UNITED
STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark One)


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





FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2009


OR


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





FOR
THE TRANSITION PERIOD FROM __________ TO ____________.





COMMISSION
FILE NO. 000-51710





CROSS
CANYON ENERGY CORP.


(Exact
name of small business as specified in its charter)





Nevada
            
            56-2458730(State
      or other jurisdiction ofincorporation or
      organization)
            
            (IRS.
      EmployerIdentification
      No.)





6630
Cypresswood Drive, Suite 200


Spring,
Texas 77379


(Address
of principal executive offices, including zip code)





(832)
559-6060


(Issuer’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.


Yes þNo
o





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





Large
      accelerated filer o
            Accelerated
      filer o
            Non-accelerated
      filer o
              (Do
      not check if a smaller reporting company)
            Smaller
      reporting company þ





Indicate
by check mark whether the registrant is a shell company (as defined in Rule12b-2
of the Exchange Act).


Yes oNo
þ





At June
1, 2009, the number of outstanding shares of the issuer’s common stock was
48,649,990.





CROSS CANYON ENERGY CORP.


INDEX
TO QUARTERLY REPORT ON FORM 10-Q


FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008





PagePART I – FINANCIAL
      INFORMATIONItem 1.
                Financial
      StatementsConsolidated Balance Sheets as of March 31, 2009, (successor)
      and December 31, 2008 (successor) (unaudited)
                3Consolidated Statements of Operations for the Three
      Months Ended March 31, 2009 (successor) and March 31, 2008 (predecessor)
      (unaudited)
                4Consolidated Statement of Changes in Stockholders’ Equity
      from December 31, 2008 to March
      31, 2009 (unaudited)
                5Consolidated Statements of Cash Flows for the Three
      Months Ended March 31, 2009 (successor) and March 31, 2008 (predecessor)
      (unaudited)
                6Notes to Unaudited Consolidated Financial
      Statements
                8Item 2.
                Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                15Item 4T.
                Controls and Procedures
                28PART
      II – OTHER INFORMATIONItem 4.
                Submission of Matters to a Vote of Security
      Holders
                30Item
      6.
                Exhibits
                30Signatures
                31Index
      to Exhibits
                32





2


PART
I


FINANCIAL
INFORMATION


Item
1.                      Financial
Statements.





CROSS CANYON ENERGY CORP.


CONSOLIDATED
BALANCE SHEETS


(Unaudited)


March
      31,
                        
                        
                        December
      31,2009
                        
                        
                        2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                        
                        $
                        502,713
                        
                        
                        $
                        1,323,077Accounts
      receivable
                        
                        
                        608,858
                        
                        
                        
                        616,754Current
      portion of derivative asset
                        
                        
                        1,785,395
                        
                        
                        
                        1,356,279Prepaid
      expenses and other current assets
                        
                        
                        43,334
                        
                        
                        
                        11,564Total
      current assets
                        
                        
                        2,940,300
                        
                        
                        
                        3,307,674Oil
      and gas properties, using successful efforts method:Proved
      properties
                        
                        
                        40,856,092
                        
                        
                        
                        40,280,739Unproved
      properties
                        
                        
                        11,889,814
                        
                        
                        
                        11,989,150Less
      accumulated depletion and depreciation
                        
                        
                        (1,503,542
                        )
                        
                        
                        (991,003
                        )Net
      oil and gas properties
                        
                        
                        51,242,364
                        
                        
                        
                        51,278,886Other
      property and equipment, net
                        
                        
                        88,505
                        
                        
                        
                        40,950Deferred
      financing costs, net
                        
                        
                        1,591,957
                        
                        
                        
                        1,728,411Derivative
      asset
                        
                        
                        1,107,745
                        
                        
                        
                        812,784TOTAL
      ASSETS
                        
                        $
                        56,970,871
                        
                        
                        $
                        57,168,705LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                        
                        $
                        665,905
                        
                        
                        $
                        576,619Deferred
      taxes, current
                        
                        
                        --
                        
                        
                        
                        416,212Accrued
      liabilities
                        
                        
                        373,604
                        
                        
                        
                        522,000Convertible
      debt and other note payable
                        
                        
                        49,375
                        
                        
                        
                        25,000Credit
      facility – revolving loan
                        
                        
                        11,500,000
                        
                        
                        
                        11,500,000Credit
      facility - term loan, net of unamortized discounts of $9,100,370 and
      $9,572,412
                        
                        
                        12,899,630
                        
                        
                        
                        12,427,588Series
      C Preferred stock, $0.001 par value, 1,000 shares authorized and
      outstanding,with
      mandatory redemption
                        
                        
                        100,000
                        
                        
                        
                        100,000Derivative
      liabilities
                        
                        
                        1,033,104
                        
                        
                        
                        554,181Income
      taxes currently payable
                        
                        
                        508,991
                        
                        
                        
                        508,991Total
      current liabilities
                        
                        
                        27,130,609
                        
                        
                        
                        26,630,591Asset
      retirement obligation
                        
                        
                        897,781
                        
                        
                        
                        878,621Deferred
      income taxes
                        
                        
                        9,609,767
                        
                        
                        
                        9,855,816Total
      liabilities
                        
                        
                        37,638,157
                        
                        
                        
                        37,365,028Commitments
      and contingencies
                        
                        
                        --
                        
                        
                        
                        --Stockholders’ equity:Preferred
      stock, $0.001 par value, 1,000,000 shares authorized, 999,000 and
      842,505undesignated authorized at March 31, 2009 and December 31, 2008,
      respectivelySeries
      A Preferred stock, $0.001 par value, 99,395 shares authorized and
      outstanding
                        
                        
                        --
                        
                        
                        
                        99Series
      B Preferred stock, $0.001 par value, 37,100 shares authorized and
      outstanding
                        
                        
                        --
                        
                        
                        
                        37Series
      D Preferred stock, $0.001 par value, 10,000 shares authorized and
      outstanding
                        
                        
                        --
                        
                        
                        
                        10Series
      E Preferred stock, $0.001 par value, 10,000 shares authorized and
      outstanding
                        
                        
                        --
                        
                        
                        
                        10Common
      stock, $0.001 par value, 149,000,000 shares authorized, 47,711,464
      and25,264,260
      outstanding at March 31, 2009 and December 31, 2008,
      respectively
                        
                        
                        47,711
                        
                        
                        
                        25,264Additional
      paid-in capital
                        
                        
                        15,519,051
                        
                        
                        
                        14,782,392Retained
      earnings
                        
                        
                        3,765,952
                        
                        
                        
                        4,995,865Total stockholders’ equity
                        
                        
                        19,332,714
                        
                        
                        
                        19,803,677TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                        
                        $
                        56,970,871
                        
                        
                        $
                        57,168,705




See notes
to unaudited consolidated financial statements.


