##### 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 JUNE 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
    
    (I.R.S. Employerincorporation or organization)
    
    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
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




---



##### 



CRUSADER ENERGY GROUP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4T. Controls and Procedures
    
    
    35PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 3. Defaults Upon Senior Securities
    
    
    45Item 4. Submission of Matters to a Vote of Security Holders
    
    
    45Item 5. Other Information
    
    
    46Item 6. Exhibits
    
    
    46SIGNATURES
    
    
    49INDEX TO EXHIBITS
    
    
    50Second Amended and Restated BylawsCertification by the Chief Executive Officer Pursuant to Section 302Certification by the Chief Financial Officer Pursuant to Section 302Certification by the Chief Executive Officer Pursuant to Section 906Certification by the Chief Financial Officer Pursuant to Section 906
  AVAILABLE INFORMATION
 http://www.crusaderenergy.com 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)June 30,
    
    
    December 31,2008
    
    
    2007ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    10,936,633
    
    
    $
    7,941,663Accounts receivableAccrued oil and gas production revenue
    
    
    17,940,658
    
    
    
    7,581,187Joint interest billings
    
    
    16,008,130
    
    
    
    14,045,470Other
    
    
    1,607
    
    
    
    770,584Prepaid and other assets
    
    
    1,770,724
    
    
    
    126,450Total current assets
    
    
    46,657,752
    
    
    
    30,465,354OIL AND GAS PROPERTIES  AT COST, net,
based on full cost accounting ($136,438,772 and $12,558,796
excluded from amortization at 2008 and 2007, respectively)
    
    
    574,225,420
    
    
    
    243,560,456Other assets
    
    
    14,633,928
    
    
    
    5,199,199$
    635,517,100
    
    
    $
    279,225,009LIABILITIES AND MEMBERS/STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    18,744,460
    
    
    $
    11,856,699Accrued liabilities
    
    
    16,084,992
    
    
    
    5,934,262Derivative financial instruments
    
    
    18,247,696
    
    
    
    1,775,617Total current liabilities
    
    
    53,077,148
    
    
    
    19,566,578LONG-TERM LIABILITIESAsset retirement obligations
    
    
    1,100,038
    
    
    
    718,316Derivative financial instruments
    
    
    4,532,710
    
    
    
    403,883Other
    
    
    
    
    
    
    215,778Deferred tax liabilities, net
    
    
    39,271,859
    
    
    
    Notes payable
    
    
    130,000,000
    
    
    
    67,000,000Total long-term liabilities
    
    
    174,904,607
    
    
    
    68,337,977COMMITMENTS AND CONTINGENCIES (Note 9)MEMBERS EQUITY
    
    
    
    
    
    
    191,320,454STOCKHOLDERS EQUITYCommon stock, $.01 par value, 500,000,000 authorized;
198,194,958 shares issued and outstanding at June 30, 2008
    
    
    1,981,950
    
    
    
    Additional paid-in capital
    
    
    523,019,071
    
    
    
    Accumulated deficit
    
    
    (117,465,676
    )
    
    
    Total Stockholders Equity
    
    
    407,535,345
    
    
    
    $
    635,517,100
    
    
    $
    279,225,009
  3




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##### Table of Contents



Crusader Energy Group Inc.
  (Unaudited)Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007OPERATING REVENUESGas sales
    
    $
    12,567,181
    
    
    $
    5,434,107
    
    
    $
    20,829,699
    
    
    $
    9,552,790Oil sales
    
    
    13,184,508
    
    
    
    3,894,122
    
    
    
    21,655,551
    
    
    
    6,619,372Other
    
    
    394,795
    
    
    
    157,467
    
    
    
    728,788
    
    
    
    342,572Total operating revenue
    
    
    26,146,484
    
    
    
    9,485,696
    
    
    
    43,214,038
    
    
    
    16,514,734OPERATING COSTS AND EXPENSESLease operating
    
    
    1,558,378
    
    
    
    826,461
    
    
    
    3,050,448
    
    
    
    1,245,480Production taxes
    
    
    1,681,044
    
    
    
    571,474
    
    
    
    2,771,619
    
    
    
    1,002,996General and administrative
    
    
    108,767,228
    
    
    
    949,642
    
    
    
    110,371,878
    
    
    
    1,763,444Depreciation, depletion and amortization
    
    
    5,938,330
    
    
    
    4,003,696
    
    
    
    11,507,123
    
    
    
    7,286,065Accretion of asset retirement obligations
    
    
    14,316
    
    
    
    5,676
    
    
    
    27,544
    
    
    
    11,352Total operating costs and expenses
    
    
    117,959,296
    
    
    
    6,356,949
    
    
    
    127,728,612
    
    
    
    11,309,337Income (loss) from operations
    
    
    (91,812,812
    )
    
    
    3,128,747
    
    
    
    (84,514,574
    )
    
    
    5,205,397OTHER (EXPENSE) INCOMEInterest expense
    
    
    (1,590,061
    )
    
    
    (559,524
    )
    
    
    (3,100,490
    )
    
    
    (935,182
    )Interest income and other
    
    
    34,806
    
    
    
    27,236
    
    
    
    123,457
    
    
    
    43,320Risk management
    
    
    (15,012,339
    )
    
    
    1,626,816
    
    
    
    (20,206,968
    )
    
    
    (717,130
    )Total other (expenses) income
    
    
    (16,567,594
    )
    
    
    1,094,528
    
    
    
    (23,184,001
    )
    
    
    (1,608,992
    )Income (loss) before income taxes
    
    
    (108,380,406
    )
    
    
    4,223,275
    
    
    
    (107,698,575
    )
    
    
    3,596,405Income tax expense
    
    
    11,826,824
    
    
    
    
    
    
    
    11,826,824
    
    
    
    NET INCOME (LOSS)
    
    $
    (120,207,230
    )
    
    $
    4,223,275
    
    
    $
    (119,525,399
    )
    
    $
    3,596,405EARNINGS (LOSS) PER SHAREBasic and Diluted
    
    $
    (1.15
    )
    
    
    
    
    
    $
    (1.17
    )WEIGHTED AVERAGE SHARES OUTSTANDINGBasic and Diluted
    
    
    104,411,866
    
    
    
