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 SEPTEMBER 30, 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 of
                incorporation or
      organization)
              
              (IRS.
      Employer
                Identification
      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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (32.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No 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
November 16, 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, 2009
 
 PagePART I –
      FINANCIAL INFORMATIONItem 1.
              Financial StatementsConsolidated Balance Sheets at September 30, 2009 (successor)
      and December 31, 2008 (successor) (unaudited)
              3Consolidated Statements of Operations for the Three and Nine
      Months Ended September 30, 2009 (successor); for the Period September 2 to
      September 30, 2008 (successor); for the Period July 1, 2008 through
      September 1, 2008 (predecessor); and for the Period January 1 through
      September 1, 2008 (predecessor) (all unaudited)
              4Consolidated Statement of Changes in Stockholders’ Equity
      from December 31, 2008 to September 30, 2009 (successor)
      (unaudited)
              5Consolidated Statements of Cash Flows for the Nine Months
      Ended September 30, 2009 (successor); for the Period September 2, 2008
      through September 30, 2008 (successor); and for the period January 1
      through September 1, 2008 (predecessor) (all
unaudited)
              6Notes to Unaudited Consolidated Financial
      Statements
              8Item 2.
              Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
              16Item 4T.
              Controls and Procedures
              27PART II – OTHER INFORMATIONItem 1A.
              Risk Factors
              29Item 6.
              Exhibits
              30Signatures
              31Index
      to Exhibits
              32
 
  2
  PART I
 FINANCIAL
INFORMATION
 Item
1.                      Financial
Statements.
 CROSS CANYON ENERGY CORP.
 CONSOLIDATED
BALANCE SHEETS
 (Unaudited)
 September
      30,
              
              
              December
      31,2009
              
              
              2008ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              458,051
              
              
              $
              1,323,077Accounts
      receivable
              
              
              451,964
              
              
              
              616,754Current
      portion of derivative asset
              
              
              1,010,358
              
              
              
              1,356,279Prepaid
      expenses and other current assets
              
              
              265,375
              
              
              
              11,564Total
      current assets
              
              
              2,185,748
              
              
              
              3,307,674Oil
      and gas properties, using successful efforts method:Proved
      properties
              
              
              41,026,967
              
              
              
              40,280,739Unproved
      properties
              
              
              12,054,156
              
              
              
              11,989,150Less
      accumulated depletion and depreciation
              
              
              (2,515,018
              )
              
              
              (991,003
              )Net
      oil and gas properties
              
              
              50,566,105
              
              
              
              51,278,886Other
      property and equipment, net
              
              
              79,829
              
              
              
              40,950Deferred
      financing costs, net
              
              
              --
              
              
              
              1,728,411Derivative
      asset
              
              
              521,550
              
              
              
              812,784TOTAL ASSETS
              
              $
              53,353,232
              
              
              $
              57,168,705LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              198,035
              
              
              $
              576,619Deferred
      income taxes
              
              
              --
              
              
              
              416,212Accrued
      liabilities
              
              
              1,005,078
              
              
              
              522,000Convertible
      debt and other note payable
              
              
              34,321
              
              
              
              25,000Credit
      facility – revolving loan
              
              
              11,500,000
              
              
              
              11,500,000Credit
      facility - term loan, net of unamortized discounts of $0 and
      $9,572,412
              
              
              22,000,000
              
              
              
              12,427,588Series
      C Preferred stock, $0.001 par value, 1,000 shares authorized and
      outstanding,with
      mandatory redemption
              
              
              100,000
              
              
              
              100,000Derivative
      liabilities
              
              
              499,313
              
              
              
              554,181Income
      taxes payable
              
              
              58,569
              
              
              
              508,991Total
      current liabilities
              
              
              35,395,316
              
              
              
              26,630,591Asset
      retirement obligation
              
              
              931,982
              
              
              
              878,621Deferred
      income taxes
              
              
              5,484,079
              
              
              
              9,855,816Total
      liabilities
              
              
              41,811,377
              
              
              
              37,365,028Commitments
      and contingenciesStockholders’
      equity:Preferred
      stock, $0.001 par value, 1,000,000 shares authorized, 999,000 and
      842,505undesignated
      authorized at September 30, 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, 48,243,486
      and25,264,260
      outstanding at September 30, 2009 and December 31, 2008,
      respectively
              
              
              48,243
              
              
              
              25,264Additional
      paid-in capital
              
              
              16,095,067
              
              
              
              14,782,392Retained
      earnings (deficit)
              
              
              (4,601,455
              )
              
              
              4,995,865Total
      stockholders’ equity
              
              
              11,541,855
              
              
              
              19,803,677TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              53,353,232
              
              
              $
              57,168,705
 
 See notes
to unaudited consolidated financial statements.
  3
  CROSS CANYON ENERGY CORP.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited)
 
 Successor
      Entity
              
              
              Predecessor
      Entity
              
              
              Successor
      Entity
              
              
              Predecessor
                EntityThree
      Months Ended
                September
      30, 2009
              
              
              Period
      September 2 to September 30,2008
              
              
              Period
      July 1 to September 1, 2008
              
              
              Nine
      Months Ended
                September
      30, 2009
              
              
              Period
      September 2 to September 30, 2008
              
              
              Period
      January 1 to September 1, 2008Revenue:Oil
              
              $
              474,376
              
              
              $
              337,354
              
              
              $
              1,215,659
              
              
              $
              1,236,162
              
              
              $
              337,354
              
              
              $
              4,877,381Natural
      gas
              
              
              320,192
              
              
              
              456,832
              
              
              
              1,455,594
              
              
              
              1,186,399
              
              
              
              456,832
              
              
              
              5,478,753Total
      revenue
              
              
              794,568
              
              
              
              794,186
              
              
              
              2,671,253
              
              
              
              2,422,561
              
              
              
              794,186
              
              
              
              10,356,134Operating
      costs and expenses:Lease
      operating expenses
              
              
              231,891
              
              
              
              154,379
              
              
              
              180,626
              
              
              
              813,296
              
              
              
              154,379
              
              
              
              2,076,630Production
      taxes
              
              
              30,449
              
              
              
              55,360
              
              
              
              140,535
              
              
              
              142,768
              
              
              
              55,360
              
              
              
              636,114Exploration
      expenses
              
              
              47,750
              
              
              
              --
              
              
              
              --
              
              
              
              360,582
              
              
              
              --
              
              
              
              --Accretion
      of asset retirement obligation
              
              
              17,194
              
              
              
              --
              
              
              
              10,620
              
              
              
              53,361
              
              
              
              --
              
              
              
              41,086Depletion,
      depreciation and amortization
              
              
              482,272
              
              
              
              206,123
              
              
              
              385,313
              
              
              
              1,543,775
              
              
              
              206,123
              
              
              
              1,712,258General
      and administrative expenses
              
              
              619,782
              
              
              
              266,297
              
              
              
              192,519
              
              
              
              2,543,435
              
              
              
              266,297
              
              
              
              650,671Total
      operating costs and expenses
              
              
              1,429,338
              
              
              
              682,159
              
              
              
              909,613
              
              
              
              5,457,217
              
              
              
              682,159
              
              
              
              5,116,759Income
      (loss) from operations
              
              
              (634,770
              )
              
              
              112,027
              
              
              
              1,761,640
              
              
              
              (3,034,656
              )
              
              
              112,027
              
              
              
              5,239,375Other
      income (expense):Other
      income (expense)
              
              
              (29,108
              )
              
              
              --
              
              
              
              --
              
              
              
              18,333
              
              
              
              --
              
              
              
              --Interest
      expense, net
              
              
              (10,600,467
              )
              
              
              (850,742
              )
              
              
              (64,685
              )
              
              
              (12,816,332
              )
              
              
              (850,742
              )
              
              
              (508,966
              )Risk
      management
              
              
              70,555
              
              
              
              683,387
              
              
              
              902,535
              
              
              
              1,189,205
              
              
              
              683,387
              
              
              
              (383,348
              )Change
      in fair value of derivatives
              
              
              480,149
              
              
              
              5,410,469
              
              
              
              --
              
              
              
              (122,118
              )
              
              
              5,410,469
              
              
              
              --Loss
      on extinguishment of debt
              
              
              --
              
              
              
              (804,545
              )
              
              
              --
              
              
              
              --
              
              
              
              (804,545
              )
              
              
              --Total
      other income (expense)
              
              
              (10.078,871
              )
              
              
              4,438,569
              
              
              
              837,850
              
              
              
              (11,730,912
              )
              
              
              4,438,569
              
              
              
              (892,314
              )Income
      (loss) before income taxes
              
              
              (10,713,641
              )
              
              
              4,550,596
              
              
              
              2,599,490
              
              
              
              (14,765,568
              )
              
              
              4,550,596
              
              
              
              4,347,061Income
      tax provision (benefit)
              
              
              (4,136,189
              )
              
              
              --
              
              
              
              128,973
              
              
              
              (5,168,248
              )
              
              
              --
              
              
              
              740,623Net
      income (loss)
              
              
              (6,577,452
              )
              
              
              4,550,596
              
              
              
              2,470,517
              
              
              
              (9,597,320
              )
              
              
              4,550,596
              
              
              
              3,606,438Deemed
      dividend – beneficial conversion
                feature
      of preferred stock
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              (5,089,641
              )
              
              
              --
              
              
              
              --Net
      income (loss) available to commonshareholders
              
              $
              (6,577,452
              )
              
              $
              4,550,596
              
              
              $
              2,470,517
              
              
              $
              (14,686,961
              )
              
              $
              4,550,596
              
              
              $
              3,606,438Net
      income (loss) per common share:Basic
      and diluted
              
              $
              (0.14
              )
              
              $
              0.09
              
              
              $
              247,051.70
              
              
              $
              (0.36
              )
              
              $
              0.09
              
              
              $
              360,643.80Weighted
      average number of common sharesoutstanding:Basic
      and diluted
              
              
              48,108,440
              
              
              
              48,243,486
              
              
              
              10
              
              
              
              41,190,714
              
              
              
              48,243,486
              
              
              
              10
 
 See notes
to unaudited consolidated financial statements.
 
