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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period ended September 30, 2008
 000-52470  (Commission File Number)
 Knight Energy Corp.
 (Exact name of registrant as specified in its charter)
 Maryland
    
    87-0583192(State or other jurisdiction of
    
    (IRS Employer Identificationincorporation)
    
    Number)
 909 Lake Carolyn Parkway, Suite 850, Irving, TX 75039  (Address of principal executive offices including zip code)
 (972) 401-1133  (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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PagePart I-Financial InformationItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets at September 30, 2008 (Unaudited) and
December 31, 2007 (Audited)
    
    
    3Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 2008 and 2007 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2008 and 2007 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    13Item 4T. Controls and Procedures
    
    
    20Part II-Other InformationItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 6. Exhibits
    
    
    23Signatures
    
    
    24Exhibit 31.1Exhibit 31.2Exhibit 32
   2




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PART I  FINANCIAL INFORMATION
 
 Item 1-Consolidated Financial Statements (Unaudited)
 Knight Energy Corp. and Subsidiary
 
 Consolidated Balance Sheets
 September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)
    
    
    (audited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    749,222
    
    
    $
    11,915Trade receivables
    
    
    141,736
    
    
    
    123,831Prepaid, related party
    
    
    
    
    
    
    9,215Inventory
    
    
    6,329
    
    
    
    7,634Other current assets
    
    
    52,293
    
    
    
    33,091Total current assets
    
    
    949,580
    
    
    
    185,686Land, property and equipment:Land
    
    
    24,596
    
    
    
    24,596Oil and gas properties, successful efforts method
    
    
    4,835,315
    
    
    
    3,784,459Other property and equipment
    
    
    4,225,598
    
    
    
    2,619,506Accumulated depreciation and depletion
    
    
    (2,530,413
    )
    
    
    (1,831,120
    )Land, property and equipment, net
    
    
    6,555,096
    
    
    
    4,597,441Other assets:Debt issue costs, net
    
    
    312,195
    
    
    
    Total other assets
    
    
    312,195
    
    
    
    Total assets
    
    $
    7,816,871
    
    
    $
    4,783,127LIABILITIESCurrent liabilities:Accounts payable
    
    $
    659,129
    
    
    $
    753,555Advances from related party
    
    
    66,179
    
    
    
    Accrued expenses
    
    
    622,705
    
    
    
    608,756Notes payable
    
    
    4,000,000
    
    
    
    200,000Current portion of asset retirement obligation
    
    
    192,210
    
    
    
    192,210Total current liabilities
    
    
    5,540,223
    
    
    
    1,754,521Long-term portion asset retirement obligation
    
    
    115,243
    
    
    
    57,746Total liabilities
    
    
    5,655,466
    
    
    
    1,812,267Commitments and contingenciesSTOCKHOLDERS EQUITYPreferred Stock, $0.0001 par value, 50,000,000 shares authorized, zero shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.0001 par value, 500,000,000 shares authorized, 25,721,793 and 25,497,855
shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively
    
    
    2,572
    
    
    
    2,550Common stock issuable, $0.0001 par value, 5,833,130 and 4,415,030 shares issuable at
September 30, 2008 and December 31, 2007, respectively
    
    
    583
    
    
    
    442Additional paid-in capital
    
    
    11,216,874
    
    
    
    8,441,334Accumulated deficit
    
    
    (9,057,374
    )
    
    
    (5,472,216
    )Less: Stock subscription receivable
    
    
    (1,250
    )
    
    
    (1,250
    )Total stockholders equity
    
    
    2,161,405
    
    
    
    2,970,860Total liabilities and stockholders equity
    
    $
    7,816,871
    
    
    $
    4,783,127
   3




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Knight Energy Corp. and Subsidiary
 
 Consolidated Statements of Operations
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues, net
    
    $
    550,745
    
    
    $
    275,312
    
    
    $
    1,380,273
    
    
    $
    779,793Operating expenses:Lease operating costs
    
    
    276,346
    
    
    
    63,193
    
    
    
    463,257
    
    
    
    179,203Exploration
    
    
    
    
    
    
    9,050
    
    
    
    
    
    
    
    9,050Repairs and maintenance
    
    
    32,239
    
    
    
    48,602
    
    
    
    106,453
    
    
    
    159,304General and administrative
    
    
    349,583
    
    
    
    356,892
    
    
    
    1,301,759
    
    
    
    982,336Rent
    
    
    21,289
    
    
    
    3,668
    
    
    
    48,479
    
    
    
    7,420Consulting
    
    
    282,925
    
    
    
    86,734
    
    
    
    1,756,192
    
    
    
    209,531Professional
    
    
    112,481
    
    
    
    66,142
    
    
    
    284,558
    
    
    