3


CROSS CANYON ENERGY CORP.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





Successor
      Entity
                                
                                
                                Predecessor
      EntityThree
      Months Ended
                                  March
      31,
                                
                                
                                Three
      Months Ended
                                  March
      31,2009
                                
                                
                                2008Revenue:Oil
                                
                                $
                                268,889
                                
                                
                                $
                                1,943,482Natural
      gas
                                
                                
                                484,271
                                
                                
                                
                                1,944,061Total
      revenue
                                
                                
                                753,160
                                
                                
                                
                                3,887,543Operating
      costs and expenses:Lease
      operating expenses
                                
                                
                                303,497
                                
                                
                                
                                1,447,304Production
      taxes
                                
                                
                                57,645
                                
                                
                                
                                236,518Exploration
      expense
                                
                                
                                193,139
                                
                                
                                
                                --Accretion
      of asset retirement obligation
                                
                                
                                19,160
                                
                                
                                
                                15,233Depletion,
      depreciation and amortization
                                
                                
                                517,669
                                
                                
                                
                                717,452General
      and administrative expense
                                
                                
                                1,128,071
                                
                                
                                
                                176,334Total
      operating costs and expenses
                                
                                
                                2,219,181
                                
                                
                                
                                2,592,841Income
      (loss) from operations
                                
                                
                                (1,466,021
                                )
                                
                                
                                1,294,702Other
      income (expense):Interest
      expense, net
                                
                                
                                (1,125,521
                                )
                                
                                
                                (251,449
                                )Risk
      management
                                
                                
                                1,355,277
                                
                                
                                
                                (489,050
                                )Change
      in fair value of derivatives
                                
                                
                                (655,909
                                )
                                
                                
                                --Total
      other income (expense)
                                
                                
                                (426,153
                                )
                                
                                
                                (740,499
                                )Income
      (loss) before income taxes
                                
                                
                                (1,892,174
                                )
                                
                                
                                554,203Income
      tax provision (benefit)
                                
                                
                                (662,261
                                )
                                
                                
                                193,971Net
      income (loss)
                                
                                
                                (1,229,913
                                )
                                
                                
                                360,232Deemed
      dividend – beneficial conversion feature of preferred
stock
                                
                                
                                (5,089,641
                                )
                                
                                
                                --Net
      income (loss) available to common shareholders
                                
                                $
                                (6,319,554
                                )
                                
                                $
                                360,232Net
      income (loss) per common share:Basic
      and diluted
                                
                                $
                                (0.05
                                )
                                
                                $
                                36,023.00Weighted
      average number of common shares outstanding:Basic
      and diluted
                                
                                
                                27,396,378
                                
                                
                                
                                10





See notes
to unaudited consolidated financial statements.





4


CROSS CANYON ENERGY CORP.


CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY


(Unaudited)


Preferred
      Stock
                  
                  Additional
                  
                  TotalSeries
      A
                  Series
      B
                  Series
      D
                  Series
      E
                  Common
      Stock
                  Paid-In
                  Retained
                  Stockholders’Shares
                  Amount
                  Shares
                  Amount
                  Shares
                  Amount
                  Shares
                  Amount
                  Shares
                  Amount
                  Capital
                  Earnings
                  EquityBalances,
      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
                  $ 19,803,677Series
      A Preferredconverted
      to common
                  (99,395)
                  (99)
                  --
                  --
                  --
                  --
                  --
                  --
                  1,987,900
                  1,988
                  (1,889)
                  --
                  --Series
      B Preferredconverted
      to common
                  --
                  --
                  (37,100)
                  (37)
                  --
                  --
                  --
                  --
                  1,060,318
                  1,060
                  (1,023)
                  --
                  --Series
      D Preferredconverted
      to common
                  --
                  --
                  --
                  --
                  (10,000)
                  (10)
                  --
                  --
                  17,500,000
                  17,500
                  (17,490)
                  --
                  --Series
      E Preferredconverted
      to common
                  --
                  --
                  --
                  --
                  --
                  --
                  (10,000)
                  (10)
                  1,363,636
                  1,364
                  (1,354)
                  --
                  --Discount
      for beneficialconversion
      feature onpreferred
      stock
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  5,089,641
                  --
                  5,089,641Deemed
      dividend onpreferred
      stock
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  (5,089,641)
                  --
                  (5,089,641)Stock-based
      compensation
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  535,349
                  535
                  581,429
                  --
                  581,964Resolution
      of tainted liabilities
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  176,986
                  --
                  176,986Net
      loss
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  --
                  (1,229,913)
                  (1,229,913)Balances,
      March 31, 2009
                  --
                  $    --
                  --
                  $ 
      --
                  --
                  $ 
      --
                  --
                  $   --
                  47,711,463
                  $ 47,711
                  $
      15,519,051
                  $ 3,765,952
                  $ 19,332,714





See notes
to unaudited consolidated financial statements.


5


CROSS CANYON ENERGY CORP.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Successor
      Entity
                                    
                                    
                                    Predecessor
      EntityThree
      Months Ended
                                      March
      31,
                                    
                                    
                                    Three
      Months Ended
                                      March
      31,2009
                                    
                                    
                                    2008Cash
      flows from operating activities:Net
      income (loss)
                                    
                                    $
                                    (1,229,913
                                    )
                                    
                                    $
                                    360,232Adjustments
      to reconcile net income (loss) to cash provided by (used in)operating
      activities:Depreciation,
      depletion and amortization
                                    
                                    
                                    517,669
                                    
                                    
                                    
                                    717,452Accretion
      of asset retirement obligation
                                    
                                    
                                    19,160
                                    
                                    
                                    
                                    15,233Exploratory
      dry hole
                                    
                                    
                                    99,332Share
      based compensation
                                    
                                    
                                    581,964
                                    
                                    
                                    
                                    --Amortization
      of deferred financing costs
                                    
                                    
                                    136,454
                                    
                                    
                                    
                                    --Amortization
      of debt discounts
                                    
                                    
                                    472,042
                                    
                                    
                                    
                                    --Change
      in fair value of energy swap derivatives
                                    
                                    
                                    (724,077
                                    )
                                    
                                    
                                    446,101Change
      in fair value of derivatives
                                    
                                    
                                    655,909
                                    
                                    
                                    
                                    --Deferred
      taxes
                                    
                                    
                                    (662,261
                                    )
                                    
                                    
                                    --Changes
      in assets and liabilities:Accounts
      receivable
                                    
                                    
                                    7,896
                                    
                                    
                                    
                                    527,982Prepaid
      and other current assets
                                    
                                    
                                    (31,770
                                    )
                                    
                                    
                                    (38,827
                                    )Accounts
      payable
                                    
                                    
                                    89,286
                                    
                                    
                                    
                                    260,484Accrued
      liabilities and income taxes payable
                                    
                                    
                                    (148,396
                                    )
                                    
                                    
                                    183,220Net
      cash provided by (used in) operating activities
                                    
                                    
                                    (216,705
                                    )
                                    
                                    
                                    2,471,877Cash
      flows from investing activities:Oil
      and natural gas property additions
                                    
                                    
                                    (575,349
                                    )
                                    
                                    
                                    (229,435
                                    )Purchase
      of other property and equipment
                                    
                                    
                                    (52,685
                                    )
                                    
                                    
                                    --Net
      cash used in investing activities
                                    
                                    
                                    (628,034
                                    )
                                    
