##### Table of Contents



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, 2008.
 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. 1-32533
 CRUSADER ENERGY GROUP INC.
 (Exact name of registrant as specified in its charter)
 Nevada
    
    88-0349241(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 4747 Gaillardia Parkway
Oklahoma City, Oklahoma 73142  (Address of principal executive offices, including zip code)
 (405) 285-7555  (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer
o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company
þ
 o þ




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##### 



CRUSADER ENERGY GROUP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4T. Controls and Procedures
    
    
    37PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    38Item 1A. Risk Factors
    
    
    38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3. Defaults Upon Senior Securities
    
    
    38Item 4. Submission of Matters to a Vote of Security Holders
    
    
    38Item 5. Other Information
    
    
    38Item 6. Exhibits
    
    
    39SIGNATURES
    
    
    40INDEX TO EXHIBITS
    
    
    41EX-31.1EX-31.2EX-32.1EX-32.2
  AVAILABLE INFORMATION
 http://www.crusaderenergy http://www.sec.gov
 FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
    2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 Crusader Energy Group Inc.
  (Unaudited)September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    27,637,842
    
    
    $
    7,941,663Accounts receivable:Accrued oil and gas production revenue
    
    
    18,095,835
    
    
    
    7,581,187Joint interest billings
    
    
    23,545,280
    
    
    
    14,045,470Other
    
    
    456,132
    
    
    
    770,584Prepaid expenses and other assets
    
    
    4,816,657
    
    
    
    126,450Total current assets
    
    
    74,551,746
    
    
    
    30,465,354OIL AND GAS PROPERTIES  AT COST, net, based on
full cost accounting ($181,309,360 and $12,558,796
excluded from amortization at 2008 and 2007,
respectively)
    
    
    652,790,008
    
    
    
    243,560,456Derivative financial instruments
    
    
    2,337,651
    
    
    
    Other assets
    
    
    20,298,926
    
    
    
    5,199,199$
    749,978,331
    
    
    $
    279,225,009LIABILITIES AND MEMBERS/STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    14,692,198
    
    
    $
    11,856,699Accrued liabilities
    
    
    22,987,939
    
    
    
    5,934,262Derivative financial instruments
    
    
    13,989
    
    
    
    1,775,617Total current liabilities
    
    
    37,694,126
    
    
    
    19,566,578LONG-TERM LIABILITIESAsset retirement obligations
    
    
    1,151,419
    
    
    
    718,316Derivative financial instruments
    
    
    
    
    
    
    403,883Other
    
    
    
    
    
    
    215,778Deferred income taxes
    
    
    49,223,602
    
    
    
    Notes payable
    
    
    237,770,833
    
    
    
    67,000,000Total long-term liabilities
    
    
    288,145,854
    
    
    
    68,337,977COMMITMENTS AND CONTINGENCIES (Note 9)MEMBERS EQUITY
    
    
    
    
    
    
    191,320,454STOCKHOLDERS EQUITYCommon stock, $.01 par value, 500,000,000
authorized; 198,564,958 shares issued and
outstanding at September 30, 2008
    
    
    1,985,650
    
    
    
    Additional paid-in capital
    
    
    523,198,521
    
    
    
    Accumulated deficit
    
    
    (101,045,820
    )
    
    
    Total Stockholders Equity
    
    
    424,138,351
    
    
    
    $
    749,978,331
    
    
    $
    279,225,009
  3




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##### Table of Contents



Crusader Energy Group Inc.
  (Unaudited)Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007OPERATING REVENUESGas sales
    
    $
    19,461,726
    
    
    $
    5,236,783
    
    
    $
    40,291,425
    
    
    $
    14,789,573Oil sales
    
    
    13,682,006
    
    
    
    5,508,222
    
    
    
    35,337,557
    
    
    
    12,127,594Other
    
    
    368,873
    
    
    
    271,747
    
    
    
    1,097,661
    
    
    
    614,319Total operating revenue
    
    
    33,512,605
    
    
    
    11,016,752
    
    
    
    76,726,643
    
    
    
    27,531,486OPERATING COSTS AND EXPENSESLease operating
    
    
    3,176,995
    
    
    
    1,102,303
    
    
    
    6,227,443
    
    
    
    2,347,783Production taxes
    
    
    2,531,769
    
    
    
    763,536
    
    
    
    5,303,388
    
    
    
    1,766,532General and administrative
    
    
    3,227,305
    
    
    
    952,426
    
    
    
    113,599,183
    
    
    
    2,715,870Depreciation, depletion and amortization
    
    
    10,885,522
    
    
    
    4,523,575
    
    
    
    22,392,645
    
    
    
    11,809,640Accretion of asset retirement obligations
    
    
    20,637
    
    
    
    21,471
    
    
    
    48,181
    
    
    
    32,823Total operating costs and expenses
    
    
    19,842,228
    
    
    
    7,363,311
    
    
    
    147,570,840
    
    
    
    18,672,648Income (loss) from operations
    
    
    13,670,377
    
    
    
    3,653,441
    
    
    
    (70,844,197
    )
    
    
    8,858,838OTHER (EXPENSE) INCOMEInterest expense
    
    
    (8,283,932
    )
    
    
    (862,468
    )
    
    
    (11,384,422
    )
    
    
    (1,797,650
    )Interest income and other
    
    
    480,469
    
    
    
    24,862
    
    
    
    603,926
    
    
    
    68,182Risk management
    
    
    19,008,980
    
    
    
    832,160
    
    
    
