value of the warrants of $274,993, which was
expensed immediately due to the vesting provisions and the lack of a future
service requirement, was determined utilizing the Black-Scholes option-pricing
model.  The assumptions and term utilized in the valuation were
identical to those described above for valuation of the options granted to the
Company’s former CEO on December 19, 2007.





On February 28, 2008, the Company
granted its former CEO, additional options to purchase up to 250,000 shares of
its common stock at an exercise price of $0.54 per share for services
rendered.  The options vested immediately and terminate on February
27, 2013.  The fair value of the options of $114,425, which was
expensed immediately due to the vesting provisions and the lack of a future
service requirement, was determined utilizing the Black-Scholes option-pricing
model.  The significant assumptions used in the valuation were: the
exercise price as noted above; the market value of the Company’s common stock on
February 28, 2007, $0.54; expected volatility of 178%; risk free interest rate
of 2.73%; and a term of 2.5 years.  Due to the limited trading history
of the Company’s common stock, the volatility assumption was estimated by
averaging the volatility of two active companies that have operations similar to
the Company’s.  The options qualify as “plain vanilla” options under
the provisions of Staff Accounting Bulletin No. 107 ("SAB 107") and, due to
limited option exercise data available to the Company, the term was estimated
pursuant to the provisions of SAB 107.





On February 28, 2008, the Company
granted a non-employee warrant to purchase up to an aggregate of 3,300,000
shares of its common stock at an exercise price of $0.54 per share for services
rendered.  The warrants vested immediately and terminate on February
27, 2013.  The fair value of the warrants of $1,510,408, which was
expensed immediately due to the vesting provisions and the lack of a future
service requirement, was determined utilizing the Black-Scholes option-pricing
model.  The assumptions and term utilized in the valuation were
identical to those described above for valuation of the options granted to the
Company’s former CEO on February 28, 2008.





F-33


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


As part
of the Company’s employment agreement with Mr. Munn, its CEO, the Company
granted stock options, exercisable for up to 500,000 shares of its common stock,
at an exercise price of $0.52 per share, which option vests with respect to
these shares on the filing of the Charter Amendment with the State of Nevada,
500,000 shares, at an exercise price of $0.57 per share, which option vests on
May 22, 2009, and 500,000 shares, at an exercise price of $0.62 per share, which
option vests on May 22, 2010.  The fair value of the $0.52 options of
$232,369, which was expensed immediately due to the vesting provisions; the
$0.57 options of $252,090 which is being amortized over the one year vesting
period and the $0.62 options of $254,215 which is being amortized over the two
year vesting period, was determined using the Black-Scholes option-pricing
model.  The significant assumptions used in the valuation were: (i)
for the $0.52 options; the exercise price, the market value of the Company’s
common stock on May 22, 2008, $0.52; expected volatility of 169%; risk free
interest rate of 3.52%; and a term of 3.5 years; (ii) for the $0.57 options; the
exercise price, the market value of the Company’s common stock on May 22, 2008,
$0.52; expected volatility of 216%; risk free interest rate of 3.52%; and a term
of 4.0; and (iii) for the $0.62 options; the exercise price, the market value of
the Company’s common stock on May 22, 2008, $0.52; expected volatility of 216%;
risk free interest rate of 3.52%; and a term of 4.5 years.  The
options qualify as “plain vanilla” options under the provisions of Staff
Accounting Bulletin No. 107 ("SAB 107") and, due to limited option exercise data
available to the Company, the term was estimated pursuant to the provisions of
SAB 107.





As part of the Company’s employment
agreement with Mr. Chase, its CFO, the Company granted stock options,
exercisable for up to 375,000 shares of its common stock, at an exercise price
of $0.52 per share, which option vests with respect to these shares on the
filing of the Charter Amendment with the State of Nevada, 375,000 shares, at an
exercise price of $0.57 per share, which option vests on May 22, 2009, and
375,000 shares, at an exercise price of $0.62 per share, which option vests on
May 22, 2010.  The fair value of the $0.52 options of $174,277, which
was expensed immediately due to the vesting provisions; the $0.57 options of
$189,068 which is being amortized over the one year vesting period and the $0.62
options of $190,661 which is being amortized over the two year vesting period,
was determined using the Black-Scholes option-pricing model.  The
assumptions and term utilized in the valuation were identical to those described
above for valuation of the options granted to the Company’s CEO on May 22,
2008.