                                    
                                    (229,435
                                    )Cash
      flows from financing activities:Proceeds
      from credit facility
                                    
                                    
                                    --
                                    
                                    
                                    
                                    2,922,952Repayment
      of credit facility
                                    
                                    
                                    --
                                    
                                    
                                    
                                    (4,800,046
                                    )Proceeds
      from issuance of debt
                                    
                                    
                                    24,375
                                    
                                    
                                    
                                    --Bank
      overdraft
                                    
                                    
                                    --
                                    
                                    
                                    
                                    (316,239
                                    )Net
      cash provided by (used in) financing activities
                                    
                                    
                                    24,375
                                    
                                    
                                    
                                    (2,193,333
                                    )Net
      increase (decrease) in cash
                                    
                                    
                                    (820,364
                                    )
                                    
                                    
                                    49,109Cash
      at beginning of period
                                    
                                    
                                    1,323,077
                                    
                                    
                                    
                                    --Cash
      at end of period
                                    
                                    $
                                    502,713
                                    
                                    
                                    $
                                    49,109Supplemental
      information:Cash
      paid for interest
                                    
                                    $
                                    537,969
                                    
                                    
                                    $
                                    116,834Cash
      paid for income taxes
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --





See notes
to unaudited consolidated financial statements.


6


CROSS
CANYON ENERGY CORP.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


(Continued)








Successor
      Entity
                      
                      
                      Predecessor
      EntityThree
      Months Ended
                        March
      31,
                      
                      
                      Three
      Months Ended
                        March
      31,2009
                      
                      
                      2008Non-cash
      investing and financing activities:Conversion
      of Series A Preferred to common
                      
                      $
                      1,988
                      
                      
                      $
                      --Conversion
      of Series B Preferred to common
                      
                      
                      1,060
                      
                      
                      
                      --Conversion
      of Series D Preferred to common
                      
                      
                      17,500
                      
                      
                      
                      --Conversion
      of Series E Preferred to common
                      
                      
                      1,364
                      
                      
                      
                      --Resolution
      of tainted warrants
                      
                      
                      176,986
                      
                      
                      
                      --








See notes
to unaudited consolidated financial statements.





7


CROSS CANYON ENERGY CORP.


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1.                      
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES





The
accompanying unaudited consolidated financial statements of Cross Canyon Energy
Corp. (“Cross Canyon” or “the Company”) have been prepared in accordance with
accounting principles generally accepted in the United States of America,
pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission (the “SEC”) for interim financial
information.  Accordingly, the financial statements do not include all
information and footnotes required by generally accepted accounting principles
in the United States (“GAAP”) for complete annual financial
statements.  In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair
presentation.  Interim operating results are not necessarily
indicative of results that may be expected for the year ending December 31,
2009, or for any subsequent period.  Therefore, please read these
financial statements and notes to the consolidated financial statements together
with the audited consolidated financial statements and notes thereto in Cross
Canyon’s Transition Report on Form 10-K for the transition period July 1, 2008
through December 31, 2008.  Cross Canyon has made certain
reclassifications to prior year financial statements in order to conform to
current year presentations.





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.





Impact
of recently issued accounting standards





In April
2009, the FASB issued FASB Staff Position (FSP) No. FAS 107-1 and Accounting
Principles Board (APB) 28-1, Interim Disclosures about Fair Value of Financial
Instruments, (FAS 107-1) to amend SFAS No. 107, Disclosures about Fair Value of
Financial Instruments and APB 28, Interim Financial Reporting. FAS 107-1 changes
the reporting requirements on certain fair value disclosures of financial
instruments to include interim reporting periods. FAS 107-1 is effective for
interim reporting periods ending after June 15, 2009, with early adoption
encouraged. The Company is currently assessing the impact, if any, that the
adoption of this pronouncement will have on its disclosures.





In April
2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly, (FAS 157-4) to amend SFAS No.
157, Fair Value Measurements, (SFAS 157). FAS 157-4 provides additional guidance
for estimating fair value in accordance with SFAS 157 when the volume and level
of activity for an asset or liability has significantly decreased. In addition,
FAS 157-4 includes guidance on identifying circumstances that indicate a
transaction is not orderly. FAS 157-4 is effective for interim and annual
reporting periods ending after June 15, 2009. The Company is currently assessing
the impact, if any, that the adoption of this pronouncement will have on its
operating results, financial position or cash flows.





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.





8




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 May
2008, the FASB issued Staff Position No. APB 14-1, “Accounting for Convertible
Debt Instruments That May be Settled in Cash upon Conversion (Including Partial
Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 states that convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) are not addressed by paragraph 12 of Accounting Principles Board
Opinion No. 14 and that issuers of such instruments should account separately
for the liability and equity components of the instruments in a manner that will
reflect the entity’s nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. FSP APB 14-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and must
be applied retrospectively to all periods presented. Adoption of this statement
did not have a material effect on the Company’s financial
statements.





In June
2008, the FASB ratified EITF Issue 07-5, “Determining Whether
an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF07-5”).  Paragraph 11(a) of Statement of
Financial Accounting Standards No 133 “Accounting for Derivatives and Hedging
Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Company’s own stock
and (b) classified in stockholders’ equity in the statement of financial
position would not be considered a derivative financial
instrument.  EITF07-5 provides a new two-step
model to be applied in determining whether a financial instrument or an embedded
feature is indexed to an issuer’s own stock and thus able to qualify for the
SFAS 133 paragraph 11(a) scope exception.  EITF07-5 is effective for the first annual reporting period
beginning after December 15, 2008, and early adoption is
prohibited.  On January 1, 2009, the Company adopted EITF07-5 and the adoption of this statement resulted in a derivative
liability of $1,033,104.  There was not transition accounting for this
derivative as these warrants were accounted for as derivatives under EITF 00-19
prior to the adoption of EITF 07-5.  However, on March 24, 2009, the
Company authorized additional shares of common stock, which was sufficient to
convert all potentially convertible instruments.  As a result, the
derivative liabilities associated with these warrants would have been
extinguished under EITF 00-19, but are now considered derivatives under EITF
07-5.  See Note 4 for additional discussion.





In June
2008, the Emerging Issues Task Force (EITF) reached final consensuses on EITF
Issue 08-4, “Transition
Guidance for Conforming Changes to Issue No. 98-5.”  Certain
conclusions reached in EITF
Issue No. 98-5, “Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios,” were
nullified in EITF Issue No. 00-27, “Application of Issue No. 98-5 to
Certain Convertible Instruments.”  Moreover, some of the
conclusions in Issue No. 98-5 and Issue No. 00-27 were superseded by SFAS No.
150, “Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity.”  While the conclusions reached in Issue No. 98-5 were
subsequently updated to reflect the issuance of Issue No. 00-27 and SFAS No.
150, the transition guidance in Issue No. 98-5 was not revised.  On
January 1, 2009, the Company adopted EITF 08-4.  The adoption of this
standard did not have a material impact on the Company’s financial condition,
results of operations or cash flows.