    (1,197,988
    )
    
    
    115,030Total other (expenses) income
    
    
    11,205,517
    
    
    
    (5,446
    )
    
    
    (11,978,484
    )
    
    
    (1,614,438
    )Income (loss) before income taxes
    
    
    24,875,894
    
    
    
    3,647,995
    
    
    
    (82,822,681
    )
    
    
    7,244,400Income tax expense
    
    
    8,456,038
    
    
    
    
    
    
    
    20,282,862
    
    
    
    NET INCOME (LOSS)
    
    $
    16,419,856
    
    
    $
    3,647,995
    
    
    $
    (103,105,543
    )
    
    $
    7,244,400EARNINGS (LOSS) PER SHAREBasic and Diluted
    
    $
    0.08
    
    
    
    
    
    
    $
    (0.77
    )WEIGHTED AVERAGE SHARES OUTSTANDINGBasic
    
    
    198,194,958
    
    
    
    
    
    
    
    134,469,036Diluted
    
    
    209,973,306
    
    
    
    
    
    
    
    134,469,036PRO FORMA INFORMATION (NOTE 2)Historical income (loss) from operations
before income taxes
    
    
    
    
    
    $
    3,647,995
    
    
    
    
    
    
    $
    7,244,400Pro forma provision (benefit) for income taxes
    
    
    
    
    
    
    1,419,070
    
    
    
    
    
    
    
    2,818,072Pro forma net income (loss)
    
    
    
    
    
    $
    2,228,925
    
    
    
    
    
    
    $
    4,426,328PRO FORMA EARNINGS PER SHAREBasic and Diluted
    
    
    
    
    
    $
    0.02
    
    
    
    
    
    
    $
    0.04WEIGHTED AVERAGE SHARES OUTSTANDINGBasic and Diluted
    
    
    
    
    
    
    100,100,000
    
    
    
    
    
    
    
    100,100,000
  4




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##### Table of Contents



Crusader Energy Group Inc.
 
 Common Stock
    
    
    Additional
    
    
    
    
    
    
    TotalMembers
    
    
    Number of
    
    
    $.01 Par
    
    
    Paid In
    
    
    Accumulated
    
    
    StockholdersEquity
    
    
    Shares
    
    
    Value
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance as of January 1, 2008
    
    $
    191,320,454
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    191,320,454Net loss through June 25, 2008
    
    
    (2,059,723
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,059,723
    )Effect of business combination with Westside Energy Corp.
    
    
    (189,260,731
    )
    
    
    198,194,958
    
    
    
    1,981,950
    
    
    
    412,204,785
    
    
    
    
    
    
    
    224,926,004Stock compensation
    
    
    
    
    
    
    370,000
    
    
    
    3,700
    
    
    
    110,993,736
    
    
    
    
    
    
    
    110,997,436Net loss, June 26, 2008 through September 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,045,820
    )
    
    
    (101,045,820
    )Balance as of September 30, 2008
    
    $
    
    
    
    
    198,564,958
    
    
    $
    1,985,650
    
    
    $
    523,198,521
    
    
    $
    (101,045,820
    )
    
    $
    424,138,351
  5




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##### Table of Contents



Crusader Energy Group Inc.
  (Unaudited)Nine Months EndedSeptember 30,2008
    
    
    2007Cash flows from operating activitiesNet income (loss)
    
    $
    (103,105,543
    )
    
    $
    7,244,400Adjustments to reconcile net income (loss) to net cash
provided by operating activities, net of effect of
business combinations:Depreciation, depletion and amortization
    
    
    22,392,645
    
    
    
    11,809,640Accretion of asset retirement obligations
    
    
    48,181
    
    
    
    32,823Amortization of loan costs
    
    
    1,337,556
    
    
    
    11,796Amortization of loan discount
    
    
    520,833
    
    
    
    Deferred income taxes
    
    
    20,282,862
    
    
    
    Stock compensation
    
    
    106,860,370
    
    
    
    Change in assets and liabilities
(Increase) decrease in
Accounts receivable
    
    
    (5,643,913
    )
    
    
    (5,914,097
    )Derivative financial instruments
    
    
    (3,153,638
    )
    
    
    2,535,426Prepaid assets and other
    
    
    (5,055,685
    )
    
    
    (254,919
    )Increase (decrease) in
Accounts payable, accrued liabilities and other
    
    
    (16,724,092
    )
    
    
    (124,344
    )Net cash provided by operating activities
    
    
    17,759,576
    
    
    
    15,340,725Cash flows used in investing activitiesAcquisitions of businesses, net of cash acquired
    
    
    1,660,233
    
    
    
    Proceeds from sale of oil and gas property
    
    
    250,000
    
    
    
    Oil and gas property costs
    
    
    (137,629,827
    )
    
    
    (53,039,505
    )Net cash used in investing activities
    
    
    (135,719,594
    )
    
    
    (53,039,505
    )Cash flows from financing activitiesPayment of loan costs
    
    
    (5,634,250
    )
    
    
    (291,957
    )Payments on debt borrowings
    
    
    (157,209,553
    )
    
    
    Proceeds from debt borrowings
    
    
    300,500,000
    
    
    
    38,750,000Net cash provided by financing activities
    
    
    137,656,197
    
    
    
    38,458,043NET INCREASE IN CASH AND
CASH EQUIVALENTS
    
    
    19,696,179
    
    
    
    759,263Cash and cash equivalents at beginning of period
    
    
    7,941,663
    
    
    
    5,122,383Cash and cash equivalents at end of period
    
    $
    27,637,842
    
    
    $
    5,881,646Cash paid during period for interest
    
    $
    4,440,859
    
    
    $
    1,233,000
  6




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##### Table of Contents



Crusader Energy Group Inc.
 