    
    
    
    
    102,255,933PRO FORMA INFORMATION (NOTE 2)Historical income (loss) from operations before income taxes
    
    
    
    
    
    $
    4,223,275
    
    
    
    
    
    
    $
    3,596,405Pro forma provision (benefit) for income taxes
    
    
    
    
    
    
    (1,642,854
    )
    
    
    
    
    
    
    (1,399,002
    )Pro forma net income (loss)
    
    
    
    
    
    $
    2,580,421
    
    
    
    
    
    
    $
    2,197,403PRO FORMA EARNINGS PER SHAREBasic and Diluted
    
    
    
    
    
    $
    0.03
    
    
    
    
    
    
    $
    0.02WEIGHTED 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,814,286
    
    
    
    
    
    
    
    110,814,286Net loss, June 26, 2008 through June 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117,465,676
    )
    
    
    (117,465,676
    )Balance as of June 30, 2008
    
    $
    
    
    
    
    198,194,958
    
    
    $
    1,981,950
    
    
    $
    523,019,071
    
    
    $
    (117,465,676
    )
    
    $
    407,535,345
  5




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##### Table of Contents



Crusader Energy Group Inc.
  (Unaudited)Six Months EndedJune 30,2008
    
    
    2007Cash flows from operating activitiesNet income (loss)
    
    $
    (119,525,399
    )
    
    $
    3,596,405Adjustments to reconcile net income (loss) to net cash
provided by operating activities, net of effect of business
combination:Depreciation, depletion and amortization
    
    
    11,507,123
    
    
    
    7,286,065Accretion of asset retirement obligations
    
    
    27,544
    
    
    
    11,352Amortization of loan costs
    
    
    164,458
    
    
    
    26,960Deferred income taxes
    
    
    11,826,824
    
    
    
    Stock compensation
    
    
    106,677,219
    
    
    
    Change in assets and liabilities(Increase) decrease inAccounts receivable
    
    
    (3,027,941
    )
    
    
    (4,155,811
    )Derivative financial instruments
    
    
    16,999,318
    
    
    
    2,064,604Prepaid assets and other
    
    
    1,346,677
    
    
    
    115,081Increase (decrease) inAccounts payable, accrued liabilities and other
    
    
    (16,856,426
    )
    
    
    3,511,080Net cash provided by operating activities
    
    
    9,139,397
    
    
    
    12,455,736Cash flows used in investing activitiesAcquisitions of businesses, net of cash acquired
    
    
    3,505,625
    
    
    
    Oil and gas property costs
    
    
    (44,713,870
    )
    
    
    (36,662,840
    )Net cash used in investing activities
    
    
    (41,208,245
    )
    
    
    (36,662,840
    )Cash flows from financing activitiesPayment of loan costs
    
    
    (976,629
    )
    
    
    (50,000
    )Payments on debt borrowings
    
    
    (26,959,553
    )
    
    
    Proceeds from debt borrowings
    
    
    63,000,000
    
    
    
    27,800,000Net cash provided by financing activities
    
    
    35,063,818
    
    
    
    27,750,000NET INCREASE IN CASH AND
CASH EQUIVALENTS
    
    
    2,994,970
    
    
    
    3,542,896Cash and cash equivalents at beginning of period
    
    
    7,941,663
    
    
    
    5,122,383Cash and cash equivalents at end of period
    
    $
    10,936,633
    
    
    $
    8,665,279Cash paid during period for interest
    
    $
    1,658,413
    
    
    $
    595,417
  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, net of cash acquired
    
    $
    32,862,173Oil and gas properties
    
    
    290,147,850Deferred tax asset
    
    
    20,416,136Other long-term assets
    
    
    2,343,940Total fair value of assets
    
    
    345,770,099Liabilities:Current liabilities
    
    
    34,318,350Note payable
    
    
    34,650,225Deferred tax liabilities
    
    
    47,649,125Other long-term liabilities
    
    
    312,826Net value of assets acquired
    
    $
    228,839,573
  7




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 1: Nature of Operations and Acquisition of Businesses
   
    
    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 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
  OtherWestside
    
    Knight II
    
    Hawk
    
    RCH
    
    Entities
    
    TotalPreliminary calculation and allocation of
purchase price:Shares 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
    
    
    920,894
    
    
    
    1,851,568
    
    
    
    511,390
    
    
    
    128,717
    
    
    
    
    
    
    
    3,412,569Plus warrants assumed
    
    
    2,250,449
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,250,449Total purchase price
    
    
    63,261,135
    
    
    
    122,669,331
    
    
    
    33,880,390
    
    
    
    8,527,717
    
    
    
    501,000
    
    
    
    228,839,573Plus fair value of liabilities assumed:Current liabilities
    
    
    5,886,977
    
    
    
    19,638,912
    
    
    
    8,792,461
    
    
    
    
    
    
    
    
    
    
    
    34,318,350Note payable
    
    
    34,650,225
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,650,225Deferred tax liabilities
    
    
    31,377,741
    
    
    
    
    
    
    
    11,863,524
    
    
    
    4,407,860
    
    
    
    
    
    
    
    47,649,125Other long-term liabilities
    
    
    146,660
    
    
    
    42,985
    
    
    
    94,181
    
    
    
    29,000
    
    
    
    
    
    
    
    312,826Total purchase price plus liabilities assumed
    
    $
    135,322,738
    
    
    $
    142,351,228
    
    
    $
    54,630,556
    
    
    $
    12,964,577
    
    
    $
    501,000
    
    
    $
    345,770,099Fair value of assets acquired:Current assets
    
    $
    4,051,513
    
    
    $
    26,198,728
    
    
    $
    2,611,932
    
    
    $
    
    
    
    $
    
    
    
    $
    32,862,173Oil and gas properties
    
    
    114,803,907
    
    
    
    110,435,298
    
    
    
    51,944,068
    
    
    
    12,964,577
    
    
    
    
    
    
    
    290,147,850Deferred tax asset
    
    
    16,406,657
    
    
    
    4,009,479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,416,136Other long-term assets
    
    
    60,661
    
    
    
