UNITED ~~STATES~~ ~~SECURITIES~~STATESSECURITIES AND EXCHANGE ~~COMMISSION~~COMMISSIONWashington, D.C. 20549

Washington, D.C. 20549

FORM 10-K

~~x Annual Report~~ ~~Pursuant to Section 13 or 15~~(d)Mark ~~of the Securities Exchange Act of~~One) ~~1934~~

~~For~~[ x ] ANNUAL REPORT PURSUANT TO SECTION ~~the~~13 ~~Fiscal~~OR ~~Year~~15(d) ~~Ended~~OF ~~December~~THE ~~31,~~SECURITIES ~~2008~~EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2009

~~o Transition Report~~[ ] TRANSITION ~~Pursuant~~ REPORT toPURSUANT ~~Section~~TO ~~13or~~SECTION 13 or 15(d) ofOF ~~the~~THE ~~Securities~~SECURITIES ~~Exchange~~EXCHANGE ~~Act~~ACT of OF 1934

For the transition period from ~~_____~~__________to ~~to _____~~____________

Commission File Number: 0-52411

~~BONANZA~~ BONANZA OIL & GAS, INC. (Exact name of registrant as specified in its charter)

(Exact name of registrant as specified in its charter)

Nevada	76-0720654
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

~~3000 Richmond~~3417 ~~Avenue~~Mercer, Suite ~~400~~E, Houston, Texas ~~77098~~77027 (Address of principal executive offices)

(Address of principal executive offices)

Registrant's telephone number, including area code: (713) 333-5808

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ~~Yeso~~ Yes [ ] No [ x ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section13 or Section 15(d) of the Act. Yes o [ ] No [ x ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No o [ ]

Indicate by check mark if whether ~~disclosure~~the ofregistrant ~~delinquent~~has ~~filers~~submitted ~~pursuant~~electronically toand ~~Item~~posted ~~405~~on its corporate ~~of Regulation S-K is~~ Web ~~not~~site, ~~contained~~if ~~herein~~any, ~~and~~every ~~will~~Interactive ~~not~~Data File required to be submitted and posted ~~contained,~~ pursuant to ~~the~~Rule-405 ~~best~~ of ~~the~~Regulation ~~registrant's~~S-T ~~knowledge,~~(§ in232.405 ~~definitive~~of ~~proxy or~~this ~~information~~chapter) ~~statements incorporated by reference in~~during the ~~Part~~ preceding ~~III~~12 ofmonths ~~this Form~~(or ~~10-K~~for orsuch ~~any~~shorter ~~amendment~~period that the registrant was required to ~~this~~submit ~~Form~~and ~~10-K~~post such files).o Yes [ ] No [ ]

Indicate by check mark if ~~whether~~disclosure ~~the~~of ~~registrant~~delinquent isfilers apursuant ~~large~~to ~~accelerated~~Item ~~filer,~~405 ~~an accelerated~~of ~~filer,~~Regulation ~~a non~~S-~~accelerated~~K ~~filer~~is not contained herein, orand awill ~~smaller~~not ~~reporting company. See~~be contained, to the ~~definitions~~best of ~~“large~~the ~~accelerated filer”,~~registrant's ~~“accelerated filer”~~ knowledge, ~~“non-accelerated~~in ~~filer”~~definitive ~~and~~proxy ~~“smaller~~or ~~reporting~~information ~~company”~~statements inincorporated by reference ~~Rule~~ in ~~12b-2~~Part III of ~~the~~this ~~Exchange~~Form ~~Act~~10-K ~~(Check~~or ~~one):~~any amendment to this Form 10-K. [ ]

~~Large~~Indicate by check mark whether the registrant is a large accelerated filer, oan ~~Accelerated~~accelerated filer, ~~o Non~~a non-accelerated filer, oor ~~Smaller~~a smaller reporting company. xSee ~~(Do~~the ~~not~~definitions ~~check~~of "large ifaccelerated afiler", "accelerated filer", "non-accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):

~~Indicate by~~Large ~~check~~accelerated ~~mark~~filer ~~whether~~[ ~~the~~] ~~registrant~~Accelerated isfiler a[ ~~shell~~] ~~company~~Non-accelerated ~~(as~~filer ~~defined~~[ in] ~~Rule 12b-2~~Smaller ofreporting ~~the~~company ~~Exchange~~[ ~~Act). Yes o No~~ x ]

Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2008		$	17,249,450
Number of shares of registrant’s common stock outstanding as of April 15, 2009			36,676,017

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ x ]

Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2009	$5,074,202

Number of shares of registrant's common stock outstanding as of April 13, 2010	580,252,033

DOCUMENTS INCORPORATED BY REFERENCE

Portions of registrant’s proxy statement related to the registrant’s 2009 annual meeting of stockholders have been incorporated by reference in parts II and III hereof.

BONANZA OIL & GAS, INC.

TABLE OF CONTENTS

PART I
	ITEM 1.	BUSINESS	2
	ITEM 1A.	RISK FACTORS	5
	ITEM 1B.	UNRESOLVED STAFF COMMENTS	10
	ITEM 2.	PROPERTIES	10
	ITEM 3.	LEGAL PROCEEDINGS	13
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	13
PART II
	ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY AND
		RELATED STOCKHOLDER MATTERS	14
	ITEM 6.	SELECTED FINANCIAL DATA	14
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
		CONDITION AND RESULTS OF OPERATIONS	14
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
		MARKET RISK	21
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	21
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
		ON ACCOUNTING AND FINANCIAL DISCLOSURE	21
	ITEM 9A.	CONTROLS AND PROCEDURES	23
	ITEM 9B.	OTHER INFORMATION	24
PART III
	ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	24
	ITEM 11.	EXECUTIVE COMPENSATION	24
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
		MANAGEMENT	24
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
		DIRECTOR INDEPENDENCE	24
	ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	25
PART IV
	ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
		ON FORM 8-K	26
SIGNATURES			27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			F-1
CONSOLIDATED BALANCE SHEETS			F-2
STATEMENTS OF CONSOLIDATED OPERATIONS			F-3
STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY			F-4
STATEMENTS OF CONSOLIDATED CASH FLOWS			F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			F-6

PART I

ITEM 1. BUSINESS

FORWARD-LOOKING STATEMENTS

We often discuss expectations regarding our future markets, demand for our products and services, and our performance in our annual and quarterly reports, press releases, and other written and oral statements. Statements that relate to matters that are not historical facts are “forward-looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These “forward-looking statements” are based on an analysis of currently available competitive, financial and economic data and our operating plans. They are inherently uncertain and investors should recognize that events and actual results could turn out to be significantly different from our expectations. By way of illustration, when used in this document, words such as “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “will,” “should,” “could,” “may,” “predict” and similar expressions are intended to identify forward-looking statements.

This Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes forward-looking statements. Forward-looking statements include, but are not limited to, any statements regarding future revenues, costs and expenses, earnings, earnings per share, margins, cash flows, dividends and capital expenditures. Important factors which may affect the actual results include, but are not limited to, political developments, market and economic conditions, changes in raw material, transportation and energy costs, industry competition, the ability to execute and realize the expected benefits from strategic initiatives including revenue growth plans and cost control and productivity improvement programs, changes in mix of products sold, mergers and acquisitions and their integration into Bonanza, changes in financial markets and changing legislation and regulations including changes in tax law or tax regulations. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

The above description of risks and uncertainties is by no means all-inclusive, but is designed to highlight what we believe are important factors to consider. For a more detailed description of risk factors, please see Part I —Item 1A. — Risk Factors.

Unless the context requires otherwise, references in this Annual Report on Form 10-K to “we,” “us,” “our,” “the Company,” or “Bonanza” means Bonanza Oil and Gas, Inc. and, where the context requires, includes our subsidiaries.

General

We are an independent energy company that is engaged in the exploration, development and production of crude oil, natural gas and natural gas liquids in the United States.

We were incorporated in the State of Nevada on December 24, 2002, under the name “National Filing Agents, Inc.” ("NFA"). On December 18, 2006, NFA filed a registration statement on Form SB-2 to register the stock of its non-affiliated shareholders. The registration was declared effective on January 22, 2007. Effective January 10, 2008, NFA changed its name to “Bonanza Oil & Gas, Inc.” from “National Filing Agents, Inc.” In addition, effective January 10, 2008, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from NFLA to BGOI and the Company implemented a forward split of the issued and outstanding shares of the Company’s Common Stock, whereby every share of the Company’s Common Stock held was exchanged for 2.1 shares of the Company’s Common Stock. All share amounts reflected throughout this document reflect the 2.1 for 1 forward stock split unless otherwise so indicated.

Acquisitions

As a result of the acquisition of PWI, the Company obtained a 22.5% pre-payout (15% post- payout) working interest in eight oil and gas wells in Gonzales County, Texas. PWI paid a total of $750,000 during September 2007 to acquire the wells. PWI will receive 15.75% of the net revenues from the wells until it has recovered its $750,000 cost at which time the net revenue interest will drop to 10.5% of net revenues. Five of the wells are currently inactive.

Concurrent with entering into the PWI Agreement, the Company purchased a 25% interest in approximately 6,700 acres in the Apclark Field of Southwestern Borden County, Texas in exchange for 6,300,000 shares of the Company's Common Stock.

Concurrent with entering into the PWI Agreement, Mssrs. William Wiseman, President, Chief Executive Officer and a Director of the Company, and Robert Teague, Vice President - Operations and a Director of the Company, agreed to assign various nonmonetary assets to the Company. These nonmonetary assets consisted of a 25% working interest on leases containing the Cadillac Prospect in the Mercedes Field of Hidalgo County, Texas and a 50% working interest on leases located within the Damon Mound Field of Brazoria County, Texas, along with seismic data.

On July 18, 2008, the Company, Borland Good North Inc., a wholly-owned subsidiary of the Company (“Borland”), Black Pearl Energy, Inc. (“Black Pearl”), and the shareholders holding a majority of the issued and outstanding shares of Black Pearl, (collectively the “Black Pearl Majority Shareholders”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), which closed on July 18, 2008. Pursuant to the terms of the Merger Agreement, Black Pearl merged with and into Borland, which became a wholly-owned subsidiary of the Company (the “Merger”). In consideration for the Merger, the Company issued an aggregate of 7,024,665 (the “Black Pearl Acquisition Shares”) shares of the Company’s Common Stock to the Black Pearl Majority Shareholders and the other shareholders of Black Pearl at the closing of the merger. Prior to the Merger Agreement, Black Pearl owned 2,709,000 shares of the Company’s Common Stock, which were cancelled in conjunction with the Merger. Black Pearl was an exploration and development company located in Midland, Texas. On July 14, 2008, Black Pearl acquired options to purchase an undivided 75% working interest in two drilling projects for total consideration of $500,000. Concurrently with executing these options, Black Pearl entered into a note agreement with the Company for $500,000. The note bore interest at 8% per year with a maturity date of November 14, 2008, or the date at which a letter of intent to merge the Company expired. The note was cancelled in conjunction with the Merger. At the closing of the acquisition, a total of $2,000,000 in additional consideration was due to fully exercise the option to purchase the 75% working interest in the two projects noted above.

Growth Strategy

The Company’s mission is to grow a profitable upstream oil and gas company for the long-term benefit of our shareholders. Our strategy includes building a balanced portfolio of assets, maintaining financial flexibility, and maximizing earnings and cash flows by controlling costs.

Segment Information

The Company operates in one business segment, the exploration, development and production of crude oil, natural gas and natural gas liquids in the United States. Financial information for the Company can be found beginning on page F-1.

Marketing of Crude Oil and Natural Gas

We operate exclusively in the oil and gas industry. Crude oil and natural gas production from wells owned by us is generally sold directly to oil purchasers and natural gas marketing companies. Sales are generally made on the spot market. These prices often are tied to WTI crude and natural gas futures contracts as posted in national publications. We have not entered into any agreements to hedge or sell forward any of our oil and gas production.

The operators of the properties in which the Company has a working interest are responsible for the sale and marketing of the Company’s share of production. Although management believes that we are not dependent upon any one customer, as there are numerous purchasers of crude oil and natural gas production in the industry, approximately 76% of the Company’s revenue was received from the operator of the Company’s Apclark wells and 24% from the operator of the Company’s Plantation wells for the year ended December 31, 2008. The Company received all of its 2007 revenues from the operator of its Plantation wells.

Competition

We are in direct competition with numerous oil and natural gas companies, drilling and income programs and partnerships exploring various areas of Texas and elsewhere competing for properties. Many competitors are large, well-known oil and gas and/or energy companies, although no single entity dominates the industry. Many of our competitors possess greater financial and personnel resources, enabling them to identify and acquire more economically desirable energy producing properties and drilling prospects than us. Additionally, there is competition from other fuel choices to supply the energy needs of consumers and industry. Management believes that there exists a viable market place for smaller producers of crude oil and natural gas.

Seasonality

Weather conditions affect the demand for, and prices of, crude oil and natural gas and can also delay drilling activities, disrupting our overall business plans. Demand for crude oil is typically higher in the second and third quarters resulting from increased driving during the summer months, while demand for natural gas is typically higher in the fourth and first quarters. Due to these seasonal fluctuations, results of operations for individual quarterly periods may not be indicative of the results that may be realized on an annual basis.

Costs and Effects of Compliance with Governmental Regulations and Environmental Laws

Various federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, will directly impact our planned future oil and gas exploration, development and production operations, and consequently may impact our operations and costs moving forward, assuming we are able to raise sufficient capital to purchase oil and gas interests and sustain our operations, of which there can be no assurance. These regulations include, among others,

· regulations by the Environmental Protection Agency and various state agencies regarding approved methods of disposal for certain hazardous and non-hazardous wastes;

· the Comprehensive Environmental Response, Compensation, and Liability Act, Federal Resource Conservation and Recovery Act and analogous state laws which regulate the removal or remediation of previously disposed wastes (including wastes disposed of or released by prior owners or operators), property contamination (including groundwater contamination), and remedial plugging operations to prevent future contamination;

· the Clean Air Act and comparable state and local requirements which may result in the gradual imposition of certain pollution control requirements with respect to air emissions from our operations;

· the Oil Pollution Act of 1990 which contains numerous requirements relating to the prevention of and response to oil spills into waters of the United States;

· the Resource Conservation and Recovery Act which is the principal federal statute governing the treatment, storage and disposal of hazardous wastes; and

· state regulations and statutes governing the handling, treatment, storage and disposal of naturally occurring radioactive material.

We have not had any costs associated with the above regulations to date; however, there can be no assurance that the costs required to comply with the regulations above will not be substantial. Furthermore, if we are deemed not to be in compliance with applicable environmental laws, we could be forced to expend substantial amounts to be in compliance, which would have a materially adverse effect on our available cash and liquidity, and/or could force us to curtail or abandon our current business operations.

Employees

As of December 31, 2008, we had three employees. None of our employees are members of any unions, nor have they entered into any collective bargaining agreements. We believe that our relationship with our employees is good. With the successful implementation of our business plan, we may seek additional employees in the next year to handle anticipated potential growth.

ITEM 1A. RISK FACTORS

You should carefully consider the following risk factors and all other information contained herein as well as the information included in this Annual Report in evaluating our business and prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, other than those we describe below, that are not presently known to us or that we currently believe are immaterial, may also impair our business operations. If any of the following risks occur, our business and financial results could be harmed. You should refer to the other information contained in this Annual Report, including our consolidated financial statements and the related notes.

We have a limited operating history and if we are not successful in continuing to grow our business, then we may have to scale back or even cease our ongoing business operations.

We have received a limited amount of revenues from operations and have limited assets. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. We have a limited operating history. Our success is significantly dependent on a successful acquisition, drilling, completion and production program. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to locate recoverable reserves or operate on a profitable basis. We are in the exploration stage and potential investors should be aware of the difficulties normally encountered by enterprises in the exploration stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment.

There is substantial doubt about our ability to continue as a going concern.

We received an audit report for the year ended December 31, 2008, from our independent registered public accounting firm containing an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The Company has no significant operating history as of December 31, 2008, and since inception, the Company has not had significant revenues. Management raised additional equity and debt financing to fund operations and to provide additional working capital. However, we do not have sufficient capital for current operations through our cash position and current cash flow. To continue our growth and to fund our expansion plans we will require additional funding. There can be no assurance that we will be able to obtain such financing on attractive terms, if at all.

We do not intend to pay dividends to our shareholders.

We do not currently intend to pay cash dividends on our Common Stock and do not anticipate paying any dividends at any time in the foreseeable future. At present, we will follow a policy of retaining all of our earnings, if any, to finance development and expansion of our business.

Our officers and directors have limited liability, and we are required in certain instances to indemnify our officers and directors for breaches of their fiduciary duties.

We have adopted provisions in our Articles of Incorporation and Bylaws which limit the liability of our officers and directors and provide for indemnification by us of our officers and directors to the full extent permitted by Nevada corporate law. Our articles generally provide that our officers and directors shall have no personal liability to us or our shareholders for monetary damages for breaches of their fiduciary duties as directors, except for breaches of their duties of loyalty, acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, acts involving unlawful payment of dividends or unlawful stock purchases or redemptions, or any transaction from which a director derives an improper personal benefit. Such provisions substantially limit our shareholders' ability to hold officers and directors liable for breaches of fiduciary duty, and may require us to indemnify our officers and directors.

We face intense competition.

We compete against many other energy companies, most of which have considerably greater resources and abilities than we do. These competitors may have greater marketing and sales capacity, established distribution networks, significant goodwill and global name recognition.

We depend significantly upon the continued involvement of our present management.

Our success depends to a significant degree upon the involvement of our management, who are in charge of our strategic planning and operations. We may need to attract and retain additional talented individuals in order to carry out our business objectives. The competition for such persons could be intense and there are no assurances that these individuals will be available to us.

Our business is subject to extensive regulation.