 Noncash investing and financing activities
    Estimated fair value of assets acquired:Current assets
    
    $
    38,426,589Oil and gas properties
    
    
    297,651,522Other long-term assets
    
    
    3,434,576Total fair value of assets
    
    
    339,512,687Liabilities:Current liabilities
    
    
    46,186,108Note payable
    
    
    34,650,225Deferred income taxes, net
    
    
    28,728,695Other long-term liabilities
    
    
    318,428Net value of assets acquired
    
    $
    229,629,231
  7




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 1: Nature of Operations and Acquisition of Businesses
   
    
    additional opportunities to exploit its horizontal drilling expertise;
    
    attractive acreage in areas such as the Barnett Shale in the Fort Worth Basin, Bakken
Shale in the Williston Basin and various shale plays in the Permian Basin;
    
    expected synergies (elimination of Westside general and administrative expenses and
Knight II management fee);
    
    appealing route to becoming a publicly traded company; and
    
    enhanced access to public markets to execute its business strategy.
 8




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 1: Nature of Operations and Acquisition of Businesses  Continued
  Preliminary calculation and allocation of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Otherpurchase price:
    
    Westside
    
    Knight II
    
    Hawk
    
    RCH
    
    Entities
    
    TotalShares of common stock issued
    
    
    26,471,274
    
    
    
    53,223,684
    
    
    
    14,700,000
    
    
    
    3,700,000
    
    
    
    
    
    
    
    98,094,958Westside closing stock price
    
    $
    2.27
    
    
    $
    2.27
    
    
    $
    2.27
    
    
    $
    2.27
    
    
    $
    2.27
    
    
    $
    2.27Fair value of common stock issued
    
    $
    60,089,792
    
    
    $
    120,817,763
    
    
    $
    33,369,000
    
    
    $
    8,399,000
    
    
    $
    
    
    
    $
    222,675,555Plus cash consideration
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    501,000
    
    
    
    501,000Plus merger cost
    
    
    1,133,986
    
    
    
    2,280,015
    
    
    
    629,724
    
    
    
    158,502
    
    
    
    
    
    
    
    4,202,227Plus warrants assumed
    
    
    2,250,449
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,250,449Total purchase price
    
    
    63,474,227
    
    
    
    123,097,778
    
    
    
    33,998,724
    
    
    
    8,557,502
    
    
    
    501,000
    
    
    
    229,629,231Plus fair value of liabilities assumed:Current liabilities
    
    
    5,673,233
    
    
    
    31,340,279
    
    
    
    9,101,959
    
    
    
    70,637
    
    
    
    
    
    
    
    46,186,108Note payable
    
    
    34,650,225
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,650,225Deferred income taxes
    
    
    13,686,849
    
    
    
    326,551
    
    
    
    11,083,779
    
    
    
    3,631,516
    
    
    
    
    
    
    
    28,728,695Other long-term liabilities
    
    
    146,660
    
    
    
    44,823
    
    
    
    97,945
    
    
    
    29,000
    
    
    
    
    
    
    
    318,428Total purchase price plus liabilities assumed
    
    $
    117,631,194
    
    
    $
    154,809,431
    
    
    $
    54,282,407
    
    
    $
    12,288,655
    
    
    $
    501,000
    
    
    $
    339,512,687Fair value of assets acquired:Current assets
    
    $
    3,968,529
    
    
    $
    29,129,104
    
    
    $
    4,290,981
    
    
    $
    1,037,975
    
    
    $
    
    
    
    $
    38,426,589Oil and gas properties
    
    
    113,647,665
    
    
    
    122,836,424
    
    
    
    49,916,753
    
    
    
    11,250,680
    
    
    
    
    
    
    
    297,651,522Other long-term assets
    
    
    15,000
    
    
    
    2,843,903
    
    
    
    74,673
    
    
    
    
    
    
    
    501,000
    
    
    
    3,434,576Total fair value of assets acquired
    
    $
    117,631,194
    
    
    $
    154,809,431
    
    
    $
    54,282,407
    
    
    $
    12,288,655
    
    
    $
    501,000
    
    
    $
    339,512,687
 9




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 1: Nature of Operations and Acquisition of Businesses  Continued
  Three Months Ended September 30,Actual
    
    
    Pro Forma2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    33,512,605
    
    
    $
    11,016,752
    
    
    $
    33,512,605
    
    
    $
    14,959,557Income (loss) from continuing operations
    
    
    13,670,377
    
    
    
    3,653,441
    
    
    
    13,670,377
    
    
    
    6,251,676Net income (loss)
    
    
    16,419,856
    
    
    
    2,228,925
    
    
    
    16,419,856
    
    
    
    2,419,002Earnings per share:Basic and Diluted
    
    $
    0.08
    
    
    $
    0.02
    
    
    $
    0.08
    
    
    $
    0.02Production volumes:Gas (Mcf)
    
    
    2,208,667
    
    
    
    809,653
    
    
    
    2,208,667
    
    
    
    1,272,140Oil (Bbls)
    
    
    120,766
    
    
    
    79,489
    
    
    
    120,766
    
    
    
    98,717Mcfe
    
    
    2,933,263
    
    
    
    1,286,587
    
    
    