    1,707,723
    
    
    
    74,556
    
    
    
    
    
    
    
    501,000
    
    
    
    2,343,940Total fair value of assets acquired
    
    $
    135,322,738
    
    
    $
    142,351,228
    
    
    $
    54,630,556
    
    
    $
    12,964,577
    
    
    $
    501,000
    
    
    $
    345,770,099
 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 June 30,Actual
    
    
    Pro Forma2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    26,146,484
    
    
    $
    9,485,696
    
    
    $
    32,930,826
    
    
    $
    12,606,283Income (loss) from continuing operations
    
    
    (91,812,812
    )
    
    
    3,128,747
    
    
    
    (88,615,725
    )
    
    
    3,571,863Net income (loss)
    
    
    (120,207,230
   )
    
    
    2,580,421
    
    
    
    (118,116,226
    )
    
    
    2,530,683Earnings per share:Basic and Diluted
    
    $
    (1.15
    )
    
    $
    0.03
    
    
    $
    (1.13
    )
    
    $
    0.03Production volumes:Gas (Mcf)
    
    
    1,178,599
    
    
    
    761,394
    
    
    
    1,910,580
    
    
    
    1,159,095Oil (Bbls)
    
    
    108,307
    
    
    
    63,210
    
    
    
    120,602
    
    
    
    73,351Mcfe
    
    
    1,828,441
    
    
    
    1,140,654
    
    
    
    2,634,192
    
    
    
    1,599,201Mcfe/day
    
    
    20,093
    
    
    
    12,535
    
    
    
    28,947
    
    
    
    17,574
 Six Months Ended June 30,Actual
    
    
    Pro Forma2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    43,214,038
    
    
    $
    16,514,734
    
    
    $
    56,782,721
    
    
    $
    22,291,351Income (loss) from continuing operations
    
    
    (84,514,574
    )
    
    
    5,205,397
    
    
    
    (78,103,243
    )
    
    
    6,052,796Net income (loss)
    
    
    (119,525,399
   )
    
    
    2,197,403
    
    
    
    (115,326,234
    )
    
    
    2,911,634Earnings per share:Basic and Diluted
    
    $
    (1.17
    )
    
    $
    0.02
    
    
    $
    (1.13
    )
    
    $
    0.03Production volumes:Gas (Mcf)
    
    
    2,164,410
    
    
    
    1,403,412
    
    
    
    3,623,418
    
    
    
    2,159,276Oil (Bbls)
    
    
    197,927
    
    
    
    112,065
    
    
    
    222,471
    
    
    
    130,483Mcfe
    
    
    3,351,972
    
    
    
    2,075,802
    
    
    
    4,958,244
    
    
    
    2,942,174Mcfe/day
    
    
    18,417
    
    
    
    11,469
    
    
    
    27,243
    
    
    
    16,255
 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
 Income Taxes  Continued
   Pro Forma Income Taxes
  Earnings (Loss) Per Common Share
   12




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 2: Summary of Significant Accounting Policies  Continued
 Pro Forma Earnings (Loss) Per Share
  Stock-based Compensation
   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 (5.50% and 7.07% at June 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.
    
    $
    100,000,000
    
    
    $
    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 (8.50% and 10.07% at June
30, 2008 and December 31, 2007), lump sum principal payment
and any unpaid interest due August 31, 2012, collateralized
by a second mortgage on the Companys oil and gas
properties.
    
    
    30,000,000
    
    
    
    30,000,000$
    130,000,000
    
    
    $
    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
     15




---



##### Table of Contents



Crusader Energy Group Inc.
 
 Note 4: Derivative Transactions  Continued
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Gains (losses) from:Settlements with counterparty
    
    $
    (2,322,562
    )
    
    $
    433,724
    
    
    $
    (3,207,650
    )
    
    $
    1,347,474Changes in fair value
    
    
    (12,689,777
    )
    
    
    1,193,092
    
    
    
    (16,999,318
    )
    
    
    (2,064,604
    )$
    (15,012,339
    )
    
    $
    1,626,816
    
    
    $
    (20,206,968
    )
    
    $
    (717,130
    )
  
    
    Collar covering 145,000 Mmbtu of natural gas per month from July 2008 through
December 2008 with a floor of $8.00 and a cap of $10.50 per Mmbtu;
    
    Collar covering 60,000 Mmbtu of natural gas per month from July 2008 through December
2008 with a floor of $8.00 and a cap of $10.10 per Mmbtu;
    
    Fixed price swaps covering 10,000 Mmbtu of natural gas per month from July 2008
through December 2008 with a fixed price of $7.45 per Mmbtu;
    
    Collar ranging from 70,000 to 77,500 Mmbtu of natural gas per month from July 2008
through February 2009 with a floor of $8.00 and a cap of $10.35 per Mmbtu;
    
    Collar ranging from 28,000 to 31,000 Mmbtu of natural gas per month from July 2008
through February 2009 with a floor of $9.00 and a cap of $12.50 per Mmbtu;
    
    Collar covering 11,200 barrels of oil per month from July 2008 through December 2008
with a floor of $67.00 and a cap of $71.60 per Bbl;
    
    Collar covering 6,000 barrels of oil per month from July 2008 through December 2008
with a floor of $92.00 and a cap of $99.90 per Bbl;
    
    Collar covering 130,000 Mmbtu of natural gas per month from January 2009 through
December 2009 with a floor of $8.00 and a cap of $9.50 per Mmbtu;
    
    Collar covering 17,000 Mmbtu of natural gas per month from January 2009 through
December 2009 with a floor of $8.00 and a cap of $10.05 per Mmbtu;
    
    Collar covering 6,000 barrels of oil per month from January 2009 through December
2009 with a floor of $67.00 and a cap of $79.00 per Bbl;
    
    Collar covering 4,000 barrels of oil per month from January 2009 through December
2009 with a floor of $80.00 and a cap of $102.65 per Bbl;
    
    Basis protection swaps covering 145,000 Mmbtu of natural gas per month from July 2008
through December 2008 with an average location differential of $1.11; and
    
    Basis protection swaps covering 130,000 Mmbtu of natural gas per month from January
2009 through December 2009 with an average location differential of $.76.
 16




---



##### Table of Contents



Crusader Energy Group Inc.
 