NOTE
2.                      GOING
CONCERN UNCERTAINTY





As part
of a semi-annual redetermination of the Company’s borrowing base under the CIT
Capital USA Inc. credit facility (the “CIT Credit Facility,”) on May 5, 2009,
the Company’s senior lender notified the Company that its borrowing base was
being reduced to $1.0 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.  In addition to the deficiency under the Company’s
Revolving Loan, the capital expenditures required to maintain and/or grow
production and reserves are substantial.  The Company's stock price
has significantly declined over the past year with its last reported sale price
on May 27, 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 the Company’s total
borrowings under its CIT Credit Facility as a current liability, the Company is
reporting negative working capital at March 31, 2009.  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.  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.  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.





9




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.





NOTE
3.                      NOTES
PAYABLE





Notes payable consisted of the
following as of March 31, 2009 and December 31, 2008:





March
      31,
                        2009
                      
                      
                      December
      31,
                        20082006
      convertible notes, convertible at $0.50 per share into50,000
      shares of common stock due February 28, 2008
                      
                      $
                      25,000
                      
                      
                      $
                      25,000Nine
      month note at 7.5% to finance the Company’s insurance premiumsfor
      general liability, umbrella, control of well and pollution
                      
                      
                      24,375
                      
                      
                      
                      --First
      lien revolving credit facility with CIT Capital USA Inc.,as
      administrative agent, bearing interest at an adjusted rate
                        as
      defined in the agreement (4.05% at March 31, 2009)payable
      quarterly, principal and unpaid interest due on
                        September
      1, 2011, collateralized by a first mortgage on theCompany’s
      oil and gas properties.
                      
                      
                      11,500,000
                      
                      
                      
                      11,500,000Second
      lien term credit facility with CIT Capital USA Inc.,as
      administrative agent, bearing interest at an adjusted rate
                        as
      defined in the agreement (6.55% at March 31,2009) 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
                      
                      
                      
                      22,000,000Unamortized
      discount on second lien term credit facility
                      
                      
                      (9,100,370
                      )
                      
                      
                      (9,572,412
                      )$
                      24,449,005
                      
                      
                      $
                      23,952,588




CIT
Credit Facility





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.”





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.





10




As of
March 31, 2009, the Company was not in compliance with the financial covenant
requiring the Company to not permit its consolidated current assets to
consolidated current liabilities to be less than 1.0 to 1.0 as required by the
Revolving Loan and Term Loan agreements.





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 the Company 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 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
financial 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 and the financial covenant to not
permit the ratio of its consolidated current assets to consolidated current
liabilities to be less than 1.0 to 1.0, 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 a current liability on the Company’s balance
sheet.





NOTE
4.                            DERIVATIVE
FINANCIAL INSTRUMENTS AND FAIR VALUE





Derivative
Assets







During
the three month period ended March 31, 2009, the Company recorded realized gains
on its hedging contracts with Macquarie of $206,887 and $424,323 for crude oil
and natural gas, respectively.




As
of March 31, 2009, the Company had the following hedge contracts
outstanding:





Crude
Oil





Total
      BarrelsInstrument
              Beginning
                Date
              Ending
                Date
              Fixed
              April
      1 thru December 31,
                2009
              2010
              2011Swap
              Oct-08
              Dec-11
              $
      110.35
              7,684
              7,575
              5,712Indexed
      to NYMEX WTI





Natural
Gas





Total
      MMBtu’sInstrument
              Beginning
                Date
              Ending
                Date
              Fixed
              April
      1 thru December 31,
                2009
              2010
              2011Swap
              Oct-08
              Dec-11
              $
      7.82
              309,508
              328,203
              262,080Indexed
      to Inside FERC Houston Ship Channel







11




Derivative
Liabilities





In
periods prior to March 31, 2009, the outstanding convertible instruments, most
notably common stock warrants and convertible debt, if converted, would have
exceeded the number of authorized shares available for
issuance.  Accordingly, the Company recorded a derivative liability in
accordance with SFAS No. 133 and EITF Issue 00-19.  On March 24, 2009,
the Company authorized a sufficient number of additional common
shares.  As a result, the derivative liability under EITF Issue 00-19
was extinguished, resulting in a $176,986 reduction in the derivative liability
and a corresponding adjustment to additional paid in capital.  Prior
to extinguishment, the derivative liability was marked-to-market through March
24, 2009, which resulted in a $81,668 charge for the change in the fair value of
the derivative.  The Company recorded a total charge of $655,909 for
the aggregate change in the fair value of the derivative through March 31,
2009.





The
Company further evaluated the application of EITF Issue 07-05, “Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own
Stock,” and determined that due to the reset provisions in the warrant
agreements dated May 21, 2008 and September 2, 2008, which were issued in
connection with the convertible debentures used for its deposit for the Voyager
Acquisition and the warrants issued with the Term Loan portion of the CIT Credit
Facility issued on September 2, 2008.  Based on the guidance in SFAS
133 and EITF 07-05, the Company concluded these instruments should continue to
be accounted for as derivatives as of March 31, 2009, due to the “down round”
protection feature on the exercise prices.  Because these instruments
were previously accounted for as derivatives in accordance with EITF Issue 00-19
and SFAS No. 133, there was not transition accounting or reporting
required.  These instruments simply continued as derivatives and were
marked-to-market through March 31, 2009.  At March 31, 2009, the
aggregate derivative liability was $1,033,104.





The
Company records the fair value of these derivatives on its balance sheet at fair
value with changes in the values of these derivatives reflected in the
consolidated statements of operations as “Change in fair value of derivatives.”
These derivative instruments are not designated as hedging instruments under
SFAS 133 and are disclosed on the balance sheet under “Derivative liabilities.”
Previously, these instruments were classified as derivatives as the exercise of
these securities would have caused the Company to exceed its number of
authorized shares of common stock.





Financial
Assets and Liabilities Measured at Fair Value on a Recurring Basis





Financial
assets and liabilities measured at fair value on a recurring basis are
summarized below and disclosed on the balance sheet under “Derivative assets”
and “Derivative liabilities:”





As
      of March 31, 2009Carrying
              Fair
      Value Measurements UsingValue
              Level
      1
              Level
      2
              Level
      3
              TotalAssets
              $ 
      2,893,140
              $ 
      --
              $ 2,893,140
              $ 
      --
              $ 2,893,140Total
      derivative assets
              $ 
      2,893,140
              $ 
      --
              $ 2,893,140
              $ 
      --
              $ 2,893,140Liabilities
              $ 1,033,104
              $ 
      --
              $  1,033,104
              $  --
              $ 1,033,104Total
      derivative liabilities
              $ 1,033,104
              $ 
      --
              $ 1,033,104
              $  --
              $ 1,033,104





12


The table
below provides a summary of the changes in fair value, including net transfers
in and/or out of all financial liabilities measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) during the three
month period ended March 31, 2009:





Fair
      Value Measurements Using Level 2 InputsDerivative
      Liabilities
                
                
                TotalsBalance,
      December 31, 2008
                
                $
                554,181
                
                
                $
                554,181Total
      gains or losses (realized/unrealized)Included
      in net loss
                
                
                655,909
                
                
                
                655,909Included
      in other comprehensive income
                
                
                --
                
                
                
                --Purchases,
      issuances and settlements
                
                
                (176,986
                )
                
                
                (176,986
                )Transfers
      in and/or out of Level 3
                
                
                --
                
                
                
                --Balance,
      March 31, 2009
                
                $
                1,033,104
                
                
                $
                1,033,104





NOTE
5.                            PREFERRED
STOCK AND COMMON STOCK





Preferred
Stock





Upon the
effectiveness of the Charter Amendment on March 24, 2009 to increase the
Company’s authorized common shares, all of the outstanding Series A, B, D and E
Preferred shares automatically converted into shares of the Company’s common
stock.  The 99,395 outstanding shares of Series A Preferred converted
into 1,987,900 common shares, the 37,100 outstanding shares of Series B
Preferred converted into 1,060,318 common shares, the 10,000 outstanding shares
of Series D Preferred converted into 17,500,000 common shares and the 10,000
outstanding shares of Series E Preferred converted into 1,363,636 common
shares.