  4
  CROSS CANYON ENERGY CORP.
 CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (SUCCESSOR)
 (Unaudited)
 Preferred
      Stock
              
              Additional
              Retained
              TotalSeries
      A
              Series
      B
              Series
      D
              Series
      E
              Common
      Stock
              Paid-In
              Earnings
              Stockholders’Shares
              Amount
              Shares
              Amount
              Shares
              Amount
              Shares
              Amount
              Shares
              Amount
              Capital
              (Deficit)
              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 Preferred Shares
                converted
      to common
              (99,395)
              (99)
              --
              --
              --
              --
              --
              --
              1,987,900
              1,988
              (1,889)
              --
              --Series
      B Preferred Shares
                converted
      to common
              --
              --
              (37,100)
              (37)
              --
              --
              --
              --
              1,060,318
              1,060
              (1,023)
              --
              --Series
      D Preferred Shares
                converted
      to common
              --
              --
              --
              --
              (10,000)
              (10)
              --
              --
              17,500,000
              17,500
              (17,490)
              --
              --Series
      E Preferred Shares
                converted
      to common
              --
              --
              --
              --
              --
              --
              (10,000)
              (10)
              1,363,636
              1,364
              (1,354)
              --
              --Discount
      for beneficial
                conversion
      feature on
                preferred
      stock
              --
              --
              --
              --
              --
              --
              --
              --
              --
              --
              5,089,641
              --
              5,089,641Deemed
      dividend on
                preferred
      stock
              --
              --
              --
              --
              --
              --
              --
              --
              --
              --
              (5,089,641)
              --
              (5,089,641)Stock-based
      compensation
              --
              --
              --
              --
              --
              --
              --
              --
              1,067,372
              1,067
              1,157,445
              --
              1,158,512Warrants
      previously recorded
                as
      derivatives
              --
              --
              --
              --
              --
              --
              --
              --
              --
              --
              176,986
              --
              176,986Net
      loss
              --
              --
              --
              --
              --
              --
              --
              --
              --
              --
              --
              (9,597,320)
              (9,597,320)Balances,
      September 30, 2009
              --
              $    --
              --
              $    --
              --
              $    --
              --
              $   --
              48,243,486
              $  48,243
              $
      16,095,067
              $
      (4,601,455)
              $
      11,541,855
 
 See notes
to unaudited consolidated financial statements.
  5
  CROSS CANYON ENERGY CORP.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 Successor
      Entity
              
              
              Predecessor
      EntityNine
      Months Ended September 30, 2009
              
              
              Period
      September 2 to September 30, 2008
              
              
              Period
      January 1 to September 1, 2008Cash
      flows from operating activities:Net
      income (loss)
              
              $
              (9,597,320
              )
              
              $
              4,550,596
              
              
              $
              3,606,438Adjustments
      to reconcile net income (loss) to cash provided by (used in)operating
      activities:Depreciation,
      depletion and amortization
              
              
              1,543,775
              
              
              
              206,123
              
              
              
              1,712,258Accretion
      of asset retirement obligation
              
              
              53,361
              
              
              
              --
              
              
              
              41,086Exploratory
      dry hole
              
              
              181,516
              
              
              
              --
              
              
              
              --Share
      based compensation
              
              
              1,158,512
              
              
              
              112,661
              
              
              
              --Amortization
      of deferred financing costs
              
              
              1,728,411
              
              
              
              45,485
              
              
              
              --Amortization
      of debt discounts
              
              
              9,572,412
              
              
              
              567,382
              
              
              
              --Change
      in fair value of energy swap derivatives
              
              
              637,155
              
              
              
              (634,528
              )
              
              
              208,296Change
      in fair value of derivatives
              
              
              122,118
              
              
              
              (5,410,469
              )
              
              
              --Loss
      on extinguishment of debt
              
              
              --
              
              
              
              804,545
              
              
              
              --Deferred
      taxes
              
              
              (5,167,949
              )
              
              
              --
              
              
              
              (415,359
              )Changes
      in assets and liabilities:Accounts
      receivable
              
              
              164,790
              
              
              
              (1,112,247
              )
              
              
              346,407Prepaid
      and other current assets
              
              
              (253,811
              )
              
              
              808
              
              
              
              (9,511
              )Other
      long-term assets
              
              
              --
              
              
              
              --
              
              
              
              13,107Accounts
      payable
              
              
              (378,584
              )
              
              
              (415,976
              )
              
              
              (251,633
              )Accrued
      liabilities and income taxes payable
              
              
              412,656
              
              
              
              561,801
              
              
              
              739,014Net
      cash provided by (used in) operating activities
              
              
              177,042
              
              
              
              (723,819
              )
              
              
              5,990,103Cash
      flows from investing activities:Oil
      and natural gas property additions
              
              
              (992,750
              )
              
              
              --
              
              
              
              (318,053
              )Cash
      assumed in acquisition
              
              
              --
              
              
              
              1,864,446
              
              
              
              --Restricted
      cash
              
              
              --
              
              
              
              (50,000
              )
              
              
              --Purchase
      of other property and equipment
              
              
              (58,639
              )
              
              
              (2,071
              )
              
              
              --Net
      cash provided by (used in) investing activities
              
              
              (1,051,389
              )
              
              
              1,812,375
              
              
              
              (318,053
              )Cash
      flows from financing activities:Repayment
      of convertible debenture
              
              
              --
              
              
              
              (450,000
              )
              
              
              --Proceeds
      from credit facility
              
              
              --
              
              
              
              2,027,855
              
              
              
              4,731,574Repayment
      of credit facility
              
              
              --
              
              
              
              (1,000,000
              )
              
              
              (8,608,668
              )Proceeds
      from issuance of debt
              
              
              27,315
              
              
              
              --
              
              
              
              --Repayment
      of debt
              
              
              (17,994
              )
              
              
              --
              
              
              
              --Debt
      issuance costs
              
              
              --
              
              
              
              (898,332
              )
              
              
              --Net
      cash provided by (used in) financing activities
              
              
              9,321
              
              
              
              (320,477
              )
              
              
              (3,877,094
              )Net
      increase (decrease) in cash
              
              
              (865,026
              )
              
              
              768,079
              
              
              
              1,794,956Cash
      at beginning of period
              
              
              1,323,077
              
              
              
              6,726
              
              
              
              --Cash
      at end of period
              
              $
              458,051
              
              
              $
              774,805
              
              
              $
              1,794,956Supplemental
      information:Cash
      paid for interest
              
              $
              1,015,440
              
              
              $
              --
              
              
              $
              507,268Cash
      paid for income taxes
              
              $
              --
              
              
              $
              74,408
              
              
              $
              --
 
 See notes
to unaudited consolidated financial statements.
  6
  CROSS
CANYON ENERGY CORP.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 (Continued)
 
 
 Successor
      Entity
              
              
              Predecessor
      EntityNine
      Months Ended
                September
      30, 2009
              
              
              Period
      September 2 to
                September
      30, 2008
              
              
              Period
      January 1 to
                September
      1, 2008Non-cash
      investing and financing activities:Preferred
      shares issued for acquisition of oil and gas properties
              
              $
              --
              
              
              $
              9,100,000
              
              
              $
              --Debt
      used to acquire oil and gas properties
              
              
              --
              
              
              
              31,472,145
              
              
              
              --Current
      assets acquired with acquisition
              
              
              --
              
              
              
              43,032
              
              
              
              --Current
      liabilities assumed with acquisition
              
              
              --
              
              
              
              484,923
              
              
              
              --Preferred
      shares issued in payment of convertible debenture
              
              
              --
              
              
              
              450,000
              
              
              
              --Note
      issued for debt issuance costs
              
              
              --
              
              
              
              557,500
              
              
              
              --Removal
      of derivative liability due to repayment of debt
              
              
              --
              
              
              
              1,099,287
              
              
              
              --Debt
      discount due to imputed interest
              
              
              --
              
              
              
              16,977
              
              
              
              --Debt
      discount due to warrants issued with debt
              
              
              --
              
              
              
              9,952,336
              
              
              
              --Debt
      discount due to assignment of overriding royalty interest
              
              
              --
              
              
              
              206,000
              
              
              
              --Asset
      retirement obligation assumed
              
              
              --
              
              
              
              765,658
              
              
              
              --Debt
      issuance costs accrued
              
              
              --
              
              
              
              193,009
              
              
              
              --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
              
              
              
              --
              
              
              
              --Earnest
      money deposit on sale of assets
              
              
              --
              
              
              
              --
              
              
              
              803,873
 
 
 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.
 
 Certain re-classification of prior
period amounts has been made to conform to the current
presentation.  The reclassification had no impact on shareholders’
equity and net income (loss).
 