As part of a commission due to the
investment banking firm that identified the holders of the Convertible
Debentures, the Company has agreed to grant warrants, exercisable for up to
225,000 shares of the Company’s common stock, at an exercise price of $0.33 per
share.  The warrants vested immediately and terminate on May 22,
2013.  The fair value of the warrants of $111,192, which was expensed
immediately due to the vesting provisions and the lack of a future service
requirement, was determined utilizing the Black-Scholes option-pricing
model.  The significant assumptions used in the valuation were: the
exercise prices as noted above; the market value of the Company’s common stock
on May 22, 2008, $0.52; expected volatility of 216%; risk free interest rate of
3.24%; and a term of 2.5 years.  The options qualify as “plain
vanilla” options under the provisions of Staff Accounting Bulletin No. 107 ("SAB
107") and, due to limited option exercise data available to the Company, the
term was estimated pursuant to the provisions of SAB 107.





As part
of the Company’s employment agreement with Mr. Davis, its Senior Vice President
of Operations, the Company granted stock options, exercisable for up to 333,334
shares of its common stock, at an exercise price of $0.54 per share, which
option vests with respect to these shares on the filing of the Charter Amendment
with the State of Nevada, 333,333 shares, at an exercise price of $0.59 per
share, which option vests on October 1, 2009, and 333,333 shares, at an exercise
price of $0.65 per share, which option vests on October 1, 2010.  The
fair value of the $0.54 options of $121,938, which is being amortized through
the date of the filing of the Charter Amendment (March 24, 2009); the $0.59
options of $122,021 which is being amortized over the one year vesting period
and the $0.65 options of $121,675 which is being amortized over the two year
vesting period, was determined using the Black-Scholes option-pricing
model.  The significant assumptions used in the valuation were: (i)
for the $0.54 options; the exercise price, the market value of the Company’s
common stock on October 1, 2008, $0.70; expected volatility of 60%; risk free
interest rate of 2.28%; and a term of 3.5 years; (ii) for the $0.59 options; the
exercise price, the market value of the Company’s common stock on October 1,
2008, $0.70; expected volatility of 60%; risk free interest rate of 2.28%; and a
term of 4.0; and (iii) for the $0.65 options; the exercise price, the market
value of the Company’s common stock on October 1, 2008, $0.70; expected
volatility of 60%; risk free interest rate of 2.28%; and a term of 4.5
years.  The options qualify as “plain vanilla” options under the
provisions of Staff Accounting Bulletin No. 107 ("SAB 107") and, due to limited
option exercise data available to the Company, the term was estimated pursuant
to the provisions of SAB 107.





F-34


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


As part
of the consideration for entry into the CIT Credit Facility, on September 2,
2008 the Company granted CIT Capital a warrant, exercisable for up to 24,199,996
shares of the Company’s common stock, at an exercise price of $0.35 per share
(the “CIT Warrant”).  The CIT Warrant expires on September 2, 2013 and
is exercisable upon the effectiveness of the Charter Amendment.







On September 19, 2008, the Company’s
Board of Directors authorized the adoption of the Cross Canyon Energy Corp.
(formerly ABC Funding, Inc.) 2008 Stock Incentive Plan (the “2008
Plan”).  The 2008 Plan was approved by holders of a majority of the
Company’s outstanding shares of common stock on January 28, 2009.  The
2008 Plan provides for the issuance of up to 8,500,000 shares of the Company’s
common stock to employees and non-employee directors through the issuance of
stock options, restricted stock awards, stock appreciation rights and bonus
stock.  The Company’s Board of Directors feel the stock options and
stock-based incentives offered under the 2008 Plan play an important role in
retaining the services of outstanding personnel and in encouraging such
personnel, together with existing employees, to have a greater financial
investment in the Company.  As of December 31, 2008, there were
1,000,000 non-qualified stock options and 750,000 shares of common stock issued
to the Company’s Senior Vice President of Operations outstanding pursuant to the
2008 Plan.





A summary
of stock option transactions for the six-month period ended December 31, 2008
and year ended June 30, 2008 is as follows:





December
      31, 2008
                
                
                June
      30, 2008Options
                
                
                Wtd.
      Avg.
                  Exercise
                  Price
                
                
                Options
                
                
                Wtd.
      Avg.
                  Exercise
                  PriceOutstanding
      beginning of period
                
                
                3,775,000
                
                
                $
                0.51
                
                
                
                150,000
                
                
                $
                0.30Granted
                
                
                1,000,000
                
                
                
                0.59
                
                
                
                3,625,000
                
                
                
                0.52Exercised
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Forfeited
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Outstanding
      end of period
                
                
                4,775,000
                
                
                $
                0.53
                
                
                
                3,775,000
                
                
                $
                0.51Exercisable
      end of period
                
                
                1,150,000
                
                
                $
                0.38
                
                
                
                1,150,000
                
                
                $
                0.38Weighted
      average fair value of options granted
                
                
                
                
                
                $
                2.73
                
                
                
                
                
                
                $
                2.26





At
December 31, 2008, the range of exercise prices and weighted average remaining
contractual life of outstanding options was $0.30 to $0.65 per share and 4.77
years, respectively.