    2,933,263
    
    
    
    1,864,442Mcfe/day
    
    
    31,883
    
    
    
    13,985
    
    
    
    31,883
    
    
    
    20,266
 Nine Months Ended September 30,Actual
    
    
    Pro Forma2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    76,726,643
    
    
    $
    27,531,486
    
    
    $
    90,295,326
    
    
    $
    37,250,908Income (loss) from continuing operations
    
    
    (70,844,197
    )
    
    
    8,858,838
    
    
    
    (64,432,866
    )
    
    
    12,304,472Net income (loss)
    
    

    (103,105,543
    )
    
    
    4,426,328
    
    
    
    (98,906,378
    )
    
    
    5,330,636Earnings per share:Basic and Diluted
    
    $
    (0.77
    )
    
    $
    0.04
    
    
    $
    (0.74
    )
    
    $
    0.05Production volumes:Gas (Mcf)
    
    
    4,373,077
    
    
    
    2,213,065
    
    
    
    5,832,085
    
    
    
    3,431,416Oil (Bbls)
    
    
    318,693
    
    
    
    191,554
    
    
    
    343,237
    
    
    
    229,200Mcfe
    
    
    6,285,235
    
    
    
    3,362,389
    
    
    
    7,891,507
    
    
    
    4,806,616Mcfe/day
    
    
    22,939
    
    
    
    12,316
    
    
    
    28,801
    
    
    
    17,607
 10




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 2: Summary of Significant Accounting Policies
 Interim Financial Statements
  Use of Estimates
  Income Taxes
    11




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 2: Summary of Significant Accounting Policies  Continued
 Pro Forma Income Taxes
  Earnings (Loss) Per Common Share
   Pro Forma Earnings (Loss) Per Share
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedSeptember 30, 2008
    
    
    September 30, 2007
    
    
    September 30, 2008
    
    
    September 30, 2007Net income available to shareholders
    
    $
    16,419,856
    
    
    $
    2,228,925
    
    
    $
    (103,105,543
    )
    
    $
    4,426,328Weighted average shares outstanding  basic
    
    
    198,194,958
    
    
    
    100,100,000
    
    
    
    134,469,036
    
    
    
    100,100,000Effect of dilutive securities  stock options
    
    
    11,347,189
    
    
    
    
    
    
    
    
    
    
    
    Effect of dilutive securities  warrants
    
    
    365,513
    
    
    
    
    
    
    
    
    
    
    
    Effect of dilutive securities  restricted stock
    
    
    65,645
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding  diluted
    
    
    209,973,306
    
    
    
    100,100,000
    
    
    
    134,469,036
    
    
    
    100,100,000Basic net income per share
    
    $
    0.08
    
    
    $
    0.02
    
    
    $
    (0.77
    )
    
    $
    0.04Diluted net income per share
    
    $
    0.08
    
    
    $
    0.02
    
    
    $
    (0.77
    )
    
    $
    0.04
 12




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 2: Summary of Significant Accounting Policies  Continued
 Stock-based Compensation
    Oil and Natural Gas Properties
  Recently Issued Accounting Standards
 Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB Statement No. 133
 Business Combinations
 13




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 3: Notes Payable
  2008
    
    
    2007Revolving line of credit with Union Bank of California
(UBOC), bearing interest at an adjusted rate as defined
in the agreement (6.05% and 7.07% at September 30, 2008
and December 31, 2007) payable quarterly, principal and
any unpaid interest due October 4, 2010, collateralized
by the Companys oil and gas properties.
    
    $
    
    
    
    $
    37,000,000Subordinated term facility with UnionBancal Equities,
Inc. an
affiliate of UBOC, quarterly interest due at an adjusted
rate as defined in the agreement (10.07% at December 31,
2007), retired in July 2008.
    
    
    
    
    
    
    30,000,0002nd lien term facility with JPMorgan Chase
Bank, N.A., as administrative agent, bearing interest at
an adjusted rate as defined in the agreement (11.25% at
September 30, 2008) payable quarterly, principal and any
unpaid interest due on July 18, 2013, collateralized by a
second mortgage on the Companys oil and gas properties
    
    
    249,750,000
    
    
    
    Discount on 2nd lien facility (5% discount on total issuance)
    
    
    (11,979,167
    )
    
    
    $
    237,770,833
    
    
    $
    67,000,000
    14




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 3: Notes Payable  Continued
   Note 4: Derivative Transactions
 Accounting for Derivative Instruments and Hedging Activities
 Natural Gas and Oil Derivatives
    15




---



##### Table of Contents



Crusader Energy Group Inc.
 
 Note 4: Derivative Transactions  Continued
   Concentration of Credit Risk
   Natural Gas Production
 Collars
    
    Swaps
    
    PutsYear
    
    Month
    
    MCF
    
    Floor
    
    Ceiling
    
    MCF
    
    
    
    MCF
    
    Floor2008
    
    Oct - Dec
    
    
    937,000
    
    
    $
    8.10
    
    
    $
    10.58
    
    
    
    30,000
    
    
    $
    7.45
    
    
    
    45,450
    
    
    $
    8.002009
    
    Jan - Mar
    
    
    678,500
    
    
    $
    8.13
    
    
    $
    10.12
    
    
    
    
    
    
    $
    
    
    
    
    259,131
    
    
    $
    8.002009
    
    Apr - Jun
    
    
    441,000
    
    
    $
    8.00
    
    
    $
    9.56
    
    
    
    
    
    
    $
    
    
    