In
addition, the Series A Preferred, Series B Preferred and Series D Preferred were
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 contained beneficial
conversion features. Because the conversion features were 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 prices, but recognized upon
the removal of the contingency. Based on the commitment date stock prices, the
beneficial conversion feature associated with the Series A, Series B and Series
D Preferred was determined to be $5,089,641.  This beneficial
conversion feature was recognized as a deemed dividend on the Company’s
statements of operations during the quarter ended March 31, 2009.





Common
Stock





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.





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 $96,164, $72,123 and $148,203 for Messrs. Munn,
Chase and Davis, respectively, for the three month period ended March 31, 2009.
In addition, the Company represents on its consolidated balance sheets the
issuance of 1,143,151 shares of restricted stock to Mr. Munn, 857,363 shares of
restricted stock to Mr. Chase and 435,959 shares of restricted stock to Mr.
Davis through March 31, 2009.





13


NOTE
6.                      COMMON
STOCK OPTIONS AND WARRANTS





A summary
of stock option transactions for the three months ended March 31, 2009 is as
follows:


March
      31, 2009Options
                
                
                Wtd.
      Avg.
                  Exercise
                  PriceOutstanding
      beginning of period
                
                
                4,775,000
                
                
                $
                0.53Granted
                
                
                --
                
                
                
                --Exercised
                
                
                --
                
                
                
                --Forfeited
                
                
                --
                
                
                
                --Outstanding
      end of period
                
                
                4,775,000
                
                
                $
                0.53Exercisable
      end of period
                
                
                2,358,334
                
                
                $
                0.46





At March
31, 2009, the range of exercise prices and weighted average remaining
contractual life of outstanding options was $0.30 to $0.65 per share and 4.52
years, respectively.





A summary
of warrant transactions for the three months ended March 31, 2009 is as
follows:


March
      31, 2009Warrants
                
                
                Wtd.
      Avg.
                  Exercise
                  PriceOutstanding
      beginning of period
                
                
                36,324,996
                
                
                $
                0.36Granted
                
                
                --
                
                
                
                --Exercised
                
                
                --
                
                
                
                --Forfeited
                
                
                --
                
                
                
                --Outstanding
      end of period
                
                
                36,324,996
                
                
                $
                0.36Exercisable
      end of period
                
                
                36,324,996
                
                
                $
                0.36





At March 31, 2009, the range of
exercise prices and weighted average remaining contractual life of outstanding
warrants was $0.05 to $0.60 and 3.97, respectively. The intrinsic value of “in
the money” warrants at March 31, 2009 was negligible.





NOTE
7.                            SUBSEQUENT
EVENTS





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 the Company 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
3)





On
June 2, 2009, Robert P. Munn, Chief Executive Officer, and Carl A. Chase, Chief
Financial Officer, agreed to defer the payment of : (i) guaranteed bonuses to be
paid on May 22, 2009, in the amount of $45,000 and $36,000 for Messrs. Munn and
Chase, respectively, and (ii) guaranteed salary increases from $225,000 to
$260,000 and from $180,000 to $210,000 annually effective May 22, 2009, for
Messrs. Munn and Chase, respectively.  Payments of such earned amounts
have been deferred until the earlier of: (i) the occurrence of an event
requiring payment of such amounts under their respective employment agreements
or (ii) January 2, 2010.
  On May
29 and March 1, 2009, the Company 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, the
Company’s failure triggered potential monetary penalties under the registration
statement governing its obligation to register such shares for
resale.


Under the
registration rights agreement, if the Company fails 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, the Company is 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, or May 29, 2009, the Company is 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,
the Company 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 the Company 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 being declared effective within the initial
180 day period and with respect to not being declared effective after 90 days
have elapsed from the 180 day registration requirement.  Although the
Company does not anticipate the warrants being exercised at the current exercise
price, it may become subject to the above-described monetary penalties should
the holders choose to exercise the warrants.  14


Item
2.             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. 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 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.





15




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.”





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:





16


·
            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.





Basis
of Presentation





For management discussion and
analysis purposes, the operational data for the three months ended March 31,
2009, represents the financial results of Cross Canyon, (“Successor Entity”),
and for the three months ended March 31, 2008 represents the financial results
of Voyager, (“Predecessor Entity”.)





Three
      Months Ended March 31, 2009 and
2008





The
following table represents sales of oil and natural gas and realized prices for
the three months ended March 31, 2009 and 2008:





Successor
      Entity
                  
                  
                  Predecessor
      EntityThree
      Months Ended
                    March
      31,
                  
                  
                  Three
      Months Ended
                    March
      31,2009
                  
                  
                  2008Net
      sales:Oil
      (Bbls)
                  
                  
                  7,004
                  
                  
                  
                  20,192Natural
      gas (Mcf)
                  
                  
                  104,329
                  
                  
                  
                  215,326Average
      sales prices:Oil
      ($ per Bbl)
                  
                  $
                  38.39
                  
                  
                  $
                  96.25Natural
      gas ($ per Mcf)
                  
                  $
                  4.64
                  
                  
                  $
                  9.03





Revenue





Revenue.Revenue from the
sale of oil and natural gas for the three months ended March 31, 2009 was
$753,160 compared to revenue for the three months ended March 31, 2008 of
$3,887,543, a decrease of 81%. We have experienced a significant decrease in
both production and realized prices when compared to the 2008 period. Revenue
received from the sale of our crude oil production decreased from $1,943,482 for
the 2008 period to $268,889 for the 2009 period, a decrease of 86%. Our
production of crude oil decreased from 20,192 barrels for the 2008 period to
7,004 barrels for the 2009 period, a decrease of 13,188 barrels. A majority of
this decrease was attributable to one well, the Marchbanks-Cadena Well No. 115,
which well experienced mechanical problems in December 2008. We performed a
major workover on this well during the first quarter of this fiscal year and
returned the well to production, albeit at a lower production rate than that
experienced prior to the well ceasing production. This well accounted for 10,719
barrels of the decreased production. In addition, we experienced a decline in
production rates from three additional wells acquired in the Voyager Acquisition
representing a decrease in production of 2,741 barrels. During the fourth
quarter of 2008 and first quarter of 2009, we successfully recompleted two oil
wells which were not producing and added 1,048 barrels to production for the
2009 period.