A summary
of warrant transactions for the six-month period ended December 31, 2008 and
year ended June 30, 2008 is as follows:





December
      31, 2008
                
                
                June
      30, 2008Warrants
                
                
                Wtd.
      Avg.
                  Exercise
                  Price
                
                
                Warrants
                
                
                Wtd.
      Avg.
                  Exercise
                  PriceOutstanding
      beginning of period
                
                
                12,125,000
                
                
                $
                0.39
                
                
                
                3,500,000
                
                
                $
                0.32Granted
                
                
                24,199,996
                
                
                
                0.35
                
                
                
                8,625,000
                
                
                
                0.42Exercised
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Forfeited
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Outstanding
      end of period
                
                
                36,324,996
                
                
                $
                0.36
                
                
                
                12,125,000
                
                
                $
                0.39Exercisable
      end of period
                
                
                12,125,000
                
                
                $
                0.39
                
                
                
                12,125,000
                
                
                $
                0.39Weighted
      average fair value of  warrants granted
                
                
                
                
                
                $
                2.43
                
                
                
                
                
                
                $
                2.36





At
December 31, 2008, the range of exercise prices and weighted average remaining
contractual life of outstanding warrants was $0.05 to $0.60 and 4.21,
respectively.  The intrinsic value of “in the money” warrants at
December 31, 2008 was negligible.





F-35


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


NOTE
14.                      ASSET
RETIREMENT OBLIGATION





The Company’s asset retirement
obligations relate to estimated future plugging and abandonment expenses or
disposal of its oil and natural gas properties and related
facilities.  These obligations to abandon and restore properties are
based upon estimated future costs which may change based upon future inflation
rates and changes in statutory remediation rules.  The following table
provides a summary of the Company’s asset retirement obligations:





Successor
      Entity
                  
                  
                  PredecessorDecember
      31, 2008
                  
                  
                  September
      1, 2008Balance,
      December 31, 2007
                  
                  $
                  --
                  
                  
                  $
                  765,658Fair
      value of liabilities assumed in acquisition
                  
                  
                  765,658
                  
                  
                  
                  --Liabilities
      incurred in current period
                  
                  
                  --
                  
                  
                  
                  --Upward
      revisions in estimated liabilities
                  
                  
                  92,875
                  
                  
                  
                  --Accretion
      expense
                  
                  
                  20,088
                  
                  
                  
                  41,086Balance
      at end of period
                  
                  $
                  878,621
                  
                  
                  $
                  806,744





NOTE
15.                      RELATED
PARTY TRANSACTION





Successor
Entity





See Note 8 for a discussion of Series C
Preferred stock issued to a director for cash consideration of
$100,000.





Predecessor
Entity





During 2004, Voyager entered into an
Advisory Services, Reimbursement and Indemnification Agreement with Natural Gas
Partners (“NGP”), a related party.  NGP is a majority partner in
Voyager Gas Holdings LLP which, until the Voyager Acquisition, owned 100% of
Voyager’s common stock.  This agreement states that Voyager will pay
NGP $75,000 per year in advisory fees beginning in May 2005 until the earlier of
(i) the date of dissolution of Voyager or (ii) the second anniversary of an
initial public offering by Voyager.  During the period January 1 to
September 1, 2008 and the year ended December 31, 2007, the total amount paid to
NGP for advisory fees was $50,000 and $75,000, respectively.





NGP also served as a director of
Voyager and for the period January 1 to September 1, 2008 and the year ended
December 31, 2007, was paid $20,000 and, $30,000, respectively, in directors’
fees.





Upon the closing of the Voyager
Acquisition, the Advisory Services, Reimbursement and Indemnification Agreement
was terminated and NGP resigned its director position.





NOTE
16.                            COMMITMENTS
AND CONTINGENCIES





Successor
Entity





The Company has entered into a twelve
month lease agreement effective February 1, 2009, to lease approximately 3,500
square feet of office space at a lease rate of $5,907, $20 per square foot, per
month through January 31, 2010.  The Company’s new corporate offices
are located at 6630 Cypresswood Drive, Suite 200, Spring, Texas
77379.  The Company has an option available to it to extend the lease
for either a three or five year period at lease rates of $19 and $18 per square
foot, respectively.  In order to exercise its option to extend the
lease, the Company must provide notice of its desire to extend the lease during
November 2009.  In addition to the lease payment, the Company must
provide electrical and janitorial services.  The Company’s new
corporate offices provide space for the technical and administrative employees
it intends to employ to develop its Voyager Acquisition and implement its
business plan of growth.