As many of our activities are subject to federal, state and local regulation, and as these rules are subject to constant change or amendment, there can be no assurance that our operations will not be adversely affected by new or different government regulations, laws or court decisions applicable to our operations.

Government regulation and liability for environmental matters may adversely affect our business and results of operations.

Crude oil and natural gas operations are subject to extensive federal, state and local government regulations, which may be changed from time to time. Matters subject to regulation include discharge permits for drilling operations, drilling bonds, reports concerning operations, the spacing of wells, unitization and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of crude oil and natural gas wells below actual production capacity in order to conserve supplies of crude oil and natural gas. There are federal, state and local laws and regulations primarily relating to protection of human health and the environment applicable to the development, production, handling, storage, transportation and disposal of crude oil and natural gas, byproducts thereof and other substances and materials produced or used in connection with crude oil and natural gas operations. In addition, we may inherit liability for environmental damages caused by previous owners of property we purchase or lease. As a result, we may incur substantial liabilities to third parties or governmental entities. We are also subject to changing and extensive tax laws, the effects of which cannot be predicted. The implementation of new, or the modification of existing, laws or regulations could have a material adverse effect on us.

The crude oil and natural gas reserves we report are estimates and may prove to be inaccurate.

There are numerous uncertainties inherent in estimating crude oil and natural gas reserves and their estimated values. The reserves we report in our filings with the SEC are estimates and such estimates may prove to be inaccurate because of these uncertainties. Reservoir engineering is a subjective and inexact process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner. Estimates of economically recoverable crude oil and natural gas reserves depend upon a number of variable factors, such as historical production from the area compared with production from other producing areas and assumptions concerning effects of regulations by governmental agencies, future crude oil and natural gas prices, future operating costs, severance and excise taxes, development costs and work-over and remedial costs. Some or all of these assumptions may in fact vary considerably from actual results. For these reasons, estimates of the economically recoverable quantities of crude oil and natural gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows expected there from prepared by different engineers or by the same engineers but at different times may vary substantially. Accordingly, reserve estimates may be subject to downward or upward adjustment. Actual production, revenue and expenditures with respect to our reserves will likely vary from estimates, and such variances may be material.

Crude oil and natural gas well development, re-completion of wells from one reservoir to another reservoir, restoring wells to production and drilling and completing new wells are speculative activities and involve numerous risks and substantial and uncertain costs.

Our growth will be materially dependent upon the success of our future development program. Drilling for crude oil and natural gas and reworking existing wells involves numerous risks, including the risk that no commercially productive crude oil or natural gas reservoirs will be encountered. The cost of drilling, completing and operating wells is substantial and uncertain, and drilling operations may be curtailed, delayed or cancelled as a result of a variety of factors beyond our control, including:

· unexpected drilling conditions;

· pressure or irregularities in formations;

· equipment failures or accidents;

· inability to obtain leases on economical terms, where applicable;

· adverse weather conditions;

· compliance with governmental requirements; and

· shortages or delays in the availability of drilling rigs or crews and the delivery of equipment.

Drilling or reworking is a highly speculative activity. Even when fully and correctly utilized, modern well completion techniques such as hydraulic fracturing and horizontal drilling do not guarantee that we will find crude oil and/or natural gas in our wells. Hydraulic fracturing involves pumping a fluid with or without particulates into a formation at high pressure, thereby creating fractures in the rock and leaving the particulates in the fractures to ensure that the fractures remain open, thereby potentially increasing the ability of the reservoir to produce oil or gas. Horizontal drilling involves drilling horizontally out from an existing vertical well bore, thereby potentially increasing the area and reach of the well bore that is in contact with the reservoir. Our future drilling activities may not be successful and, if unsuccessful, such failure would have an adverse effect on our future results of operations and financial condition. We cannot assure you that our overall drilling success rate or our drilling success rate for activities within a particular geographic area will not decline. We may identify and develop prospects through a number of methods, some of which do not include lateral drilling or hydraulic fracturing, and some of which may be unproven. The drilling and results for these prospects may be particularly uncertain. Our drilling schedule may vary from our capital budget. The final determination with respect to the drilling of any scheduled or budgeted prospects will be dependent on a number of factors, including, but not limited to:

· the results of previous development efforts and the acquisition, review and analysis of data;

· the availability of sufficient capital resources to us and the other participants, if any, for the drilling of the prospects;

· the approval of the prospects by other participants, if any, after additional data has been compiled;

· economic and industry conditions at the time of drilling, including prevailing and anticipated prices for crude oil and natural gas and the availability of drilling rigs and crews;

· our financial resources and results;

· the availability of leases and permits on reasonable terms for the prospects; and

· the success of our drilling technology.

We cannot assure you that these projects can be successfully developed or that the wells discussed will, if drilled, encounter reservoirs of commercially productive crude oil or natural gas. There are numerous uncertainties in estimating quantities of proved reserves, including many factors beyond our control.

Crude oil and natural gas prices are highly volatile in general and low prices will negatively affect our financial results.

Our revenues, operating results, profitability, cash flow, future rate of growth and ability to borrow funds or obtain additional capital, as well as the carrying value of our properties, are substantially dependent upon prevailing prices of crude oil and natural gas. Lower crude oil and natural gas prices also may reduce the amount of crude oil and natural gas that we can produce economically. Historically, the markets for crude oil and natural gas have been very volatile, and such markets are likely to continue to be volatile in the future. Prices for crude oil and natural gas are subject to wide fluctuation in response to relatively minor changes in the supply of and demand for crude oil and natural gas, market uncertainty and a variety of additional factors that are beyond our control, including:

· worldwide and domestic supplies of crude oil and natural gas;

· the level of consumer product demand;

· weather conditions;

· domestic and foreign governmental regulations;

· the price and availability of alternative fuels;

· political instability or armed conflict in oil producing regions;

· the price and level of foreign imports; and

· other domestic and global economic conditions.

It is extremely difficult to predict future crude oil and natural gas price movements with any certainty. Declines in crude oil and natural gas prices may materially adversely affect our financial condition, liquidity, ability to finance planned capital expenditures and results of operations.

The market price for our Common Stock may be volatile, and you may not be able to sell our stock at a favorable price or at all.

Many factors could cause the market price of our Common Stock to rise and fall, including:

· actual or anticipated variations in our quarterly results of operations;

· changes in market valuations of companies in our industry;

· changes in expectations of future financial performance;

· fluctuations in stock market prices and volumes;

· issuances of Common Stock or other securities in the future;

· the addition or departure of key personnel;

· announcements by us or our competitors of acquisitions, dispositions, investments or strategic alliances; and

· the increase or decline in the price of crude oil or natural gas.

It is possible that the proceeds from sales of our Common Stock may not equal or exceed the prices you paid for it plus the costs and fees of making the sales.

Substantial sales of our Common Stock, or the perception that such sales might occur, could depress the market price of our Common Stock.

We cannot predict whether future issuances of our Common Stock or resales in the open market will decrease the market price of our Common Stock. The impact of any such issuances or resales of our Common Stock on our market price may be increased as a result of the fact that our Common Stock is thinly, or infrequently, traded. The exercise of any options or the vesting of any restricted stock that we may grant to directors, executive officers and other employees in the future, the issuance of Common Stock in connection with acquisitions and other issuances of our Common Stock could have an adverse effect on the market price of our Common Stock. In addition, future issuances of our Common Stock may be dilutive to existing shareholders. Any sales of substantial amounts of our Common Stock in the public market, or the perception that such sales might occur, could lower the market price of our Common Stock.

We have anti-takeover defenses that could delay or prevent an acquisition and could adversely affect the price of our Common Stock.

Provisions in our certificate of incorporation and by-laws and provisions of Nevada law could delay, defer or prevent an acquisition or change in control of us or otherwise adversely affect the price of our Common Stock. Nevada law also contains certain provisions that may have an anti-takeover effect and otherwise discourage third parties from effecting transactions with us.

Penny Stock Regulations may impose certain restrictions on marketability of the Company’s securities.

The trading of the Company’s Common Stock is subject to rules pertaining to “penny stocks.” The Securities and Exchange Commission (“SEC”) has adopted regulations which generally define a “penny stock” to be any equity security that has a market price (as defined) of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. As a result, the Company’s Common Stock is subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established clients and “accredited investors.” For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer must also disclose the commission payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealers presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell shares of the Company’s Common Stock and may affect the ability of investors to sell such shares of Common Stock in the secondary market and the price at which such investors can sell any of such shares.

Investors should be aware that, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include:

· control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

· manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

· “boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;

· excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

· the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investors losses

The Company’s management is aware of the abuses that have occurred historically in the penny stock market.

IN ADDITION TO THE RISK FACTORS SET FORTH ABOVE, THE COMPANY IS SUBJECT TO NUMEROUS OTHER RISKS SPECIFIC TO THE PARTICULAR BUSINESS OF THE COMPANY, AS WELL AS GENERAL BUSINESS RISK. INVESTORS ARE URGED TO CONSIDER ALL OF THE RISKS INHERENT IN THE COMPANY'S SECURITIES PRIOR TO PURCHASING OR MAKING AN INVESTMENT DECISION. THE COMPANY'S SECURITIES ARE HIGHLY SPECULATIVE AND INVOLVE A VERY HIGH DEGREE OF RISK.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

BONANZA OIL & GAS, INC. TABLE OF CONTENTS


PART I
ITEM 1.	BUSINESS	2
ITEM 1A.	RISK FACTORS	5
ITEM 1B.	UNRESOLVED STAFF COMMENTS	12
ITEM 2.	PROPERTIES	12
ITEM 3.	LEGAL PROCEEDINGS	14
ITEM 4.	REMOVED AND RESERVED	14
PART II
ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	15
ITEM 6.	SELECTED FINANCIAL DATA	17
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	17
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	26
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	27
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	27
ITEM 9A.	CONTROLS AND PROCEDURES	27
ITEM 9B.	OTHER INFORMATION	28
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	28
ITEM 11.	EXECUTIVE COMPENSATION	31
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	33
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	34
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	35
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	36
SIGNATURES		40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-1
CONSOLIDATED BALANCE SHEETS		F-2
STATEMENTS OF CONSOLIDATED OPERATIONS		F-3
STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY (DEFICIT)		F-4
STATEMENTS OF CONSOLIDATED CASH FLOWS		F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-6

~~Summary~~ PART I

WeITEM ~~maintain our principal office at 3000 Richmond Avenue, Suite 400, Houston, Texas 77098~~1. Our telephone number at that office is 713-333-5808. Our current office space consists of approximately 5,100 square feet. During 2007 and 2008, we sublet the space from United Production & Exploration, Inc., a company majority owned by Mr. Teague and Mr. Wiseman, executive officers and directors of the Company. In November 2008, we entered into a direct lease of this office space with the building owner for a 38-month term. The initial monthly rental totals $8,397 per month. We believe that our current office space and facilities are sufficient to meet our present needs and do not anticipate any difficulty securing alternative or additional space, as needed, on terms acceptable to us.

~~Our crude oil and natural gas~~ ~~properties consist essentially of working interests owned by us in various oil and gas wells and leases located in Texas. Recapped below is a brief synopsis of each of our core areas of operation:~~BUSINESS

~~Apclark~~ FORWARD-LOOKING ~~Field~~STATEMENTS

~~The~~ We ~~Company~~often ~~holds~~discuss aexpectations ~~25%~~regarding ~~working interest~~our ~~and~~future anmarkets, ~~18.75%~~demand ~~net~~for ~~revenue~~our ~~interest~~products inand ~~this 6~~services,~~700~~ ~~acre~~and ~~producing~~our ~~field located~~performance in ~~Borden~~our ~~County,~~annual ~~Texas. Primary~~and ~~production~~quarterly isreports, ~~obtained~~press ~~from the~~releases, Joand ~~Mill~~other ~~Spraberry~~written ~~trend,~~and ~~with~~oral ~~offset~~statements. Statements ~~production~~that ~~exceeding~~relate 70to ~~million~~matters ~~barrels (“mmbls”)~~that ofare ~~crude~~not ~~oil~~historical ~~and~~facts 80are ~~billion~~“forward-looking ~~cubic~~statements”. ~~feet~~These (“~~bcf~~forward-looking statements”) ofare ~~natural~~based ~~gas~~on ~~from~~an ~~the Jo~~analysis ~~Mill~~of ~~field~~currently ~~adjacent~~available tocompetitive, ~~the~~financial ~~Company’s~~and ~~acreage~~economic ~~position. The~~data ~~Company~~and our ~~participated~~operating inplans. ~~the~~They ~~drilling~~are ofinherently ~~two~~uncertain ~~horizontal~~and ~~wells~~investors inshould ~~the~~recognize ~~Apclark~~that ~~field~~events ~~during 2008. The~~and ~~Company~~actual ~~has~~results ~~identified~~could anturn ~~additional~~out 12to ~~horizontal~~be ~~drilling locations~~significantly ~~and~~different 53from ~~vertical~~our ~~locations~~expectations. ~~Total~~ ~~production~~By ~~during~~way ~~2008 totaled 2,644 barrels~~ of ~~crude oil~~illustration, ~~net~~when toused ~~the~~in ~~Company’s~~this ~~interest~~document, ~~and~~words ~~total~~such as ~~proved~~“anticipate,” ~~reserves~~“believe,” at“expect,” ~~December~~“plan,” 31“intend,” ~~2008~~“estimate,” ~~totaled~~“project,” 32“will,~~028~~” ~~barrels~~“should,” of“could,” ~~crude oil and 12~~“may,~~019~~” ~~thousand cubic feet (~~“~~mcf~~predict”) ofand similar ~~natural~~expressions ~~gas,~~are ~~all~~intended ofto ~~which~~identify ~~were~~forward-looking ~~proved producing reserves~~statements.

~~Plantation~~ This ~~Field~~Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes forward-looking statements. Forward-looking statements include, but are not limited to, any statements regarding future revenues, costs and expenses, earnings, earnings per share, margins, cash flows, dividends and capital expenditures. Important factors which may affect the actual results include, but are not limited to, political developments, market and economic conditions, changes in raw material, transportation and energy costs, industry competition, the ability to execute and realize the expected benefits from strategic initiatives including revenue growth plans and cost control and productivity improvement programs, changes in mix of products sold, mergers and acquisitions and their integration into Bonanza, changes in financial markets and changing legislation and regulations including changes in tax law or tax regulations. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

The ~~Company~~above ~~holds~~description aof ~~22.5%~~risks ~~pre-payout working interest (15% post-payout)~~ and auncertainties ~~15.75%~~is ~~pre-payout~~by ~~net~~no ~~revenue~~means ~~interest (10.5% post~~all-~~payout) in eight wells in this field located in Gonzales County~~inclusive, ~~Texas. Primary~~ ~~production~~but is ~~obtained~~designed ~~from~~to ~~the~~highlight ~~Austin~~what ~~Chalk trend. Three~~we ofbelieve ~~the wells~~ are ~~currently~~important ~~active~~factors ~~and the other five are shut-in waiting workover. The Company has no further obligation related~~ to ~~capital or operating expenditures related to these wells, except to the extent of revenue realized, if any~~consider. ~~Total~~ ~~production~~For ~~during~~a ~~2008 totaled~~more ~~554~~detailed ~~barrels~~description of ~~crude~~risk ~~oil~~factors, ~~net~~please ~~to the Company’s interest, and total~~see ~~proved~~Part ~~reserves~~I at— ~~December~~Item ~~31,~~1A. ~~2008,~~— ~~totaled~~Risk ~~2,460 barrels of crude oil , all of which were proved producing reserves~~Factors.

~~Damon~~ ~~Mound Field~~General

~~The Company holds a 50% working~~ ~~interest~~ ~~and~~We aare ~~31.88%~~an ~~net~~independent ~~revenue~~energy ~~interest~~company inthat ~~this~~is 35engaged ~~acre producing field located~~ in ~~Brazoria~~the ~~County~~exploration, ~~Texas. Historically,~~development ~~primary production is obtained from the Miocene~~ and ~~Frio trend, with cumulative field~~ production ~~in excess~~ of 11crude ~~mmbls. The Company has identified two potential drilling locations~~oil, ~~but~~natural ~~has~~gas ~~not~~and ~~assigned~~natural ~~any~~gas ~~proved~~liquids ~~reserves~~in tothe ~~this~~United ~~prospect as of yet~~States.

~~Bourland~~ ~~Field~~ We were incorporated in the State of Nevada on December 24, 2002, under the name “National Filing Agents, Inc.” ("NFA"). On December 18, 2006, NFA filed a registration statement on Form SB-2 to register the stock of its non-affiliated shareholders. The registration was declared effective on January 22, 2007. Effective January 10, 2008, NFA changed its name to “Bonanza Oil & Gas, Inc.” from “National Filing Agents, Inc.” In addition, effective January 10, 2008, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from NFLA to BGOI and the Company implemented a forward split of the issued and outstanding shares of the Company’s Common Stock, whereby every share of the Company’s Common Stock held was exchanged for 2.1 shares of the Company’s Common Stock. All share and per share amounts reflected throughout this document reflect the January 2008 2.1 for 1.0 forward stock split unless otherwise so indicated.

~~The Company holds an option to acquire~~ a 75% working interest and a 56.25% net revenue interest in this 960 acre producing field located in Ector County, Texas. Historically, primary production is obtained from the San Andres trend, with cumulative field production since 1962 in excess of 1.12 mmbls and 0.96 bcf of natural gas. The Company has identified eight potential drilling locations, but has not assigned any proved reserves to this prospect as of yet.2

~~Goodnorth~~ ~~Field~~ On January 26, 2010, the Company implemented a second forward split of the issued and outstanding shares of the Company’s Common Stock, whereby every share of the Company’s Common Stock held was exchanged for two shares of the Company’s Common Stock. All share and per share amounts reflected throughout this document also reflect the January 2010 2.0 for 1.0 forward stock split unless otherwise so indicated.