For the three months ended March 31,
2009, we realized an average price for the sale of our crude oil of $38.39 per
barrel compared to $96.25 per barrel for the 2008 period. Prices received for
the sale of crude oil have seen a significant decline from the record highs
experienced during 2008. We do not foresee crude oil prices rising to the levels
seen in 2008; however, we are currently experiencing increases over the prices
realized during the first fiscal quarter of this year. As discussed below under
“Risk management,” we
have entered into energy swap contracts to mitigate a portion of the changes in
market prices for crude oil and recorded a realized gain on our crude oil hedge
of $206,887 for the three month period ended March 31, 2009.





17




Revenue
from the sale of natural gas decreased from $1,944,061 for the 2008 period to
$484,271 for the 2009 period, a decrease of 75%. As was the case with crude oil,
we have experienced a significant decrease in both production and prices for our
natural gas. Natural gas sales volumes decreased from 215,326 Mcf’s for the 2008
period to 104,329 Mcf’s for the 2009 period, a decrease of 52%. As discussed
above, the Marchbanks-Cadena Well No. 115 experienced mechanical problems which
resulted in a decrease in natural gas sales of 32,561 Mcf’s when comparing 2009
to 2008. Additionally, five of the wells acquired in the Voyager Acquisition
have experienced significant declines in production rates resulting in a
decrease of approximately 63,659 Mcf’s when compared to the 2008 period. The
balance of the decline in production was a result of normal well
decline.





For the three months ended March 31,
2009, we realized an average price for the sale of natural gas of $4.64 per Mcf
compared to $9.03 per Mcf for the 2008 period. As experienced with crude oil,
prices received for the sale of natural gas have seen a significant decline from
the record highs experienced during 2008. We also do not foresee natural gas
prices rising to the levels seen in 2008. We are experiencing a modest increase
in prices during the second fiscal quarter with a price of $3.61 per Mmbtu for
April 2009 production compared to $3.375 per Mmbtu for the month of March 2009
production. As discussed below under “Risk management,” we have
entered into energy swap contracts to mitigate a portion of the changes in
market prices for natural gas and recorded a realized gain on our natural gas
hedge of $424,313 for the three month period ended March 31, 2009.





Operating
costs and expenses





Lease operating expenses.
Lease operating expenses are comprised of costs to maintain, repair and produce
our wells. Lease operating expenses for the three months ended March 31, 2009
were $303,497 compared to $1,447,304 for the three months ended March 31, 2008,
a decrease of $1,143,807, or 79%. A significant portion of the lease operating
expenses incurred during the 2008 period were $974,567 of well workover
expenses. The Predecessor Entity performed remedial workover operations on three
wells during the 2008 period, all of which were unsuccessful in increasing
production. In addition, the Predecessor Entity incurred plugging and
abandonment costs of $141,532 resulting from its obligation to plug certain
wells on its Garza Lease property in West Texas, which it sold in
2007.





Our lease operating expenses
approximate $100,000 per month to operate the Duval County Properties. Normal
operating expenses are comprised of approximately 1/3rd salt
water disposal, 1/3rd natural
gas compression and 1/3rd
operating costs such as contract gauging, maintenance and repair, ad valorem
taxes and insurance. We have identified a wellbore incapable of production and
are currently converting it to a salt water disposal well. Salt water disposal
costs for the three month period ended March 31, 2009 were approximately
$130,000. We believe that by providing our own salt water disposal facility at a
cost of approximately $75,000, we can reduce our salt water disposal costs by
approximately $40,000 per month with this savings to begin in June 2009. We have
recently renegotiated the rental fees charged to us by the vendor which provides
the rental compressors to us for our natural gas compression. Compression fees
for the three months ended March 31, 2009 were approximately $95,000 and
effective April 2009, our compression fees are projected to decrease by
approximately $13,000 per month.





We have recently rendered our Duval
County Properties to the Duval County tax assessor and have reduced our ad
valorem taxes for fiscal 2009 to approximately $57,000 from $209,000 for fiscal
2008. We are continuing to search our cost structure to identify additional
areas where the costs of operating our producing properties can be reduced to
partially compensate for the reduction in production volumes and commodity
prices.





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 crude oil and natural gas. Production
taxes for the three months ended March 31, 2009 were $57,645 compared to
$236,518 for the three months ended March 31, 2008. 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. Oil and natural gas revenue for the 2008 period was significantly
higher than the 2009 period resulting in the significant difference in
production taxes when comparing the two periods.





18




Exploration expense. We follow the successful efforts method of
accounting for our oil and natural gas properties. As such, the costs of
acquiring and analyzing seismic data, geological and geophysical consultants and
exploratory wells which do not find hydrocarbons in commercial quantities are
expensed when incurred. We reported exploration expenses of $193,139 for
the three months ended March 31, 2009 and our predecessor had no exploration
expenses in the prior year. During the 2009 period, we incurred expenses of
$47,845 attributable to fees paid to consulting geoscientists who are performing
geophysical interpretations of our 3-D seismic database acquired with the
Voyager Acquisition and additional 2-D seismic acquired during the
period. In addition during the period, we acquired an additional 2-D
seismic line adjacent to our Duval County Properties to provide additional data
for our seismic analysis and reprocessed our 3-D seismic data base to enhance
the quality of the data for seismic interpretation. The cost of these items
was approximately $44,064.





Based upon the exploration work
provided above, we identified a “possible” well location to drill on our
acquired acreage. On March 26, 2009, we spud the Hilda Parr Well No. 137 to
test the Atlee formation. On March 31, 2009, we ran electric logs on the
well which indicated good porosity and resistivity, but based upon core analysis
and other reservoir testing tools, it was determined that the reservoir had been
pressure depleted and on April 1, 2009, we elected to plug and abandon the
well. The costs incurred through March 31, 2009 approximated $99,332 and
were charged to exploratory dry hole expense.





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 periods ended March 31, 2009
and 2008, we recorded accretion expense of $19,160 and $15,233,
respectively.





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 period ended March 31, 2009, was $512,539, or $3.50 per
equivalent Mcf (“Mcfe”), compared to depletion expense of the Predecessor Entity
of $714,948, or $1.06 per Mcfe for the period ended March 31, 2008. The increase
in the depletion rate per Mcfe for the period ended March 31, 2009, was
attributable to the increased value of our proved properties and decrease in the
quantity of proved reserves when compared to the Predecessor Entity. We
depreciate our fixed assets on a straight-line basis over the useful lives of
the assets ranging from one to seven years. Depreciation expense for the period
ended March 31, 2009 was $5,130 compared to $2,504 for the 2008
period.