 Note 4: Derivative Transactions  Continued
 Fair Value Measurements
 Fair Value Measurements
        17




---



##### Table of Contents



Crusader Energy Group Inc.
 
 Note 4: Derivative Transactions  Continued
  Fair Value MeasurementsJune 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
    
    $
    1,117,749
    
    
    $
    
    
    
    $
    1,475,042
    
    
    $
    Derivative Liabilities:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Natural gas derivative instruments
    
    
    (11,380,797
    )
    
    
    
    
    
    
    (41,470
    )
    
    
    Oil derivative instruments
    
    
    (12,517,358
    )
    
    
    
    
    
    
    (3,613,072
    )
    
    
    Net derivative liability
    
    $
    (22,780,406
    )
    
    $
    
    
    
    $
    (2,179,500
    )
    
    $
    Asset retirement obligation
    
    $
    
    
    
    $
    1,100,038
    
    
    $
    
    
    
    $
    718,316
 Note 5: Stockholders Equity
   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
 18




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 5: Stockholders Equity  Continued
  2004 Consultant Plan
  2005 Director Stock Plan
  2007 Equity Incentive Plan
  2008 Long Term Incentive Plan
  19




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 5: Stockholders Equity  Continued
  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
    
    
    
    4.5
    
    
    $
    92,400,000Outstanding at June 30, 2008
    
    
    35,000,000
    
    
    $
    3.00
    
    
    
    4.5
    
    
    $
    122,500,000Exercisable at June 30, 2008
    
    
    35,000,000
    
    
    $
    3.00
    
    
    
    4.5
    
    
    $
    122,500,000
 
 (a)
    
    The intrinsic value of a stock option is the amount by which the current market value
or the market value upon exercise of the underlying stock option exceeds the exercise price
of the option.  Note 6: Asset Retirement Obligation
  Six MonthsEnded June30, 2008Balance as of December 31, 2007
    
    $
    718,316Liabilities incurred in current period
    
    
    83,198Liabilities assumed in business combination
    
    
    270,980Accretion expense
    
    
    27,544Balance as of June 30, 2008
    
    $
    1,100,038
 20




---



##### Table of Contents



Crusader Energy Group Inc.
 
 Note 7: Income Taxes
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Current taxes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Deferred taxes
    
    
    11,826,824
    
    
    
    
    
    
    
    11,826,824
    
    
    
    Income tax expense (benefit)
    
    $
    11,826,824
    
    
    $
    
    
    
    $
    11,826,824
    
    
    $
    
 
 June 30,
    
    
    December 31,2008
    
    
    2007Deferred tax assets:Net operating loss carryforwards
    
    $
    15,551,856
    
    
    $
    Stock option expense
    
    
    25,938,106
    
    
    
    Derivatives
    
    
    8,381,942
    
    
    
    Other
    
    
    48,466
    
    
    
    Total deferred tax assets
    
    $
    49,920,370
    
    
    $
    Deferred tax liabilities:Property and equipment, principally
due to differences in depreciation
    
    
    (89,192,229
    )
    
    
    Net deferred tax liabilities
    
    $
    (39,271,859
    )
    
    $
    
   21




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 7: Income Taxes  Continued
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Expected tax expense (benefit)
    
    $
    (37,933,142
    )
    
    $
    
    
    
    $
    (37,694,501
    )
    
    $
    State income taxes
    
    
    (4,226,836
    )
    
    
    
    
    
    
    (4,200,244
    )
    
    
    Conversion to corporation
    
    
    36,155,611
    
    
    
    
    
    
    
    36,155,611
    
    
    
    Loss
attributable to nontaxable entity
    
    
    1,066,465
    
    
    
    
    
    
    
    801,232
    
    
    
    Non-deductible stock compensation expenses
    
    
    17,168,652
    
    
    
    
    
    
    
    17,168,652
    
    
    
    Other
    
    
    (403,926
    )
    
    
    
    
    
    
    (403,926
    )
    
    
    $
    11,826,824
    
    
    $
    
    
    
    $
    11,826,824
    
    
    $
    
 Note 8: Related Party Transactions
   Note 9: Commitments and Contingencies
   22




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##### Table of Contents



Crusader Energy Group Inc.
 
 Note 9: Commitments and Contingencies  Continued
   Year ending December 312008
    
    $
    312,0002009
    
    
    624,0002010
    
    
    624,0002011
    
    
    624,0002012
    
    
    624,000Thereafter
    
    
    156,000$
    2,964,000
    23




---



##### Table of Contents



Crusader Energy Group Inc.
 
 Note 9: Commitments and Contingencies  Continued
  Note 10: Subsequent Events
  
    
    Collar covering 1,560 barrels of oil per month from September 2008 through December
2008 with a floor of $100.00 and a cap of $160.00 per Bbl;
    
    Premium put covering 15,150 MMBTUs of gas per month from September 2008 through
December 2008 with a floor of $8.00;
    
    Collar covering 3,600 barrels of oil per month from January 2009 through December
2009 with a floor of $100.00 and a cap of $164.00 per Bbl;
    
    Premium put covering 86,377 MMBTUs of gas per month from January 2009 through
December 2009 with a floor of $8.00;
    
    Collar covering 9,600 barrels of oil per month from January 2010 through December
2010 with a floor of $100.00 and a cap of $161.75 per Bbl; and
    
    Premium put covering 178,749 MMBTUs of gas per month from January 2010 through
December 2010 with a floor of $8.00.
    24




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
     25




---



##### 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 June 30,Actual
    
    
    Pro Forma2008
    
    
    2007
    
    
    2008
    
    
    2007Production volumes:Gas (Mcf)
    
    
    1,178,599
    
    
    
    761,394
    
    
    
    1,910,580
    
    
    
    1,159,095Oil (Bbls)
    
    
    108,307
    
    
    
    63,210
    
    
    
    120,602
    
    
    
    73,351Mcfe
    
    
    1,828,441
    
    
    
    1,140,654
    
    
    
    2,634,192
    
    
    