~~The Company holds an option to acquire~~ aAcquisitions ~~67.5% working interest~~ and a 50.625% net revenue interest in this 1,263 acre producing field located in Borden and Howard County, Texas. Primary production is also expected from the Jo Mill Spraberry trend as well as the Dean trend. The Company has identified eight potential drilling locations, but has not assigned any proved reserves to this prospect as of yet.Dispositions

~~Drilling~~ ~~Statistics~~ On October 23, 2007, NFA acquired Plantation Working Interests, LLC ("PWI"), a privately-held Texas limited liability company organized on August 17, 2007, by entering into an Acquisition Agreement and Plan of Merger (collectively the "PWI Agreement") pursuant to which NFA acquired a 100% interest in PWI and other assets in exchange for a total of 21,533,352 shares of NFA common stock. Immediately following the acquisition of PWI, two former affiliated shareholders of NFA cancelled 12,360,000 unregistered shares of NFA common stock held by them. The acquisition of PWI was accounted for as a reverse merger and, therefore, the historical financial statements presented herein are those of PWI.

~~During~~ ~~2008,~~As wea ~~participated~~result ~~in drilling~~of ~~two~~the ~~gross~~acquisition ~~development~~of ~~wells~~PWI, (0the Company obtained a 22.5% ~~net~~pre-payout ~~wells~~(15% post- payout), ~~both~~working ~~completed~~interest ~~as producers~~in eight oil and ~~both~~gas wells in ~~the~~Gonzales ~~Apclark~~County, ~~Field~~Texas. ~~The~~ ~~Company~~PWI ~~did~~paid ~~not~~a ~~drill any~~total of $750,000 during September 2007 to acquire the wells. PWI was to receive 15.75% of the net revenues from ~~its~~the ~~inception~~wells ~~(August~~until ~~17,~~it ~~2007)~~had ~~through~~recovered ~~December~~its 31$750, ~~2007~~000 cost at which time the net revenue interest was to drop to 10.5% of net revenues.

~~Productive~~ ~~Oil~~Our interest in the eight oil and ~~Gas~~gas wells acquired by PWI secured $250,000 of short-term debt at ~~Wells~~December 31, 2008, which matured on December 17, 2008. During 2009, we made a partial payment of $125,000, however at September 30, 2009, we remained in default with respect to the remaining principal and accrued interest totaling $161,388 with respect to this obligation. On June 30, 2009, the lender filed suit against the Company seeking repayment of the principal balance outstanding plus all accrued interest, along with their attorney fees and court costs. In October 2009, we reached a settlement agreement, whereby for a complete release and satisfaction of the unpaid principal and accrued interest the lender foreclosed on the eight oil and gas wells securing this obligation.

At ~~December~~Concurrent ~~31,~~with ~~2008~~entering into the PWI Agreement, wethe ~~had~~Company an purchased a 25% interest in ~~five~~approximately ~~gross~~6,700 ~~productive~~acres ~~oil~~in ~~wells~~the ~~(1.175~~Apclark ~~net~~Field ~~wells)~~of Southwestern Borden County, ~~excluding~~Texas ~~the five~~in ~~gross~~exchange ~~(1.125~~for ~~net)~~12,600,000 ~~Plantation~~shares ~~Field~~of ~~wells~~the ~~currently shut-in~~Company's Common Stock.

11 Concurrent with entering into the PWI Agreement, Mssrs. William Wiseman, President, Chief Executive Officer, President and a Director of the Company, and Robert Teague, Executive Vice President, Chief Operating Officer and a Director of the Company, agreed to assign various nonmonetary assets to the Company. These nonmonetary assets consisted of a 25% working interest on leases containing the Cadillac Prospect in the Mercedes Field of Hidalgo County, Texas and a 50% working interest on leases located within the Damon Mound Field of Brazoria County, Texas, along with seismic data.

~~Production~~ On July 18, 2008, the Company, Borland Good North Inc., a wholly-owned subsidiary of the Company (“Borland”), Black Pearl Energy, Inc. (“Black Pearl”), and the shareholders holding a majority of the issued and outstanding shares ~~Pricing~~of Black Pearl, (collectively the “Black Pearl Majority Shareholders”), entered into an Agreement and ~~Lease~~Plan ~~Operating~~of ~~Cost~~Merger ~~Data~~(the “Merger Agreement”), which closed on July 18, 2008. Pursuant to the terms of the Merger Agreement, Black Pearl merged with and into Borland, which became a wholly-owned subsidiary of the Company (the “Merger”). In consideration for the Merger, the Company issued an aggregate of 14,049,330 (the “Black Pearl Acquisition Shares”) shares of the Company’s Common Stock to the Black Pearl Majority Shareholders and the other shareholders of Black Pearl at the closing of the merger. Prior to the Merger Agreement, Black Pearl owned 5,418,000 shares of the Company’s Common Stock, which were cancelled in conjunction with the Merger. Black Pearl was an exploration and development company located in Midland, Texas. On July 14, 2008, Black Pearl acquired options to purchase an undivided 75% working interest in two drilling projects for total consideration of $500,000. These two projects were known as the Bourland and the Good North prospects. Concurrently with executing these options, Black Pearl entered into a note agreement with the Company for $500,000. The note bore interest at 8% per year with a maturity date of November 14, 2008, or the date at which a letter of intent to merge the Company expired. The note was cancelled in conjunction with the Merger. At the closing of the acquisition, a total of $2,000,000 in additional consideration was due to fully exercise the option to purchase the 75% working interest in the Bourland and Good North prospects. Due to our ongoing financial difficulties, we were unable to meet our continuing obligations on the Bourland and Good North prospects and in December 2009 forfeited our rights to any further exploration on this acreage and recorded an impairment charge of the costs incurred to date.

~~The following table describes, for the~~ ~~period~~ ~~from~~3 inception (August 17, 2007) through December 31, 2007, and for fiscal 2008, crude oil and natural gas production, average lease operating expenses per barrel (including severance and other taxes and transportation costs) and average sales prices received by the Company:

	Crude Oil		Average Lease Operating		Average Sales
	Production		Cost		Price
	(barrels)		(per barrel)		(per barrel)
Year ended December 31, 2008		3,197	$	24.94	$	71.80
From Inception
(August 17, 2007) to December 31, 2007		320	$	25.02	$	83.24

Growth Strategy

~~Gross~~ The Company’s mission is to grow a profitable upstream oil and ~~Net~~gas ~~Undeveloped~~company for the long-term benefit of our shareholders. Our strategy includes building a balanced portfolio of assets, maintaining financial flexibility, and ~~Developed~~maximizing ~~Acreage~~earnings and cash flows by controlling costs.

~~The following table sets out our gross~~ ~~and~~Segment ~~net acreage position:~~Information

Undeveloped Acreage		Developed Acreage
Gross	Net	Gross	Net
8,958	3,265	480	152

As Marketing of ~~December~~Crude ~~31,~~Oil ~~2008,~~and ~~all~~Natural ~~of the undeveloped acreage was set to expire by December 31, 2009, if production is not established or we take no other action to extend the terms.~~Gas

~~Estimated~~ ~~Proved~~We ~~Reserves~~operate exclusively in the oil and ~~Future~~gas industry. Crude oil and natural gas production from wells owned by us is generally sold directly to oil purchasers and natural gas marketing companies. Sales are generally made on the spot market. These ~~Net~~prices ~~Cash~~often ~~Flows~~are tied to WTI crude and natural gas futures contracts as posted in national publications. We have not entered into any agreements to hedge or sell forward any of our oil and gas production.

As The operators of ~~December 31,~~ ~~2008,~~the properties in which the Company ~~had~~has ~~total~~a ~~estimated~~working ~~proved~~interest ~~reserves~~are responsible for the sale and marketing of 34 the Company’s share of production. Although management believes that we are not dependent upon any one customer,~~488~~ ~~barrels~~as there are numerous purchasers of crude oil, ~~condensate~~ and natural gas ~~liquids~~ ~~and~~production 12in the industry,~~019 mcf~~ approximately 99% and 76% of ~~natural~~the ~~gas. Combined,~~Company’s ~~these~~revenue ~~total~~was ~~estimated~~received ~~proved~~from ~~reserves~~the ~~are~~operator of the Company’s Apclark wells for the year ended December 31, 2009 and ~~equivalent~~December to31, 362008,~~491~~ ~~barrels~~respectively. The Company received approximately 1% and 24% of ~~oil~~its ~~equivalent~~2009 orand ~~218,947~~2008 ~~mcf~~revenues from the operator of ~~natural~~its ~~gas equivalent~~Plantation wells.

~~Proved~~ oil and gas reserves are the estimated quantities of natural gas, crude oil, condensate and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Reserve estimates are considered proved if economical productivity is supported by either actual production or conclusive formation tests. Estimated reserves that can be produced economically through application of improved recovery techniques are included in the “proved” classification when successful testing by a pilot project or the operation of an active, improved recovery program in the reservoir provides support for the engineering analysis on which the project or program is based. Estimated proved developed oil and gas reserves can be expected to be recovered through existing wells with existing equipment and operating methods.Competition

12 We are in direct competition with numerous oil and natural gas companies, drilling and income programs and partnerships exploring various areas of Texas and elsewhere competing for properties. Many competitors are large, well-known oil and gas and/or energy companies, although no single entity dominates the industry. Many of our competitors possess greater financial and personnel resources, enabling them to identify and acquire more economically desirable energy producing properties and drilling prospects than us. Additionally, there is competition from other fuel choices to supply the energy needs of consumers and industry. Management believes that there exists a viable market place for smaller producers of crude oil and natural gas.

~~The~~ Company emphasizes that its reported reserves are estimates which, by their nature, are subject to revision. The estimates are made using available geological and reservoir data, as well as production performance data. Seasonality

~~Estimates of proved developed and~~ ~~proved~~ ~~undeveloped~~Weather ~~reserves~~conditions asaffect ofthe ~~December~~demand 31for, ~~2008,~~and ~~were~~prices ~~based~~of, oncrude ~~estimates made~~oil byand ~~Forrest~~natural A.gas ~~Garb & Associates, Inc.~~ and ~~Joe~~can C.also ~~Neal~~delay &drilling ~~Associates~~activities, ~~independent~~ ~~petroleum~~disrupting ~~engineers. Our~~our ~~independent~~overall ~~engineers,~~business ~~Forrest A~~plans. ~~Garb~~Demand &for ~~Associates,~~crude ~~Inc.~~oil ~~and~~is ~~Joe~~typically C.higher ~~Neal~~in &the ~~Associates~~second ~~are engaged by~~ and ~~provided~~third ~~their~~quarters ~~reports~~resulting from toincreased ~~our~~driving ~~senior~~during ~~management team. We make representations to~~ the ~~independent~~summer ~~engineers~~months, ~~that~~while wedemand ~~have~~for ~~provided~~natural ~~all~~gas ~~relevant operating~~is ~~data~~typically ~~and~~higher ~~documents, and~~ in ~~turn, we review~~ the ~~reserve~~fourth ~~reports provided~~and byfirst ~~the~~quarters. ~~independent~~Due ~~engineers~~ to ~~ensure~~these ~~completeness~~seasonal ~~and accuracy. Management cautions that there are many inherent uncertainties in estimating proved reserve quantities and related revenues and expenses~~fluctuations, ~~and~~results inof ~~projecting~~operations ~~future~~for ~~production~~individual ~~rates~~quarterly ~~and~~periods ~~the~~may ~~timing~~not ~~and~~be ~~amount~~indicative of ~~development~~the ~~expenditures. Accordingly,~~results ~~these~~that ~~estimates~~may ~~will~~be ~~change, as~~realized ~~future~~on ~~information~~an ~~becomes~~annual ~~available~~basis.

~~The~~ Company’s estimates of proved reserves and proved developed reserves as of December 31, 2008 and 2007, changes in estimated proved reserves from the period from Inception (August 17, 2007) to December 31, 2007 and from January 1, 2008, to December 31, 2008, and estimates of future net cash flows and discounted future net cash flows from estimated proved reserves are contained in Note 9 — Supplemental Oil and Gas Disclosures of Item 15 in this Form 10-K. These estimated future net cash flows are based on prices on the last day of the year and are calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 69, “Disclosures about Oil and Gas Producing Activities.” Disclosure of this value and related reserves has been prepared in accordance with SEC Regulation S-X Rule 4~~-10.~~

In ~~December~~Costs ~~2008, the SEC released the final rule for “Modernization of Oil~~ and ~~Gas Reporting”~~Effects ~~(Modernization). The Modernization disclosure requirements will permit reporting~~ of ~~oil~~Compliance ~~and~~with ~~gas~~Governmental ~~reserves~~Regulations ~~using an average price based upon the prior 12-month period rather than year-end prices~~ and ~~the~~Environmental ~~use~~Laws of new technologies to determine proved reserves, if those technologies have been demonstrated to result in reliable conclusions about reserves volumes. Companies will also be allowed to disclose probable and possible reserves in SEC filed documents. In addition, companies will be required to report the independence and qualifications of its reserves preparer or auditor and file reports when a third party is relied upon to prepare reserves estimates or conduct a reserves audit. The Modernization disclosure requirements become effective for the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

~~ITEM~~ 3 Various federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, will directly impact our planned future oil and gas exploration, development and production operations, and consequently may impact our operations and costs moving forward, assuming we are able to raise sufficient capital to purchase oil and gas interests and sustain our operations, of which there can be no assurance. ~~LEGAL~~ These ~~PROCEEDINGS~~regulations include, among others,

~~From~~regulations ~~time~~by tothe ~~time,~~Environmental weProtection ~~may~~Agency ~~become involved~~and in various ~~lawsuits~~state ~~and~~agencies ~~legal~~regarding ~~proceedings~~approved ~~which~~methods ~~arise in the ordinary course~~ of ~~business. However,~~disposal ~~litigation~~for iscertain ~~subject~~hazardous ~~to inherent uncertainties,~~ and annon-hazardous adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.wastes;
~~ITEM~~the Comprehensive Environmental Response, Compensation, and Liability Act, Federal Resource Conservation and Recovery Act and analogous state laws which regulate the removal or remediation of previously disposed wastes (including wastes disposed of ~~4. SUBMISSION OF~~or ~~MATTERS~~released TOby Aprior ~~VOTE~~owners OFor ~~SECURITY~~operators), ~~HOLDERS~~property contamination (including groundwater contamination), and remedial plugging operations to prevent future contamination;
Nothe ~~matters~~Clean ~~were~~Air ~~submitted~~Act toand acomparable ~~vote~~state ~~of our~~and ~~security~~local ~~holders~~requirements ~~during~~which may result in the ~~most~~gradual ~~recently~~imposition ~~ended~~of ~~fiscal quarter.~~certain pollution control requirements with respect to air emissions from our operations;
13the Oil Pollution Act of 1990 which contains numerous requirements relating to the prevention of and response to oil spills into waters of the United States;
~~PART~~the IIResource Conservation and Recovery Act which is the principal federal statute governing the treatment, storage and disposal of hazardous wastes; and
~~ITEM 5. MARKET FOR~~state ~~COMMON~~regulations ~~EQUITY~~and ~~AND~~statutes ~~RELATED~~governing ~~STOCKHOLDER~~the ~~MATTERS~~handling, treatment, storage and disposal of naturally occurring radioactive material.

~~Market~~ ~~Information~~ We have not had any costs associated with the above regulations to date; however, there can be no assurance that the costs required to comply with the regulations above will not be substantial. Furthermore, if we are deemed not to be in compliance with applicable environmental laws, we could be forced to expend substantial amounts to be in compliance, which would have a materially adverse effect on our available cash and liquidity, and/or could force us to curtail or abandon our current business operations.

~~Our Common Stock is quoted on the OTC~~ Bulletin Board. Throughout 2007, there were no trades in shares of our Common Stock and the reported bid and ask price for each month was $0.20. Set forth in the table below are the quarterly high and low prices of our Common Stock as obtained from the OTC Bulletin Board for 2008.Employees

	2008
	Price Range
	High		Low
First Quarter	$	3.00	$	0.48
Second Quarter		1.12		0.18
Third Quarter		1.25		0.66
Fourth Quarter		0.86		0.13

As of December 31, 2009, we had two employees. None of our employees are members of any unions, nor have they entered into any collective bargaining agreements. We believe that our relationship with our employees is good. With the successful implementation of our business plan, we may seek additional employees in the next year to handle anticipated potential growth.

~~The~~ITEM ~~closing price of our Common Stock, as reported on the OTC Bulletin Board for April 13, 2009, was $0~~1A.~~08 per share, by referencing the closing average of the bid and ask prices.~~

~~Holders~~ RISK FACTORS

As of ~~March~~You ~~31,~~should ~~2009,~~carefully ~~there~~consider ~~were~~the ~~approximately~~following 57risk ~~holders~~factors ofand ~~record~~all ofother information contained herein as well as the information included in this Annual Report in evaluating our ~~Common Stock~~business and prospects. The ~~number~~risks ofand ~~record~~uncertainties ~~holders~~described ~~was~~below ~~determined~~are not ~~from~~ the ~~records of~~only ~~our~~ones ~~transfer~~we ~~agent~~face. Additional risks and ~~does~~uncertainties, other than those we describe below, that are not ~~include~~presently ~~beneficial~~known ~~owners~~to ofus ~~Common~~or ~~Stock whose~~that ~~shares~~we currently believe are ~~held~~immaterial, inmay ~~the~~also ~~names~~impair our business operations. If any of ~~various~~the ~~brokers,~~following ~~dealers~~risks occur, our business and ~~registered clearing~~financial ~~agencies~~results could be harmed. ~~The~~ ~~transfer~~You ~~agent~~should ofrefer ~~our~~to ~~Common~~the ~~Stock~~other isinformation ~~Empire Stock~~contained ~~Transfer,~~in ~~Inc.~~this Annual Report, ~~2470~~including ~~St.~~our ~~Rose~~consolidated ~~Parkway,~~financial ~~Suite~~statements ~~304,~~and ~~Henderson,~~the ~~NV 89074~~related notes.