19


General and administrative
expenses. The following table summarizes general and administrative
expenses for each of the periods ended March 31, 2009 and 2008:





Successor
      Entity
                    
                    
                    Predecessor
      EntityThree
      Months Ended
                      March
      31,
                    
                    
                    Three
      Months Ended
                      March
      31,2009
                    
                    
                    2008Payroll
      and related expenses
                    
                    $
                    878,358
                    
                    
                    $
                    115,623Office
      administration
                    
                    
                    47,824
                    
                    
                    
                    6,256Professional
      fees
                    
                    
                    162,985
                    
                    
                    
                    47,543Other
      expenses
                    
                    
                    38,904
                    
                    
                    
                    6,912Total
      general and administrative expenses
                    
                    $
                    1,128,071
                    
                    
                    $
                    176,334





General
and administrative expenses for the three months ended March 31, 2009 were
$1,128,071 compared to $176,334 for the Predecessor Entity for the three months
ended March 31, 2008. Payroll and related expenses increased by $762,735 to
$878,358 for the period ended March 31, 2009 compared to $115,623 for the period
ended March 31, 2008. 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 non-cash compensation expense of $581,964
for the 2009 period. Our Predecessor Entity was not a publicly traded company
and had no restricted stock or stock option compensation expense during the 2008
period. In conjunction with the restricted stock awards, we agreed to pay to our
CEO and CFO an additional payment equal to the applicable taxes incurred on the
restricted stock awards, which payment was recorded as a bonus in the amount of
$97,608. During the 2009 period, we employed four individuals, one which left
the Company in February, compared to three individuals being employed by our
Predecessor Entity.





Office administration expenses for the
2009 period totaled $47,824 which was comprised of office rent, telephone and
communications and other office expenses. This was an increase of $41,568 when
compared to the 2008 period which increase was primarily attributable to
relocating to our new executive offices. We anticipate that office
administration expenses will decrease in the near term.





Professional fees, which are comprised
of legal, accounting and audit, engineering and other consulting fees were
$162,985 for the three months ended March 31, 2009, compared to $47,543 for the
three months ended March 31, 2008. Our Predecessor Entity was not a public
company and did not incur the public reporting expenses we did during the
quarter. Our accounting and audit fees for the 2009 period were $71,850 which
included fees for auditing our financial statements for the transition period
July 1 through December 31, 2008, as well as our predecessor’s financial
statements for the year ended December 31, 2008, and our Form S-1 filings with
the SEC. We incurred legal fees of $46,235 primarily attributable to our SEC
filings and corporate governance. As we do not employ a reservoir engineer, we
incurred engineering fees of $34,352 attributable to reserve analysis from our
engineering consultant and independent third party engineering firm for
preparation of our year-end reserve report. Our predecessor incurred directors’
fees and financial advisory fees due to Natural Gas Partners in accordance with
a financial advisory agreement totaling $26,250 for the three month period ended
March 31, 2008. Upon closing of the Voyager Acquisition, the financial advisory
agreement between Voyager and Natural Gas Partners was terminated.





Other expenses increased from $6,912
for the 2008 period to $38,904 for the 2009 period. Included in other expenses
are the cost of travel and entertainment, directors’ and officers’ liability
insurance and investor relations.





Income
(loss) from operations





For the three months ended March 31,
2009, we reported a loss from operations of $1,466,021 compared to income from
operations of $1,294,702 for the three months ended March 31, 2008.





20








Other
income (expense)





Other expense for the period ended
March 31, 2009 was $426,153 and is comprised of interest expense, net, risk
management and change in fair value of derivatives. Other expense for the period
ended March 31, 2008, is $740,499 and is comprised of interest expense and risk
management.





Interest expense, net. The
following table lists in comparative format the details of interest expense for
the periods ended March 31, 2009 and 2008:





Successor
      Entity
                  
                  
                  Predecessor
      EntityThree
      Months Ended
                    March
      31,
                  
                  
                  Three
      Months Ended
                    March
      31,2009
                  
                  
                  2008Interest
      on BOT Credit Facility
                  
                  $
                  --
                  
                  
                  $
                  251,449Interest
      on CIT Credit Facility
                  
                  
                  518,529
                  
                  
                  
                  --Amortization
      of CIT Credit Facility deferred financing costs
                  
                  
                  136,454
                  
                  
                  
                  --Amortization
      of CIT Credit Facility debt discounts
                  
                  
                  472,042
                  
                  
                  
                  --Other
                  
                  
                  (1,504
                  )
                  
                  
                  --$
                  1,125,521
                  
                  
                  $
                  251,449





We
incurred interest expense for the three months ended March 31, 2009, of
$1,125,521 compared to $251,449 for the three months ended March 31, 2008. The
significant components of interest expense for the 2009 period are interest
incurred on our CIT Credit Facility of $518,529, amortization of deferred
financing costs of $136,454 and amortization of debt discounts of $472,042, both
amounts associated with our CIT Credit Facility. Our predecessor incurred
interest expense pursuant to its Bank of Texas credit facility (“BOT Credit
Facility”) of $251,449.





Risk management. The gain
recorded from our risk management position for the three months ended March 31,
2009, was $1,355,277 compared to a loss for the 2008 period of $489,050. 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 March 31, 2009, we recorded an
unrealized gain of $724,077 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. During the 2009 period, we recorded realized gains on our
energy swaps for oil and natural gas of $206,887 and $424,313,
respectively.





Our
predecessor entered into swap agreements pursuant to its BOT Credit Facility for
its oil production. During the three months ended March 31, 2008, it
recorded a realized loss on its energy swap of $42,949 and an unrealized loss of
$446,101.





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.





21




Change in fair value of derivative
liabilities. We have evaluated the application of SFAS No. 133 and EITF
Issue 07-05 to the warrants issued with the May 21, 2008 convertible debentures
used for our deposit for the Voyager Acquisition and the warrants issued with
the Term Loan portion of the CIT Credit Facility to purchase our common stock
issued on September 2, 2008. Based on the guidance in SFAS 133 and EITF
07-05, we concluded these instruments were required to continue to be accounted
for as derivatives as of March 31, 2009, due to the “down round” protection
feature on the exercise prices. We recorded the fair value of these
derivatives on our balance sheet at fair value with changes in the values of
these derivatives are reflected in the consolidated statements of operations as
“Change in fair value of derivatives.” Based upon the foregoing, we
recorded a change in fair value of derivatives of $655,909 during the period
ended March 31, 2009.





Deemed
dividend





Our Series A Preferred, Series B
Preferred and Series D Preferred were 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 contained beneficial conversion features. Because the conversion
features were 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 prices. Based on the commitment date stock prices, the beneficial
conversion feature associated with the Series A, Series B and Series D Preferred
was $5,089,641, which beneficial conversion feature has been recognized as a
deemed dividend on our statements of operations.





Net
income (loss)





Our net loss for the three month period
ended March 31, 2009 was $1,229,913, or net loss per share of $0.05 (basic and
diluted) compared to net income of $360,232, or $36,023.00 (basic and diluted)
for the three months ended March 31, 2008.





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 CIT Credit Facility. As of March 31, 2009, we had cash
on hand in unrestricted accounts of $502,713 and negative working capital as a
result of reporting our debt from our CIT Credit Facility as a current
liability.