    
    259,131
    
    
    $
    8.002009
    
    Jul - Dec
    
    
    882,000
    
    
    $
    8.00
    
    
    $
    9.56
    
    
    
    
    
    
    $
    
    
    
    
    518,262
    
    
    $
    8.002010
    
    Jan - Dec
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    2,144,988
    
    
    $
    8.00
 Oil Production
 CollarsYear
    
    Month
    
    Bbls
    
    Floor
    
    Ceiling2008
    
    Oct - Dec
    
    
    56,280
    
    
    $
    77.74
    
    
    $
    88.002009
    
    Jan - Dec
    
    
    163,200
    
    
    $
    79.56
    
    
    $
    117.722010
    
    Jan - Dec
    
    
    115,200
    
    
    $
    100.00
    
    
    $
    161.75
 Basis Differential Swap
 Year
    
    Month
    
    MCF
    
    ANR2008
    
    Oct - Dec
    
    
    435,000
    
    
    $
    1.112009
    
    Jan - Dec
    
    
    1,560,000
    
    
    $
    0.76
 16




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 4: Derivative Transactions  Continued
 Interest Rate Derivatives
   WeightedAverageNotional
    
    Fixed
    
    FloatingAmount
    
    Rate
    
    RateFloating to Fixed Swaps:August 2008  February 2011
    
    $
    250,000,000
    
    
    
    3.71
    %
    
    3 month LIBOR
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Gains (losses) from:Settlements with counterparty
    
    $
    (2,924,126
    )
    
    $
    1,406,438
    
    
    $
    (5,228,022
    )
    
    $
    2,694,152Changes in fair value  premiums paid
    
    
    3,170,962
    
    
    
    
    
    
    
    3,170,962
    
    
    
    Changes in fair value  non-cash
    
    
    20,485,840
    
    
    
    (574,278
    )
    
    
    2,582,768
    
    
    
    (2,579,122
    )Total oil and gas derivatives
    
    
    20,732,676
    
    
    
    832,160
    
    
    
    525,708
    
    
    
    115,030Settlements with counterparty
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Changes in fair value
    
    
    (1,723,696
    )
    
    
    
    
    
    
    (1,723,696
    )
    
    
    Total interest rate derivatives
    
    
    (1,723,696
    )
    
    
    
    
    
    
    (1,723,696
    )
    
    
    Total risk management income (expense)
    
    $
    19,008,980
    
    
    $
    832,160
    
    
    $
    (1,197,988
    )
    
    $
    115,030
 17




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 4: Derivative Transactions  Continued
 Fair Value Measurements
 Fair Value Measurements
        18




---



##### Table of Contents



Crusader Energy Group Inc.
 
 Note 4: Derivative Transactions  Continued
  Fair Value MeasurementsSeptember 30, 2008
    
    
    December 31, 2007Significant
    
    
    
    
    
    
    SignificantOther
    
    
    Significant
    
    
    Other
    
    
    SignificantObservable
    
    
    Unobservable
    
    
    Observable
    
    
    UnobservableInputs
    
    
    Inputs
    
    
    Inputs
    
    
    Inputs(Level 2)
    
    
    (Level 3)
    
    
    (Level 2)
    
    
    (Level 3)Derivative assets:Gas basis protection swaps
    
    $
    843,300
    
    
    $
    
    
    
    $
    1,475,042
    
    
    $
    Natural gas derivative instruments
    
    
    4,031,573Oil derivative instruments
    
    
    1,498,867Derivative liabilities:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Natural gas derivative instruments
    
    
    
    
    
    
    
    
    
    
    (41,470
    )
    
    
    Oil derivative instruments
    
    
    (2,326,382
    )
    
    
    
    
    
    
    (3,613,072
    )
    
    
    Interest rate instruments
    
    
    (1,723,696
    )
    
    
    
    
    
    
    
    
    
    
    Net derivative asset (liability)
    
    $
    2,323,662
    
    
    $
    
    
    
    $
    (2,179,500
    )
    
    $
    Asset retirement obligation
    
    $
    
    
    
    $
    1,151,419
    
    
    $
    
    
    
    $
    718,316
 Note 5: Stockholders Equity
  19




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 5: Stockholders Equity  Continued
  BlackNumber of
    
    
    Exercise
    
    Remaining
    
    Risk Free
    
    
    
    
    
    Expected
    
    Scholes
    
    EstimatedWarrants
    
    
    Price
    
    Term
    
    Rate
    
    Volatility
    
    Dividend
    
    Value
    
    Fair Value166,392
    
    
    $
    0.50
    
    
    
    2/28/2009
    
    
    
    2.36
    %
    
    
    58.50
    %
    
    None
    
    $
    5.15
    
    
    $
    856,573100,000
    
    
    $
    0.50
    
    
    
    5/7/2009
    
    
    
    2.36
    %
    
    
    55.27
    %
    
    None
    
    $
    5.15
    
    
    
    515,008235,000
    
    
    $
    2.00
    
    
    
    10/29/2009
    
    
    
    2.63
    %
    
    
    52.53
    %
    
    None
    
    $
    3.74
    
    
    
    878,868501,392
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,250,449
  2004 Consultant Plan
  2005 Director Stock Plan
  2007 Equity Incentive Plan
  20




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 5: Stockholders Equity  Continued
  2008 Long Term Incentive Plan
  Stock Options
   WeightedNumber of
    
    
    Average
    
    
    WeightedShares
    
    
    Exercise
    
    
    Average
    
    
    AggregateUnderlying
    
    
    Price
    
    
    Contract
    
    
    IntrinsicOptions
    
    
    Per Share
    
    
    Life in Years
    
    
    Value(a)Outstanding at January 1, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issued
    
    
    35,000,000
    
    
    $
    3.00
    
    
    
    4.50
    
    
    $
    92,400,000Outstanding at September 30, 2008
    
    
    35,000,000
    
    
    $
    3.00
    
    
    
    4.25
    
    
    $
    3,500,000Exercisable at September 30, 2008
    
    
    35,000,000
    
    
    $
    3.00
    
    
    
    4.25
    
    
    $
    3,500,000
 
 
 21




---



##### Table of Contents



Crusader Energy Group Inc.
 