~~Dividend Policy~~ 5

~~We have not declared or paid any cash~~ ~~dividends~~The onshareholders ~~our~~of Common Stock~~. We~~ dowill ~~not~~have ~~anticipate~~only ~~paying~~limited ~~any~~ability ~~cash dividends~~ to ~~stockholders~~control in the ~~foreseeable~~Company ~~future. In~~as ~~addition,~~there ~~any future~~are ~~determination~~currently tofive ~~pay~~million ~~cash~~shares ~~dividends~~of ~~will~~Series beA atPreferred Shares outstanding and the ~~discretion~~Board of Directors has the ability ~~Company’s~~to ~~Board~~issue additional shares of ~~Directors~~blank check preferred.

~~ITEM~~ 6On December 2, 2009, we entered into a Conversion Agreement (the “Conversion Agreement”) with Robert Teague (“Teague”), Vice President of Operations and a director of the Company. ~~SELECTED~~ Pursuant to the ~~FINANCIAL~~Conversion ~~DATA~~Agreement, Teague converted $60,000 of past due wages owed to him in consideration of 5,000,000 shares of Series A Preferred Stock (the “Series A Stock”). Each share of Series A Stock is convertible, at the option of the holder, into twenty shares of common stock. In addition, the holder of the Series A Stock is entitled to vote twenty shares of common stock for each share of Series A Stock. The Series A Stock has no liquidation preference. On December 2, 2009, the shareholders of the Company, holding voting control, authorized 10,000,000 shares of Series D Preferred Shares, which will be blank check preferred shares, and 10,000,000 shares of Series E Preferred Shares, which will also be blank check preferred shares. Our Board of Directors has the authority, without further action by the stockholders, to issue from time to time the blank check preferred stock in one or more series for such consideration and with such relative rights, privileges, preferences and restrictions that the Board may determine. The preferences, powers, rights and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and purchase funds and other matters. The issuance of preferred stock could adversely affect the voting power or other rights of the holders of common stock.

~~Since~~ Any weissuance ~~are~~of preferred stock with voting rights could, under certain circumstances, have the effect of delaying or preventing a ~~company~~change ~~that~~in ~~qualifies~~control of the Company by increasing the number of outstanding shares entitled asto vote and by increasing the number of votes required to approve a ~~“smaller~~change ~~reporting~~in ~~company~~control of the Company. Shares of voting or convertible preferred stock could be issued,” asor ~~defined~~rights ~~under~~to ~~Rule~~purchase ~~12b-2~~such shares could be issued, weto ~~are~~render ~~not~~more difficult or ~~required~~discourage an attempt to ~~provide~~obtain control of the ~~information~~Company ~~required~~by means of a tender offer, proxy contest, merger or otherwise. The ability of the Board to issue such additional shares of preferred stock, with the rights and preferences it deems advisable, could discourage an attempt by ~~this~~a ~~Item~~party 6to acquire control of the Company by tender offer or other means. Such issuances could therefore deprive stockholders of benefits that could result from such an attempt, such as the realization of a premium over the market price that such an attempt could cause. Moreover, the issuance of such additional shares of preferred stock to persons friendly to the Board could make it more difficult to remove incumbent managers and directors from office even if such change were to be favorable to stockholders generally.

~~ITEM~~ ~~7. MANAGEMENT’S DISCUSSION~~As ~~AND~~a ~~ANALYSIS~~result, OFthe ~~FINANCIAL~~common ~~CONDITION~~shareholders ~~AND~~ability ~~RESULTS~~to OFvote on certain matters and influence control over the Company is limited as there are currently five million shares of Series A Preferred Stock held by Robert Teague and ~~OPERATIONS~~the Board of Directors has the ability to issue additional shares of preferred shares as it deems fit.

~~The following information should be~~ ~~read~~ inThere ~~conjunction~~are ~~with the consolidated financial statements and the notes thereto contained elsewhere in this report. The Private Securities Litigation Reform Act of 1995 provides~~ a ~~"safe~~large ~~harbor"~~number ~~for forward-looking statements. Information in this Item 7, "Management's Discussion and Analysis~~ of ~~Financial~~shares ~~Condition~~underlying ~~and~~our ~~Results~~existing ofdebt ~~Operations," and elsewhere in this 10-K~~ that ~~does not consist of historical facts, are "forward-looking statements." Statements accompanied or qualified by, or containing words such as "~~may," ~~"will,"~~be ~~"should,"~~available ~~"believes,"~~for "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements, and as such, are not a guarantee of future ~~performance. The~~ ~~statements~~sale ~~involve factors, risks~~ and ~~uncertainties including those discussed in~~ the ~~“Risk~~sale ~~Factors” section contained elsewhere in this report, the impact or occurrence~~ of ~~which~~these ~~can~~shares cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or all of which may bedepress ~~beyond~~ the ~~Company's~~ ~~control. Consequently,~~market ~~investors~~price ~~should not place undue reliance on forward-looking statements as predictive~~ of ~~future results. The~~our ~~Company~~Common ~~disclaims any obligation to update the forward-looking statements in this report~~Stock. ~~The~~ following discussion should be read together with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, which are included in Item 8 of this Form 10-K, and the Risk Factors information, which are set forth in item 1A of this Form 10-K.

In January 2008, the Company issued 14% Senior Secured Promissory Notes to accredited investors for an aggregate principal amount of $800,000 (the “January 2008 Notes”). One accredited investor held $750,000 (the “Secured Note”) of the January 2008 Notes (the “Secured Investor). The January 2008 Notes matured on January 31, 2009, with interest payable on a monthly basis. The Company’s obligations under the January 2008 Notes are secured by the Company’s interest in three prospect areas located in Borden, Hidalgo and Brazoria counties of Texas. In addition, in May 2008, the Company entered into a Securities Purchase Agreement with the Secured Investor providing for the sale by the Company of an 8% convertible note in the principal amount of $750,000 (the “May 2008 Convertible Note” and collectively with the Secured Note, the “Restructured Notes”). The May 2008 Convertible Note matured on May 14, 2009, and interest is payable on a quarterly basis. The May 2008 Convertible Note is unsecured, however, in the event that the Company grants a secured interest in its assets in connection with any future financing, then the holder of the May 2008 Convertible Note will be entitled to a pari passu interest in such secured interest. The May 2008 Convertible Note was convertible into the Company’s common stock, at a conversion price of $0.1871 per common share, as adjusted, and is subject to normal and customary anti-dilution provisions. The Company was advised by Triumph Small Cap Fund, Inc. (“Triumph”) and the Secured Investor that Triumph purchased the Restructured Notes from the Secured Investor. In order to induce Triumph to convert the Restructured Notes into shares of common stock and, in turn, to reduce the Company’s debt and avoid potentially filing for bankruptcy, the Company entered into a Letter Agreement with Triumph on December 2, 2009, pursuant to which the Restructured Notes were amended providing that Triumph may from time to time convert all or any part of the outstanding and unpaid principal amount of the Restructured Notes into shares of common stock. The Restructured Notes are convertible into common stock, at Triumph's option at $0.0025. Triumph has agreed to restrict its ability to convert the Restructured Notes and receive shares of common stock such that the number of shares of common stock held by it in the aggregate and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. In addition, management is attempting to convert other debt on its balance sheet into shares of Common Stock. As a result, shareholders and potential investors should expect the continuance of the conversion of debt into shares of common stock and the resale of such shares of common stock, which, in turn will continue to depress the market price of our Common Stock.

~~Overview~~ 6

~~Bonanza~~ ~~Oil~~We &have ~~Gas,~~a ~~Inc.~~limited isoperating anhistory ~~independent energy company engaged primarily in the acquisition, development, production~~ and ~~the~~if ~~sale~~we ofare ~~crude~~not ~~oil,~~successful ~~natural gas and natural gas liquids. The Company's production activities are located~~ in ~~the~~continuing ~~United~~to ~~States~~grow ofour ~~America. The principal executive offices of the Company are located at 3000 Richmond Avenue~~business, ~~Suite~~then ~~400,~~we ~~Houston,~~may ~~TX 77046. The~~have ~~operations of Bonanza were originally conducted through Plantation Working Interests, LLC (“Plantation”), which was incorporated in the State of Texas on August 17, 2007,~~ to ~~acquire~~scale aback ~~working~~or ~~interest~~even ~~(22.5% pre-payout,~~cease ~~15%~~our ~~post-payout)~~ongoing inbusiness ~~eight oil and gas wells in Gonzales County, TX~~operations.

On ~~October~~We ~~23,~~have ~~2007,~~received ~~Plantation~~a ~~merged~~limited ~~with~~amount ~~National~~of ~~Filing~~revenues ~~Agents,~~from ~~Inc.~~operations ~~(“NFLA”), which was the entity that survived the merger, by entering into an Acquisition Agreement~~ and ~~Plan~~have oflimited ~~Merger~~assets. ~~(the~~We ~~"Acquisition~~have ~~Agreement"),~~yet ~~pursuant~~ to ~~which NFLA~~generate ~~acquired,~~positive ~~through~~earnings anand ~~exchange~~there ~~transaction,~~can ~~all~~be ofno ~~the~~assurance ~~issued~~that ~~and outstanding~~we ~~capital~~will ~~stock~~ever ofoperate ~~privately~~profitably. ~~held~~We ~~Plantation,~~have a ~~25% interest in a~~limited ~~lease~~operating onhistory. ~~Cadillac~~Our ~~Prospect~~success inis ~~Mercedes~~significantly ~~field~~dependent inon ~~Hidalgo County, TX and~~ a ~~50% interest~~successful inacquisition, ~~a lease on the Point Bar Prospect in the Damon Mound field in Brazoria County~~drilling, TXcompletion and ~~other~~production ~~properties~~program. ~~and~~Our ~~assets~~operations ~~from~~will ~~its~~be ~~members~~subject ~~and~~to ~~issued 10,766,676~~all ~~shares of~~ the ~~Company’s~~risks ~~Common~~inherent ~~Stock. In addition, on October 23, 2007,~~ in ~~conjunction with~~ the ~~Acquisition~~establishment ~~Agreement,~~of ~~the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Lucas Energy, Inc. to acquire~~ a ~~25%~~developing ~~working~~enterprise ~~interest~~and in the ~~ApClark field~~ ~~located~~uncertainties inarising ~~Borden~~from ~~County, TX through~~ the ~~issuance~~absence of ~~6,300,000~~a ~~shares~~significant ofoperating ~~the Company’s Common Stock~~history. In ~~conjunction~~We ~~with~~may ~~the~~be ~~transaction,~~unable ~~NFLA amended its Articles of Incorporation~~ to ~~change~~locate ~~the~~recoverable ~~Company's~~reserves ~~name~~or tooperate ~~Bonanza Oil~~on &a ~~Gas,~~profitable ~~Inc~~basis., ~~forward~~If ~~split~~our ~~its~~business ~~Common~~plan ~~Stock~~is onnot ~~a 2.1 to 1 ratio~~successful, and ~~changed~~ ~~its~~we ~~trading~~are ~~symbol~~not onable ~~the~~to ~~Over-the-Counter~~operate ~~Bulletin~~profitably, ~~Board to~~investors ~~"BGOI". All~~may ~~share~~lose ~~amounts~~some ~~herein~~or ~~reflect~~all ~~the~~of ~~2.1:1~~their ~~forward stock split~~investment.

~~On July~~ ~~18,~~ ~~2008,~~There ~~the~~is ~~Company,~~substantial ~~Borland~~doubt ~~Good~~about ~~North~~our ~~Inc.,~~ability a wholly-owned subsidiary of the Company (“Borland”), Black Pearl Energy, Inc. (“Black Pearl”), and the shareholders holding a majority of the issued and outstanding shares of Black Pearl, (collectively the “Black Pearl Majority Shareholders), entered into an Agreement and Plan of Merger (the “Merger Agreement”), which closed on July 18, 2008. Pursuant to ~~the~~continue ~~terms~~as ~~of the Merger Agreement, Black Pearl merged with and into Borland, which became~~ a ~~wholly-owned~~going ~~subsidiary of the Company (the “Merger”)~~concern. In consideration for the Merger, the Company issued an aggregate of 7,024,665 (the “Black Pearl Acquisition Shares”) shares of the Company’s Common Stock to the Black Pearl Majority Shareholders and the other shareholders of Black Pearl at the closing of the merger. Prior to the Merger Agreement, Black Pearl owned 2,709,000 shares of the Company, which were cancelled in conjunction with the Merger.

~~Black~~ ~~Pearl~~We ~~was~~received an ~~exploration~~audit ~~and~~report ~~development~~for ~~company~~the ~~located~~year inended ~~Midland, Texas. On~~December ~~July 14~~31, ~~2008~~2009, ~~Black~~from ~~Pearl~~our ~~acquired~~independent ~~options~~registered topublic ~~purchase~~accounting firm containing an ~~undivided~~ ~~75%~~explanatory ~~working~~paragraph ~~interest~~expressing insubstantial ~~two~~doubt ~~drilling~~about ~~projects~~our ~~for~~ability ~~total~~to ~~consideration~~continue as ofa ~~$500,000~~going concern. ~~Concurrently~~ ~~with~~The ~~executing~~Company ~~these~~has ~~options,~~no ~~Black~~significant ~~Pearl entered~~operating ~~into~~history aas ~~note~~of ~~agreement~~December ~~with~~31, 2009, and since inception, the Company ~~for~~has ~~$500,000. The~~not ~~note bore~~had ~~interest~~significant atrevenues. 8%Management ~~per~~raised ~~year~~additional ~~with~~equity aand ~~maturity~~debt ~~date~~financing ofto ~~November~~fund ~~14,~~operations ~~2008,~~and orto ~~the~~provide ~~date~~additional atworking ~~which~~capital. aHowever, ~~letter~~we ofdo ~~intent~~not tohave ~~merge~~sufficient ~~the~~capital ~~Company~~for ~~expired. The note~~current ~~was~~operations ~~cancelled~~through inour ~~conjunction~~cash ~~with~~position ~~the~~and ~~Merger~~current cash flow. At ~~the closing~~To ofcontinue ~~the~~our ~~acquisition,~~growth aand ~~total~~to offund ~~$2,000,000~~our expansion plans we will require additional ~~consideration~~funding. ~~was~~There can be no ~~due~~assurance tothat ~~fully~~we ~~exercise~~will ~~the~~be ~~option~~able to ~~purchase~~obtain ~~the~~such ~~75%~~financing ~~working~~on ~~interest~~attractive interms, ~~the~~if ~~two projects~~at ~~noted above~~all.

15 We do not intend to pay dividends to our shareholders.

~~The~~ ~~Company~~ ~~has~~We ~~incurred~~do ~~significant~~not ~~losses~~currently ~~and~~intend ~~had~~to ~~negative~~pay cash ~~flow~~dividends ~~from operations~~on ~~since~~our ~~inception~~Common onStock ~~August 17, 2007,~~ and ~~has~~do annot ~~accumulated deficit~~anticipate ofpaying ~~$7,062,652~~any dividends at ~~December~~any ~~31,~~time ~~2008. Substantial~~in ~~portions of~~ the ~~losses~~foreseeable ~~are~~future. ~~attributable~~At ~~to non-cash writedowns of oil and gas properties~~present, ~~with~~ ~~the~~we ~~balance~~will ~~attributable~~follow toa ~~primarily~~policy ~~personnel~~of ~~costs,~~retaining ~~legal~~all ~~and professional fees, and financing costs. The Company's operating plans require additional funds that may take the form~~ of ~~debt~~our orearnings, ~~equity financings. There~~if ~~can be no assurance that~~ any, ~~additional funds will be available. The Company's ability~~ to ~~continue as a going concern is~~finance indevelopment ~~substantial doubt~~ and isexpansion ~~dependent upon achieving a profitable level~~ of ~~operations~~ ~~and~~our ~~obtaining additional financing~~business.

~~We have~~ ~~undertaken~~ ~~steps~~Our asofficers ~~part~~and ofdirectors ahave ~~plan~~limited toliability, ~~improve operations with the goal of sustaining our operations for the next twelve months~~ and ~~beyond.~~we ~~These~~are ~~steps include~~required ~~(a)~~in ~~raising~~certain ~~additional~~instances ~~capital~~to ~~and/or~~indemnify ~~obtaining financing, if available, (b) increasing~~ our ~~current~~officers ~~production~~and ~~(c)~~directors ~~continuing~~for ~~development~~breaches ~~drilling~~of ontheir ~~our proved,~~fiduciary ~~undeveloped properties and (d) controlling overhead and expenses~~duties.

~~There can~~ be noWe ~~assurance~~have ~~that~~adopted weprovisions ~~will~~in ~~successfully~~our ~~accomplish~~Articles ~~these~~of ~~steps~~Incorporation and itBylaws iswhich ~~uncertain~~ welimit ~~will~~the ~~achieve~~liability aof ~~profitable~~our ~~level~~officers and directors and provide for indemnification by us of ~~operations~~our officers and~~/or~~ ~~obtain~~directors to the full extent ~~additional~~ ~~financing~~permitted by Nevada corporate law. ~~There~~ ~~can~~Our bearticles nogenerally ~~assurance~~provide that ~~any additional~~our ~~financings~~ ~~will~~officers beand ~~available~~directors toshall ushave onno ~~satisfactory~~personal ~~terms~~liability ~~and~~to ~~conditions,~~us ifor atour ~~all. In~~ ~~the~~shareholders ~~event~~for wemonetary ~~are~~damages ~~unable~~for tobreaches ~~continue~~of their fiduciary duties as adirectors, ~~going~~except ~~concern~~for breaches of their duties of loyalty, weacts or omissions ~~may~~ ~~elect~~not in good faith or bewhich ~~required~~involve tointentional ~~seek~~misconduct ~~protection~~or ~~from~~knowing ~~our~~violation ~~creditors~~of bylaw, ~~filing~~acts ~~a voluntary~~involving ~~petition~~unlawful inpayment ~~bankruptcy~~of dividends or ~~may~~unlawful bestock ~~subject~~purchases toor redemptions, or any transaction from which a director derives an ~~involuntary~~improper ~~petition~~personal ~~in bankruptcy~~benefit. To ~~date,~~Such ~~management~~provisions ~~has~~substantially ~~not~~limit ~~considered~~our ~~this~~shareholders' ~~alternative~~ability to hold officers and directors liable for breaches of fiduciary duty, ~~nor~~ ~~does~~and ~~management~~may ~~view~~require itus asto indemnify aour ~~likely~~officers ~~occurrence~~and directors.