Cash
Flows





The
following table summarizes the cash flows for the three month periods ended
March 31, 2009 and 2008:





Successor
      Entity
                      
                      
                      Predecessor
      EntityThree
      Months Ended
                        March
      31,
                      
                      
                      Three
      Months Ended
                        March
      31,2009
                      
                      
                      2009Net
      cash provided by (used in) operating activities
                      
                      $
                      (216,705
                      )
                      
                      $
                      2,471,877Net
      cash used in investing activities
                      
                      
                      (628,034
                      )
                      
                      
                      (229,435
                      )Net
      cash provided by (used in) financing activities
                      
                      
                      24,375
                      
                      
                      
                      (2,193,333
                      )Net
      increase (decrease) in cash
                      
                      $
                      (820,364
                      )
                      
                      $
                      49,109





Net cash provided by (used in)
operating activities. For the three month period ended March 31, 2009, we
reported net cash used in operating activities of $216,705 compared to net cash
provided by operating activities by our predecessor of $2,471,877 for the three
month period ended March 31, 2008. For the 2009 period, we reported a net loss
of $1,229,913.  This net loss was partially offset by non-cash charges
to expense of $2,482,530 and non-cash charges to income of $1,386,338. Our
predecessor reported net income of $360,232 and non-cash charges to expense of
$1,178,786. During the 2009 period, we experienced a decrease in accounts
receivable of $7,896 and an increase in accounts payable due to an increase in
drilling activity of $89,286. These increases in operating activities were
offset by an increase in prepaid expenses and other current assets of $31,770
and decreases in accrued liabilities of $148,396 resulting from payments of
severance taxes and royalties. Our predecessor experienced a decrease in
accounts receivable of $527,982 and increase in accounts payable and accrued
liabilities of $260,484 and $183,220, respectively, partially offset by
increases in prepaid expenses of $38,827.





22




Net cash used in investing activities. During the three month period
ended March 31, 2009, we incurred capital expenditures related to our well
workover program and drilling costs of $575,349 and office furniture, computer
equipment and leasehold improvements to accommodate our new office space of
$52,685 for a total cash used in investing activities of $628,034. Our
predecessor incurred capital expenditures on the Duval County Properties during
the 2008 period of $229,435.





Net cash provided by (used in)
financing activities. During the three month period ended March 31, 2009,
we received cash proceeds of $24,375 used to pay for our insurance premiums for
general liability, umbrella, control of well and pollution. During the period
ended March 31, 2008, our predecessor borrowed $2,922,952 against its BOT Credit
Facility, repaid $4,800,046 on the facility and paid down a bank overdraft of
$316,239 for total cash used in financing activities of $2,193,333.





Credit
Facility





On
September 2, 2008 we entered into the CIT 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%.





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%.





On May 5,
2009, as part of a semi-annual redetermination of the borrowing base under the
CIT 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.





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
CIT 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.





23




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 of
March 31, 2009, we were not in compliance with the financial covenant requiring
the Company to not permit its consolidated current assets to consolidated
current liabilities to be less than 1.0 to 1.0 as required by the Revolving Loan
and Term Loan agreements. As part of our discussions with our senior lender, we
are requesting a waiver of this financial covenant.





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
five 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 March 31, 2009,
$1,023,633 of this discount had been amortized as a component of interest
expense.




24





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 March 31, 2009, $34,333 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 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.




Registration
Rights Agreement
 
  On May 29
and 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, or May 29, 2009, 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 being declared effective within the initial 180 day period and
with respect to not being declared effective after 90 days have elapsed from the
180 day registration requirement.  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.


**********





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
CIT Credit Facility unless and until the lenders, in their sole and absolute
discretion, shall otherwise agree in writing. 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 period 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 May 27, 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 CIT Credit
Facility as a current liability, we are reporting negative working capital at
March 31, 2009. 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.


25




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 have renegotiated the rental fees charged for our
rental compressors producing a monthly savings of approximately $10,000. We
also have significantly reduced our ad valorem taxes from the levels experienced
in fiscal 2008 totaling $209,000 to approximately $57,000 for fiscal 2009 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 the earlier
of: (i) the occurrence of an event requiring payment of such amounts under their
respective employment agreements or (ii) January 2, 2010.





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





In April
2009, the FASB issued FASB Staff Position (FSP) No. FAS 107-1 and Accounting
Principles Board (APB) 28-1, Interim Disclosures about Fair Value of Financial
Instruments, (FAS 107-1) to amend SFAS No. 107, Disclosures about Fair Value of
Financial Instruments and APB 28, Interim Financial Reporting. FAS 107-1 changes
the reporting requirements on certain fair value disclosures of financial
instruments to include interim reporting periods. FAS 107-1 is effective for
interim reporting periods ending after June 15, 2009, with early adoption
encouraged. The Company is currently assessing the impact, if any, that the
adoption of this pronouncement will have on its disclosures.




In April
2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly, (FAS 157-4) to amend SFAS No.
157, Fair Value Measurements, (SFAS 157). FAS 157-4 provides additional guidance
for estimating fair value in accordance with SFAS 157 when the volume and level
of activity for an asset or liability has significantly decreased. In addition,
FAS 157-4 includes guidance on identifying circumstances that indicate a
transaction is not orderly. FAS 157-4 is effective for interim and annual
reporting periods ending after June 15, 2009. The Company is currently assessing
the impact, if any, that the adoption of this pronouncement will have on its
operating results, financial position or cash flows.




26




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. Adoption of this statement did not
have a material effect on the Company’s financial statements.





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 May
2008, the FASB issued Staff Position No. APB 14-1, “Accounting for Convertible
Debt Instruments That May be Settled in Cash upon Conversion (Including Partial
Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 states that convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) are not addressed by paragraph 12 of Accounting Principles Board
Opinion No. 14 and that issuers of such instruments should account separately
for the liability and equity components of the instruments in a manner that will
reflect the entity’s nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. FSP APB 14-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and must
be applied retrospectively to all periods presented. Adoption of this statement
did not have a material effect on the Company’s financial
statements.




27




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.





Item
4T.                   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
three month period covered by this quarterly 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.





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 March 31, 2009. Based on
that assessment, management concluded that our internal control over financial
reporting was not effective as of March 31, 2009. 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 derivative assets and 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.





These
weaknesses stem primarily from the early stage of our business operations and
related lack of working capital to hire additional staff during the period
covered by this quarterly report. 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.





28




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.





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.





29


PART
II


OTHER
INFORMATION





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





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.





Item
6.                    Exhibits





(a)
            Exhibits








Exhibit
      Nos.
            Description
      of Exhibit31.1 **
            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
      adopted





**
      Filed herewith.





30


SIGNATURES





Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused the Report to be
signed on its behalf b y the undersigned, thereunto duly
authorized.











CROSS
      CANYON ENERGY CORP.By:
      /s/ Robert P. Munn
            June
      3, 2009Robert
      P. MunnChief
      Executive Officer and DirectorBy:
      /s/ Carl A. Chase
            June
      3, 2009Carl
      A. ChaseChief
      Financial Officer and
              Principal
      Financial and Accounting Officer








INDEX
TO EXHIBITS








Exhibit
      Nos.
            Description
      of Exhibit31.1 **
            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
      adopted





**
      Filed herewith.