 Impact
of recently issued accounting standards
 
 In August
2009, the FASB issued Update No. 2009-05, “Fair Value Measurements and
Disclosures” (ASU 2009-05).  ASU 2009-05 amends Subtopic 820-10, Fair
Value Measurements and Disclosures, to provide guidance on the fair value
measurement of liabilities.  ASU 2009-05 provides clarification for
circumstances in which a quoted price in an active market for the identical
liability is not available.  ASU 2009-05 is effective for interim and
annual periods beginning after August 26, 2009.  There was no impact
on the Company’s consolidated operating results, financial position or cash
flows.
  In June
2009, the FASB issued Update No. 2009-01, Generally Accepted Accounting
Principles (ASU 2009-01).  ASU 2009-01 establishes “The FASB
Accounting Standards Codification,” or Codification, which became the source of
authoritative GAAP recognized by the FASB to be applied by non-governmental
entities.  On the effective date, the Codification superseded all
then-existing non-SEC accounting and reporting standards.  All other
non-grandfathered, non-SEC accounting literature not included in the
Codification will become non-authoritative.  ASU 2009-01 is effective
for interim and annual periods ending after September 15, 2009.  The
Company adopted the provisions of ASU 2009-01 for the period ended September 30,
2009.  There was no impact on the Company’s consolidated operating
results, financial position or cash flows.
  In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (ASC 855) to establish
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued.  ASC 855 is effective for interim and annual
reporting periods ending after June 15, 2009. The Company adopted the provisions
of ASC 855 for the period ended June 30, 2009.  There was no impact on
the Company’s consolidated operating results, financial position or cash
flows.
  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” (ASC 825-10-65) to change the reporting requirements on certain
fair value disclosures of financial instruments to include interim reporting
periods.  The Company adopted ASC 825-10-65 in the second fiscal
quarter of 2009.  There was no impact on the Company’s operating
results, financial position or cash flows; however additional disclosures were
added to the accompanying notes to the condensed consolidated financial
statements for the Company’s fair value of financial instruments.  See
Note 4 “Derivative Financial Instruments and Fair Value” for more
details.
  8
 In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments”, (ASC 320-10) to amend SFAS No
115, “Accounting for Certain Investments in Debt and Equity Securities” and SFAS
No. 124, “Accounting for Certain Investments Held by Not-for-Profit
Organizations”.  ASC 320-10 expands other-than-temporary impairment
guidance for debt securities to enhance the application of the guidance and
improve the presentation and disclosure of other-than temporary impairments on
debt and equity securities within the financial statements.  The
adoption of ASC 320-10 in the second quarter of fiscal 2009 did not have a
significant impact on the Company’s consolidated operating results, financial
position or cash flows.
  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”, (ASC 820-10) to amend SFAS
No. 157, “Fair Value Measurements”, (ASC 820).  ASC 820-10 provides
additional guidance for estimating fair value in accordance with ASC 820 when
the volume and level of activity for an asset or liability has significantly
decreased.  In addition, ASC 820-10 includes guidance on identifying
circumstances that indicate a transaction is not orderly.  The
adoption of ASC 820-10 in the second fiscal quarter of 2009 did not have a
significant impact on the Company’s consolidated operating results, financial
position or cash flows.
  In
December 2008, the SEC issued Release No. 33-8995, “Modernization of Oil and Gas
Reporting,” which amends the oil and gas disclosures for oil and gas producers
contained in Regulations S-K and S-X, as well as adding a section to Regulation
S-K (Subpart 1200) to codify the revised disclosure requirements in Securities
Act Industry Guide 2, which is being phased out.  The goal of Release
No. 33-8995 is to provide investors with a more meaningful and comprehensive
understanding of oil and gas reserves.  Energy companies affected by
Release No. 33-8995 will be required to price proved oil and gas reserves using
the unweighted arithmetic average of the price on the first day of each month
within the 12-month period prior to the end of the reporting period, unless
prices are defined by contractual arrangements, excluding escalations based on
future conditions.  SEC Release No. 33-8995 is effective December 31,
2009 for periodic filers.  The Company is currently evaluating the
impact of Release No. 33-8995 on its financial position, results of operations
or cash flows.
  In June
2008, the FASB ratified FASB ASC 815-15-5. FASB ASC
815-15-74,  “Determining Whether an Instrument (or Embedded Feature)
Is Indexed to an Entity’s Own Stock” (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.  FASB ASC 815-15-5 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 scope
exception.  FASB ASC 815-15-5 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 FASB ASC 815-15-5
and the adoption of this statement resulted in a derivative liability of
$499,313 at September 30, 2009.  There was not transition accounting
for this derivative as these warrants were accounted for as derivatives under
FASB ASC 815-15 prior to the adoption of FASB ASC 815-15-5.  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 FASB ASC 815-15, but are now
considered derivatives under FASB ASC 815-15-5.  See Note 4
“Derivative Financial Instruments and Fair Value” for additional
discussion.
 
 9
 NOTE
2.                      GOING
CONCERN UNCERTAINTY
 
 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.  As set forth in
greater detail in Note 3 below, on September 4, 2009, the Company failed to make
a required interest payment to its senior lender.  Such failure
constituted an Event of Default under the Company’s senior credit facility, and
permits its senior lender to declare all outstanding amounts under such senior
credit facility to be immediately due and payable.  The Company has
not identified the means by which it can repay such indebtedness and efforts by
the Company to sell its assets and/or merge with another entity have proven
unsuccessful.  In addition, the Company's stock price has
significantly declined over the past year with its last reported sale price on
November 11, 2009 being $0.01 per share which, coupled with the decline in the
sale price of natural gas has made it extremely difficult to obtain equity
financing on acceptable terms to address its liquidity issues.  As a
result, there is substantial doubt that the Company will be able to continue as
a going concern.  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 September 30, 2009 and December 31, 2008:
 
 September
      30,
                2009
              
              
              December
      31,
                20082006
      convertible notes
              
              $
              25,000
              
              
              $
              25,000Nine
      month note at 7.5% to finance the Company’s insurance premiumsfor
      general liability, umbrella, control of well and pollution
              
              
              9,321
              
              
              
              --First
      lien revolving credit facility with CIT Capital USA Inc.
              
              
              11,500,000
              
              
              
              11,500,000Second
      lien term credit facility with CIT Capital USA Inc,
              
              
              22,000,000
              
              
              
              22,000,000Unamortized
      discount on second lien term credit facility
              
              
              --
              
              
              
              (9,572,412
              )$
              33,534,321
              
              
              $
              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 Company’s ratio of
earnings before interest, taxes, depreciation and amortization and exploration
expenses (“EBITDAX”) to interest expense and its ratio of total debt to EBITDAX
under the Revolving Loan and (ii) its 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 quarterly 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.
 
 As part
of a semi-annual redetermination of the Company’s borrowing base under 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.  The Company failed to repay
or otherwise resolve the borrowing base deficiency and, commencing July 19,
2009, outstanding loans under the Revolving Loan began accruing interest at a
default rate equal to the then applicable rate plus 3% per annum.  In
addition to the default rate of interest, effective July 19, 2009, the Company’s
Eurodollar loans were converted to prime rate loans, which in effect increased
the Company’s interest rate on its Revolving Loan from 3.15% to 7.75% per
annum.
 
 On
September 4, 2009, interest payments on the Revolving Loan and Term Loan were
due in the amount of $125,650 and $320,711, respectively.  Rather than
making such interest payments, the Company, in consultation with its senior
lender, determined it to be in the best interests of all of its stakeholders to
utilize its available cash to obtain extensions with respect to impending
drilling obligations on two key oil and gas leases on its Duval County
Properties.  The Company extended these leases in order to preserve a
significant portion of the Company’s oil and natural gas assets and to provide
for future growth potential.  Payment for these lease extensions was
made during the third quarter and amounted to $203,194.  Under the CIT
Credit Facility, the Company’s continued failure to pay such interest
constitutes an Event of Default permitting the senior lender to declare all
loans outstanding under the CIT Credit Facility, together with any accrued and
unpaid interest thereon, immediately due and payable.
   
 10
 In
addition to the deficiency and resulting default under the Company’s Revolving
Loan, the capital expenditures required to maintain and/or grow production and
reserves are substantial.    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 September 30,
2009.  The Company is presently in discussions with its senior lender
regarding the possibility of the Company seeking a reorganization under the
federal bankruptcy laws.
 
 NOTE
4.                            DERIVATIVE
FINANCIAL INSTRUMENTS AND FAIR VALUE
 
 Derivative
Assets
 
  During
the nine month period ended September 30, 2009, the Company recorded realized
gains on its hedging contracts with Macquarie Bank Limited of $456,969 and
$1,369,391 for crude oil and natural gas, respectively.
  
 As of September 30, 2009, the Company
had the following hedge contracts outstanding:
 
 Crude
Oil
 
 Total
      BarrelsInstrument
              Beginning
                Date
              Ending
                Date
              Fixed
              October
      1 thru December 31,
                2009
              2010
              2011Swap
              Oct-08
              Dec-11
              $
      110.35
              2,333
              7,575
              5,712Indexed
      to NYMEX WTI
 
 Natural
Gas
 
 Total
      MMBtu’sInstrument
              Beginning
                Date
              Ending
                Date
              Fixed
              October
      1 thru December 31,
                2009
              2010
              2011Swap
              Oct-08
              Dec-11
              $
      7.82
              96,289
              328,203
              262,080Indexed
      to Inside FERC Houston Ship Channel
 
 See Note 7 for a discussion of the
Company’s closing of its energy swap contracts and its subsequent purchase of
puts for its energy hedges.
 