~~Results~~ of ~~Operations~~7

	For the Year Ended December 31, 2008			For the Period from Inception (August 17, 2007) to December 31, 2007
REVENUES:
Crude oil sales	$	229,579		$	26,664
		229,579			26,664
OPERATING EXPENSES:
Depreciation, depletion and amortization
Recurring		399,289			5,627
Additional		3,920,764			-
Lease operating expenses		71,760			7,938
Severance and other taxes		10,584			1,229
General and administrative		1,467,659			206,883
Financing costs, net		1,224,930			2,232
		7,094,986			223,909
OPERATING LOSS		(6,865,407	)		(197,245	)
Provision for income taxes		-			-
NET LOSS	$	(6,865,407	)	$	(197,245	)

We face intense competition.

We ~~were incorporated~~compete onagainst ~~August~~many ~~17,~~other ~~2007~~energy companies, most of which have considerably greater resources and ~~therefore~~abilities ~~had~~than ~~minimal~~we ~~activity~~do. ~~during~~These ~~the year~~competitors ~~ended~~may ~~December 31~~have greater marketing and sales capacity, ~~2007~~established distribution networks, significant goodwill and global name recognition.

~~During~~ ~~the~~ ~~year~~We ~~ended~~depend ~~December~~significantly ~~31,~~upon ~~2008,~~ the ~~Company~~continued ~~realized~~involvement ~~gross revenue from its first two development wells drilled in the exploitation~~ of ~~the~~our ~~Apclark~~present ~~field and from three of its eight wells in the Plantation field~~management. ~~During~~ 2008, the Company had total sales, net to its interest, of 3,197 barrels of crude oil and realized an average price of $71.80. During this same period, lease operating expenses, including severance and other taxes and transportation costs, totaled $24.94 per barrel, resulting in netbacks to the Company of $46.86.

16 Our success depends to a significant degree upon the involvement of our management, who are in charge of our strategic planning and operations. We may need to attract and retain additional talented individuals in order to carry out our business objectives. The competition for such persons could be intense and there are no assurances that these individuals will be available to us.

~~The oil~~ ~~and~~Our ~~gas~~business ~~industry~~is assubject ~~a whole experienced a year of extremes in 2008. Crude oil and natural gas prices climbed precipitously in the first half of the year, only~~ to ~~pull~~extensive ~~back in the third quarter before collapsing in the fourth quarter~~regulation. ~~Indices during the early part of 2009 indicate that prices are trending below December’s averages as the global economy and demand continue to weaken.~~

~~Recurring~~ ~~depreciation,~~ ~~depletion~~As ~~and~~many ~~amortization expense totaled $399,289 for the year ended December 31, 2008, most~~ of ~~which is attributable to depletion on~~ our ~~Apclark~~activities ~~field~~are ~~and~~subject ~~Plantation~~to ~~field producing properties. In addition~~federal, ~~despite~~state ~~higher~~and ~~realized~~local ~~prices during 2008~~regulation, ~~the low oil~~ and ~~gas~~as ~~prices in~~these ~~effect~~rules atare ~~the~~subject ~~end~~to ofconstant ~~the~~change ~~year~~or ~~resulted in a $3~~amendment,~~920,764~~ ~~non-cash~~there ~~write-down~~can ~~of the~~be ~~carrying~~no ~~value~~assurance ofthat ~~Company’s~~our ~~proved~~operations ~~oil~~will ~~and~~not ~~gas~~be ~~properties. If~~adversely ~~oil and~~affected ~~gas~~by ~~prices~~new ~~fall~~or ~~below~~different government ~~year-end levels~~regulations, ~~additional~~laws ~~write-downs~~or ofcourt ~~oil~~decisions ~~and~~applicable ~~gas properties may occur. See Note 2 — Summary of Significant Accounting Policies in this Form 10-K –~~ to our ~~consolidated financial statements~~operations.

~~For the~~ ~~year~~ ~~ended~~Government ~~December~~regulation ~~31, 2008, general~~ and ~~administrative~~liability ~~expenses totaled $1,467,659. These expenses were comprised primarily of non-cash charges resulting from the issuance of 1,475,000 shares of the Company’s Common Stock to consultants~~ for ~~services~~environmental ~~provided~~matters ~~($568,500),~~may ~~payroll~~adversely ~~and~~affect ~~other personnel~~our ~~expenses~~business ~~($422,668), legal expenses ($171,204)~~ and ~~audit~~results ~~and accounting~~of ~~services ($86,777)~~operations.

~~Financing~~ ~~costs,~~ ~~net~~Crude ~~for~~oil ~~the~~and ~~year~~natural ~~ended~~gas ~~December~~operations 21are subject to extensive federal, ~~2008~~state and local government regulations, ~~totaled~~which may be changed from time to time. Matters subject to regulation include discharge permits for drilling operations, drilling bonds, $1reports concerning operations,~~224~~ the spacing of wells,~~930~~ unitization and pooling of properties and taxation. ~~The~~ ~~Company~~From ~~capitalized~~time ~~$208~~to time,~~690~~ ofregulatory ~~interest~~agencies ~~associated with~~have ~~unproved~~imposed ~~properties~~price ~~during~~controls and limitations on production by restricting the ~~year. The~~rate ~~balance~~of flow of ~~financing~~crude oil ~~costs~~and ~~recognized~~natural ~~was~~gas wells below actual production capacity in order to conserve supplies of crude oil and natural gas. There are federal, state and local laws and regulations primarily ~~attributable~~relating to protection of human health and the ~~amortization~~environment applicable to the development, production, handling, storage, transportation and disposal of ~~deferred financing~~crude ~~fees~~oil and ~~discounts~~natural ~~associated~~gas, byproducts thereof and other substances and materials produced or used in connection with crude oil and natural gas operations. In addition, we may inherit liability for environmental damages caused by previous owners of property we purchase or lease. As a result, we may incur substantial liabilities to third parties or governmental entities. We are also subject to changing and extensive tax laws, the ~~outstanding~~effects ~~debt~~of which cannot be predicted. The implementation of new, or the modification of existing, laws or regulations could have a material adverse effect on us.

~~Liquidity~~ The crude oil and ~~Capital~~natural ~~Resources~~gas reserves we report are estimates and may prove to be inaccurate.

At ~~December~~ ~~31,~~There ~~2008,~~are numerous uncertainties inherent in estimating crude oil and natural gas reserves and their estimated values. The reserves we ~~had~~report ~~cash~~in onour ~~hand~~filings ofwith ~~$3,881~~the SEC are estimates and such estimates may prove to be inaccurate because of these uncertainties. Reservoir engineering is a ~~working~~subjective ~~capital~~and ~~deficit~~inexact process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner. Estimates of ~~$3,291,526~~economically ~~consisting~~recoverable ~~primarily~~crude oil and natural gas reserves depend upon a number of $2variable factors,~~099,704~~ such as historical production from the area compared with production from other producing areas and assumptions concerning effects of ~~short-term~~regulations ~~debt~~by governmental agencies, future crude oil and natural ~~representing~~ $2gas prices,~~350~~ future operating costs,~~000~~ ~~face~~severance ~~value~~and ofexcise taxes, development costs and work-over and remedial costs. Some or all of ~~our~~these ~~debt~~assumptions ~~outstanding~~may ~~less~~in ~~$250~~fact vary considerably from actual results. For these reasons,~~296~~ estimates of the economically recoverable quantities of ~~unamortized~~crude ~~discount~~oil and $1natural gas attributable to any particular group of properties,~~558~~ classifications of such reserves based on risk of recovery,~~408~~ and estimates of ~~accrued~~the ~~exploration~~future net cash flows expected there from prepared by different engineers or by the same engineers but at different times may vary substantially. Accordingly, reserve estimates may be subject to downward or upward adjustment. Actual production, revenue and ~~development~~expenditures with respect to our reserves will ~~expenses~~likely vary from estimates, and such variances may be material.

~~We have~~ ~~raised~~ ~~net~~8 proceeds of $5,322,593 in various debt and equity financings since our inception (August 17, 2007), including $4,198,493 since January 1, 2008, and have used the majority of the net proceeds to successfully begin the exploitation of our interest in the Apclark field with the completion of the first two wells to be drilled, the acquisition of our interest in the Plantation field, initial payments toward the exercise of the option on the two drilling projects acquired in the merger with Black Pearl Energy, Inc., as well as for general and administrative expenses and working capital purposes.

~~Net cash~~ ~~used~~ inCrude ~~operating~~oil ~~activities for the year ended December 31, 2008, totaled $1,059,414~~ and ~~consisted~~natural ~~primarily~~gas ofwell ~~the net loss of $6~~development,~~865,407,~~ ~~net~~re-completion of ~~non-cash~~ ~~charges~~wells ~~totaling~~from ~~$4,320,052~~one ~~related~~reservoir to ~~depreciation,~~another ~~depletion and amortization expense~~reservoir, ~~including~~restoring ~~$3,920,764~~wells ~~of non-cash ceiling limitation required writedown, $568,500 related~~ to ~~the~~production ~~fair~~and ~~value~~drilling ~~of common shares issued for consulting services~~ and ~~$1,225,143~~completing ~~related~~new towells ~~the~~are ~~amortization~~speculative ofactivities ~~deferred financing fees~~ and ~~discount~~involve onnumerous ~~outstanding~~risks ~~debt. The Company also had~~and ~~$307,703~~substantial ofand ~~other~~uncertain ~~working capital changes, primarily consisting of drilling~~ costs ~~advanced~~.

~~Net cash~~ ~~used~~ inOur ~~investing~~growth ~~activities~~will ~~for~~be materially dependent upon the ~~year~~success ~~ended~~of ~~December~~our ~~31,~~future ~~2008,~~development ~~totaled $3,289,555~~program. Drilling for crude oil and ~~consisted~~natural ~~primarily~~gas ofand reworking existing wells involves numerous risks, including the ~~Company’s~~risk ~~drilling~~that ~~activity~~no incommercially ~~its Apclark~~productive ~~field~~crude ~~and~~oil ~~the~~or natural ~~initial~~gas ~~payments~~reservoirs ~~toward~~will ~~the~~be ~~exercise~~encountered. The cost of ~~the~~drilling, ~~option~~completing onand ~~the two~~operating wells is substantial and uncertain, and drilling ~~projects~~operations ~~acquired~~may inbe ~~the~~curtailed, ~~merger~~delayed ~~with~~or ~~Black~~cancelled ~~Pearl~~as ~~Energy~~a result of a variety of factors beyond our control, ~~Inc.~~including:

~~Net~~unexpected ~~cash provided~~drilling by financing activities for the year ended December 31, 2008, totaled $4,198,493 and consisted of the $800,000 in gross proceeds from our January 2008 Secured Promissory Notes, $750,000 from the May 2008 Convertible Note, $500,000 from the August 2008 Unsecured Promissory Notes and $50,000 from the October 2008 Unsecured Promissory Note, in addition to $2,188,493 in net proceeds from the Company’s equity offering. The Company incurred $90,000 of cash issue costs related to the issuance of the May 2008 Convertible Note. See Note 4 to the Company’s Consolidated Financial Statements for a complete discussion of the note issuances and Note 5 for a complete discussion of the equity issuances.conditions;
17pressure or irregularities in formations;
~~At December~~equipment ~~31,~~failures ~~2008,~~or the Company was in default with respect to the repayment obligation upon maturity on December 17, 2008, with respect to its December 2007 Secured Promissory Note. Pursuant to the terms of the December 2007 Secured Promissory Note, the interest rate on all amounts outstanding increased to 24% per annum, effective December 17, 2008. On February 6, 2009, the Company made a partial payment of $125,000 toward satisfaction of this obligation. As of April 15, 2009, the Company has not remitted the balance of amount dueaccidents; however the lender has not, as of April 15, 2009, taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lender, there can be no assurances that the lender will continue to delay the enforcement of its remedies under the December 2007 Secured Promissory Note. See Note 4 to the Company’s Consolidated Financial Statements for a complete discussion of the December 2007 Secured Promissory Note.
Atinability ~~April 15, 2009, the Company was in default with respect~~ to ~~the~~obtain ~~repayment~~leases ~~obligation upon maturity~~ on ~~January~~economical ~~31, 2009, with respect to its January 2008 Secured Promissory Notes. Pursuant to the~~ terms ~~of the January 2008 Secured Promissory Notes~~, ~~the~~where interest rate on all amounts outstanding increased to 24% per annum, effective January 31, 2009. In addition, if the January 2008 Secured Promissory Notes are not repaid prior to July 31, 2009, the Company is obligated to issue an additional 150,000 shares of its Common Stock as an additional interest payment. As of April 15, 2009, the Company has not cured its defaultapplicable; however the lenders have not, as of April 15, 2009, taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lenders, there can be no assurances that the lenders will continue to delay the enforcement of their remedies under the January 2008 Secured Promissory Notes. See Note 4 to the Company’s Consolidated Financial Statements for a complete discussion of the January 2008 Secured Promissory Notes.
Asadverse ~~of April~~weather 15, 2009, the Company had not made quarterly interest payment due on March 31, 2009, with respect to its May 2008 Convertible Note. Pursuant to the terms of the May 2008 Convertible Note, the interest rate on the past due quarterly interest payment increased to 15% per annum, effective March 31, 2009. The Company has 90 days to make the scheduled quarterly interest payment before an Event of Default should occur. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lender, there can be no assurances that the Company will make the scheduled quarterly interest payment within 90 days of March 31, 2008, and if not, that the lender will delay the enforcement of its remedies under the May 2008 Convertible Note. See Note 4 to the Company’s Consolidated Financial Statements for a complete discussion of the May 2008 Convertible Note.conditions;
Ascompliance ofwith ~~April~~governmental ~~15,~~requirements; 2009, the Company had not repaid any of the amounts due under the August 2008 Unsecured Promissory Notes or the October 2008 Unsecured Promissory Note. Pursuant to the terms of the August 2008 Unsecured Promissory Notes and the October 2008 Unsecured Promissory Note agreements, the Company is required to issue to the holders of the August 2008 Unsecured Promissory Notes and the October 2008 Unsecured Promissory Note, a total of 137,500 warrants to purchase shares of the Company’s Common Stock every 30 days that amounts remain outstanding under the August 2008 Unsecured Promissory Notes and the October 2008 Unsecured Promissory Note. See Note 4 to the Company’s Consolidated Financial Statements for a complete discussion of the August 2008 Unsecured Promissory Notes and the October 2008 Unsecured Promissory Note.
~~Capital Expenditures~~shortages or delays in the availability of drilling rigs or crews and ~~2009~~the ~~Outlook~~delivery of equipment.

We ~~presently~~ Drilling or reworking is a highly speculative activity. Even when fully and correctly utilized, modern well completion techniques such as hydraulic fracturing and horizontal drilling do not ~~have~~guarantee ~~any~~that ~~available~~we ~~credit,~~will ~~bank~~find ~~financing~~crude oil and/or ~~other~~natural ~~external~~gas ~~sources~~in ofour ~~liquidity~~wells. ~~Due~~ toHydraulic ~~our~~fracturing ~~brief~~involves ~~history~~pumping a fluid with or without particulates into a formation at high pressure, thereby creating fractures in the rock and ~~historical~~leaving the particulates in the fractures to ensure that the fractures remain ~~operating~~open, ~~losses~~thereby potentially increasing the ability of the reservoir to produce oil or gas. Horizontal drilling involves drilling horizontally out from an existing vertical well bore, ~~our~~thereby ~~operations~~potentially ~~have~~increasing ~~not~~the ~~been~~area aand ~~source~~reach of the well bore ~~liquidity~~that is in contact with the reservoir. We ~~will~~Our ~~need~~future todrilling ~~obtain~~activities ~~additional~~may ~~capital~~not inbe ~~order~~successful ~~to expand~~and, if unsuccessful, such failure would have an adverse effect on our future results of operations and ~~become~~financial ~~profitable~~condition. In ~~order~~We tocannot ~~obtain~~assure ~~capital,~~you that our weoverall drilling success rate or our drilling success rate for activities within a particular geographic area will not decline. We may ~~need~~identify toand ~~sell~~develop ~~additional~~prospects ~~shares~~through a number of ~~our~~methods, ~~common~~some ~~stock~~of orwhich ~~borrow~~do ~~funds~~not ~~from~~include lateral drilling or ~~private~~hydraulic ~~lenders~~fracturing, and some of which may be unproven. ~~There~~ ~~can~~The drilling and results for these prospects may be noparticularly ~~assurance~~uncertain. ~~that~~Our wedrilling schedule may vary from our capital budget. The final determination with respect to the drilling of any scheduled or budgeted prospects will be ~~successful in~~dependent ~~obtaining~~on ~~additional~~a ~~funding.~~number of factors, including, but not limited to:

We will still need additional capital in order to continue operations until we are able to achieve positive operating cash flow. Additional capital is being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the ~~issuance~~results of ~~equity~~previous ordevelopment ~~debt~~efforts ~~securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock~~ and ~~a downturn in~~ the ~~North American stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required~~acquisition, itreview ~~is possible that we could incur unexpected costs~~ and ~~expenses,~~ oranalysis experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of ~~existing~~ ~~holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.~~data;
18the availability of sufficient capital resources to us and the other participants, if any, for the drilling of the prospects;
~~Contractual Obligations~~the approval of the prospects by other participants, if any, after additional data has been compiled;
Weeconomic ~~are subject to various financial obligations~~ and ~~commitments~~industry inconditions at the ~~normal~~time ~~course~~ of ~~operations. These~~ ~~contractual~~drilling, ~~obligations~~including ~~represent~~prevailing ~~future cash payments that we are required to make~~ and ~~relate~~anticipated ~~primarily~~prices tofor ~~notes~~crude ~~payable~~oil and ~~accounts~~ ~~payable,~~natural ~~all~~gas ~~of which are due currently~~ and ~~which are reflected on~~ the ~~Company’s~~ ~~Consolidated~~availability Balance Sheet at December 31, 2008, found in Item 15 in this Form 10-K. The Company does have an operating lease obligation with annual payments totaling $67,180 in 2009, $103,790 in 2010, $108,321 in 2011 and $36,610 in 2012. The Company expects to fund these contractual obligations with additional financing, either in the form of ~~equity or~~drilling ~~debt~~rigs ~~issuances, for which there is no assurance that any additional financings will be available to us on satisfactory terms~~ and ~~conditions, if at all.~~crews;
~~Off-balance Sheet~~our ~~Arrangements~~financial resources and results;
~~The Company~~the ~~does~~availability ~~not~~of ~~currently~~leases ~~utilize~~and ~~any~~permits ~~off-balance~~on ~~sheet~~reasonable ~~arrangements~~terms ~~with unconsolidated~~for ~~entities~~the toprospects; ~~enhance liquidity~~ and ~~capital resource positions.~~
~~Critical Accounting~~the ~~Policies~~success ~~and~~of ~~Estimates~~our drilling technology.