Commencing August 1, 2008, Voyager
entered into an office lease agreement with GPI Tollway – Madison, LLC
(“Landlord”) to provide office space in Addison, Texas.  The lease
provides for approximately 2,173 rentable square feet at monthly rental rates
ranging from $3,622 to $3,803 per month and terminates on October 31,
2011.  Effective November 1, 2008, Voyager executed an Assignment of
Lease between Voyager as Tenant, GPI Tollway – Madison, LLC as Landlord and
Addison Oil, LLC as Assignee pursuant to which Addison Oil, LLC assumed and
agreed to make all payments and to perform and keep all promises, covenants and
conditions and agreements of the lease by Tenant to be made, kept and performed
from and after the assignment date.  Pursuant to the Assignment of
Lease, Voyager does hereby remain liable for the performance of all covenants,
agreements and conditions contained in the lease should Addison Oil LLC default
on its obligations.





F-36


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Predecessor
Entity





During the years ended December 31,
2007 and 2006, Voyager leased office space under a non-cancellable operating
lease.  Rent expense for the years ended December 31, 2007 and 2006
was $20,202 and $28,912, respectively.  Future minimum lease payments
under this lease, which expired in 2008, were $15,754.







On August
1, 2007, Voyager Gas Corporation entered into a Gas Purchase and Sale Agreement
with Copano Field Services/Agua Dulce L.P. (“Copano”) to deliver 100% of its
owned and/or controlled gas produced from its Orcones field, Duval County, Texas
for a term from August 1, 2007 until September 1, 2008, and shall continue from
year to year thereafter until terminated by either party upon at least 60 days
written notice to the other party prior to the end of the primary term or any
anniversary thereof.




In the event Voyager terminates the
agreement prior to August 1, 2008, then Voyager must pay Copano $200,000 or if
Voyager terminates the agreement prior to August 1, 2009, then Voyager must pay
Copano $100,000, as reimbursement for facility and connection
costs.





NOTE
17.                            INCOME
TAXES





The Company uses the liability
method, where tax assets and liabilities are determined based on the expected
future tax consequences of temporary differences between the carrying amounts of
assets and liabilities for financial and income tax reporting
purposes.  Prior to the acquisition of Voyager, the Company had
minimal operations and generated no revenue. Consequently, the Company incurred
net operating losses through September 1, 2008.





The components of the provision for
income taxes are as follows:





Successor
      Entity
                  
                  
                  Predecessor
      EntityPeriod
      September 2 through
                    December
      31,
                  
                  
                  Period
      January 1
                    through September
      1,
                  
                  
                  Years
      Ended
                    December
      31,2008
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Current
      income tax (benefit) expense
                  
                  $
                  (803,994
                  )
                  
                  $
                  1,155,982
                  
                  
                  $
                  83,674
                  
                  
                  $
                  --Deferred
      income tax expense
                  
                  
                  640,565
                  
                  
                  
                  (415,359
                  )
                  
                  
                  5,759,859
                  
                  
                  
                  805,503Total
      income tax expense
                  
                  $
                  (163,429
                  )
                  
                  $
                  740,623
                  
                  
                  $
                  5,843,533
                  
                  
                  $
                  805,503





The effective income tax rate
differed from the federal statutory rate as follows:





Successor
      Entity
                  
                  
                  Predecessor
      EntityPeriod
      September 2 through
                    December
      31,
                  
                  
                  Period
      January 1
                    to
      September 1,
                  
                  
                  Years
      Ended
                    December
      31,2008
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006U.S.
      Federal statutory rate
                  
                  
                  34.00
                  %
                  
                  
                  34.00
                  %
                  
                  
                  34.00
                  %
                  
                  
                  34.00
                  %State
      income tax
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %
                  
                  
                  0.80
                  %
                  
                  
                  0.50
                  %Permanent
      differences
                  
                  
                  (32.61
                  )%
                  
                  
                  0.09
                  %
                  
                  
                  (0.00
                  )%
                  
                  
                  (10.30
                  )%Valuation
      allowance
                  
                  
                  0.00
                  %
                  
                  
                  (16.63
                  )%
                  
                  
                  (0.00
                  )%
                  
                  
                  (0.00
                  )%Other
                  
                  
                  (1.7
                  )%
                  
                  
                  (3.63
                  )%
                  
                  
                  1.00
                  %
                  
                  
                  1.23
                  %(0.31
                  )
      %
                  
                  
                  13.83
                  %
                  
                  
                  35.80
                  %
                  
                  
                  24.43
                  %





F-37


CROSS
CANYON ENERGY CORP.


(formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Temporary differences in the amount of assets and liabilities recognized for
financial reporting and tax purposes create deferred tax assets and liabilities,
which are summarized as follows:





Successor
      Entity
                            
                            
                            Predecessor
      EntityDecember
      31,
                            
                            
                            December
      31,2008
                            
                            
                            2007
                            2006Current
      deferred tax assets (liabilities):Unrealized
      loss on option contracts
                            $                 --
                            
                            
                            $                 --
                            $     (500,977)Share
      based compensation
                            321,269
                            
                            
                            --
                            --Other
                            --
                            
                            
                            --
                            (10,529)Total
      current deferred tax assets (liabilities)
                            $     321,269
                            
                            
                            $               --
                            $     (511,506)Non-current
      deferred tax assets (liabilities):Unrealized
      loss on option contracts
                            $                 --
                            
                            
                            $       (71,274)
                            $                 --Unrealized
      gain on hedging contracts
                            (737,481)
                            
                            
                            --
                            --Depletion,
      depreciation and amortization
                            (9,855,816)
                            
                            
                            (2,013,972)
                            (279,066)Net
      operating losses
                            --
                            
                            
                            --
                            829,332Intangible
      drilling costs
                            --
                            
                            
                            (109,509)
                            (919,713)Gain
      on sale of oil and gas properties
                            --
                            
                            
                            (4,402,795)
                            --Other
                            --
                            
                            
                            (43,261)
                            --Total
      non-current deferred tax assets (liabilities)
                            $   (10,593,297)
                            
                            
                            $   (6,640,811)
                            $     (369,447)





Voyager
South Texas Holdings, L.L.C. (“VST”) was formed in May 2006, in order to
facilitate a Section 1031 exchange of certain oil and gas lease
properties.  Voyager borrowed and guaranteed funds under its credit
facility to fund the acquisition of the Duval County Properties through
VST.  The acquisition of the Duval County Properties was recorded by
allocating the total purchase consideration to the fair values of the net assets
acquired.




To
complete the IRS Section 1031 exchange, Voyager executed an asset sale agreement
in January 2007 to sell the Garza lease property located in Garza County, Texas
for approximately $29,000,000 in cash, resulting in a gain of approximately
$13,000,000.  In February 2007, VST was merged with
Voyager.  The IRS Section 1031 exchange did not qualify for like-kind
exchange accounting for book purposes because the counter parties were not the
same and the earnings process was completed with each leg of the
exchange.




NOTE
18.                            SUPPLEMENTAL
OIL AND GAS INFORMATION (UNAUDITED)




The
estimates of proved reserves are made using available geological and reservoir
data as well as production performance data.  These estimates are
reviewed at least annually and revised, either upward or downward, as warranted
by additional data.  Revisions are necessary due to changes in, among
other things, reservoir performance, prices, economic conditions and
governmental restrictions as well as changes in the expected recovery rates
associated with infill drilling.  Decreases in prices, for example,
may cause a reduction in some proved reserves due to reaching economic limits
sooner.  There are numerous uncertainties inherent in estimating
quantities of proved crude oil and natural gas reserves.  Crude oil
and natural gas reserve engineering is a subjective process of estimating
underground accumulations of crude oil and natural gas that cannot be precisely
measured.  The accuracy of any reserve estimate is a function of the
quality of available data and of engineering and geological interpretation and
judgment.





The
supplementary oil and gas data that follows is presented in accordance with SFAS
No. 69, “Disclosures about Oil and Gas Producing Activities” and includes (1)
capitalized costs, costs incurred and results of operations related to oil and
gas producing activities, (2) net proved oil and gas reserves, and (3) a
standardized measure of discounted future net cash flows relating to proved oil
and gas reserves.





Proved
oil and gas reserves estimates, all of which are located in the United States,
were prepared by Voyager engineers for the year ended December 31,
2007.  For the period ended September 1, 2008, the proved oil and gas
reserves estimates were prepared by the Company’s consulting reservoir engineer
and for the year ended December 31, 2008, by the Company’s independent third
party engineering firm, Ralph E. Davis Associates, Inc.  The reserve
reports were prepared in accordance with guidelines established by the
Securities and Exchange Commission and, accordingly, were based on existing
economic and operating conditions.  Crude oil and natural gas prices
in effect on the date of the reports were used without any
escalation.  Operating costs, production and ad valorem taxes and
future development costs were based on current costs with no
escalation.