    221,501Depreciation, depletion, and accretion
    
    
    323,413
    
    
    
    38,867
    
    
    
    717,111
    
    
    
    321,161Total operating expenses
    
    
    1,398,276
    
    
    
    673,148
    
    
    
    4,677,809
    
    
    
    2,089,506Operating loss
    
    
    (847,531
    )
    
    
    (397,836
    )
    
    
    (3,297,536
    )
    
    
    (1,309,713
    )Other income (expense):Interest income
    
    
    16
    
    
    
    353
    
    
    
    63
    
    
    
    469Interest expense
    
    
    (200,263
    )
    
    
    (17,500
    )
    
    
    (287,685
    )
    
    
    (38,546
    )Total other expense
    
    
    (200,247
    )
    
    
    (17,147
    )
    
    
    (287,622
    )
    
    
    (38,077
    )Net loss
    
    $
    (1,047,778
    )
    
    $
    (414,983
    )
    
    $
    (3,585,158
    )
    
    $
    (1,347,790
    )Net loss per share  basic and diluted
    
    $
    (0.03
    )
    
    $
    (0.01
    )
    
    $
    (0.12
    )
    
    $
    (0.05
    )Weighted average shares  basic and
diluted
    
    
    31,317,095
    
    
    
    28,643,452
    
    
    
    30,871,990
    
    
    
    26,952,180
   4




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Knight Energy Corp. and Subsidiary
 
 Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months EndedSeptember 30,2008
    
    
    2007Cash Flows From Operating Activities:Net loss
    
    $
    (3,585,158
    )
    
    $
    (1,347,790
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and depletion expense
    
    
    699,292
    
    
    
    318,458Accretion expense
    
    
    17,819
    
    
    
    2,703Non-cash interest expense
    
    
    55,259
    
    
    
    Stock issued for employee bonus
    
    
    
    
    
    
    20,000Stock issued for consulting services
    
    
    192,560
    
    
    
    Warrant issued for consulting
    
    
    1,148,529
    
    
    
    Changes in operating assets and liabilities:Trade receivables
    
    
    (17,905
    )
    
    
    (67,166
    )Prepaid, related party
    
    
    9,215
    
    
    
    (55,960
    )Inventory
    
    
    1,305
    
    
    
    Other current assets
    
    
    (19,202
    )
    
    
    37,362Accounts payable
    
    
    (322,559
    )
    
    
    (47,318
    )Accrued expenses
    
    
    13,949
    
    
    
    62,592Net Cash Used In Operating Activities
    
    
    (1,806,896
    )
    
    
    (1,077,119
    )Cash Flows From Investing Activities:Investment in oil and gas properties
    
    
    (786,350
    )
    
    
    (1,864,404
    )Purchase of property and equipment
    
    
    (1,602,786
    )
    
    
    (406,565
    )Net Cash Used In Investing Activities
    
    
    (2,389,136
    )
    
    
    (2,270,969
    )Cash Flows From Financing Activities:Repayment of note payable  related party
    
    
    
    
    
    
    (150,000
    )Debt issue costs
    
    
    (277,650
    )
    
    
    Advances from related party
    
    
    66,179
    
    
    
    50,000Proceeds from issuance of note payable
    
    
    4,230,000
    
    
    
    335,000Repayment of note payable
    
    
    (430,000
    )
    
    
    (335,000
    )Proceeds from sale of common stock, net of offering expenses
    
    
    1,344,810
    
    
    
    3,756,405Net Cash Provided By Financing Activities
    
    
    4,933,339
    
    
    
    3,656,405Net Increase in Cash
    
    
    737,307
    
    
    
    308,317Cash at Beginning of Period
    
    
    11,915
    
    
    
    15,544Cash at End of Period
    
    $
    749,222
    
    
    $
    323,861Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    201,927
    
    
    $
    38,547Taxes
    
    $
    
    
    
    $
    Supplemental Disclosure of Non-Cash Investing
and Financing Transactions:Accrued and unpaid property additions
    
    $
    228,133
    
    
    $
    231,564Capitalized asset retirement obligation
    
    
    39,678
    
    
    
    78,113Debt Issue costs paid with common stock
    
    
    89,804
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Knight Energy Corp. and Subsidiary
 
 Notes to Consolidated Financial Statements
September 30, 2008
(Unaudited)
 1. BASIS OF PRESENTATION
  2. HISTORY AND NATURE OF BUSINESS
      6




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Knight Energy Corp. and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2008
(Unaudited)
 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Oil and Gas Properties
  Property and Equipment
  Stock-Based Compensation
 Share-Based Payments
 Accounting for Equity Instruments that are issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services
 Net Loss per Common Share
    7




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Knight Energy Corp. and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2008
(Unaudited)
 4. NOTES PAYABLE
        8




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Knight Energy Corp. and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2008
(Unaudited)
        9