~~Management's Discussion and Analysis of~~ ~~Financial~~ ~~Condition~~We ~~and~~cannot ~~Results~~assure ofyou ~~Operations~~that ~~discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of~~ these ~~financial~~projects ~~statements~~can ~~requires~~be ~~management~~successfully todeveloped ~~make~~or ~~estimates and assumptions~~ that ~~affect~~ the ~~reported~~wells ~~amounts~~discussed ofwill, ~~assets~~if ~~and~~drilled, ~~liabilities~~encounter ~~at the~~reservoirs ~~date~~ of ~~the~~commercially ~~financial~~productive ~~statements~~crude ~~and~~oil ~~the~~or ~~reported~~natural ~~amounts of revenues and expenses during the reporting period~~gas. On anThere ~~on-going~~are ~~basis, management~~numerous ~~evaluates~~uncertainties ~~our~~in ~~estimates~~estimating ~~and judgments, including those related to~~quantities ~~revenue recognition, recovery~~ of ~~oil~~proved ~~and gas~~ reserves, ~~financing~~including ~~operations,~~many ~~and contingencies~~factors ~~and~~beyond ~~litigation~~our control.

~~Oil~~ ~~and Gas Properties~~9

~~We follow the full cost method of~~ ~~accounting~~ ~~for~~Crude oil and natural gas ~~producing~~prices ~~activities.~~are ~~Costs~~highly tovolatile ~~acquire mineral interests~~ in ~~oil~~general and ~~gas~~low ~~properties,~~prices towill ~~drill~~negatively ~~and~~affect ~~equip~~our ~~exploratory~~financial ~~wells used to find proved reserves, and to drill and equip development wells including directly related overhead costs and related asset retirement costs are capitalized~~results.

~~Under~~ ~~this~~Our ~~method~~revenues, ~~all~~operating ~~costs~~results, ~~including internal~~profitability, ~~costs~~cash ~~directly~~flow, ~~related~~future torate ~~acquisition,~~of ~~exploration~~growth and ~~development activities~~ability ~~are~~to ~~capitalizable~~borrow asfunds ~~oil~~or ~~and~~obtain ~~gas~~additional ~~property~~capital, ~~costs. Properties~~as ~~not subject~~well toas ~~amortization~~the ~~consist~~carrying value of ~~exploration~~our ~~and~~properties, ~~development costs which~~ are ~~evaluated~~ onsubstantially adependent ~~property-by-property~~upon ~~basis. Amortization~~prevailing prices of ~~these~~crude ~~unproved~~oil ~~property~~and ~~costs~~natural ~~begins~~gas. ~~when~~Lower ~~the~~crude ~~properties~~oil ~~become~~and ~~proved~~natural orgas ~~their~~prices ~~values become~~also ~~impaired. Bonanza~~may ~~assesses~~reduce the ~~realizability~~amount of ~~unproved properties,~~crude ifoil ~~any,~~and onnatural atgas ~~least~~that anwe ~~annual~~can ~~basis~~produce oreconomically. ~~when~~Historically, ~~there~~the ~~has~~markets ~~been~~for ~~an indication~~crude ~~that~~oil ~~impairment~~and innatural ~~value~~gas ~~may~~ have ~~occurred. Impairment~~been ~~of unproved~~very ~~properties~~volatile, isand ~~assessed~~such ~~based~~markets are onlikely ~~management's~~to ~~intention~~continue ~~with~~to ~~regard~~be ~~to future~~volatile ~~exploration~~in ~~and~~the ~~development~~future. ofPrices ~~individually~~for ~~significant~~crude ~~properties~~oil and ~~the~~ ~~ability~~natural ofgas ~~Bonanza~~are subject to ~~obtain~~wide ~~funds~~fluctuation in response to ~~finance~~relatively ~~such~~minor ~~exploration~~changes ~~and development. If~~in the ~~results~~supply of anand ~~assessment~~demand ~~indicate~~for ~~that~~crude ~~the properties~~oil ~~are~~and ~~impaired~~natural gas, ~~the~~market ~~amount~~uncertainty ofand ~~the~~a variety ~~impairment~~of isadditional ~~added~~factors tothat ~~the capitalized~~are ~~costs~~beyond toour becontrol, ~~amortized.~~including:

~~The~~worldwide ~~provision for depreciation~~ and ~~depletion~~ ofdomestic ~~oil~~supplies ~~and gas properties is computed on the unit-~~of~~-production method. Under~~ ~~this~~crude ~~method, we compute the provision by multiplying the total unamortized costs of~~ oil and ~~gas~~natural properties including future development, site restoration, and dismantlement abandonment costs, but excluding costs of unproved properties by an overall rate determined by dividing the physical units of oil and gas produced during the period by the total estimated units of proved oil and gas reserves. This calculation is done on a country-by-country basis. As of December 31, 2008, all of our oil production operations are conducted in the United States of America. The cost of unevaluated properties not being amortized, to the extent there is such a cost, is assessed quarterly to determine whether the value has been impaired below the capitalized cost. The cost of any impaired property is transferred to the balance of oil and gas properties being depleted. The costs associated with unevaluated properties relate to projects which were undergoing exploration or development activities or in which we intend to commence such activities in the future. We will begin to amortize these costs when proved reserves are established or impairment is determined.;
19the level of consumer product demand;
Inweather accordance with SFAS No. 143, "Accounting for Asset Retirement Obligations," we report a liability for any legal retirement obligations on our oil and gas properties. The asset retirement obligations represent the estimated present value of the amounts expected to be incurred to plug, abandon, and remediate the producing properties at the end of their productive lives, in accordance with state laws, as well as the estimated costs associated with the reclamation of the property surrounding. The Company determines the asset retirement obligations by calculating the present value of estimated cash flows related to the liability. The asset retirement obligations are recorded as a liability at the estimated present value as of the asset's inception, with an offsetting increase to producing properties. Periodic accretion of the discount related to the estimated liability is recorded as an expense in the statement of operations. The estimated liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells, and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligations. Revisions to the asset retirement obligations are recorded with an offsetting change to producing properties, resulting in prospective changes to depletion and depreciation expense and accretion of the discount. Because of the subjectivity of assumptions and the relatively long lives of most of the wells, the costs to ultimately retire the Company's wells may vary significantly from prior estimates. As of December 31, 2008, the Company’s Asset Retirement Obligation was not significant.conditions;
~~Reserve Estimates~~ domestic and foreign governmental regulations;
~~Our estimate of proved reserves is based on~~ the ~~quantities~~price ~~of oil~~ and ~~gas~~availability ~~that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions. The accuracy~~ of ~~any~~alternative reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment. For example, we must estimate the amount and timing of future operating costs, severance taxes, development costs and workover costs, all of which may in fact vary considerably from actual results. In addition, as prices and cost levels change from year to year, the estimate of proved reserves also changes. Any significant variance in these assumptions could materially affect the estimated quantity and value of our reserves. As such, our reserve engineers review and revise the Company’s reserve estimates at least annually.fuels;
~~Despite the~~political ~~inherent~~instability ~~imprecision~~or inarmed ~~these~~conflict engineering estimates, our reserves are used throughout our financial statements. For example, since we use the units-of-production method to amortize our oil and gas properties, the quantity of reserves could significantly impact our DD&A expense. Our oil and gas properties are also subject to a “ceiling” limitation based in ~~part on the quantity of our proved reserves. Finally, these reserves are the basis for our supplemental~~ oil ~~and~~producing ~~gas disclosures.~~regions;
~~Revenue Recognition~~the price and level of foreign imports; and
~~Bonanza recognizes~~other ~~oil~~domestic and ~~natural~~global ~~gas~~economic ~~revenue under the sales method of accounting for its interests in producing wells as crude oil and natural gas is produced and sold from those wells~~conditions. Crude oil and natural gas sold by Bonanza is not significantly different from Bonanza’s share of production. We recognize revenue upon transfer of ownership of the product to the customer which occurs when (i) the product is physically received by the customer, (ii) an invoice is generated which evidences an arrangement between the customer and us, (iii) a fixed sales price has been included in such invoice and (iv) collection from such customer is probable.

20 It is extremely difficult to predict future crude oil and natural gas price movements with any certainty. Declines in crude oil and natural gas prices may materially adversely affect our financial condition, liquidity, ability to finance planned capital expenditures and results of operations.

~~Income~~ ~~Taxes~~ The market price for our Common Stock may be volatile, and you may not be able to sell our stock at a favorable price or at all.

~~The~~ ~~Company~~ ~~uses~~Many ~~the~~factors ~~liability~~could ~~method~~cause ~~for~~the ~~accounting~~market ~~for~~price ~~income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases~~ of ~~assets~~ ~~and~~our ~~liabilities~~Common ~~and~~Stock ~~are measured using the enacted tax rates and laws that will be in effect when the differences are expected~~ to ~~reverse. The~~ ~~realizability~~rise ~~of deferred tax assets are evaluated annually~~ and afall, ~~valuation allowance is provided if it is more likely than not that the deferred tax assets will not give rise to future benefits in the Company’s tax returns.~~including:

~~The Company’s~~actual ~~estimates~~or ~~are~~anticipated ~~based~~variations onin ~~the~~our ~~information~~quarterly ~~available~~results to it at the time that it prepares the income tax provision. The Company generally files its annual income tax returns several months after its fiscal year-end. Income tax returns are subject to audit by federal, state, and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of ~~the tax laws.~~operations;
~~At Inception~~changes ~~(August 17, 2007), the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation Number 48, “Accounting for Uncertainty~~ in ~~Income Taxes”~~market ~~(“FIN~~valuations ~~48”),~~of ~~which~~companies ~~is intended to clarify the accounting for income taxes prescribing a minimum recognition threshold for a tax provision before being recognized~~ in ~~the~~our consolidated financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result, the Company has concluded that it does not have any unrecognized tax benefits or any additional tax liabilities after applying FIN 48. The adoption of FIN 48 therefore had no impact on the Company’s consolidated financial statements. See Note 6 to the Company’s consolidated financial statement for further discussion.industry;
~~ITEM 7A. QUANTITATIVE AND~~changes ~~QUALATATIVE~~in ~~DISCLOSURES~~expectations ~~ABOUT~~of ~~MARKET~~future ~~RISK~~financial performance;
~~Since~~fluctuations wein ~~are~~stock amarket ~~company~~prices ~~that~~and ~~qualifies as a “smaller reporting company,” as defined under Rule 12b-2, we are not required to provide the information required by this Item 7A.~~volumes;
~~ITEM 8. FINANCIAL STATEMENTS~~issuances ~~AND~~of ~~SUPPLEMENTARY~~Common ~~DATA~~Stock or other securities in the future;
~~The financial~~the ~~statements~~addition ~~and~~or ~~supplementary~~departure ~~financial information required to be filed under this item are presented on pages F-1 through F-25~~ of ~~this~~key ~~Form 10-K and are incorporated herein by reference.~~personnel;
~~ITEM 9. CHANGES IN~~announcements ~~AND~~by ~~DISAGREEMENTS~~us ~~WITH~~or ~~ACCOUNTANTS~~our ONcompetitors ~~ACCOUNTING~~of ~~AND~~acquisitions, ~~FINANCIAL DISCLOSURE~~dispositions, investments or strategic alliances; and
~~On February 8, 2008 (~~the ~~“Moore Dismissal~~increase ~~Date”),~~or wedecline advised Moore & Associates, Chartered (“Moore”) that it was dismissed as the Company’s independent registered public accounting firm. The decision to dismiss Moore as the Company’s independent registered public accounting firm was approved by the Company’s Board of Directors on February 8, 2008. Except as noted in the ~~paragraph immediately~~price ~~below, the reports~~ of ~~Moore~~crude onoil ~~the Company’s consolidated financial statements for the years ended December 31, 2006 and 2005 did not contain an adverse opinion~~ or ~~disclaimer~~natural ~~of opinion, and such reports were not qualified or modified as to uncertainty, audit scope, or accounting principle~~gas.

~~The~~ ~~reports~~It ofis ~~Moore~~possible onthat the ~~Company’s consolidated~~proceeds ~~financial~~from ~~statements~~sales as of ~~and~~our ~~for~~Common ~~the~~Stock ~~years~~may ~~ended~~not ~~December~~equal ~~31, 2006~~or ~~and~~exceed ~~2005 contained an explanatory paragraph which noted that there was substantial doubt as to~~ the ~~Company’s~~prices ~~ability~~you topaid ~~continue~~for asit aplus ~~going concern as~~ the ~~Company~~costs ~~had~~and ~~limited~~fees ~~sources~~ of ~~revenue~~making ~~and~~the ~~operations~~sales.

~~During the years ended December 31,~~ ~~2006~~ ~~and~~Substantial ~~2005,~~sales ~~and~~or ~~through~~other ~~the~~issuances ~~Moore Dismissal Date, the Company has not had any disagreements with Moore on any matter~~ of ~~accounting~~our ~~principles~~Common ~~or practices~~Stock, ~~financial~~ ~~statement disclosure~~ or ~~auditing~~the ~~scope~~perception orthat ~~procedure,~~such ~~which disagreements,~~sales ifmight ~~not resolved to Moore’s satisfaction~~occur, ~~would~~could ~~have~~depress ~~caused them to make reference thereto in their reports on~~ the ~~Company’s~~market ~~consolidated financial~~price ~~statements~~of ~~for~~our ~~such~~Common ~~years~~Stock.

21 We cannot predict whether future issuances of our Common Stock or resales in the open market will decrease the market price of our Common Stock. The impact of any such issuances or resales of our Common Stock on our market price may be increased as a result of the fact that our Common Stock is thinly, or infrequently, traded. The exercise of any options or the vesting of any restricted stock that we may grant to directors, executive officers and other employees in the future, the issuance of Common Stock in connection with acquisitions and other issuances of our Common Stock could have an adverse effect on the market price of our Common Stock. In addition, future issuances of our Common Stock may be dilutive to existing shareholders. Any sales or other issuances of substantial amounts of our Common Stock in the public market, or the perception that such sales might occur, could lower the market price of our Common Stock.

~~During the years ended December 31,~~ ~~2006 and 2005, and through the Moore Dismissal Date, there were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K.~~10

~~The~~ ~~Company~~We ~~requested~~have ~~that~~anti-takeover ~~Moore furnish~~defenses itthat ~~with~~could adelay ~~letter~~or ~~addressed~~prevent toan ~~the~~acquisition ~~Securities~~ and ~~Exchange~~could ~~Commission stating~~adversely ~~whether~~affect ~~it agrees with~~ the ~~above~~price ~~statements. A copy~~ of ~~this letter~~our ~~was~~Common ~~filed with a Current Report on Form 8-K filed on February 12, 2008~~Stock.

On ~~February~~ 8,Provisions ~~2008~~in ~~(the~~our ~~“RBSM~~certificate ~~Engagement~~of ~~Date”)~~incorporation and by-laws and provisions of Nevada law could delay, ~~the~~defer ~~Company~~or ~~engaged~~prevent ~~RBSM~~an ~~LLP (“RBSM”)~~acquisition asor ~~its~~change ~~independent~~in ~~registered~~control ~~public~~of ~~accounting~~us ~~firm~~or ~~for~~otherwise ~~the~~adversely ~~Company’s fiscal~~affect ~~year~~the ~~ended~~price ~~December~~of ~~31,~~our ~~2007~~Common Stock. ~~The~~ ~~decision~~Nevada tolaw ~~engage~~also ~~RBSM as~~contains ~~the~~certain ~~Company’s~~provisions ~~independent~~that ~~registered~~may ~~public~~have ~~accounting~~an ~~firm~~anti-takeover ~~was~~effect ~~approved~~and byotherwise ~~the Company’s~~discourage ~~Board~~third ofparties ~~Directors~~from effecting transactions with us.