    1,599,201
 Six Months Ended June 30,Actual
    
    
    Pro Forma2008
    
    
    2007
    
    
    2008
    
    
    2007Production volumes:Gas (Mcf)
    
    
    2,164,410
    
    
    
    1,403,412
    
    
    
    3,623,418
    
    
    
    2,159,276Oil (Bbls)
    
    
    197,927
    
    
    
    112,065
    
    
    
    222,471
    
    
    
    130,483Mcfe
    
    
    3,351,972
    
    
    
    2,075,802
    
    
    
    4,958,244
    
    
    
    2,942,174
 26




---



##### 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.
 27




---



##### Table of Contents



Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
 Results of Operations
  Three Months Ended June 30,2008
    
    
    2007OPERATING REVENUESGas sales
    
    $
    12,567,181
    
    
    $
    5,434,107Oil sales
    
    
    13,184,508
    
    
    
    3,894,122Other
    
    
    394,795
    
    
    
    157,467Total operating revenue
    
    
    26,146,484
    
    
    
    9,485,696OPERATING COSTS AND EXPENSESLease operating
    
    
    1,558,378
    
    
    
    826,461Production taxes
    
    
    1,681,044
    
    
    
    571,474General and administrative
    
    
    108,767,228
    
    
    
    949,642Depreciation, depletion and amortization
    
    
    5,938,330
    
    
    
    4,003,696Accretion of asset retirement obligations
    
    
    14,316
    
    
    
    5,676Total operating costs and expenses
    
    
    117,959,296
    
    
    
    6,356,949Income (loss) from operations
    
    
    (91,812,812
    )
    
    
    3,128,747OTHER (EXPENSE) INCOMEInterest expense
    
    
    (1,590,061
    )
    
    
    (559,524
    )Interest income and other
    
    
    34,806
    
    
    
    27,236Risk management
    
    
    (15,012,339
    )
    
    
    1,626,816Total other (expenses) income
    
    
    (16,567,594
    )
    
    
    1,094,528Income (loss) before income taxes
    
    
    (108,380,406
    )
    
    
    4,223,275Income tax expense
    
    
    11,826,824
    
    
    
    NET INCOME (LOSS)
    
    $
    (120,207,230
    )
    
    $
    4,223,275
 Revenues
 28




---



##### Table of Contents



Three Months ended June 30,2008
    
    2007Project
    
    Operations
    
    Basin
    
    Mcf
    
    Bbls
    
    Mcf
    
    BblsCleveland Sand
    
    Operated
    
    Anadarko
    
    
    422,910
    
    
    
    48,736
    
    
    
    170,048
    
    
    
    23,314N. Barnett
    
    Operated
    
    Ft. Worth
    
    
    112,030
    
    
    
    12,963
    
    
    
    27,462
    
    
    
    4,700Eureka
    
    Non-Operated
    
    Anadarko
    
    
    152,435
    
    
    
    1,640
    
    
    
    32,405
    
    
    
    20687,375
    
    
    
    63,339
    
    
    
    229,915
    
    
    
    28,034Production from remaining projects
    
    
    491,224
    
    
    
    44,968
    
    
    
    531,479
    
    
    
    35,176Total production for the period
    
    
    1,178,599
    
    
    
    108,307
    
    
    
    761,394
    
    
    
    63,210
  Lease Operating xpenses
 Production Taxes.
 General and Administrative Expenses
 Depreciation, Depletion and Amortization
 Income (loss) from Operations.
  29




---



##### Table of Contents



Other (Expense) Income
   Income (loss) before income taxes.
 Income Tax Expense.
 Net
Income (Loss)
  30




---



##### Table of Contents



Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
 Results of Operations
  Six Months Ended June 30,2008
    
    
    2007OPERATING REVENUESGas sales
    
    $
    20,829,699
    
    
    $
    9,552,790Oil sales
    
    
    21,655,551
    
    
    
    6,619,372Other
    
    
    728,788
    
    
    
    342,572Total operating revenue
    
    
    43,214,038
    
    
    
    16,514,734OPERATING COSTS AND EXPENSESLease operating
    
    
    3,050,448
    
    
    
    1,245,480Production taxes
    
    
    2,771,619
    
    
    
    1,002,996General and administrative
    
    
    110,371,878
    
    
    
    1,763,444Depreciation, depletion and amortization
    
    
    11,507,123
    
    
    
    7,286,065Accretion of asset retirement obligations
    
    
    27,544
    
    
    
    11,352Total operating costs and expenses
    
    
    127,728,612
    
    
    
    11,309,337Income (loss) from operations
    
    
    (84,514,574
    )
    
    
    5,205,397OTHER (EXPENSE) INCOMEInterest expense
    
    
    (3,100,490
    )
    
    
    (935,182
    )Interest income and other
    
    
    123,457
    
    
    
    43,320Risk management
    
    
    (20,206,968
    )
    
    
    (717,130
    )Total other (expenses) income
    
    
    (23,184,001
    )
    
    
    (1,608,992
    )Income (loss) before income taxes
    
    
    (107,698,575
    )
    
    
    3,596,405Income tax expense
    
    
    11,826,824
    
    
    
    NET INCOME (LOSS)
    
    $
    (119,525,399
    )
    
    $
    3,596,405
 Revenues
 31




---



##### Table of Contents



Six Months ended June 30,2008
    
    2007Project
    
    Operations
    
    Basin
    
    Mcf
    
    Bbls
    
    Mcf
    
    BblsCleveland Sand
    
    Operated
    
    Anadarko
    
    
    723,035
    
    
    
    89,235
    
    
    
    343,571
    
    
    
    48,335N. Barnett
    
    Operated
    
    Ft. Worth
    
    
    226,336
    
    
    
    30,772
    
    
    
    32,766
    
    
    
    6,032Biscuit Hill
    
    Operated
    
    Anadarko
    
    
    8,926
    
    
    
    43,438
    
    
    
    4,039
    
    
    
    37,997Eureka
    
    Non-Operated
    
    Anadarko
    
    
    220,602
    
    
    
    1,640
    
    
    
    56,506
    
    
    
    601,178,899
    
    
    
    165,085
    
    
    