 
 Derivative
Liabilities
 
 In
periods prior to March 24, 2009, the outstanding convertible instruments, most
notably common stock warrants, preferred stock 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 FASB ASC 815-15.  On March 24, 2009, the Company
authorized a sufficient number of additional common shares.  As a
result, the derivative liability under FASB ASC 815-15 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 an $81,668 charge for the change in the fair value of
the derivative.  The Company recorded a total charge of $122,118 for
the aggregate change in the fair value of the derivative for the nine months
ended September 30, 2009.
 
 The
Company further evaluated the application of FASB ASC 815-15-5 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 certain 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 FASB ASC 815-15, the Company
concluded these instruments should continue to be accounted for as derivatives
as of September 30, 2009, due to the “down round” protection feature on the
exercise prices.  Because these instruments were previously accounted
for as derivatives in accordance with FASB ASC 815-15, there was not transition
accounting or reporting required.  These instruments simply continued
as derivatives and were marked-to-market through September 30,
2009.  At September 30, 2009, the aggregate derivative liability was
$499,313.
 
 11
 The
Company records the fair value of these derivatives on its consolidated 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 FASB ASC 815-20 and are disclosed on the consolidated 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
 
 Effective
January 1, 2008, the Company adopted FASB ASC 820, which defines fair value,
establishes a framework for measuring fair value and expands the related
disclosure requirements.  Pursuant to FASB ASC 820, the Company’s
determination of fair value incorporates not only the credit standing of the
counterparties involved in transactions with the Company resulting in
receivables on the Company’s consolidated balance sheets, but also the impact of
the Company’s non-performance risk on its liabilities.
 
 FASB ASC
820 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price).  The Company
utilizes market data or assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk and the risks
inherent in the inputs to the valuation technique.  These inputs can
be readily observable, market corroborated, or generally
unobservable.  The Company classifies fair value balances based on the
observability of those inputs.  FASB ASC 820 establishes a fair value
hierarchy that prioritizes the inputs used to measure fair value.  The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurement) and the lowest
priority to unobservable inputs (level 3 measurement).
 
 The three
levels of the fair value hierarchy defined by FASB ASC 820 are as
follows:
 
 ·
              Level
      1 – Quoted prices are available in active markets for identical assets or
      liabilities as of the reporting date.  Active markets are those
      in which transactions for the asset or liability occur in sufficient
      frequency and volume to provide pricing information on an ongoing
      basis.  Level 1 primarily consists of financial instruments such
      as exchange-traded derivatives, marketable securities and listed
      equities.
 
 ·
              Level
      2 – Pricing inputs are other than quoted prices in active markets included
      in Level 1, which are either directly or indirectly observable as of the
      reported date.  Level 2 includes those financial instruments
      that are valued using models or other valuation
      methodologies.  These models are primarily industry-standard
      models that consider various assumptions, including quoted forward prices
      for commodities, time value, volatility factors, and current market and
      contractual prices for the underlying instruments, as well as other
      relevant economic measures.  Substantially all of these
      assumptions are observable in the marketplace throughout the full term of
      the instrument, can be derived from observable data or are supported by
      observable levels at which transactions are executed in the
      marketplace.  Instruments in this category generally include
      non-exchange-traded derivatives such as commodity swaps, interest rate
      swaps, options and collars.
 
 ·
              Level
      3 – Pricing inputs include significant inputs that are generally less
      observable from objective sources.  These inputs may be used
      with internally developed methodologies that result in management’s best
      estimate of fair value.
 
 12
 The
following table sets forth by level within the fair value hierarchy the
Company’s financial assets and liabilities that were accounted for at fair value
as of September 30, 2009.  As required by FASB ASC 820, a financial
instrument’s level within the fair value hierarchy is based on the lowest level
of input that is significant to the fair value measurement. T he Company’s
assessment of the significance of a particular input to the fair value
measurement requires judgment, and may affect the valuation of fair value assets
and liabilities and their placement within the fair value hierarchy
levels.
 
 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 September 30, 2009Carrying
              Fair
      Value Measurements UsingValue
              Level
      1
              Level
      2
              Level
      3
              TotalAssets
              $  1,531,908
              $         --
              $  1,531,908
              $           --
              $  1,531,908Total
      derivative assets
              $  1,531,908
              $         --
              $  1,531,908
              $           --
              $  1,531,908Liabilities
              $   499,313
              $         --
              $   499,313
              $           --
              $   499,313Total
      derivative liabilities
              $   499,313
              $         --
              $   499,313
              $           --
              $   499,313
 
 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 2) during the nine month
period ended September 30, 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
              
              
              122,118
              
              
              
              122,118Purchases,
      issuances and settlements
              
              
              (176,986
              )
              
              
              (176,986
              )Balance,
      September 30, 2009
              
              $
              499,313
              
              
              $
              499,313
 
 NOTE
5.                            PREFERRED
STOCK AND COMMON STOCK
 
 Preferred
Stock
 
 Upon the
effectiveness of the Charter Amendment (as defined below) on March 24, 2009, to
increase the Company’s authorized common shares, all of the outstanding Series A
Preferred, Series B Preferred, Series D Preferred and Series 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 ASC 470-20 (previously 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 Preferred, Series B
Preferred 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 consolidated statements of operations during
the nine months ended September 30, 2009.
 
 13
 Common
Stock
 
 On March 4, 2008, the Company’s Board
of Directors approved an amendment to the Company’s Articles of Incorporation
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 “Charter Amendment”).  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 as of May 22, 2008, with respect to the Company’s
executive officers, Robert P. Munn, Chief Executive Officer, and Carl A. Chase,
Chief Financial Officer and as of October 1, 2008, with respect to Jim B. Davis,
Senior Vice President of Operations, the Company 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 date
of each respective restricted stock agreement, May 22, 2008 for Messrs. Munn and
Chase and October 1, 2008 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 $198,384, $148,788 and $279,813 for
Messrs. Munn, Chase and Davis, respectively, for the nine month period ended
September 30, 2009.  In addition, the Company represents on its
consolidated balance sheets the issuance of 1,339,727 shares of restricted stock
to Mr. Munn, 1,004,795 shares of restricted stock to Mr. Chase and 623,973
shares of restricted stock to Mr. Davis through September 30, 2009.
 
 Total unamortized share-based
compensation expense associated with restricted stock awards as of September 30,
2009 was $234,068.
 
 NOTE
6.                      COMMON
STOCK OPTIONS AND WARRANTS
 
 A summary
of stock option transactions for the nine months ended September 30, 2009 is as
follows:
 
 Options
              
              
              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
              
              
              3,233,334
              
              
              $
              0.49
 
 At
September 30, 2009, the range of exercise prices and weighted average remaining
contractual life of outstanding options was $0.30 to $0.65 per share and 5.12
years, respectively.
 
  14
  A summary
of warrant transactions for the nine months ended September 30, 2009 is as
follows:
 
 Warrants
              
              
              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 September 30, 2009, the range of
exercise prices and weighted average remaining contractual life of outstanding
warrants was $0.05 to $0.60 per share and 3.47 years,
respectively.  The intrinsic value of “in the money” warrants at
September 30, 2009 was negligible.
 
 Total unamortized share-based
compensation expense associated with outstanding stock options as of September
30, 2009 was $203,081.
 
 NOTE
7.                            SUBSEQUENT
EVENTS
 
 Derivative
Assets
 
 As a result of the Company’s current
financial position and concerns over its credit risk, Macquarie required the
Company to close out its energy swaps.  On October 19, 2009, effective
November 1, 2009, the Company closed out its energy swap hedges and used the
proceeds from the settlement to purchase “put” contracts.  The Company
received $1,041,000 for settlement of its natural gas energy swap and purchased
a put with a strike price of $7.10 per MMBTU for the period November 2009
through December 2011 representing a total of 653,400 MMBtu’s during the
period.  In addition, the Company received $423,152 for settlement of
its crude oil energy swap and purchased a put with a strike price of $104.91 per
barrel for the period November 2009 through December 2011 representing a total
of 14,810 barrels during the period.
 
 Financial
Advisor
 
 During October 2009, the Company
retained the services of an independent financial advisor to perform a valuation
of the Company’s assets and to assist the Company in the event it determines to
seek a reorganization under the federal bankruptcy laws.
 
 The
Company has evaluated subsequent events through November 16, 2009, which is the
date the consolidated financial statements were issued.
  
  15
  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 under “Risk Factors” in our Transition
Report on Form 10-K on file with the Securities and Exchange Commission and 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.
  Introductory
Note
 
 On
September 2, 2008, we completed the Voyager Acquisition, whereby Voyager Gas
Corporation (“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.
 
 Although we have identified a number of
opportunities to increase production and develop our reserve base, we are
presently unable to make the necessary capital expenditures due to our high
level of indebtedness and defaults under our CIT Credit
Facility.  Coupled with our depressed stock price, the decline in
natural gas prices and generally unfavorable credit markets, the likelihood of
us raising additional capital is remote, and there is substantial doubt that we
will be able to continue as a going concern.
 
 Liquidity
and Capital Resources
 
 At September 30, 2009, we are reporting
a working capital deficit of $33.2 million compared to a working capital deficit
of $23.3 million at December 31, 2008, or an increase in working capital deficit
of $9.9 million.  Since December 31, 2008, we have experienced a
decrease in cash of $865,026, which decrease is primarily attributable to
capital expenditures incurred on our Duval County Properties of $992,750, the
purchase of fixed assets for our executive offices of $58,639, an increase in
prepaid expenses for legal fees and insurance of $218,208 and $35,603,
respectively, and a decrease in accounts payable of $378,584.  These
decreases in working capital were partially offset by decreases in accounts
receivable of $164,790 and increases in accrued liabilities of $412,656, which
is primarily attributable to non-payment of interest on our CIT Credit Facility,
which payment was due on September 4, 2009.
  