~~During~~ ~~the~~Penny ~~two~~Stock ~~most~~Regulations ~~recent~~may ~~fiscal~~impose ~~years and~~certain ~~through~~restrictions ~~the~~on ~~RBSM~~marketability ~~Engagement~~of ~~Date,~~ the Company’s ~~had~~securities. ~~not consulted with RBSM regarding either:~~

1. The trading of the ~~application~~Company’s ofCommon ~~accounting~~Stock ~~principles~~is subject to rules pertaining to “penny stocks.” The Securities and Exchange Commission (“SEC”) has adopted regulations which generally define a “penny stock” to be any ~~specified~~equity ~~transaction,~~security ~~either~~that ~~completed~~has ora ~~proposed,~~market price (as defined) of less than $5.00 per share or ~~the~~an ~~type~~exercise price of ~~audit~~less ~~opinion~~than ~~that~~$5.00 ~~might~~per beshare, ~~rendered~~subject onto certain exceptions. As a result, the Company’s ~~financial~~Common Stock ~~statements,~~is subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established clients and ~~neither~~“accredited investors.” For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s written ~~report~~consent ~~was~~to ~~provided~~the transaction prior to the ~~Company~~purchase. ~~nor~~Additionally, ~~oral~~for ~~advice~~any ~~was~~transaction ~~provided~~involving ~~that~~a ~~RBSM~~penny stock, ~~concluded~~unless ~~was~~exempt, anthe ~~important~~rules ~~factor~~require ~~considered~~the delivery, prior to the transaction, of a risk disclosure document mandated by the ~~Company~~SEC inrelating ~~reaching~~to athe ~~decision~~penny asstock market. The broker-dealer must also disclose the commission payable to both the broker-dealer ~~accounting~~and the registered representative, ~~auditing~~current orquotations ~~financial~~for ~~reporting~~the ~~issue;~~securities orand, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealers presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell shares of the Company’s Common Stock and may affect the ability of investors to sell such shares of Common Stock in the secondary market and the price at which such investors can sell any of such shares.

2. Investors ~~any~~should ~~matter~~be aware that, ~~was~~according ~~either~~to ~~subject~~the ~~of disagreement or event~~SEC, asthe ~~defined~~market infor ~~Item~~penny ~~304(a)(1)(iv)(A)~~stocks ofhas ~~Regulation~~suffered ~~S-B~~in ~~and~~recent ~~the~~years ~~related~~from ~~instruction~~patterns ~~to Item 304~~ of ~~Regulation~~fraud ~~S-B,~~and orabuse. aSuch ~~reportable~~patterns ~~event,~~include: ~~as that term is explained in Item 304(a)(1)(iv)(A) of Regulation S-B.~~

Oncontrol October 27, 2008 (the “RBSM Dismissal Date”), we advised RBSM that it was dismissed as the Company’s independent registered public accounting firm. The decision to dismiss RBSM as the Company’s independent registered public accounting firm was approved by the Company’s Board of ~~Directors on October 24, 2008. Except as noted in~~ the ~~paragraph~~market ~~immediately below, the report of RBSM on the Company’s consolidated financial statements as of December 31, 2007, and~~ for the ~~period~~security ~~from~~by ~~Inception~~one ~~(August 17, 2007) through December 31, 2007, did not contain an adverse opinion~~ or ~~disclaimer~~a ~~of opinion,~~few ~~and~~broker-dealers ~~such~~that ~~reports~~are ~~were~~often ~~not~~related ~~qualified or modified as~~ to ~~uncertainty, audit~~the ~~scope,~~promoter or ~~accounting principle.~~issuer;
~~The~~manipulation ~~reports~~ of ~~RBSM~~prices onthrough ~~the~~prearranged ~~Company’s consolidated~~matching ~~financial statements as~~ of ~~December~~purchases ~~31,~~and ~~2007,~~sales and ~~for~~false ~~the~~and ~~period from~~misleading ~~Inception~~press (August 17, 2007) through December 31, 2007, contained an explanatory paragraph which noted that there was substantial doubt as to the Company’s ability to continue as a going concern as the Company had limited sources of revenue and operations.releases;
~~During~~“boiler ~~the~~room” ~~year ended December 31, 2007, and through the RBSM Dismissal Date, the Company has not had any disagreements with RBSM on any matter of accounting principles or~~ practices~~, financial~~ ~~statement~~involving ~~disclosure~~high orpressure ~~auditing~~sales ~~scope~~tactics orand ~~procedure,~~unrealistic ~~which disagreements,~~price ifprojections ~~not~~by ~~resolved~~inexperienced tosales ~~RBSM’s satisfaction, would have caused them to make reference thereto in their reports on the Company’s consolidated financial statements for such years.~~persons;
~~During~~excessive ~~the~~and ~~year~~undisclosed ~~ended~~bid-ask ~~December~~differentials ~~31, 2007,~~ and ~~through~~markups ~~the~~by ~~RBSM~~selling ~~Dismissal Date, there were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S~~broker-K.dealers; and
~~The~~the ~~Company~~wholesale ~~requested~~dumping ~~that~~of ~~RBSM~~the ~~furnish it~~same ~~with~~securities aby ~~letter~~promoters ~~addressed~~and tobroker-dealers ~~the~~after ~~Securities~~prices ~~and~~have ~~Exchange~~been ~~Commission~~manipulated ~~stating whether~~to ita ~~agrees~~desired level, along with the ~~above~~inevitable ~~statements. A~~collapse ~~copy~~ of ~~this~~those ~~letter was~~prices ~~filed~~ with aconsequent ~~Current~~investors ~~Report on Form 8-K filed on October 27, 2008.~~losses

22 The Company’s management is aware of the abuses that have occurred historically in the penny stock market.

On ~~October~~ ~~27,~~IN ~~2008~~ADDITION ~~(the~~TO ~~“Weaver~~THE ~~and~~RISK ~~Tidwell~~FACTORS ~~Engagement~~SET ~~Date”)~~FORTH ABOVE, ~~the~~THE ~~Company~~COMPANY ~~engaged Weaver~~IS ~~and~~SUBJECT ~~Tidwell~~TO ~~L.L.P.(“Weaver~~NUMEROUS ~~and~~OTHER ~~Tidwell”)~~RISKS asSPECIFIC ~~its~~TO ~~independent~~THE ~~registered public~~PARTICULAR ~~accounting~~BUSINESS ~~firm~~OF ~~for~~THE ~~the~~COMPANY, ~~Company’s~~AS ~~fiscal~~WELL ~~year~~AS ~~ended~~GENERAL ~~December~~BUSINESS ~~31, 2008~~RISK. ~~The~~ ~~decision~~INVESTORS toARE ~~engage~~URGED ~~Weaver~~TO ~~and~~CONSIDER ~~Tidwell~~ALL asOF ~~the~~THE ~~Company’s~~RISKS INHERENT IN ~~independent~~THE ~~registered~~COMPANY'S ~~public~~SECURITIES ~~accounting~~PRIOR ~~firm~~TO ~~was~~PURCHASING ~~approved~~OR byMAKING ~~the~~AN ~~Company’s Board~~INVESTMENT ofDECISION. ~~Directors~~THE COMPANY'S SECURITIES ARE HIGHLY SPECULATIVE AND INVOLVE A VERY HIGH DEGREE OF RISK.

~~During the two most recent fiscal years~~ ~~and through the Weaver and Tidwell Engagement Date, the Company had not consulted with Weaver and Tidwell regarding either:~~11

1.ITEM the application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report was provided to the Company nor oral advice was provided that Weaver and Tidwell concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or1B.

2. UNRESOLVED ~~any~~STAFF ~~matter~~COMMENTS that was either subject of disagreement or event, as defined in Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction to Item 304 of Regulation S-B, or a reportable event, as that term is explained in Item 304(a)(1)(iv)(A) of Regulation S-B.

~~ITEM 9A. CONTROLS AND~~None ~~PROCEDURES~~

~~Disclosure~~ITEM ~~Controls and Procedures~~2.

~~William~~ ~~Wiseman,~~PROPERTIES the Company’s Chairman and Chief Executive Officer, in his capacity as principal executive officer, and G. Wade Stubblefield, the Company’s Chief Financial Officer, in his capacity as principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2008, the end of the period covered by this report. Based on that evaluation and as of the date of that evaluation, these officers concluded that the Company’s disclosure controls and procedures were effective, providing effective means to ensure that the information we are required to disclose under applicable laws and regulations is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. We also made no changes in internal controls over financial reporting during the quarter ending December 31, 2008, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

We periodically review the design and effectiveness of our disclosure controls, including compliance with various laws and regulations that apply to our operations. We make modifications to improve the design and effectiveness of our disclosure controls and may take other corrective action, if our reviews identify deficiencies or weaknesses in our controls.Summary

~~Management~~ We maintain our principal office at 3417 Mercer, Suite E, Houston, Texas 77027. Our telephone number at that office is 713-333-5808. Our current office space consists of approximately 500 square feet and our lease is on a month-to-month basis. During 2007 and 2008, we sublet space from United Production & Exploration, Inc., a company majority owned by Mr. Teague and Mr. Wiseman, executive officers and directors of the Company. In November 2008, we entered into a direct lease for our former office space for a 38-month term. The initial monthly rental totals $8,397 per month. Due to the Company’s ~~Report~~financial ondifficulties ~~Internal~~the Company was required to vacate its prior space in May 2009. We remain obligated for the lease ~~Control~~payments ~~Over~~on ~~Financial~~our ~~Reporting~~former office space.

~~Management~~ of ~~the~~Our ~~Company~~crude isoil ~~responsible~~and ~~for~~natural ~~the~~gas ~~preparation~~properties ~~and~~consist ~~integrity~~essentially of ~~the consolidated~~working ~~financial~~interests ~~statements~~owned ~~appearing~~by us in ~~this~~various ~~annual~~oil ~~report~~and ~~on Form 10-K. The~~gas ~~financial~~wells ~~statements~~and ~~were~~leases ~~prepared~~located in ~~conformity~~Texas. ~~with accounting~~Recapped ~~principles~~below ~~generally~~is ~~accepted~~a inbrief ~~the~~synopsis ~~United~~of ~~States~~each ~~and~~of ~~include amounts~~our ~~that~~core ~~are~~areas ~~based~~of onoperation: ~~management’s best estimates and judgments.~~

~~Management~~ ofApclark the Company is responsible for establishing and maintaining effective internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 (Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements. Our internal control over financial reporting is supported by appropriate reviews by management, written policies and guidelines, careful selection and training of qualified personnel and a written code of business conduct adopted by our Company’s board of directors, applicable to all Company directors and all officers and employees of our Company and subsidiaries.Field

23 The Company holds a 25% working interest and an 18.75% net revenue interest in this 1,258 acre producing field located in Borden County, Texas. Primary production is obtained from the Jo Mill Spraberry trend, with offset production exceeding 70 million barrels (“mmbls”) of crude oil and 80 billion cubic feet (“bcf”) of natural gas from the Jo Mill field adjacent to the Company’s acreage position. The Company participated in the drilling of two horizontal wells in the Apclark field during 2008. The Company has identified several additional drilling locations. Total production during 2009 and 2008 totaled 4,456 and 2,644 barrels of crude oil, respectively net to the Company’s interest, and total proved reserves at December 31, 2009, totaled 47,829 barrels of crude oil and 47,569 thousand cubic feet (“mcf”) of natural gas, of which 14,787 barrels of crude oil and 12,849 mcf of natural gas were proved producing reserves.

~~Because~~ ofDamon ~~its~~Mound inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.Field

~~Management~~ ~~assessed~~ ~~the~~The ~~effectiveness~~Company ofholds ~~the~~a ~~Company’s~~50% ~~internal~~working ~~control~~interest ~~over~~and ~~financial reporting~~a as31.88% ofnet ~~December 31,~~revenue ~~2008. In~~interest ~~making~~in this ~~assessment, management~~5 ~~used~~acre ~~the~~producing ~~criteria~~field ~~set~~located ~~forth~~in byBrazoria ~~the~~County, ~~Committee~~Texas. ofHistorically, ~~Sponsoring Organizations~~primary ofproduction is obtained from the ~~Treadway~~Miocene ~~Commission~~and ~~(COSO)~~Frio intrend, ~~Internal~~with ~~Control —~~cumulative ~~Integrated~~field ~~Framework. Based~~production onin ~~our assessment,~~excess ~~management~~of ~~believes~~11 ~~that~~mmbls. ~~the~~The Company ~~maintained~~has ~~effective~~not ~~internal control~~assigned ~~over~~any ~~financial~~proved ~~reporting~~reserves to this prospect as of ~~December 31, 2008~~yet.

~~Changes in Internal Control Over~~ ~~Financial~~Drilling ~~Reporting~~Statistics

~~There was~~ no ~~change~~During in2009, ~~our~~we ~~internal~~did ~~controls~~not ~~over~~participate ~~financial~~in ~~reporting~~the ~~during~~drilling ~~the~~of ~~quarter ending~~any ~~December 31,~~ wells. During 2008, ~~that~~ ~~has~~we ~~materially~~participated ~~affected,~~in ordrilling ~~is reasonably~~two ~~likely~~gross todevelopment ~~materially~~wells ~~affect~~(0.5 net wells), ~~our~~both ~~internal~~completed ~~controls~~as ~~over~~producers ~~financial~~and both in the Apclark Field. We did not drill any wells from our ~~reporting~~inception (August 17, 2007) through December 31, 2007.

~~ITEM~~ ~~9B. OTHER INFORMATION~~Productive Oil and Gas Wells

~~None~~ At December 31, 2009, we had an interest in two gross productive oil wells (0.5 net wells).

~~PART III~~ 12

~~ITEM 10. DIRECTORS~~Production, ~~AND~~Pricing ~~EXECUTIVE~~and ~~OFFICERS~~Lease OFOperating ~~THE~~Cost ~~REGISTRANT~~Data

The ~~Company~~following ~~expects~~table todescribes, ~~incorporate~~for ~~the~~2009 and 2008, crude oil and ~~information~~natural ~~required~~gas byproduction, ~~Item~~average 10lease byoperating ~~reference~~expenses toper barrel (including severance and other taxes and transportation costs) and average sales prices received by the Company’s:

definitive proxy statement (the “Proxy”). In the event that the Proxy is not filed within 120 days after the end of the fiscal year covered by this Form 10-K, the information required by Item 10 shall be filed as an amendment to the Form l0-K no later than the end of the 120-day period.

			Average		Average
	Crude Oil		Lease Operating		Sales
	Production		Cost		Price
	(barrels)		(per barrel)		(per barrel)

Year ended
December 31, 2009	4,563	$	33.05	$	56.52

Year ended
December 31, 2008	3,197	$	24.94	$	71.80

~~ITEM~~Gross and Net Undeveloped and Developed ~~11. EXECUTIVE COMPENSATION~~Acreage

The ~~Company~~following ~~expects~~table ~~to incorporate~~sets ~~the~~out ~~information~~our ~~required~~gross byand ~~Item~~net ~~11 by reference to the~~acreage ~~Company’s~~position:

~~Proxy.~~ In Undeveloped ~~the~~Acreage ~~event~~ Developed ~~that~~Acreage ~~the~~ Gross ~~Proxy~~ Net is Gross ~~not filed within 120 days after the end of the~~ ~~fiscal~~ Net ~~year covered by this Form 10-K~~ 1,258 ~~the~~ 316 ~~information~~ 80 ~~required by Item 11 shall~~ be 20 ~~filed as an amendment to the Form l0-K no later than the end of the 120-day~~ ~~period.~~

~~ITEM~~As of December 31, 2009, five (5) gross, three (3) net acres of ~~12. SECURITY~~the undeveloped acres expire November 5, 2010, the balance of the undeveloped ~~OWNERSHIP~~acreage OFis ~~CERTAIN~~held ~~BENEFICIAL~~by ~~OWNERS~~production ~~AND~~and ~~MANAGEMENT~~currently has no expiration date.

~~The~~Estimated ~~Company~~Proved ~~expects~~Reserves toand ~~incorporate~~Future ~~the information~~Net ~~required by Item 12 by reference to the Company’s~~Cash Flows

~~Proxy.~~ In January 2009 the ~~event~~SEC ~~that~~issued ~~the~~Release No. ~~Proxy~~33-8995, is“Modernization ~~not~~of ~~filed~~Oil ~~within~~and ~~120~~Gas ~~days~~Reporting” ~~after~~(Release ~~the~~33-8995), amending ~~end~~oil and gas reporting requirements under Rule 4-10 of ~~the~~Regulation S-X ~~fiscal~~ and ~~year~~Industry ~~covered~~Guide by2 ~~this~~in ~~Form~~Regulation 10S-K, and bringing full-cost accounting rules into alignment with the ~~information~~revised ~~required~~disclosure byrequirements. ~~Item~~The 12new ~~shall~~rules include be changes ~~filed~~to asthe anpricing ~~amendment~~used to estimate reserves, the ~~Form~~option ~~l0-K~~to nodisclose ~~later~~probable and ~~than~~possible reserves, revised definitions for proved reserves, additional disclosures with respect to undeveloped reserves, and other new or revised definitions and disclosures. In January 2010 the ~~end~~Financial ofAccounting Standards Board (FASB) amended Accounting Standards Codification (ASC) Topic 932, “Extractive Industries — Oil and Gas” to align the ~~120~~guidance with the changes made by the SEC. The Company adopted Release 33-~~day~~8995 and the amendments to ASC Topic ~~period~~ 932 (collectively, the Modernization Rules) effective December 31, 2009.

~~ITEM~~Proved oil and gas reserves are 13the estimated quantities of natural gas, crude oil, condensate and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Reserve estimates are considered proved if ~~CERTAIN~~economical productivity is supported by either actual production or conclusive ~~RELATIONSHIPS~~formation ~~AND~~tests. ~~RELATED~~Estimated ~~TRANSACTIONS~~reserves that can be produced economically through application of improved recovery techniques are included in the “proved” classification when successful testing by a pilot project or the operation of an active, ~~AND~~improved ~~DIRECTOR~~recovery program in the reservoir provides support for the ~~INDEPENDENCE~~engineering analysis on which the project or program is based. Estimated proved developed oil and gas reserves can be expected to be recovered through existing wells with existing equipment and operating methods.