    436,882
    
    
    
    92,424Production from remaining projects
    
    
    985,511
    
    
    
    32,842
    
    
    
    966,530
    
    
    
    19,641Total production for the period
    
    
    2,164,410
    
    
    
    197,927
    
    
    
    1,403,412
    
    
    
    112,065
  Lease Operating xpenses
 Production Taxes.
 General and Administrative Expenses
 Depreciation, Depletion and Amortization
 Income (loss) from Operations.
  32




---



##### Table of Contents



Other (Expense) Income
   Income (loss) before income taxes.
 Income Tax Expense.
 Net
Income
  Liquidity and Capital Resources
 Overview
     33




---



##### Table of Contents



Cash Flows
 Operating Activities.
  Investing Activities.
  Financing Activities.
  Critical Accounting Policies
  34




---



##### Table of Contents



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
   Changes in Internal Controls
  35




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Prices for oil and natural gas are volatile, and low prices could have a material adverse impact on
our business.
   
    
    the domestic and foreign supply of oil and natural gas;
    
    the ability of members of the Organization of Petroleum Exporting
Countries and other producing countries to agree upon and maintain oil prices
and production levels;
    
    political instability, armed conflict or terrorist attacks, whether or
not in oil or natural gas producing regions;
    
    the level of consumer product demand;
    
    the growth of consumer product demand in emerging markets, such as
China and India;
    
    labor unrest in oil and natural gas producing regions;
    
    weather conditions, including hurricanes and other natural occurrences
that affect the supply and/or demand of oil and natural gas;
    
    the price and availability of alternative fuels;
    
    the price of foreign imports;
    
    worldwide economic conditions; and
    
    the availability of liquid natural gas imports.
  We may be required to take non-cash asset writedowns if oil and natural gas prices decline.
  36




---



##### Table of Contents



Unless we replace our current production with new reserves, our reserves and future production will
decline, which would adversely affect our financial condition, results of operations and cash
flows.
   Our bank lenders can limit our borrowing capabilities, which may materially impact our operations.
  
    
    a portion of our cash flow from operations is used to pay interest on borrowings;
    
    the covenants contained in the agreements governing our debt limit our
ability to borrow additional funds, pay dividends, dispose of assets or issue
shares of preferred stock and otherwise may affect our flexibility in planning
for, and reacting to, changes in business conditions;
    
    a high level of debt may impair our ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions, general corporate or other purposes;
 37




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
    
    a more leveraged financial position would make us more vulnerable to
economic downturns and could limit our ability to withstand competitive
pressures; and
    
    any debt that we incur under our senior revolving credit facility will
be at variable rates which make us vulnerable to increases in interest rates.
 Our business is capital intensive and will require us to generate substantial cash flow to finance our capital expenditures.
  
    
    the level of production from our existing wells;
    
    prevailing and projected prices of oil and natural gas;
    
    our success in locating and producing new reserves;
    
    our success in timely developing proved undeveloped reserves; and
    
    general economic, financial, competitive, legislative, regulatory and
other factors beyond our control.
   We may not realize the benefits of integrating our business with the business of Westside.
  We may not be successful in acquiring, exploiting, developing or exploring for oil and gas
properties.
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
    
    capital or other factors, such as title defects;
    
    weather;
    
    compliance with governmental regulations or price controls;
    
    mechanical difficulties; or
    
    shortages or delays in the delivery of equipment.
   Estimates of oil and gas reserves depend on many assumptions that may be inaccurate. Any material
inaccuracies could adversely affect the quantity and value of our oil and gas reserves.
   
    
    historical production from the area compared with production from other
comparable producing areas;
    
    the assumed effects of regulations by governmental agencies;
    
    assumptions concerning future oil and gas prices; and
    
    assumptions concerning future operating costs, severance and excise
taxes, development costs and workover and remediation costs.
  
    
    the quantities of oil and gas that are ultimately recovered;
    
    the timing of the recovery of oil and gas reserves;
    
    the production and operating costs incurred; and
    
    the amount and timing of future development expenditures.
  39




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
    
    the amount and timing of actual production;
    
    supply and demand for oil and gas; and
    
    changes in governmental regulations or taxation.
  Our acquisition strategy could fail or present unanticipated problems for our business in the
future, which could adversely affect our ability to make acquisitions or realize anticipated
benefits of those acquisitions.
  
    
    diversion of managements attention;
    
    the need to integrate acquired operations;
    
    potential loss of key employees of the acquired companies;
    
    potential lack of operating experience in a geographic market of the
acquired business; and
    
    an increase in our expenses and working capital requirements.
   We depend substantially on the continued presence of key personnel for critical management
decisions and industry contacts.
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Our business is highly competitive.
  Hedging transactions may limit our potential gains and increase our potential losses.
  
    
    our production is less than expected;
    
    there is a widening of price differentials between delivery points for
our production and the delivery point assumed in the hedge arrangement; or
    
    the counterparties to our hedging agreements fail to perform under the
contracts.
 Our oil and natural gas activities are subject to various risks which are beyond our control.
  
    
    human error, accidents, labor force and other factors beyond our control that
may cause personal injuries or death to persons and destruction or damage to equipment
and facilities;
    
    blowouts, fires, hurricanes, pollution and equipment failures that may result
in damage to or destruction of wells, producing formations, production facilities,
equipment and the surrounding environment;
    
    unavailability of materials and equipment;
    
    engineering and construction delays;
    
    unanticipated transportation costs and delays;
    
    unfavorable weather conditions;
    
    hazards resulting from unusual or unexpected geological or
environmental conditions;
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
    
    environmental and OSHA regulations and requirements;
    
    accidental leakage of produced liquids or drilling fluids, into the
environment;
    
    hazards resulting from the presence of hydrogen sulfide in gas we
produce;
    
    changes in laws and regulations, including laws and regulations
applicable to oil and natural gas activities or markets for the oil and natural
gas produced;
    
    fluctuations in supply and demand for oil and natural gas causing
variations of the prices we receive for our oil and natural gas production; and
    
    the availability of alternative fuels and the price at which they
become available.
  Governmental and environmental regulations could adversely affect our business.
   