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Knight Energy Corp. and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2008
(Unaudited)
   5. STOCKHOLDERS EQUITY
 Capital Structure
    Common Stock
  Common Stock Issuable
   Warrants
   10




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Knight Energy Corp. and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2008
(Unaudited)
   Stock Price (modification date)
    
    $
    1.01Expected Life (between vesting period and term of warrants)
    
    
    1.00Volatility
    
    
    98
    %Annual Rate of Quarterly Dividends
    
    
    0.00
    %Risk Free Interest Rate (T-bill rate)
    
    
    2.24
    %
 6. RELATED PARTY TRANSACTIONS
   7. SUBSEQUENT EVENTS
    11




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Knight Energy Corp. and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2008
(Unaudited)
      12




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
      GENERAL
    13




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RECENT DEVELOPMENTS
        14




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RESULTS OF OPERATIONS
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues, net
    
    $
    550,745
    
    
    $
    275,312
    
    
    $
    1,380,273
    
    
    $
    779,793Operating expenses:Lease operating costs
    
    
    276,346
    
    
    
    63,193
    
    
    
    463,257
    
    
    
    179,203Exploration
    
    
    
    
    
    
    9,050
    
    
    
    
    
    
    
    9,050Repairs and maintenance
    
    
    32,239
    
    
    
    48,602
    
    
    
    106,453
    
    
    
    159,304General and administrative
    
    
    349,583
    
    
    
    356,892
    
    
    
    1,301,759
    
    
    
    982,336Rent
    
    
    21,289
    
    
    
    3,668
    
    
    
    48,479
    
    
    
    7,420Consulting
    
    
    282,925
    
    
    
    86,734
    
    
    
    1,756,192
    
    
    
    209,531Professional
    
    
    112,481
    
    
    
    66,142
    
    
    
    284,558
    
    
    
    221,501Depreciation, depletion, and accretion
    
    
    323,413
    
    
    
    38,867
    
    
    
    717,111
    
    
    
    321,161Total operating expenses
    
    
    1,398,276
    
    
    
    673,148
    
    
    
    4,677,809
    
    
    
    2,089,506Operating loss
    
    
    (847,531
    )
    
    
    (397,836
    )
    
    
    (3,297,536
    )
    
    
    (1,309,713
    )Other income (expense):Interest income
    
    
    16
    
    
    
    353
    
    
    
    63
    
    
    
    469Interest expense
    
    
    (200,263
    )
    
    
    (17,500
    )
    
    
    (287,685
    )
    
    
    (38,546
    )Total other expense
    
    
    (200,247
    )
    
    
    (17,147
    )
    
    
    (287,622
    )
    
    
    (38,077
    )Net loss
    
    $
    (1,047,778
    )
    
    $
    (414,983
    )
    
    $
    (3,585,158
    )
    
    $
    (1,347,790
    )
 Three Months Ended September 30, 2008 compared to 2007
 Revenues :
  Operating Expenses :
  Other Income (Expense) :
   15




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Nine Months Ended September 30, 2008 compared to 2007
 Revenues :
  Operating Expenses :
  Other Income (Expense) :
  Liquidity and Capital Resources
     16




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Notes payable
       17




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18




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Liquidity
    19




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Off-Balance Sheet Arrangements
  
 Item 4T. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   20




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Managements Quarterly Report on Internal Control Over Financial Reporting
  1.
    
    The Company does not have a full-time accounting controller and
utilizes a part-time consultant to perform these critical
responsibilities. This lack of full-time accounting staff results in a
lack of segregation of duties and accounting technical expertise
necessary for an effective system of internal control.2.
    
    The Company does not have the required technical expertise to properly
calculate complex oil and gas required disclosures including
impairment of properties, depletion and accretion expense, FAS 109
income taxes and FAS 69 supplemental oil and gas disclosures. As a
result, during the audit of the Companys December 31, 2007 financial
statements, the Companys independent registered public accounting
firm proposed several material adjustments to the financial statements
of the Company.
  1.
    
    The Company should take steps to manage its oil and gas leases, including
creating a schedule of oil and gas lease agreements and related documents
to ensure that the Company is aware of its oil and gas rights, expiration
and renewal dates, and contractual payments regarding royalties, taxes,
improvements, etc. This ensures correct oil and gas capital accounts,
revenues and related expenses are calculated correctly by accounting.
Additionally, the Chief Financial Officer should review all oil and gas
lease agreements.2.
    
    The Company should take steps to require that oil and gas expenditures are
properly classified into the proper categories such as acquisition costs
and intangible and tangible drilling costs. Without this, the Company
cannot properly determine the proper recording and disclosure of oil and
gas expenditures.3.
    