 Note 5: Stockholders Equity  Continued
 Restricted Shares
  WeightedAverageShares
    
    
    Fair ValueOutstanding at December 31, 2007
    
    
    
    
    
    $
    Granted
    
    
    370,000
    
    
    
    3.30Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2008
    
    
    370,000
    
    
    $
    3.30
   Note 6: Asset Retirement Obligation
  Nine MonthsEnded September30, 2008Balance as of December 31, 2007
    
    $
    718,316Liabilities incurred in current period
    
    
    146,542Liabilities assumed in business combination
    
    
    238,380Accretion expense
    
    
    48,181Balance as
of September 30,  2008
    
    $
    1,151,419
 22




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 7: Income Taxes
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Current taxes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Deferred taxes
    
    
    8,456,038
    
    
    
    
    
    
    
    20,282,862
    
    
    
    Income tax expense
    
    $
    8,456,038
    
    
    $
    
    
    
    $
    20,282,862
    
    
    $
    
  September 30,
    
    
    December 31,2008
    
    
    2007Deferred tax assets:Net operating loss carryforwards
    
    $
    26,360,649
    
    
    $
    Stock option expense
    
    
    25,289,212
    
    
    
    Derivatives
    
    
    318,001
    
    
    
    Other
    
    
    2,784,346
    
    
    
    Total deferred tax assets
    
    $
    54,752,208
    
    
    $
    Deferred tax liabilities:Property and equipment, principally
due to differences in depreciation
    
    
    (103,975,810
    )
    
    
    Net deferred tax liabilities
    
    $
    (49,223,602
    )
    
    $
    
   23




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 7: Income Taxes  Continued
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Expected tax expense (benefit)
    
    $
    8,706,563
    
    
    $
    
    
    
    $
    (28,987,938
    )
    
    $
    State income taxes
    
    
    694,037
    
    
    
    
    
    
    
    (2,368,729
    )
    
    
    Conversion to corporation
    
    
    
    
    
    
    
    
    
    
    35,156,421
    
    
    
    Non-deductible stock compensation expenses
    
    
    (195,130
    )
    
    
    
    
    
    
    16,368,867
    
    
    
    Other
    
    
    (749,432
    )
    
    
    
    
    
    
    114,241
    
    
    
    $
    8,456,038
    
    
    $
    
    
    
    $
    20,282,862
    
    
    $
    
 Note 8: Related Party Transactions
   Note 9: Commitments and Contingencies
   24




---



##### Table of Contents



Crusader Energy Group Inc.
 
 Note 9: Commitments and Contingencies  Continued
   Year ending December 312008
    
    $
    156,0002009
    
    
    624,0002010
    
    
    624,0002011
    
    
    624,0002012
    
    
    624,000Thereafter
    
    
    156,000$
    2,808,000
    25




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 9: Commitments and Contingencies  Continued
  Note 10: Subsequent Events
  
    
    11,200 barrels of oil per month from October 2008 through December 2008 with a
original ceiling of $67.00 and was increased to $71.60 per Bbl;
    
    6,000 barrels of oil per month from October 2008 through December 2008 with a
original ceiling of $92.00 and was increased to $99.90 per Bbl;
    
    60,000 MCF of gas per month from October 2008 through December 2008 with a original
ceiling of $8.00 and was increased to $10.10 per MCF;
    
    Removed the ceiling on 1,000 MCF of gas per day from January 2009 through March 2009
with a original ceiling of $12.50 per MCF with a total premium of $11,250;
    
    Removed the ceiling on 2,500 MCF of gas per day from January 2009 through February
2009 with a original ceiling of $10.35 per MCF with a total premium of $33,925;
    
    4,000 barrels of oil per month from January 2009 through December 2009 with a
original ceiling of $80.00 and was increased to $102.65 per Bbl;
    
    6,000 barrels of oil per month from January 2009 through December 2009 with a
original ceiling of $67.00 and was increased to $79.00 per Bbl;
    
    17,000 MCF of gas per month from January 2009 through December 2009 with a original
ceiling of $8.00 and was increased to $10.05 per MCF;
    
    130,000 MCF of gas per month from January 2009 through December 2009 with a original
ceiling of $9.50 and was increased to $10.00 per MCF with a total premium of $195,000;
and
    
    Removed the ceiling on 17,000 MCF of gas per day from January 2009 through December
2009 with a original ceiling of $10.05 per MCF with a total premium of $96,900.
 26




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
     27




---



##### Table of Contents




    
    additional opportunities to transfer its horizontal drilling expertise;
    
    attractive acreage in areas such as the Barnett Shale in the Fort Worth Basin, Bakken
Shale in the Williston Basin and various shale plays in the Permian Basin;
    
    expected synergies (elimination of Westside G&A and Knight II management fee);
    
    appealing route to becoming a publicly-traded company; and
    
    enhanced access to public markets to execute its business strategy.
  Three Months Ended September 30,Actual
    