    
    from a well or drilling equipment at a drill site;
    
    from gathering systems, pipelines, transportation facilities and
storage tanks;
    
    damage to oil and natural gas wells resulting from accidents during
normal operations; and
    
    blowouts, hurricanes, cratering and explosions.
  We cannot be certain that the insurance coverage maintained by us will be adequate to cover all
losses that may be sustained in connection with all oil and natural gas activities.
  
    
    personal injury;
    
    bodily injury;
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
    
    third party property damage;
    
    medical expenses;
    
    legal defense costs;
    
    pollution in some cases;
    
    well blowouts in some cases; and
    
    workers compensation.
  Title to the properties in which we have an interest may be impaired by title defects.
  Part of our strategy involves exploratory drilling, including drilling in new or emerging plays. As
a result, our drilling results in these areas are uncertain, and the value of our undeveloped
acreage will decline if our drilling results are unsuccessful.
  Our exploration and development drilling efforts and the operation of our wells may not be
profitable or achieve our targeted returns.
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
    
    unexpected drilling conditions;
    
    pressure or irregularities in formations;
    
    equipment failures or accidents and shortages or delays in the
availability of drilling rigs and the delivery of equipment;
    
    adverse weather conditions, including hurricanes; and
    
    compliance with governmental requirements.
 The unavailability or high cost of drilling rigs, equipment, supplies, personnel and oil field
services could adversely affect our ability to execute our exploration and development plans on a
timely basis and within our budget.
  The marketability of our oil and natural gas production depends on services and facilities that we
typically do not own or control. The failure or inaccessibility of any such services or facilities
could result in a curtailment of production and revenues.
  We depend on the skill, ability and decisions of third party operators to a significant extent.
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New technologies may cause our current exploration and drilling methods to become obsolete.
  We exist in a litigious environment.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 (a)
 i.
    
    Information regarding the unregistered sale of
securities to the owners of the various entities acquired by the Company
pursuant to a contribution agreement dated December 31, 2007, was
previously provided in the Report on Form 8-K filed June 27, 2008.ii.
    
    In addition, on June 24, 2008, Sterne, Agee & Leach,
the placement agent in a private placement completed in November, 2004,
exercised outstanding warrants and acquired 65,000 shares of common stock
at a per share purchase price of $2.00. Proceeds of the sales were used
for general corporate purposes. The sale was exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended.
 (b)
    
    Not applicable.(c)
    
    Not applicable.
 
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  Votes Cast
    
    Votes Cast
    
    Votes Withheld /
    
    Broker Non-Matter Acted Upon
    
    For
    
    Against
    
    Abstentions
    
    Votes1. Proposal to issue an
aggregate of approximately 171.7
million shares of common stock
to the owners of Knight Energy
Group, LLC, Knight Energy Group
II, LLC, Hawk Energy Fund I, LLC
and RCH Upland Acquisition, LLC
in exchange for all of the
equity ownership interests in
such entities pursuant to a
contribution agreement dated as
of December 31, 2007, among the
foregoing entities and certain
other affiliated entities.
    
    18,805,571
    
    14,021
    
    13,615
    
    5,305,180
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##### Table of Contents



Votes Cast
    
    Votes Cast
    
    Votes Withheld /
    
    Broker Non-Matter Acted Upon
    
    For
    
    Against
    
    Abstentions
    
    Votes2. Proposal to adopt the
Companys 2008 Long Term
Incentive Plan (the 2008 LTIP)
and the grant of options to
purchase 35 million shares of
common stock under the 2008
LTIP.
    
    18,713,006
    
    106,986
    
    13,215
    
    5,305,1803. Proposal to amend the
Companys articles of
incorporation to increase the
number of authorized shares of
common stock to 500 million.
    
    18,763,551
    
    51,141
    
    18,515
    
    5,305,1804. Proposal to amend the
Companys articles of
incorporation to change its name
to Crusader Energy Group Inc.
    
    18,794,445
    
    14,347
    
    24,415
    
    5,305,1805. Proposal to give discretion
to the Companys board of
directors to effect a
one-for-two reverse split of
common stock.
    
    18,094,430
    
    724,862
    
    13,915
    
    5,305,1806. Election of Directors:     David D. Le Norman
    
    23,500,455
    
    
    
    637,932     Robert J. Raymond
    
    23,510,455
    
    
    
    627,932     Joe Colonnetta
    
    24,106,216
    
    
    
    32,171     James C. Crain
    
    24,106,216
    
    
    
    32,171     Robert H. Niehaus
    
    23,381,553
    
    
    
    756,834     Shirley A. Ogden
    
    24,105,916
    
    
    
    32,471     Phil D. Kramer
    
    23,480,755
    
    
    
    657,632
 
 Item 5. Other Information.
 (a)
    
    Not applicable.(b)
    
    Incorporated herein by reference are the amendments to the Companys bylaws
regarding the process by which shareholders may make nominations to the Companys board
of directors as discussed in and as attached as an exhibit to the Companys Report on
Form 8-K filed on June 27, 2008.
 
 Item 6. Exhibits.
 No.
    
    Description of Exhibit3.1
    
    Amended and Restated Articles of Incorporation, filed as the same numbered exhibit with
Crusader Energy Group Inc.s Form 8-K, filed June 27, 2008, Commission File No. 1-32533*
 46




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##### Table of Contents



No.
    