    The Company should take steps to ensure that oil and gas inventory is
calculated and properly recorded and valued in the general ledger and
financial statements. During the audit of the December 31, 2007 financial
statements, the independent registered public accounting firm determined
that this had not been performed by the Company and proposed an adjustment
of approximately $8,000 to the financial statements.4.
    
    The Company should take steps to enhance the security for bank wire
transfers. Currently, the CFO and CEO provide instruction to the part-time
consultant to initiate a wire transfer. As a security enhancement, the bank
should be required to obtain approval from the CEO or CFO to make the wire
transfer.5.
    
    The Company should take steps to implement a policies and procedures manual.6.
    
    The Company utilizes an IT remote access server to store of all of the
Companys financial data. Although the data has proper firewall and other
security measures implemented, the information is critical for the Company
and an internal server at the Company headquarters should be considered.
   21




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PART II  OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
     22




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Item 6. Exhibits
 Exhibit No.
    
    Exhibit Description10.1
    
    
    Note Purchase Agreement dated July 3, 2008. (1)10.2
    
    
    Escrow Agreement dated July 3, 2008. (1)10.3
    
    
    Secured Note dated July 3, 2008. (1)10.4
    
    
    Amendment to Security Agreement dated July 3, 2008. (1)10.5
    
    
    Amendment to Corporate Guaranty dated July 3, 2008. (1)10.6
    
    
    Amendment to Deed of Trust dated July 3, 2008. (1)10.7
    
    
    Amendment to Note Purchase Agreement dated October 8, 2008. (2)10.8
    
    
    Secured Note dated October 8, 2008. (2)10.9
    
    
    Amendment to Security Agreement dated October 8, 2008. (2)10.10
    
    
    Amendment to Corporate Guaranty dated October 8, 2008. (2)10.11
    
    
    Amendment to Deed of Trust dated October 8, 2008. (2)31.1
    
    
    Certification of the Chief Executive Officer of Knight Energy Corp. pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*31.2
    
    
    Certification of the Chief Financial Officer of Knight Energy
Corp. pursuant to Section 302 of the Sarbanes-Act of 2002.*32.1
    
    
    Certification of the Chief Executive Officer of Knight Energy
Corp. pursuant to Section 906 of the Sarbanes-Act of 2002.*32.2
    
    
    Certification of the Chief Financial Officer of Knight Energy
Corp. pursuant to Section 906 of the Sarbanes-Act of 2002.*
 *
    
    Filed herewith.(1)
    
    Incorporated by reference to the Registrants Form 8-K filed with the Commission on July 9,
2008.(2)
    
    Incorporated by reference to the Registrants Form 8-K filed with the Commission on October
15, 2008.  23




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SIGNATURES
  Signature
    
    Title
    
    Date/s/ William J. Bosso
    
    Chief Executive Officer, Principal Executive
    
    November 14, 2008William J. Bosso
    
    Officer and Director/s/ Bruce A. Hall
    
    Chief Financial Officer, Principal Financial
    
    November 14, 2008Bruce A. Hall
    
    Officer and Director
  24




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EXHIBIT INDEX
 Exhibit No.
    
    Exhibit Description10.1
    
    
    Note Purchase Agreement dated July 3, 2008. (1)10.2
    
    
    Escrow Agreement dated July 3, 2008. (1)10.3
    
    
    Secured Note dated July 3, 2008. (1)10.4
    
    
    Amendment to Security Agreement dated July 3, 2008. (1)10.5
    
    
    Amendment to Corporate Guaranty dated July 3, 2008. (1)10.6
    
    
    Amendment to Deed of Trust dated July 3, 2008. (1)10.7
    
    
    Amendment to Note Purchase Agreement dated October 8, 2008. (2)10.8
    
    
    Secured Note dated October 8, 2008. (2)10.9
    
    
    Amendment to Security Agreement dated October 8, 2008. (2)10.10
    
    
    Amendment to Corporate Guaranty dated October 8, 2008. (2)10.11
    
    
    Amendment to Deed of Trust dated October 8, 2008. (2)31.1
    
    
    Certification of the Chief Executive Officer of Knight Energy Corp. pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*31.2
    
    
    Certification of the Chief Financial Officer of Knight Energy
Corp. pursuant to Section 302 of the Sarbanes-Act of 2002.*32.1
    
    
    Certification of the Chief Executive Officer of Knight Energy
Corp. pursuant to Section 906 of the Sarbanes-Act of 2002.*32.2
    
    
    Certification of the Chief Financial Officer of Knight Energy
Corp. pursuant to Section 906 of the Sarbanes-Act of 2002.*
 *
    
    Filed herewith.(1)
    
    Incorporated by reference to the Registrants Form 8-K filed with the Commission on July 9,
2008.(2)
    
    Incorporated by reference to the Registrants Form 8-K filed with the Commission on October
15, 2008.  25