 16
  Our main sources of liquidity and
capital resources for fiscal year 2009 are cash on hand, internally generated
cash flows from operations following the Voyager Acquisition and realized gains
on our energy swap hedges based upon current commodity price
forecasts.  We currently have no availability for any additional
borrowings from our CIT Credit Facility.  As of September 30, 2009, we
had cash on hand in unrestricted accounts of $458,051 and negative working
capital, primarily as a result of reporting our outstanding debt on our CIT
Credit Facility as a current liability.
  Cash
Flows
  The
following table summarizes in comparative format the cash flows for the
successor entity for the nine month period ended September 30, 2009, and the
combined entity for the nine month period ended September 30, 2008:
  
  Nine
      Months Ended September 30,2009
              
              
              2008Successor
      Entity
              
              
              Combined
      EntityNet
      cash provided by operating activities
              
              $
              177,042
              
              
              $
              5,266,284Net
      cash provided by (used in) investing activities
              
              
              (1,051,389
              )
              
              
              1,494,322Net
      cash provided by (used in) financing activities
              
              
              9,321
              
              
              
              (4,197,571
              )Net
      increase (decrease) in cash
              
              $
              (865,026
              )
              
              $
              2,563,035
 
  Net cash provided by operating
activities.For the nine month period ended September 30, 2009, we
reported net cash provided by operating activities of $177,042 compared to net
cash provided by operating activities of the combined entity of $5,266,284 for
the nine month period ended September 30, 2008.  For the 2009 period,
we reported a net loss of $9,597,320.  This net loss was more than
offset by non-cash charges to expense of $9,829,311.  During the 2009
period we experienced a decrease in accounts receivable of $164,790 due to a
decrease in revenue and increase in accrued liabilities of $412,656 primarily as
a result of non-payment of interest on our CIT Credit facility.  These
increases in cash were offset by increases in prepaid items and decreases in
accounts payable of $253,811 and $378,584, respectively.  For the 2008
period the combined entity reported net income of $8,157,034, non-cash charges
to expense of $3,074,181 and non-cash charges to income of
$5,836,701.  The combined entity experienced an increase in accounts
receivable of $765,840, a decrease in accounts payable of $667,609 and increases
in accrued liabilities and income taxes payable of $1,300,815.  Other
changes in the combined entity’s working capital were increases in prepaid items
of $8,703 and decreases in long-term assets of $13,107.
  Net cash provided by (used in)
investing activities. During the nine month period ended September 30,
2009, we incurred capital expenditures related to our Duval County drilling
obligation lease extension program of $203,191, well workover program, drilling
costs and salt water disposal well conversion costs totaling $789,559 and office
furniture, computer equipment and leasehold improvements to accommodate our new
office space of $58,639 for a total cash used in investing activities of
$1,051,389.  During the 2008 period the combined entity incurred
capital expenditures on the Duval County Properties of $318,053, restricted cash
supporting a letter of credit with the Texas Railroad Commission of $50,000 and
the purchase of office equipment of $2,071, all of these items were offset by
cash acquired in the Voyager Acquisition of $1,864,446.  Total cash
provided by investing activities for the 2008 period of the combined entity was
$1,494,322.
  17
 Net cash provided by (used in)
financing activities. During the nine month period ended September 30,
2009, we received cash proceeds in the form of a note of $27,315 used for
payment of our insurance premiums for general liability, umbrella, control of
well and pollution and repaid $19,994 of this loan.  Net cash used by
the combined entity for the 2008 period was borrowings and repayments by Voyager
pursuant to its BOT Credit Facility of $4,731,574 and $8,608,668, respectively,
borrowings and repayments pursuant to our CIT Credit Facility of $2,027,855 and
$1,000,000, respectively, payment of debt issuance costs by us of $898,332 and
repayment of the convertible debenture of $450,000, for a total net cash used in
financing activities of $4,197,571.
  On
September 4, 2009, interest payments on the Revolving Loan and Term Loan were
due in the amount of $125,650 and $320,711, respectively.  Rather than
making such interest payments, the Company, in consultation with its senior
lender, determined it to be in the best interests of all of its stakeholders to
utilize its available cash to obtain extensions with respect to impending
drilling obligations on two key oil and gas leases on its Duval County
Properties.  The Company extended these leases in order to preserve a
significant portion of the Company’s oil and natural gas assets and to provide
for future growth potential.  Payment for these lease extensions was
made during the third quarter and amounted to $203,194.  Under the CIT
Credit Facility, the Company’s continued failure to pay such interest
constitutes an Event of Default permitting the senior lender to declare all
loans outstanding under the CIT Credit Facility, together with any accrued and
unpaid interest thereon, immediately due and payable.
 
 Our cash
flow from operations is driven by commodity prices and production volumes and
the effect of our energy 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 completed two specific opportunities at
the Duval County Properties were we have reduced our salt water disposal costs
by approximately $28,000 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
$13,000.  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.  We are constantly reviewing our field operations to
identify areas that would generate additional cost savings and will continue to
monitor those costs throughout fiscal 2009.
 
 Our CEO,
CFO and Senior Vice President of Operations have agreed to defer guaranteed
bonuses and salary increases which were to be effective May 22, 2009 for our CEO
and CFO and October 1, 2009 for our Senior Vice President of Operations, 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.  In addition, we have negotiated reduced consulting fees from
some of our critical consultants and postponed hiring of any additional
technical and administrative personnel.
 
 In
addition to the cost cutting measures described above, the extension of two of
our primary leases on our Duval County Properties has allowed us to defer any
drilling obligation until August and September 2010.
 
  18
  Results
of Operations
 
 Basis
of Presentation
 
 For management discussion and analysis
purposes, the operational data for the nine months ended September 30, 2008,
represents the mathematical addition of the results of Voyager, as predecessor,
for the period January 1, 2008 through September 1, 2008 and for us, as
successor, for the period September 2, 2008 through September 30, 2008, and for
the three months ended September 30, 2008 represents the mathematical addition
of the results of Voyager for the period July 1, 2008 through September 1, 2008,
and for us for the period September 2, 2008 through September 30, 2008, referred
to as the “Combined Entity”.  Although this approach is not consistent
with generally accepted accounting principles, we believe it is the most
meaningful way to review the operational data for the three and nine months
ended September 30, 2009 compared to the three and nine months ended September
30, 2008.  A discussion of the partial periods January 1, 2008 through
September 1, 2008, and September 2, 2008   through September 30,
2008, separately would not be meaningful.
 
 The
following table represents sales of oil and natural gas and realized prices for
the three and nine month periods ended September 30, 2009 and 2008:
 
 Three
      Months Ended September 30,
              
              
              Nine
      Months Ended September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Successor
      Entity
              
              
              Combined
      Entity
              
              
              Successor
      Entity
              
              
              Combined
      EntityNet
      sales:Oil
      (Bbls)
              
              
              7,221
              
              
              
              11,937
              
              
              
              22,961
              
              
              
              47,690Natural
      gas (Mcf’s)
              
              
              84,403
              
              
              
              159,954
              
              
              
              289,692
              
              
              
              566,540Average
      sales prices:Oil
      ($ per Bbl)
              
              $
              65.69
              
              
              $
              130.10
              
              
              $
              53.84
              
              
              $
              109.35Natural
      gas ($ per Mcf)
              
              $
              3.79
              
              
              $
              11.96
              
              
              $
              4.10
              
              
              $
              10.48
 
 Nine
      Months Ended September 30, 2009 Compared to Nine Months Ended September
      30, 2008
 
 Revenue
 
 Revenue from the sale of oil and
natural gas for the nine months ended September 30, 2009 was $2,422,561 compared
to revenue for the nine months ended September 30, 2008 of $11,150,320, a
decrease of $8,727,759, or 78%.  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 $5,214,735 for the 2008 period to $1,236,162 for the 2009 period,
a decrease of $3,978,573, or 76%.  Our production of crude oil
decreased from 47,690 barrels for the 2008 period to 22,961 barrels for the 2009
period, a decrease of 24,729 barrels, or 52%.  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.  However, production from this well
was at a much lower rate than when it ceased production.  This well
accounted for 20,359 barrels of the decreased production when compared to the
2008 period.  In addition, we experienced a decline in production
rates from eight additional wells acquired in the Voyager Acquisition
representing a decrease in production of 6,328 barrels.  During the
fourth quarter of 2008 and first quarter of 2009, we successfully recompleted
two oil wells which were not producing and added 1,958 barrels to production for
the 2009 period.
 
 For the nine months ended September
30, 2009, we realized an average price for the sale of our crude oil of $53.84
per barrel compared to $109.35 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 average prices realized during the first nine months of this
fiscal year.  Our realized price for crude oil sales for the month of
October 2009 was $73.92 per barrel.  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 $456,969 for the nine month period ended September 30, 2009.
 
 19
 Revenue from the sale of natural gas
decreased from $5,935,585 for the 2008 period to $1,186,399 for the 2009 period,
a decrease of $4,749,186, or 80%.  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 566,540 Mcf’s
for the 2008 period to 289,692 Mcf’s for the 2009 period, a decrease of 276,848
Mcf’s, or 49%.  As discussed above, the Marchbanks-Cadena Well No. 115
experienced mechanical problems which resulted in a decrease in natural gas
sales of 81,393 Mcf’s when comparing 2009 to 2008.  Additionally, all
of the remaining wells acquired in the Voyager Acquisition have experienced
declines in production rates resulting in a decrease of approximately 195,455
Mcf’s when comparing the 2009 period to production rates for the 2008
period.
 