    
    Pro Forma2008
    
    
    2007
    
    
    2008
    
    
    2007Production volumesGas (Mcf)
    
    
    2,208,667
    
    
    
    809,653
    
    
    
    2,208,667
    
    
    
    1,272,140Oil (Bbl)
    
    
    120,766
    
    
    
    79,489
    
    
    
    120,766
    
    
    
    98,717Total (Mcfe*)
    
    
    2,933,263
    
    
    
    1,286,587
    
    
    
    2,933,263
    
    
    
    1,864,442
 Nine Months Ended September 30,Actual
    
    
    Pro Forma2008
    
    
    2007
    
    
    2008
    
    
    2007Production volumesGas (Mcf)
    
    
    4,373,077
    
    
    
    2,213,065
    
    
    
    5,832,085
    
    
    
    3,431,416Oil (Bbl)
    
    
    318,693
    
    
    
    191,554
    
    
    
    343,237
    
    
    
    229,200Total (Mcfe*)
    
    
    6,285,235
    
    
    
    3,362,389
    
    
    
    7,891,507
    
    
    
    4,806,616
 
 *
    
    Oil and NGLs are converted to Mcfe at the rate of one barrel equals six Mcfe. 28




---



##### Table of Contents



Revenue and Expense Drivers
 Revenue Drivers
 Crude Oil and Natural Gas Sales.
  Operating Expenses
  
    
    Lease Operating.Crusaders lease operating expenses include repair
and maintenance costs, contract labor and supervision, workover costs,
electrical power and fuel costs and other expenses necessary to
maintain its operations. Crusaders lease operating expenses are
driven in part by the type of commodity produced, the level of
maintenance activity and the geographical location of its properties.
Ad valorem taxes represent property taxes.
    
    Production Taxes.Production taxes represent the taxes paid on
produced oil and gas based on a percentage of market prices (price
received from purchaser) or at fixed rates established by federal,
state or local taxing authorities.
    
    General and Administrative Expenses.General and administrative
expenses include employee compensation and benefits, professional fees
for legal, accounting and other advisory services and corporate
overhead.
    
    Depreciation, Depletion and Amortization.Depreciation, depletion and
amortization represent the expensing of the capitalized costs of
Crusaders oil and gas properties, using a units of production method,
and Crusaders other property and equipment.
 Other Expenses and Income
  Interest Income
 Interest Expense.
 Risk Management.
 Oil and Natural Gas Properties  Impact of Petroleum Prices on Ceiling Test
  29




---



##### Table of Contents



Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
 Results of Operations
  Three Months Ended September 30,2008
    
    
    2007OPERATING REVENUESGas sales
    
    $
    19,461,726
    
    
    $
    5,236,783Oil sales
    
    
    13,682,006
    
    
    
    5,508,222Other
    
    
    368,873
    
    
    
    271,747Total operating revenue
    
    
    33,512,605
    
    
    
    11,016,752OPERATING COSTS AND EXPENSESLease operating
    
    
    3,176,995
    
    
    
    1,102,303Production taxes
    
    
    2,531,769
    
    
    
    763,536General and administrative
    
    
    3,227,305
    
    
    
    952,426Depreciation, depletion and amortization
    
    
    10,885,522
    
    
    
    4,523,575Accretion of asset retirement obligations
    
    
    20,637
    
    
    
    21,471Total operating costs and expenses
    
    
    19,842,228
    
    
    
    7,363,311Income from operations
    
    
    13,670,377
    
    
    
    3,653,441OTHER (EXPENSE) INCOMEInterest expense
    
    
    (8,283,932
    )
    
    
    (862,468
    )Interest income and other
    
    
    480,469
    
    
    
    24,862Risk management
    
    
    19,008,980
    
    
    
    832,160Total other (expense) income
    
    
    11,205,517
    
    
    
    (5,446
    )Income before income taxes
    
    
    24,875,894
    
    
    
    3,647,995Income tax expense
    
    
    8,456,038
    
    
    
    NET INCOME
    
    $
    16,419,856
    
    
    $
    3,647,995
 30




---



##### Table of Contents



Revenues
  Three Months ended September 30,2008
    
    2007Project
    
    Operations
    
    Basin
    
    Mcf
    
    Bbls
    
    Mcf
    
    BblsCleveland Sand
    
    Operated
    
    Anadarko
    
    
    481,888
    
    
    
    55,881
    
    
    
    236,489
    
    
    
    33,171SE Barnett
    
    Operated
    
    Ft. Worth
    
    
    470,375
    
    
    
    
    
    
    
    
    
    
    
    Mayfield
    
    Non-Operated
    
    Anadarko
    
    
    204,430
    
    
    
    1,298
    
    
    
    71,618
    
    
    
    353Eureka
    
    Non-Operated
    
    Anadarko
    
    
    186,327
    
    
    
    861
    
    
    
    25,225
    
    
    
    19Lard Ranch
    
    Non-Operated
    
    Anadarko
    
    
    166,081
    
    
    
    2,916
    
    
    
    167,496
    
    
    
    3,317Biscuit Hill
    
    Operated
    
    Anadarko
    
    
    3,905
    
    
    
    16,206
    
    
    
    1,537
    
    
    
    17,822N. Barnett
    
    Operated
    
    Ft. Worth
    
    
    154,808
    
    
    