F-38


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Proved
Reserves




The
following reserve schedule forth the changes in estimated quantities for proved
reserves of the Company and its predecessor during each of the periods
presented:





Successor
      Entity
                    
                    
                    Predecessor
      EntityDecember
      31, 2008
                    
                    
                    September
      1, 2008
                    
                    
                    December
      31, 2007Oil
                    
                    
                    Gas
                    
                    
                    Oil
                    
                    
                    Gas
                    
                    
                    Oil
                    
                    
                    GasProved
      reserves as of:
                    
                    (MBbls)
                    
                    
                    (Mmcf)
                    
                    
                    (MBbls)
                    
                    
                    (Mmcf)
                    
                    
                    (MBbls)
                    
                    
                    (Mmcf)Beginning
      of period
                    
                    
                    783
                    
                    
                    
                    10,918
                    
                    
                    
                    1,172
                    
                    
                    
                    19,213
                    
                    
                    
                    2,881
                    
                    
                    
                    10,453Revisions
      of previous estimates
                    
                    
                    (242
                    )
                    
                    
                    (2,515
                    )
                    
                    
                    (345
                    )
                    
                    
                    (7,779
                    )
                    
                    
                    659
                    
                    
                    
                    7,461Extensions,
      discoveries and otheradditions
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    242
                    
                    
                    
                    2,718Sales
      in place
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    (2,564
                    )
                    
                    
                    (351
                    )Production
                    
                    
                    (14
                    )
                    
                    
                    (180
                    )
                    
                    
                    (44
                    )
                    
                    
                    (516
                    )
                    
                    
                    (46
                    )
                    
                    
                    (1,068
                    )End
      of period
                    
                    
                    527
                    
                    
                    
                    8,223
                    
                    
                    
                    783
                    
                    
                    
                    10,918
                    
                    
                    
                    1,172
                    
                    
                    
                    19,213





Proved developed reserves for the year
ended December 31, 2008 of the Successor Entity and the periods ended September
1, 2008 and December 31, 2007, of the Predecessor Entity were as
follows:





Successor
      Entity
                  
                  
                  Predecessor
      EntityDecember
      31, 2008
                  
                  
                  September
      1, 2008
                  
                  
                  December
      31, 2007Oil
                  
                  
                  Gas
                  
                  
                  Oil
                  
                  
                  Gas
                  
                  
                  Oil
                  
                  
                  GasProved
      developed reserves
                  
                  (MBbls)
                  
                  
                  (Mmcf)
                  
                  
                  (MBbls)
                  
                  
                  (Mmcf)
                  
                  
                  (MBbls)
                  
                  
                  (Mmcf)Beginning
      of period
                  
                  
                  567
                  
                  
                  
                  7,042
                  
                  
                  
                  768
                  
                  
                  
                  9,132
                  
                  
                  
                  2,260
                  
                  
                  
                  5,689End
      of period
                  
                  
                  298
                  
                  
                  
                  4,520
                  
                  
                  
                  567
                  
                  
                  
                  7,042
                  
                  
                  
                  768
                  
                  
                  
                  9,132




Oil
and Gas Operations




Net
revenue from production in the following table includes only the revenue from
the production and sale of oil and natural gas.  The income tax
expense is calculated by applying the current statutory tax rates to the revenue
after deducting costs, which include DD&A allowances.  The results
of operations exclude general office overhead and interest expense attributable
to oil and natural gas activities.  Aggregate results of operations in
connection with the Company as successor and its predecessor’s oil and natural
gas producing activities for each of the periods are shown below:







Successor
      Entity
                  
                  
                  Predecessor
      EntityPeriod
      September 2
                    To
      December 31,
                    2008
                  
                  
                  Period
      January 1
                    To
      September 1,
                    2008
                  
                  
                  Year
      Ended
                    December
      31,
                    2007Oil
      and natural gas sales
                  
                  $
                  2,347,653
                  
                  
                  $
                  10,356,134
                  
                  
                  $
                  11,348,577Production
      costs (1)
                  
                  
                  (721,118
                  )
                  
                  
                  (2,712,744
                  )
                  
                  
                  (3,301,002
                  )Exploration
      expense
                  
                  
                  (20,652
                  )
                  
                  
                  --
                  
                  
                  
                  (9,399
                  )Depletion,
      depreciation and amortization
                  
                  
                  (990,675
                  )
                  
                  
                  (1,704,746
                  )
                  
                  
                  (1,750,808
                  )Accretion
      of asset retirement obligation
                  
                  
                  (20,088
                  )
                  
                  
                  (41,086
                  )
                  
                  
                  --Income
      before income taxes
                  
                  
                  595,120
                  
                  
                  
                  5,897,558
                  
                  
                  
                  6,287,368Income
      tax expense
                  
                  
                  (208,292
                  )
                  
                  
                  (2,064,145
                  )
                  
                  
                  (2,200,579
                  )Income
      from oil and gas operations
                  
                  $
                  386,828
                  
                  
                  $
                  3,833,413
                  
                  
                  $
                  4,086,789


______________





(1)
            Production
      costs consist of lease operating expenses, salt water disposal costs,
      production taxes, ad valorem taxes, transportation, gathering and
      compression expense supporting the Company’s oil and natural gas
      operations.