 For the nine months ended September
30, 2009, we realized an average price for the sale of natural gas of $4.10 per
Mcf compared to $10.48 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 in the near term natural gas prices rising to the levels
experienced in 2008.  We are continuing to experience downward
pressure on our realized natural gas prices with our BTU adjusted price received
for September 2009 sales of natural gas of $2.56 per Mcf.  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 $1,369,391 for the nine month period ended
September 30, 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 nine months ended
September 30, 2009, were $813,296 compared to $2,231,009 for the nine months
ended September 30, 2008, a decrease of $1,417,713, or 64%.  A
significant portion of the lease operating expenses incurred during the 2008
period were well workover expenses of $1,185,340.  Our predecessor
performed remedial workover operations on four wells during the 2008 period, all
of which were unsuccessful in increasing production.  In addition, our
predecessor incurred plugging and abandonment costs of $148,006 resulting from
its obligation to plug certain wells on its Garza Lease property in West Texas,
which it sold in 2007.
 
 For the nine month period ended
September 30, 2009, our lease operating expenses approximated $90,000 per month
to operate the Duval County Properties.  The primary components of
lease operating expenses were salt water disposal costs (39%), natural gas
compression (20%) and normal operating costs such as contract gauging,
maintenance and repair, ad valorem taxes and insurance (41%).  During
the second fiscal quarter, we successfully converted an idle wellbore which was
incapable of production, into a salt water disposal well at a capitalized cost
of approximately $118,640.  During July 2009, we began injecting salt
water into the recently converted wellbore and eliminated the cost of trucking
produced salt water to a commercial facility for disposal.  Salt water
disposal costs for the nine month period ended September 30, 2009, were
approximately $325,000, or an average of $36,000 per month.  We are
currently experiencing salt water disposal costs of approximately $8,000 per
month.  As a further effort to reduce our cost structure, we have
renegotiated the rental fees charged for four rental compressors to compress
natural gas for delivery at the sales points and gas lifting of oil
production.  Compression fees for the nine months ended September 30,
2009, were approximately $168,000.  Effective April 2009, our
compression fees were reduced by approximately $13,000 per month.
 
 We have 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 anticipate our lease operating expenses on a monthly basis
for the balance of fiscal 2009 to approximate $55,000.  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 significant 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 nine months ended September 30, 2009
were $142,768 compared to $691,474 for the nine months ended September 30,
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/or 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 and/or sold.  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.
 
 20
 Exploration
expenses.  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
$360,582 for the nine months ended September 30, 2009, and the combined entity
had no exploration expenses in the prior year.  During the 2009
period, we incurred expenses of $132,095 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 lines
acquired during the current reporting period.  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.  On April 1, 2009, we elected to
plug and abandon the well.  The costs incurred on this exploratory
test well were $181,516 and have been charged to exploratory dry hole
expense.
 
 We anticipate we will continue to
incur expenses for our consulting geoscientist in the future as we continue to
analyze our 3-D seismic database for additional drilling opportunities on our
acquired acreage.
 
 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 nine
months ended September 30, 2009 and 2008, we recorded accretion expense of
$53,361 and $41,086, 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.  Our Duval County Properties have been
designated as one field by the Texas Railroad Commission.  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
nine month period ended September 30, 2009, was $1,524,015, or $3.57 per
equivalent Mcf (“Mcfe”), compared to depletion expense of $1,910,705, or $2.24
per Mcfe for the nine month period ended September 30, 2008.  The
increase in the depletion rate per Mcfe for the 2009 period was attributable to
the increased recorded book value of our proved properties and decrease in the
quantity of proved reserves when compared to the combined 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 nine month period ended September 30, 2009 was $19,760 compared to $7,676
for the 2008 period.
  21
  General and administrative
expenses.  The following table summarizes general and
administrative expenses for each of the periods ended September 30, 2009 and
2008:
 
 Nine
      Months Ended September 30,2009
              
              
              2008Successor
      Entity
              
              
              Combined
      EntityPayroll
      and related expenses
              
              $
              1,913,930
              
              
              $
              467,812Office
      administration
              
              
              149,952
              
              
              
              57,983Professional
      fees
              
              
              373,625
              
              
              
              239,932Other
      expenses
              
              
              105,928
              
              
              
              151,241Total
      general and administrative expenses
              
              $
              2,543,435
              
              
              $
              916,968
 
 General
and administrative expenses for the nine months ended September 30, 2009, were
$2,543,435 compared to $916,968 for the nine months ended September 30, 2008, an
increase of $1,626,467, or 177%.  Payroll and related expenses
increased by $1,446,118 to $1,916,930 for the nine month period ended September
30, 2009, compared to $467,812 for the nine month period ended September 30,
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
$1,158,512 for the 2009 period.  Our predecessor was not a publicly
traded company and incurred no equity compensation expense during the period
January 1, 2008 through September 1, 2008.  Pursuant to their
employment agreements and 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.
 
 Our CEO,
CFO and Senior Vice President of Operations have agreed to defer payment of
guaranteed bonuses and increases in their base salaries, which were due to our
CEO and CFO effective May 22, 2009, and our Senior Vice President of Operations
effective October 1, 2009.  These deferred payments will be made the
earlier of the occurrence of an event requiring payment of such earned amounts
under their respective employment agreements or January 2, 2010.  The
accrued and unpaid bonuses for our CEO and CFO as of September 30, 2009, are
$45,000 and $36,000, respectively, and the accrued and unpaid base salary
increases as of September 30, 2009 total $23,448.  We currently have
only three employees, our CEO, CFO and Senior Vice President of
Operations.
 
 The expenses of administering our
executive offices during the 2009 period totaled $149,952.  This was
an increase of $91,969 when compared to the 2008 period of $57,983, with the
increase mainly attributable to our executive office space of $31,497 and
associated office administration expenses.  Additionally, during
August 2009, we made payment of $40,000 pursuant to our CIT Credit Facility to
the Administrative Agent, which payment was recorded as bank fees and included
in the office administration category.  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
$373,625 for the nine months ended September 30, 2009, compared to $239,932 for
the nine months ended September 30, 2008.  Our accounting and audit
fees for the 2009 period were $151,867 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 period January 1 to
September 1, 2008, our Form 10-Q for the quarterly periods ended March 31, 2009
and June 30, 2009, and our Form S-1 filings with the SEC.  We incurred
legal fees of $115,532 primarily attributable to our SEC filings and general
corporate matters.  As we do not employ a reservoir engineer, we
incurred engineering fees of $64,392 attributable to reserve analysis from our
previous engineering consultant and independent third party engineering firm for
preparation of our independent reserve reports as of December 31, 2008 and June
30, 2009.  Our predecessor incurred directors’ fees and financial
advisory fees due to Natural Gas Partners in accordance with a financial
advisory agreement totaling $78,750 for the period January 1, 2008 through
September 1, 2008.  Upon closing of the Voyager Acquisition, the
financial advisory agreement between Voyager and Natural Gas Partners was
terminated.
 
 Other expenses decreased from $151,241
for the 2008 period to $105,928 for the 2009 period.  Included in
other expenses are the cost of travel and entertainment, directors’ and
officers’ liability insurance, investor relations and franchise and property
taxes.
 
 22
 Income
(loss) from operations
 
 For the nine months ended September 30,
2009, we reported a loss from operations of $3,034,656 compared to income from
operations of $5,351,402 for the nine months ended September 30,
2008.
 
 Other
income (expense)
 
 Other income (expense) is comprised of
other income, interest expense, risk management and change in fair value of
derivatives and for the nine months ended September 30, 2009 was an expense of
$2,371,109.  Other income (expense) for the period ended September 30,
2008, was income of $3,546,255.
 
 Other income.  As
part of the Voyager Acquisition, we received certain outstanding checks
previously issued to vendors and/or royalty owners of our
predecessor.  Upon further investigation by us, it was determined
these outstanding checks should have been voided, which we did and recognized
other income of $18,333.
 
 Interest expense,
net.  The following table lists in comparative format the
details of interest expense for the nine month periods ended September 30, 2009
and 2008:
 
 Nine
      Months Ended September 30,2009
              
              
              2008Successor
      Entity
              
              
              Combined
      EntityAmortization
      of deferred financing costs and debt discounts onconvertible
      debentures
              
              $
              --
              
              
              $
              480,103Interest
      on BOT Credit Facility
              
              
              --
              
              
              
              508,966Interest
      on CIT Credit Facility
              
              
              1,515,653
              
              
              
              190,376Amortization
      of CIT Credit Facility deferred financing costs
              
              
              1,728,411
              
              
              
              45,485Amortization
      of CIT Credit Facility debt discounts
              
              
              9,572,412
              
              
              
              135,694Other
              
              
              (144
              )
              
              
              (916
              )$
              12,816,332
              
              
              $
              1,359,708
 
 We
incurred interest expense for the nine months ended September 30, 2009, of
$12,816,332 compared to $1,359,708 for the nine months ended September 30,
2008.  The significant components of interest expense for the 2009
period are interest incurred on our CIT Credit Facility of $1,515,653,
amortization of deferred financing costs of $1,728,411 and amortization of debt
discounts of $9,572,412, both amounts associated with our CIT Credit
Facility.  We have classified the amounts due on our CIT Credit
Facility as current liabilities on our consolidated balance sheets and as a
result of our inability to sell our assets or merge our company and make our
interest payments which were due on September 4, 2009, we have charged to
expense the unamortized balances of our deferred financing costs and debt
discounts during the three month period ended September 30, 2009.  The
primary components of interest expense for the 2008 period are interest incurred
on our CIT Credit Facility and Voyager’s Bank of Texas credit facility (“BOT
Credit Facility”) of $190,376 and $508,966, respectively.  Other
significant components of interest expense are the write-off due to the
repayment of the convertible debentures comprised of deferred financing costs
and debt discounts totaling $480,103 and the amortization of deferred financing
costs and debt discounts pursuant to our CIT Credit Facility of $45,485 and
$135,694, respectively.
 