    Description of Exhibit3.2
    
    Second Amended and Restated Bylaws of Crusader Energy Group Inc., as amended, which were
approved by the Crusader Energy Group Inc. Board of Directors on June 26, 2008**10.1
    
    Second Amended and Restated Credit Agreement, dated June 26, 2008, among Crusader Energy
Group Inc., Union Bank of California, N.A., as administrative agent and as issuing lender, and
the lenders signatory thereto, filed as the same numbered exhibit with Crusader Energy Group
Inc.s Form 8-K, filed June 27, 2008, Commission File No. 1-32533*10.2
    
    Amended and Restated Subordinated Credit Agreement, dated June 26, 2008, among Crusader
Energy Group Inc., UnionBanCal Equities, Inc., as administrative agent, and the lenders
signatory thereto, filed as the same numbered exhibit with Crusader Energy Group Inc.s Form
8-K, filed June 27, 2008, Commission File No. 1-32533*10.3
    
    Personnel Services Agreement, dated June 26, 2008, between Crusader Energy Group Inc. and
Crusader Management Company, filed as the same numbered exhibit with Crusader Energy Group
Inc.s Form 8-K, filed June 27, 2008, Commission File No. 1-32533*10.4
    
    Crusader Energy Group Inc. 2008 Long Term Incentive Plan, filed as the same numbered exhibit
with Crusader Energy Group Inc.s Form 8-K, filed June 27, 2008, Commission File No. 1-32533,
which includes the Form of Option Award Agreement and supersedes (i) the Westside Energy
Corporation 2008 Long Term Incentive Plan, filed as Annex C to the Westside Energy Corporation
Definitive Proxy Statement (File No. 001-32533), filed May 28, 2008, which was incorporated by
reference as Exhibit 4.2 to the Westside Energy Corporation Registration Statement on Form
S-8, filed June 25, 2008, and (ii) the Form of Option Award Agreement under the Westside
Energy Corporation 2008 Long Term Incentive Plan, filed as Exhibit B to Annex C to the
Westside Energy Corporation Definitive Proxy Statement (File No. 001-32533), filed May 28,
2008, which was incorporated by reference as Exhibit 4.3 to the Westside Energy Corporation
Registration Statement on Form S-8, filed June 25, 2008*10.5
    
    Registration Rights Agreement, dated June 26, 2008, among Crusader Energy Group Inc., Knight
Energy Group I Holding Co., LLC, Knight Energy Group II Holding Company, LLC, Hawk Energy Fund
I Holding Company, LLC and RCH Energy Opportunity Fund I, L.P., filed as the same numbered
exhibit with Crusader Energy Group Inc.s Form 8-K, filed June 27, 2008, Commission File No.
1-32533*10.6
    
    Non-Transfer Agreement, dated June 26, 2008, between Crusader Energy Group Inc. and Knight
Energy Group I Holding Co., LLC, filed as the same numbered exhibit with Crusader Energy Group
Inc.s Form 8-K, filed June 27, 2008, Commission File No. 1-32533*10.7
    
    Non-Transfer Agreement, dated June 26, 2008, between Crusader Energy Group Inc. and Knight
Energy Group II Holding Company, LLC, filed as the same numbered exhibit with Crusader Energy
Group Inc.s Form 8-K, filed June 27, 2008, Commission
File No. 1-32533*10.8
    
    Non-Transfer Agreement, dated June 26, 2008, between Crusader Energy Group Inc. and Hawk
Energy Fund I Holding Company, LLC, filed as the same numbered exhibit with Crusader Energy
Group Inc.s Form 8-K, filed June 27, 2008, Commission
File No. 1-32533*10.9
    
    Non-Transfer Agreement, dated June 26, 2008, between Crusader Energy Group Inc. and RCH
Energy Opportunity Fund I, L.P., filed as the same numbered exhibit with Crusader Energy Group
Inc.s Form 8-K, filed June 27, 2008, Commission File No. 1-32533*10.10
    
    Services Agreement, dated June 26 2008, between Crusader Energy Group Inc. and Robert J.
Raymond, filed as the same numbered exhibit with Crusader Energy Group Inc.s Form 8-K filed
June 27, 2008, Commission File No. 1-32533*10.11
    
    Employment Agreement, dated June 26 ,2008, between Crusader Energy Group Inc. and David D.
Le Norman, filed as the same numbered exhibit with Crusader Energy Group Inc.s Form 8-K,
filed June 27, 2008, Commission File No. 1-32533*
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##### Table of Contents



No.
    
    Description of Exhibit10.12
    
    Indemnification Agreement, dated June 26, 2008, between Crusader Energy Group Inc. and
Robert J. Raymond, together with a schedule identifying other substantially identical
agreements between Crusader Energy Group Inc. and each director and officer of Crusader Energy
Group Inc. identified on the schedule and identifying the material differences between each of
those agreements and the filed Indemnification Agreement, filed as the same numbered exhibit
with Crusader Energy Group Inc.s Form 8-K, filed June 27, 2008, Commission File No. 1-32533*10.13
    
    Business Opportunity Agreement, dated June 26, 2008, among Crusader Energy Group Inc. and
the parties listed on Exhibit A thereto, filed as the same numbered exhibit with Crusader
Energy Group Inc.s Form 8-K, filed June 27, 2008, Commission File No. 1-32533*10.14
    
    Second Lien Credit Agreement, dated July 17, 2008 and effective as of July 18, 2008, among
Crusader Energy Group Inc., JPMorgan Chase Bank, N.A., as administrative agent, and the
lenders signatory thereto, filed as the same numbered exhibit with Crusader Energy Group
Inc.s Form 8-K, filed July 21, 2008, Commission File No. 1-32533*10.15
    
    Amendment No. 1, dated as of July 18, 2008, among Crusader Energy Group Inc., Union Bank of
California, N.A., as administrative agent and issuing lender, and the lenders signatory
thereto, filed as the same numbered exhibit with Crusader Energy Group Inc.s Form 8-K, filed
July 21, 2008, Commission File No. 1-32533*31.1
    
    Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002**31.2
    
    Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002**32.1
    
    Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002**32.2
    
    Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002**
 
 *
    
    Incorporated by reference**
    
    Filed herewith 48




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##### Table of Contents



SIGNATURES
  CRUSADER ENERGY GROUP, INC.(Registrant)Date: August 14, 2008
    
    By:
    
    /s/ David D. Le NormanDavid D. Le NormanPresident and Chief Executive Officer(Principal Executive Officer)Date: August 14, 2008
    
    By:
    
    /s/ John G. HeinenJohn G. HeinenSenior Vice President, Chief Financial Officer and Treasurer(Principal Financial Officer)




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INDEX TO EXHIBITS
 No.
    
    Description of Exhibit3.2
    
    Second Amended and Restated Bylaws of Crusader Energy Group Inc., as amended, which were
approved by the Crusader Energy Group Inc. Board of Directors on June 26, 200831.1
    
    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