F-39


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Cost
Incurred in Oil and Gas Activities




Costs
incurred in connection with the Company as successor and its predecessor’s crude
oil and natural gas acquisition, exploration and development activities for each
of the periods are shown below:





Successor
      Entity
                  
                  
                  Predecessor
      EntityDecember
      31,
                    2008
                  
                  
                  September
      1,
                    2008
                  
                  
                  December
      31,
                    2007Property
      acquisition costs:Proved
                  
                  $
                  43,033,360
                  
                  
                  $
                  --
                  
                  
                  $
                  --Unproved
                  
                  
                  9,236,529
                  
                  
                  
                  --
                  
                  
                  
                  --Total
      acquisition costs
                  
                  
                  52,269,889
                  
                  
                  
                  --
                  
                  
                  
                  --Unproved
      acreage
                  
                  
                  --
                  
                  
                  
                  37,000
                  
                  
                  
                  --Development
      costs
                  
                  
                  438,036
                  
                  
                  
                  281,054
                  
                  
                  
                  7,195,160Exploration
      costs
                  
                  
                  20,652
                  
                  
                  
                  --
                  
                  
                  
                  9,399Asset
      retirement costs
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Total
      operations
                  
                  $
                  52,728,577
                  
                  
                  $
                  318,054
                  
                  
                  $
                  7,204,559Asset
      retirement obligation (non-cash)
                  
                  $
                  878,621
                  
                  
                  $
                  806,670
                  
                  
                  $
                  765,658





Aggregate
Capitalized Costs




Aggregate
capitalized costs relating to the Company as successor and its predecessor’s
crude oil and natural gas producing activities, including asset retirement costs
and related accumulated depreciation, depletion and amortization for the periods
ended December 31, 2008, September 1, 2008 and December 31 2007, are as
follows:





Successor
      Entity
                  
                  
                  Predecessor
      EntityDecember
      31,
                    2008
                  
                  
                  September
      1,
                    2008
                  
                  
                  December
      31,
                    2007Non-producing
      leaseholds
                  
                  $
                  9,236,529
                  
                  
                  $
                  13,336,340
                  
                  
                  $
                  13,299,340Proved
      properties
                  
                  
                  43,033,360
                  
                  
                  
                  35,459,391
                  
                  
                  
                  35,178,337Accumulated
      depletion, depreciationand
      amortization
                  
                  
                  (991,003
                  )
                  
                  
                  (7,564,743
                  )
                  
                  
                  (5,859,997
                  )Net
      capitalized costs
                  
                  $
                  51,278,886
                  
                  
                  $
                  41,230,988
                  
                  
                  $
                  42,617,680







Standardized
Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas
Reserves




The
following information is based on the Company’s best estimate of the required
data for the Standardized Measure of Discounted Future Net Cash Flows as of
December 31, 2008, September 1, 2008 and December 31, 2007, in accordance with
SFAS No. 69, “Disclosures About Oil and Gas Producing Activities” which requires
the use of a 10% discount rate.  This information is not the fair
market value, nor does it represent the expected present value of future cash
flows of the Company’s proved oil and gas reserves.





Successor
      Entity
                      
                      
                      Predecessor
      Entity(Dollars
      in thousands)
                      
                      December
      31,
                        2008
                      
                      
                      September
      1,
                        2008
                      
                      
                      December
      31,
                        2007Future
      cash inflows
                      
                      $
                      71,747
                      
                      
                      $
                      172,121
                      
                      
                      $
                      211,713Future
      production costs (1)
                      
                      
                      (25,944
                      )
                      
                      
                      (35,438
                      )
                      
                      
                      (51,454
                      )Future
      development costs
                      
                      
                      (6,600
                      )
                      
                      
                      (7,944
                      )
                      
                      
                      (12,350
                      )Future
      net cash flows
                      
                      
                      39,203
                      
                      
                      
                      128,739
                      
                      
                      
                      147,90910%
      annual discount for estimatingtiming
      of cash flows
                      
                      
                      (17,780
                      )
                      
                      
                      (58,157
                      )
                      
                      
                      (60,146
                      )Standardized
      measure of discountedfuture
      net cash flows at the end of period
                      
                      $
                      21,423
                      
                      
                      $
                      70,582
                      
                      
                      $
                      87,763


______________




(1)
            Production
      costs consist of lease operating expenses, salt water disposal costs,
      production taxes, ad valorem taxes, transportation, gathering and
      compression expense supporting the Company’s oil and natural gas
      operations.