 Risk
management.  The gain recorded from our risk management
position for the nine months ended September 30, 2009, was $1,189,205 compared
to a gain for the 2008 period of $300,039.  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.  For the nine months ended September 30, 2009, we recorded
an unrealized loss of $637,155 related to our energy 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 crude oil and
natural gas of $456,969 and $1,369,391, respectively.
 
 23
 Our
predecessor entered into swap agreements pursuant to its BOT Credit Facility for
its oil and natural gas production.  During the period January 1, 2008
through September 1, 2008, our predecessor recorded an unrealized loss and a
realized loss on its energy swaps of $208,296 and 175,052,
respectively.  During the period September 2, 2008 through September
30, 2008, we recorded an unrealized gain on our energy swaps of $634,528 and a
realized gain on natural gas hedges of $48,859.
 
 As a
result of the Company’s financial condition and concerns over the Company’s
credit risk, Macquarie required us to close out our energy swap
hedges.  On October 19, 2009, effective November 1, 2009, we closed
out our energy swap hedges and used the proceeds from the settlement to purchase
“put” contracts.  We received $1,041,000 for settlement of our natural
gas energy swap and purchased a put with a strike price of $7.10 per MMBTU for
the period November 2009 through December 2011 representing a total of 653,400
MMBtu’s during the period.  In addition, we received $423,152 for
settlement of our crude oil energy swap and purchased a put with a strike price
of $104.91 per barrel for the period November 2009 through December 2011
representing a total of 14,810 barrels during the period.
 
 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.
 
 Change in fair value of derivative
liabilities.  We have evaluated the application of FASB ASC
815-15 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 FASB ASC 815-15, we
concluded these instruments were required to continue to be accounted for as
derivatives as of September 30, 2009, due to the “down round” protection feature
on the exercise prices.  We recorded the fair value of these
derivatives on our consolidated 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.”  Based upon the
foregoing, we recorded a loss in the change in fair value of derivatives of
$122,118 during the nine month period ended September 30, 2009, and a derivative
liability associated with the warrants of $499,313 at September 30,
2009.
 
 Income
tax provision (benefit)
 
 During the nine month period ended
September 30, 2009, we recorded an income tax benefit of $5,168,248 attributable
to our losses incurred during the period compared to an income tax expense of
$740,623 for the nine month period ended September 30, 2008.
 
 Deemed
dividend
 
 Our Series A Preferred, Series B
Preferred and Series D Preferred were evaluated under FASB ASC 470-20 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
Preferred, Series B Preferred and Series D Preferred was $5,089,641, which
beneficial conversion feature has been recognized as a deemed dividend in our
consolidated statements of operations.
 
 Net
income (loss)
 
 Our net loss for the nine month period
ended September 30, 2009 was $14,686,961, or net loss per share of $0.36 (basic
and diluted) compared to net income of $8,157,034 for the nine months ended
September 30, 2008.
 
 24
 Three
      Months Ended September 30, 2009 Compared to Three Months Ended September
      30, 2008
 
 Revenue
 
 Revenue for the three month period
ended September 30, 2009, was $794,568 compared to revenue for the three month
period ended September 30, 2008 of $3,465,439, a decrease of $2,670,871, or
77%.  Revenue from the sale of crude oil was $474,376 for the 2009
period compared to $1,553,013.  Sales of crude oil decreased from
11,937 barrels for the 2008 period to 7,221 barrels for the 2009 period, a
decrease of 4,716 barrels, or 40%.  Of this decrease, 4,095 barrels
were attributable to our Marchbanks-Cadena Well No. 115.  The balance
of the decrease was due to normal decline in production rates from our existing
wells, which was partially offset by the successful recompletion of two wells
which were idle wellbores when we acquired the properties.  For the
2009 period we received an average price of $65.69 per barrel compared to
$130.10 per barrel for the 2008 period.  As previously discussed, we
have experienced a precipitous decline in prices received from the sale of crude
oil and do not believe crude oil prices will return to their historic highs
achieved in 2008 anytime in the near future.  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 $107,738 for the three month period ended September 30, 2009.
 
 Revenue from the sale of natural gas
for the 2009 period was $320,192 compared to $1,912,426 for the 2008
period.  Sales volumes of natural gas for the 2009 period were 84,403
Mcf’s compared to 159,954 Mcf’s for the 2008 period, a decrease of 75,551
Mcf’s.  Our Marchbanks-Cadena Well No. 115, Hilda Parr Well No. 102,
Hilda Parr Well No. 136 and Miller Well No. 124 produced at lower rates during
the 2009 period with reductions of 21,556 Mcf’s, 19,115 Mcf’s, 10,094 Mcf’s and
5,052 Mcf’s, respectively, when compared to the 2008 period.  The
additional decrease of 19,734 Mcf’s were attributable to normal field
decline.  During the month of September 2009 we experienced mechanical
problems with the compressor on our Hilda Parr lease resulting from all wells
being served by the compressor being shut-in several days during the
month.  For the three month period ended September 30, 2009, we
received an average price of $3.79 per Mcf for the sale of natural gas compared
to $11.96 per Mcf during the three months ended September 30,
2008.  The oil and gas industry has experienced significant declines
in the price received for natural gas and we do not see natural gas prices
achieving their 2008 levels in the near future.  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 $463,032 for the three month period ended
September 30, 2009.
 
 Operating
costs and expenses
 
 Lease operating
expenses.  Lease operating expenses for the three month period
ended September 30, 2009, were $231,891 compared to $335,005 for the three month
period ended September 30, 2008, a decrease of $103,114.  The primary
component of the decrease in lease operating expenses was a reduction in salt
water disposal costs and compression of $99,397 and $42,303,
respectively.  These reductions were partially offset by an increase
in remedial well workover expenses of $43,494.
 
 Production
taxes.  Production taxes for the three month period ended
September 30, 2009 were $30,449 compared to $195,895 for the three month period
ended September 30, 2008.  The decrease in production taxes was
totally attributable to the decrease in oil and natural gas
revenue.
 
 Exploration
expenses.  Exploration expenses for the three month period
ended September 30, 2009, were $47,750 and are comprised of exploratory dry hole
costs of $14,001 attributable to our Hilda Parr Well No. 137, which well was
plugged and abandoned, and consulting geoscientist of $33,749, who is working
with our 3-D seismic database acquired with the Voyager Acquisition to map
potential drilling locations on our acquired acreage.
 
 Accretion of asset retirement
obligation.  Accretion of our asset retirement obligation for
the three month period ended September 30, 2009, was $17,194 compared to $10,620
during the three month period ended September 30, 2008.
 
 Depletion, depreciation and
amortization.  Depletion expense for the three month period
ended September 30, 2009, was $474,525, or $3.72 per equivalent Mcf (“Mcfe”),
compared to depletion expense of $588,768, or $2.54 per Mcfe for the three month
period ended September 30, 2008.  The increase in the depletion rate
per Mcfe for the 2009 period was attributable to the increased recorded book
value of our proved properties and decrease in the quantity of proved reserves
when compared to our predecessor.  We depreciate our fixed assets on a
straight-line basis over the useful lives of the assets ranging from one to
seven years.
 
 25
 General and administrative
expenses.  General and administrative expenses for the three
month period ended September 30, 2009 were $619,782 compared to $458,816 for the
three month period ended September 30, 2008, an increase of
$160,967.  During the three month period ended September 30, 2009, we
recorded $225,664 of non-cash compensation expense associated with restricted
stock awards and stock options granted to our executive officers and recorded
$112,661 during the 2008 period.  In addition, we incurred increased
payroll related expenses of $59,883 when compared to the 2008
period.  During the 2009 period, we incurred $40,000 in administrative
fees due to the Administrative Agent pursuant to our CIT Credit
Facility.
 
 Income
(loss) from operations.
 
 For the
three months ended September 30, 2009, we reported a loss from operations of
$634,770 compared to income from operations of $1,873,667 for the three months
ended September 30, 2008.
 
 Other
income (expense)
 
 Other income (expense) for the three
months ended September 30, 2009 was an expense of $719,068 and for the period
ended September 30, 2008, was income of $5,276,419.
 