    16,570
    
    
    
    61,068
    
    
    
    12,3281,667,814
    
    
    
    93,732
    
    
    
    563,433
    
    
    
    67,010Production from remaining projects
    
    
    540,853
    
    
    
    27,034
    
    
    
    246,220
    
    
    
    12,479Total production for the period
    
    
    2,208,667
    
    
    
    120,766
    
    
    
    809,653
    
    
    
    79,489
  Lease Operating Expenses
 Production Taxes.
 General and Administrative Expenses
 31




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##### Table of Contents



Depreciation, Depletion and Amortization
 Income from Operations.
 Other (Expense) Income
   Income before income taxes.
 Income Tax Expense.
 Net Income
 32




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##### Table of Contents



Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007
 Results of Operations
  Nine Months Ended September 30,2008
    
    
    2007OPERATING REVENUESGas sales
    
    $
    40,291,425
    
    
    $
    14,789,573Oil sales
    
    
    35,337,557
    
    
    
    12,127,594Other
    
    
    1,097,661
    
    
    
    614,319Total operating revenue
    
    
    76,726,643
    
    
    
    27,531,486OPERATING COSTS AND EXPENSESLease operating
    
    
    6,227,443
    
    
    
    2,347,783Production taxes
    
    
    5,303,388
    
    
    
    1,766,532General and administrative
    
    
    113,599,183
    
    
    
    2,715,870Depreciation, depletion and amortization
    
    
    22,392,645
    
    
    
    11,809,640Accretion of asset retirement obligations
    
    
    48,181
    
    
    
    32,823Total operating costs and expenses
    
    
    147,570,840
    
    
    
    18,672,648Income (loss) from operations
    
    
    (70,844,197
    )
    
    
    8,858,838OTHER (EXPENSE) INCOMEInterest expense
    
    
    (11,384,422
    )
    
    
    (1,797,650
    )Interest income and other
    
    
    603,926
    
    
    
    68,182Risk management
    
    
    (1,197,988
    )
    
    
    115,030Total other (expense) income
    
    
    (11,978,484
    )
    
    
    (1,614,438
    )Income (loss) before income taxes
    
    
    (82,822,681
    )
    
    
    7,244,400Income tax expense
    
    
    20,282,862
    
    
    
    NET INCOME (LOSS)
    
    $
    (103,105,543
    )
    
    $
    7,244,400
 Revenues
 33




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##### Table of Contents



Nine Months Ended September 30,2008
    
    2007Project
    
    Operations
    
    Basin
    
    Mcf
    
    Bbls
    
    Mcf
    
    BblsCleveland Sand
    
    Operated
    
    Anadarko
    
    
    1,204,923
    
    
    
    145,480
    
    
    
    580,060
    
    
    
    81,506Lard Ranch
    
    Non-Operated
    
    Anadarko
    
    
    490,337
    
    
    
    8,761
    
    
    
    583,787
    
    
    
    11,710SE Barnett
    
    Operated
    
    Ft. Worth
    
    
    470,375
    
    
    
    
    
    
    
    
    
    
    
    Eureka
    
    Non-Operated
    
    Anadarko
    
    
    406,929
    
    
    
    2,501
    
    
    
    81,731
    
    
    
    79N. Barnett
    
    Operated
    
    Ft. Worth
    
    
    381,144
    
    
    
    47,342
    
    
    
    93,834
    
    
    
    18,360Mayfield
    
    Non-Operated
    
    Anadarko
    
    
    331,058
    
    
    
    1,708
    
    
    
    210,373
    
    
    
    912Biscuit Hill
    
    Operated
    
    Anadarko
    
    
    12,831
    
    
    
    59,644
    
    
    
    5,576
    
    
    
    55,8193,297,597
    
    
    
    265,436
    
    
    
    1,555,361
    
    
    
    168,386Production from remaining projects
    
    
    1,075,480
    
    
    
    53,257
    
    
    
    657,704
    
    
    
    23,168Total production for the period
    
    
    4,373,077
    
    
    
    318,693
    
    
    
    2,213,065
    
    
    
    191,554
  Lease Operating Expenses
 Production Taxes.
 General and Administrative Expenses
 Depreciation, Depletion and Amortization
 34




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##### Table of Contents



Income (loss) from Operations.
  Other (Expense) Income
   Income (loss) before income taxes.
 Income Tax Expense.
 Net Income (Loss)
  Liquidity and Capital Resources
 Overview
    35




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##### Table of Contents



Cash Flows
 Operating Activities.
  Investing Activities.
  Financing Activities.
  36




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##### Table of Contents



Critical Accounting Policies
  Recently Issued Accounting Standards
 Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No. 133
 Business Combinations
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4T. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   37




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##### Table of Contents



Changes in Internal Controls
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  The global financial crisis may have impacts on our business and financial condition that we
currently cannot predict.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
   38




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##### Table of Contents



Item 6. Exhibits.
 No.
    
    Description of Exhibit31.1
    
    Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 39




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##### Table of Contents



SIGNATURES
  CRUSADER ENERGY GROUP, INC.(Registrant)Date: November 10, 2008
    By:
    /S/ David D. Le NormanDavid D. Le NormanPresident and Chief Executive Officer
(Principal Executive Officer)Date:  November 10, 2008
    By:
    /S/ John G. HeinenJohn G. HeinenSenior Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer) 40




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##### Table of Contents



INDEX TO EXHIBITS
 No.
    
    Description of Exhibit31.1
    
    Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 41