F-40


CROSS
CANYON ENERGY CORP.
 (formerly
ABC Funding, Inc.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Future
cash inflows are computed by applying year-end prices, adjusted for location and
quality differentials on a property-by-property basis, to year-end quantities of
proved reserves, except in those instances where fixed and determinable price
changes are provided by contractual arrangements at year-end.  The
discounted future cash flow estimates do not include the effects of the Company
or its predecessor’s derivative instruments.  The following table
represents pricing for the Company and its predecessor’s oil and natural gas
products on December 31, 2008, September 1, 2008 and December 31,
2007:








Successor
      Entity
                  
                  
                  Predecessor
      EntityDecember
      31,
                    2008
                  
                  
                  September
      30,
                    2008
                  
                  
                  December
      31,
                    2007Crude
      oil ($ per barrel)
                  
                  $
                  42.41
                  
                  
                  $
                  101.66
                  
                  
                  $
                  71.40Natural
      gas ($ per Mcf)
                  
                  $
                  6.01
                  
                  
                  $
                  8.47
                  
                  
                  $
                  6.66




Future
production and development costs, which include dismantlement and restoration
expense, are computed by estimating the expenditures to be incurred in
developing and producing the Company’s proved oil and natural gas reserves at
the end of the year, based on the year-end costs, and assuming continuation of
existing economic conditions.




Future
development costs as of December 31, 2008, include $1.2 million, $2.0 million
and $2.7 million that the Company expects to spend in 2009, 2010 and 2011,
respectively, to develop proved non-producing and proved undeveloped
reserves.




Sources
of Changes in Discounted Future Net Cash Flows




Principal
changes in the aggregate standardized measure of discounted future net cash
flows attributable to the Company and its predecessor’s proved oil and natural
gas reserves, as required by SFAS No. 69, at year end are set forth in the table
below:





Successor
      Entity
                      
                      
                      Predecessor
      Entity(Dollars
      in thousands)
                      
                      Year
      Ended
                        December
      31,
                        2008
                      
                      
                      Period
      Ended
                        September
      2,
                        2008
                      
                      
                      Year
      Ended
                        December
      31,
                        2007Standardized
      measure of discounted future net cash flows at the beginning of
      period
                      
                      $
                      70,582
                      
                      
                      $
                      87,763
                      
                      
                      $
                      73,284Extensions,
      discoveries and improved recovery
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      9,964Revisions
      of previous quantity estimates
                      
                      
                      (24,052
                      )
                      
                      
                      (57,755
                      )
                      
                      
                      21,395Changes
      in estimated future development costs
                      
                      
                      1,344
                      
                      
                      
                      4,406
                      
                      
                      
                      4,520Sales
      of reserves in place
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      (32,402
                      )Accretion
      of discount
                      
                      
                      20
                      
                      
                      
                      41
                      
                      
                      
                      --Sales
      of oil and natural gas produced, netof
      production costs
                      
                      
                      (1,627
                      )
                      
                      
                      (7,657
                      )
                      
                      
                      (7,228
                      )Development
      costs incurred during the period
                      
                      
                      451
                      
                      
                      
                      318
                      
                      
                      
                      7,195Net
      change in prices
                      
                      
                      (25,295
                      )
                      
                      
                      43,466
                      
                      
                      
                      11,035Standardized
      measure of discounted future net cash flows at the end of
      period
                      
                      $
                      21,423
                      
                      
                      $
                      70,582
                      
                      
                      $
                      87,763





NOTE
19.                            SUBSEQUENT
EVENTS





On March 24, 2009, the Company filed
the Charter Amendment to its Articles of Incorporation with the Secretary of
State of the State of Nevada changing its name from ABC Funding, Inc. to Cross
Canyon Energy Corp. and increasing the number of common shares it is authorized
to issue from 24,000,000 to 149,000,000.





On March 24, 2009, Energy Venture,
Inc., a wholly-owned subsidiary of the Company, filed an amendment to its
Articles of Incorporation with the Secretary of State of the State of Nevada
changing its name from Energy Venture, Inc. to CCEC Operating
Company.




On March 24, 2009, the Company’s Series A, B, D and E preferred stock
automatically converted into 21,911,854 shares of the Company’s common
stock.
 
 On May 5, 2009, as part of a semi-annual redetermination of the borrowing base
under the CIT Credit Facility, the Company’s senior lender notified it that its
borrowing base was being reduced to $1 million, causing the Company’s
outstanding loans under the Revolving Loan to exceed the new borrowing base by
$10.5 million.  The Company’s credit agreement provides that it repay
such revolving loan amount in excess of the reduced borrowing base within sixty
days of such notification.  The Company is currently in discussions
with its senior lender to extend the sixty-day cure period to enable it to
negotiate a readjustment to its borrowing base and a schedule for repaying any
then-remaining borrowing base deficit.  (See Note 8.)


F-41