 Interest expense,
net.  The following table lists in comparative format the
details of interest expense for the three month periods ended September 30, 2009
and 2008:
 
 Three
      Months Ended September 30,2009
              
              
              2008Successor
      Entity
              
              
              Combined
      EntityAmortization
      of deferred financing costs and debt discounts onconvertible
      debentures
              
              $
              --
              
              
              $
              480,103Interest
      on BOT Credit Facility
              
              
              --
              
              
              
              64,685Interest
      on CIT Credit Facility
              
              
              553,280
              
              
              
              190,376Amortization
      of CIT Credit Facility deferred financing costs
              
              
              1,455,504
              
              
              
              45,485Amortization
      of CIT Credit Facility debt discounts
              
              
              8,590,943
              
              
              
              135,694Other
              
              
              740
              
              
              
              (916
              )$
              10,600,467
              
              
              $
              915,427
 
 We
incurred interest expense for the three months ended September 30, 2009, of
$1,240,664 compared to $915,427 for the three months ended September 30,
2008.  The significant components of interest expense for the 2009
period are interest incurred on our CIT Credit Facility of $553,280,
amortization of deferred financing costs of $1,455,504 and amortization of debt
discounts of $8,590,943, both amounts associated with our CIT Credit
Facility.  We have classified the amounts due on our CIT Credit
Facility as current liabilities on our consolidated balance sheets and as a
result of our inability to sell our assets or merge our company and make our
interest payments which were due on September 4, 2009, we have charged to
expense the unamortized balances of our deferred financing costs and debt
discounts during the three month period ended September 30, 2009.  The
primary components of interest expense for the 2008 period are interest incurred
on our CIT Credit Facility and Voyager’s BOT Credit Facility of $190,376 and
$64,685, respectively.  Other significant components of interest
expense are the write-off due to the repayment of the convertible debentures
comprised of deferred financing costs and debt discounts totaling $480,103 and
the amortization of deferred financing costs and debt discounts pursuant to our
CIT Credit Facility of $45,485 and $135,694, respectively..
 
 Risk
management.  The gain recorded from our risk management
position for the three months ended September 30, 2009, was $70,555 compared to
a gain for the 2008 period of $1,585,922.  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.  For the three months ended September 30, 2009, we
recorded an unrealized loss of $500,215 related to our energy swap contracts and
we recorded realized gains on our energy swaps for crude oil and natural gas of
$107,738 and $463,032, respectively.
 
 26
 Our
predecessor entered into swap agreements pursuant to its BOT Credit Facility for
its oil and natural gas production.  During the three months ended
September 30, 2008, it recorded an unrealized gain of $902,535 and we recorded
an unrealized gain of $634,528 and a realized gain on our energy swap for
natural gas of $48,859.
 
 Change in fair value of derivative
liabilities.  We have evaluated the application of FASB ASC
815-15 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 FASB ASC 815-15, we
concluded these instruments were required to continue to be accounted for as
derivatives as of September 30, 2009, due to the “down round” protection feature
on the exercise prices.  We recorded the fair value of these
derivatives on our consolidated 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.”  Based upon the
foregoing, we recorded a gain on the change in fair value of derivatives of
$480,149 during the three month period ended September 30, 2009, and a gain of
$5,410,469 during the three month period ended September 30, 2008.
 
 Income
tax provision (benefit)
 
 During the three month period ended
September 30, 2009, we recorded an income tax benefit of $4,136,189 attributable
to our losses incurred during the period compared to an income tax expense of
$128,973 for our predecessor for the three month period ended September 30,
2008.
 
 Net
income (loss)
 
 Our net loss for the three month period
ended September 30, 2009 was $6,577,452, or net loss per share of $0.14 (basic
and diluted) compared to net income of $7,021,113 for the three months ended
September 30, 2008.
 
 Item
4T.                      Controls
and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 Disclosure
controls and procedures are controls and other procedures of a registrant
designed to ensure that information required to be disclosed by the registrant
in the reports that it files or submits under the Exchange Act is properly
recorded, processed, summarized, and reported, within the time periods specified
in the Securities and Exchange Commission’s (“SEC”) rules and
forms.  Disclosure controls and procedures include processes to
accumulate and evaluate relevant information and communicate such information to
a registrant’s management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding
required disclosures.
  As described in our Transition Report
on Form 10-K for the transition period July 1, 2008 through December 31, 2008,
under “Evaluation of Disclosure Controls and Procedures”, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2008, as required by Rule 13a-15 of the Exchange
Act, and management concluded that our disclosure controls and procedures were
not effective for the reasons specified therein.  We again evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures as of September 30, 2009, as required by Rule 13a-15 of the Exchange
Act, and again management concluded that our disclosure controls and procedures
were not effective for the same reasons.  As of September 30, 2009,
material weaknesses were identified in our internal control over financial
reporting, relating primarily to the shortage of support staff and resources in
our accounting department.  Based on the evaluation described above,
our Chief Executive Officer and Chief Financial Officer have concluded that, as
of September 30, 2009, our disclosure controls and procedures were not effective
to ensure (i) that information required to be disclosed by us in the reports we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and (ii)
information required to be disclosed by us in our reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.  We are currently in the process of implementing the
remediation initiatives discussed under “Remediation Initiatives” described in
our Transition Report on Form 10-K for the transition period July 1, 2008
through December 31, 2008.
  27
 Changes
in Internal Controls over Financial Reporting
  As
described in our Transition Report on Form 10-K for the transition period July
1, 2008 through December 31, 2008, under “Management’s Report on Internal
Control Over Financial Reporting,” we identified material weaknesses as of such
date.  Other than as described above, no material change in our
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Securities Exchange Act of 1934) occurred during the period covered by this
report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.  We are
currently in the process of implementing the remediation initiatives discussed
under “Remediation Initiatives” described in our Transition Report on Form 10-K
for the transition period July 1 through December 31, 2008.
   28
  PART II
 OTHER
INFORMATION
 
 Item
1A.                      Risk
Factors
 
 Our
Transition Report on Form 10-K for the transition period July 1, 2008 through
December 31, 2008 (the “Transition Report”) includes a detailed discussion of
risk factors, which could materially affect our business, financial condition or
future results.  The information presented below should be read in
conjunction with the risk factors and information disclosed in the Transition
Report.  The risks described in the Transition Report and the
information presented below are not the only risks facing
us.  Additional risks and uncertainties not currently known to us or
that we currently deem to be immaterial also may materially adversely affect our
business, financial condition and operating results.
 
 Our
failure to pay interest and our non-compliance with certain covenants in our
senior credit facility constitutes Events of Default, permitting our senior
lender to declare all amounts outstanding immediately due and payable and,
ultimately, to foreclose on our assets.
 
 We are
currently not in compliance with various financial and other covenants under our
CIT Credit Facility, including our failure to maintain certain financial ratios,
our receipt of a “going concern” opinion with respect to our operations, our
non-payment of interest due September 4, 2009, and the existence of a borrowing
base deficiency since May 5, 2009.  Except for waivers granted with
respect to certain financial ratios (conditioned upon our agreeing not to
request any further borrowings under the CIT Credit Facility unless and until
the lenders, in their sole and absolute discretion, shall otherwise agree in
writing), we have been unable to obtain a waiver or otherwise timely cure our
non-compliance, which constitutes Events of Default under the CIT Credit
Facility and permits our senior lender to declare all outstanding loans to the
Company, together with any accrued and unpaid interest thereon, immediately due
and payable.
 
 Currently,
we do not have adequate cash on hand or available working capital to repay our
outstanding indebtedness under the CIT Credit Facility should our senior lender
elect to declare such amounts immediately due and payable.  If we are
unable to repay such amounts, our senior lender may proceed against the
collateral securing that indebtedness.  The CIT Credit Facility is
collateralized by substantially all of our assets.
 
 We
have substantial indebtedness.  Our inability to meet our outstanding
debt obligations or implement alternative financing strategies harms our
business and financial condition, and may result in us seeking protection under
the bankruptcy laws.
 
 We have a
substantial amount of debt.  As of September 30, 2009, we had short
term debt of approximately $33.5 million, relating principally to the CIT Credit
Facility of which we are in default.  The default under our senior
credit facility is continuing.  As of September 30, 2009, our CIT
Credit Facility, trade payables and other current liabilities exceeded our
current assets by $33.2 million.  As such, our short-term and
long-term liquidity as of September 30, 2009 was not adequate to fund our
operations, including significant capital expenditures and cash interest
payments under the CIT Credit Facility.
 
 In
addition, our continuing failure to cure the borrowing base deficiency under the
CIT Credit Facility has resulted in application of a Post Default Rate of
interest (equal to the applicable rate plus 3% per annum) being imposed upon the
Revolving Loan portion under the CIT Credit Facility, accruing from July 19,
2009, until such time as such Event of Default has been cured or
waived.  Based on our current performance and anticipated future
financial results, we will not be able to repay amounts outstanding under the
CIT Credit Facility.
 
 29
 This
substantial level of outstanding indebtedness has important adverse consequences
on the Company, including: (i) making it difficult for us to satisfy our
obligations under our other contractual and commercial commitments; (ii)
reducing the funds available to us for other purposes; (iii) limiting our
ability to obtain additional debt financing in the future for working capital,
capital expenditures, acquisitions or general corporate purposes; and (iv)
rendering us more vulnerable to adverse changes in our business or to economic
conditions in general.
 
 Because
our current operations cannot support our existing capital structure, we have
been compelled to explore alternative strategies.  Toward that end, in
July 2009 we engaged a financial advisor to advise us on courses of action
available to us, including, without limitation, financing and capital
restructuring alternatives, targeted cost reductions, the sale of assets and the
sale or merger of the Company.  These efforts have been
unsuccessful.  In October 2009, we retained a second independent
financial advisor to conduct a valuation analysis of the Company and assist the
Company in making a decision as to whether it should seek protection under the
federal bankruptcy laws.  We have also engaged in discussions with our
senior lenders regarding the possibility of the Company filing for protection
under the federal bankruptcy laws.
 
 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
              November
      16, 2009Robert
      P. MunnChief
      Executive Officer and DirectorBy:
      /s/ Carl A. Chase
              November
      16, 2009Carl A.
      ChaseChief
      Financial Officer and
                Principal Financial and
      Accounting Officer
 
  31
  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.