~~The Company expects to incorporate the information required by Item~~ 13 ~~by reference to the Company’s~~

~~Proxy.~~ InProved ~~the~~undeveloped ~~event~~(PUD) reserves include those reserves that ~~the~~are ~~Proxy~~expected isto ~~not~~be ~~filed~~recovered ~~within~~from ~~120~~new ~~days~~wells ~~after~~on ~~the~~undrilled ~~end~~acreage, ofor ~~the~~from existing wells where a relatively major expenditure is required for recompletion. ~~fiscal~~Undeveloped ~~year~~reserves ~~covered~~may bybe ~~this~~classified ~~Form~~as ~~10-K~~proved reserves on undrilled acreage directly offsetting development areas that are reasonably certain of production when drilled, ~~the~~or ~~information~~where ~~required~~reliable bytechnology ~~Item~~provides 13reasonable ~~shall~~certainty of economic producibility. Undrilled locations may be ~~filed~~classified as anhaving ~~amendment~~undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to ~~the~~be ~~Form~~drilled ~~l0-K~~within nofive ~~later~~years, ~~than~~unless ~~the~~specific ~~end~~circumstances ofjustify ~~the~~a ~~120-day~~longer time period.

24 As of December 31, 2009, the Company had total estimated proved reserves of 47,829 barrels of crude oil, condensate and natural gas liquids and 47,569 mcf of natural gas, of which 14,787 barrels of crude oil and 12,849 mcf of natural gas were proved producing reserves and the balance were PUD reserves. Combined, these total estimated proved reserves are equivalent to 55,757 barrels of oil equivalent or 334,543 mcf of natural gas equivalent.

~~ITEM~~ 14The Company emphasizes that its reported reserves are estimates which, by their nature, are subject to revision. ~~PRINCIPAL ACCOUNTANT~~ ~~FEES~~The ~~AND~~estimates ~~SERVICES~~are made using available geological and reservoir data, as well as production performance data.

~~The~~ ~~Company~~Estimates ~~expects~~of proved developed and proved undeveloped reserves as of December 31, 2009, were based on estimates made by Joe C. Neal & Associates, independent petroleum engineers. Our independent engineers, Joe C. Neal & Associates, are engaged by and provided their report to ~~incorporate~~our senior management team. We make representations to the ~~information~~ ~~required~~independent byengineers ~~Item~~that 14we have provided all relevant operating data and documents, and in turn, we review the reserve reports provided by ~~reference~~the independent engineers to ensure completeness and accuracy. Management cautions that there are many inherent uncertainties in estimating proved reserve quantities and related revenues and expenses, and in projecting future production rates and the timing ~~Company’s~~and amount of development expenditures. Accordingly, these estimates will change, as future information becomes available.

~~Proxy. In~~ ~~the~~The ~~event~~Company’s ~~that~~estimates ~~the~~of ~~Proxy~~proved isreserves, ~~not~~proved ~~filed~~developed ~~within~~reserves ~~120~~and ~~days~~proved ~~after~~undeveloped ~~the~~reserves ~~end~~as of December 31, 2009 and 2008, changes in estimated proved reserves during the last two years, and estimates ~~fiscal~~of ~~year~~future ~~covered~~net bycash flows from proved reserves are contained in Note 9 — Supplemental Oil and Gas Disclosures in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Form 10-K. Estimated future net cash flows as of December 31, 2009, were calculated using a discount rate of 10 percent per annum, end of period costs, and an unweighted arithmetic average of commodity prices in effect on the ~~information~~first ~~required~~day byof ~~Item~~each 14month ~~shall~~in 2009, and held flat for the life of the beproduction. ~~filed~~Future net cash flows as anof ~~amendment~~December to31, ~~the~~2008, ~~Form~~were ~~l0-K~~estimated nousing ~~later~~commodity ~~than~~prices in effect at the end of that year, in accordance with the ~~120-day period~~SEC guidelines in effect prior to the issuance of the Modernization Rules.

~~PART IV~~ITEM 3.

~~ITEM~~ ~~15. EXHIBITS, FINANCIAL~~LEGAL ~~STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K~~PROCEEDINGS

~~(a)~~ ~~Documents~~From ~~included~~time to time, we may become involved in ~~this~~various ~~report:~~lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

1.ITEM ~~Financial Statements~~4.

Report of independent registered public accounting firm	F-1
Consolidated balance sheets as of December 31, 2008 and 2007	F-2
Statement of consolidated operations for each of the two years in the
period ended December 31, 2008	F-3
Statement of consolidated stockholders’ equity for the period from inception
to December 31, 2008	F-4
Statement of consolidated cash flows for each of the two years in the
period ended December 31, 2008	F-5
Notes to consolidated financial statements	F-6

REMOVED AND RESERVED

~~2. Financial Statement Schedules~~ None

~~Financial~~ statement schedules have been omitted because they are either not required, not applicable or the information required to be presented is included in the Company’s consolidated financial statements and related notes.14

25PART II

3.ITEM ~~Exhibits~~5.

Exhibit No.	Description
2.2	Acquisition Agreement and Plan of Merger between National Filing Agents, Inc. and Plantation Working Interests, LLC dated October 23, 2007 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 24, 2007)
3.1	Articles of Incorporation of Bonanza Oil and Gas, Inc. (incorporated by reference to Exhibit 3.1 to the Bonanza Oil and Gas, Inc. Form SB-2 filed December 18, 2006)
3.2	Articles of Merger (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 11, 2008)
3.3	Bylaws of Bonanza Oil and Gas, Inc. (incorporated by reference to Exhibit 3.2 to the Bonanza Oil and Gas, Inc. Form SB-2 filed December 18, 2006)
4.1	Securities Purchase Agreement (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 21, 2007)
4.2	14% Senior Asset Backed Secured Promissory Note dated December 17, 2007 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 21, 2007)
4.3	Securities Purchase Agreement dated May 14, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 19, 2008)
4.4	8% Convertible Note issued May 14, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 19, 2008)
4.5	Series A Common Stock Purchase Warrants issued May 14, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 19, 2008)
4.6	Series B Common Stock Purchase Warrants issued May 14, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 19, 2008)
4.7	Form of Securities Purchase Agreement (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 7, 2008)
4.8	Form of Series A June 2008 Common Stock Purchase Warrants issued June 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 7, 2008)
4.9	Form of Series B June 2008 Common Stock Purchase Warrants issued June 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 7, 2008)
4.10	Form of Securities Purchase Agreement dated August 28, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 3, 2008)
4.11	Form of 12% Promissory Note dated August 28, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 3, 2008)
4.12	Amendment No. 1 to the Form of Securities Purchase Agreement dated August 28, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 10, 2008)
4.13	Form of Common Stock Purchase Warrant (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 10, 2008)
4.14	Bridge Loan Letter Agreement dated February 2, 2009, (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 31, 2009)
4.15	14% Promissory Note issued February 2, 2009, (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 31, 2009)
10.1	Asset Purchase Agreement between National Filing Agents, Inc. and Lucas Energy, Inc. dated October 23, 2007 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 24, 2007)
10.2	Agreement and Plan of Merger between Bonanza Oil & Gas, Inc., Borland Good North, Inc., Black Pearl Energy, Inc. and the shareholders holding a majority of the issued and outstanding shares of Black Pearl Energy, Inc. dated July 18, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 18, 2008)
10.3	Executive Employment Agreement between G. Wade Stubblefield and Bonanza Oil and Gas, Inc. (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 31, 2009)
23.1*	Consent of Joe C. Neil & Associates
23.2*	Consent of Forrest A. Garb & Associates Inc.
31.1*	Certification of Principal Executive Officer
31.2*	Certification of Principal Financial Officer
32.1*	Certification of Principal Executive Officer and Principal Financial Officer

MARKET FOR COMMON EQUITY , RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

*Filed herewithMarket Information

~~(b)~~Our ~~See~~Common ~~(a)~~Stock 3is quoted on the OTC Bulletin Board. ~~above~~Set forth in the table below are the quarterly high and low prices of our Common Stock as obtained from the OTC Bulletin Board for 2009 and 2008.

		2009				2008
		Price Range				Price Range
		High		Low		High		Low
First Quarter	$	0.115	$	0.025	$	1.50	$	0.24
Second Quarter		0.075		0.023		0.56		0.09
Third Quarter		0.070		0.018		0.63		0.33
Fourth Quarter		0.035		0.010		0.43		0.07

26The closing price of our Common Stock, as reported on the OTC Bulletin Board for April 13, 2010, was $0.006 per share, by referencing the closing average of the bid and ask prices.

~~SIGNATURES~~Holders

~~Pursuant~~As of April 13, 2010, there were toapproximately ~~the~~169 ~~requirements~~holders of ~~Section~~record 13of orour ~~15(d)~~Common Stock. The number of record holders was determined from the ~~Securities~~records ~~Exchange~~of ~~Act~~our transfer agent and does not include beneficial owners of Common Stock whose shares are held in the names of ~~1934~~various brokers, ~~the~~dealers, ~~registrant~~and ~~has~~registered ~~duly~~clearing ~~caused~~agencies. ~~this~~The ~~report~~transfer toagent of beour ~~signed~~Common onStock ~~its~~is ~~behalf~~Empire ~~by the~~Stock ~~undersigned~~Transfer, ~~hereunto~~Inc., ~~duly~~1859 ~~authorized~~Whitney Mesa Dr., Henderson, NV 89014.

~~BONANZA~~Dividend ~~OIL & GAS, INC. By: /s/ WilliamWiseman William Wiseman President and Chief Executive Officer (Principal Executive Officer)~~Policy

~~By:~~We ~~/s/~~have Gnot declared or paid any cash dividends on our Common Stock. ~~Wade~~We ~~Stubblefield~~do Gnot anticipate paying any cash dividends to stockholders in the foreseeable future. ~~Wade~~In ~~Stubblefield~~addition, ~~Chief~~any ~~Financial~~future ~~Officer~~determination ~~(Principal~~to ~~Financial~~pay ~~and~~cash ~~Accounting~~dividends will ~~Officer)~~be at the discretion of the Company’s Board of Directors.

~~Dated: April~~Recent ~~15,~~Sales ~~2009~~of Unregistered Securities

~~Pursuant~~On February 6, 2009, the Company issued 1,000,000 restricted shares of Common Stock to its former Chief Financial Officer pursuant to the ~~requirements~~terms of ~~the~~an ~~Securities~~Executive ~~Exchange~~Employment ~~Act~~Agreement entered into as of ~~1934~~February 6, ~~this~~2009, ~~report~~between ~~has~~the ~~been~~Company and its former Chief Financial ~~signed~~Officer. ~~below~~The byvalue of the ~~following~~1,000,000 ~~persons~~common shares was determined to be $65,000, based on ~~behalf~~the market price of the ~~registrant~~Company’s ~~and~~Common inStock at the ~~capacities~~ time of issuance, and onwas ~~the~~recorded ~~dates~~as ~~indicated~~stock compensation expense, common stock and additional paid-in capital.

Name	Title	Date
/s/ William Wiseman	Chairman of the Board, Chief Executive Officer and President	April 15, 2009
William Wiseman	(principal executive officer)
/s/ Robert Teague	Vice President – Operations and Director	April 15, 2009
Robert Teague
/s/ G. Wade Stubblefield	Chief Financial Officer (principal financial officer)	April 15, 2009
G. Wade Stubblefield

On June 3, 2009, pursuant to an Employment Agreement entered on June 1, 2009, the Company issued 4,241,000 restricted shares of Common Stock to its Chief Executive Officer. The value of the 4,241,000 common shares was determined to be $127,230, based on the market price of the Company’s Common Stock at the time of issuance, and was recorded as stock compensation expense, common stock and additional paid-in capital.

27On June 3, 2009, pursuant to an Employment Agreement entered on June 1, 2009, the Company issued 4,523,000 restricted shares of Common Stock to its Executive Vice President. The value of the 4,523,000 common shares was determined to be $135,690, based on the market price of the Company’s Common Stock at the time of issuance, and was recorded as stock compensation expense, common stock and additional paid-in capital.

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~15

To On July 31, 2009, pursuant to the terms of the January 2008 Notes, the Company was required to issue 300,000 shares of its Common Stock as a penalty for not having repaid the outstanding borrowings. The value of the ~~Board~~300,000 common shares was determined to be $10,500, based on the market price of ~~Directors~~the ~~and~~Company’s ~~Stockholders~~Common Stock at the time of issuance, and was recorded as interest expense, common stock and additional paid-in capital.

~~Bonanza~~ ~~Oil~~During &2009, ~~Gas~~the Company issued an aggregate of 7,607,400 ~~Inc~~common shares for consulting services. The Company recognized expenses totaling $304,227 based on the fair value of the Company’s Common Stock at date of issuance.

~~We have~~ ~~audited~~ In January 2008, the ~~accompanying~~Company ~~consolidated~~issued ~~balance~~14% ~~sheets~~Senior Secured Promissory Notes to accredited investors for an aggregate principal amount of ~~Bonanza~~$800,000 ~~Oil~~(the &“January ~~Gas~~2008 Notes”). One accredited investor held $750,000 (the “Secured ~~Inc.~~Note”) ~~and~~of ~~Subsidiaries~~the January 2008 Notes (the ~~Company~~“Secured Investor). asThe ofJanuary ~~December~~2008 Notes matured on January 31, 2009, with interest payable on a monthly basis. In addition, in May 2008, the Company entered into a Securities Purchase Agreement with the Secured Investor providing for the sale by the Company of an 8% convertible note in the principal amount of $750,000 (the “May 2008 Convertible Note” and ~~2007~~collectively with the Secured Note, the “Restructured Notes”). The May 2008 Convertible Note matured on May 14, 2009, and interest is payable on a quarterly basis. The May 2008 Convertible Note was convertible into the Company’s common stock, at a conversion price of $0.3742 per common share, as adjusted, ~~related~~and ~~consolidated~~is ~~statements~~subject to normal and customary anti-dilution provisions. The Company was advised by Triumph Small Cap Fund, Inc. (“Triumph”) and the Secured Investor that Triumph purchased the Restructured Notes from the Secured Investor. In order to induce Triumph to convert the Restructured Notes into shares of ~~operations~~common stock and, ~~stockholders~~in turn, to reduce the Company’s ~~equity~~debt and ~~cash flows~~avoid potentially filing for bankruptcy, the ~~year~~Company ~~ended~~entered into a Letter Agreement with Triumph on December 312, 2009, ~~2008~~pursuant ~~and~~to ~~for~~which the ~~period~~Restructured Notes were amended providing that Triumph may from ~~inception~~time to time convert all or any part of the outstanding and unpaid principal amount of the Restructured Notes into shares of common stock. The Restructured ~~(August~~Notes 17are convertible into common stock, ~~2007)~~at Triumph's option at $0.0025. Triumph has agreed to restrict its ability to convert the Restructured Notes and receive shares of common stock such that the number of shares of common stock held by it in the aggregate and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. As of December 31, ~~2007. The~~2009, a total of 30,080,000 shares of the Company’s ~~management~~Common isStock had been ~~responsible~~issued ~~for~~pursuant ~~these~~to ~~consolidated~~conversion ~~financial~~of ~~statements~~$75,200 of principal and accrued interest under the Restructured Notes. ~~Our responsibility~~ isAs toof ~~express~~April 13, 2010, conversion notices for an ~~opinion~~additional on499,500,000 ~~these~~shares ~~consolidated~~of ~~financial~~the Company’s Common Stock had been issued pursuant to ~~statements~~the ~~based~~conversion onof ~~our~~an ~~audits~~additional $1,248,750 of principal and accrued interest under the Restructured Notes.

We ~~conducted~~ ~~our~~During ~~audits~~December in2009, ~~accordance with~~ the ~~standards of the Public~~ Company ~~Accounting~~ ~~Oversight~~converted ~~Board~~$6,000 ~~(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free~~ of ~~material~~accounts ~~misstatement.~~payable ~~The~~into ~~Company is not required to have~~2, ~~nor were we engaged to perform~~400,000 anshares ~~audit~~ of ~~its~~Common ~~internal control over financial reporting~~Stock. ~~Our~~As ~~audits included consideration~~ of ~~internal~~April ~~control~~13, ~~over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances~~2010, ~~but not for the purpose of expressing~~ an ~~opinion~~ onadditional ~~the~~15,199,999 ~~effectiveness~~shares of the Company’s ~~internal~~Common ~~control~~Stock ~~over~~had ~~financial reporting.~~been ~~Accordingly,~~issued ~~we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures~~ in ~~the~~ ~~financial~~settlement ~~statements,~~of ~~assessing the accounting principles used and~~an ~~significant~~additional ~~estimates made by management~~$107,530 asof ~~well~~accounts ~~as evaluating the overall financial statement presentation~~payable. ~~We believe that our audits provide a reasonable basis for our opinion.~~

In ~~our opinion~~August 2008, the ~~consolidated~~Company ~~financial~~entered ~~statements~~into ~~referred~~four to12% ~~above~~Unsecured ~~present~~Promissory ~~fairly~~Notes, in ~~all~~and ~~material~~Securities ~~respects~~Purchase Agreements, ~~the~~with ~~consolidated~~accredited ~~financial~~investors ~~position~~for an aggregate principal amount of ~~Bonanza~~$500,000 ~~Oil~~(the "August 2008 Notes") The &August ~~Gas~~2008 Notes matured on September 28, ~~Inc~~2008. ~~and~~As ~~Subsidiaries~~of at December 31, 2009, the Company was in default of the repayment provision with respect to the August 2008 ~~and~~Notes; ~~2007~~however, ~~and~~the lenders have not yet taken any further action with respect to the default. Although the ~~related~~Company ~~consolidated~~is ~~results~~actively ofseeking ~~operations~~additional financing to remedy this default, and ~~cash~~is ~~flows~~in ~~for~~constant communication with the ~~year~~lenders, ~~ended~~there can be no assurances that the lenders will continue to delay the enforcement of their remedies ~~December~~under ~~31,~~the August 2008 ~~and~~Notes. ~~for~~In order to induce certain of the ~~period~~holders ~~from~~to ~~inception~~convert (their August 172008 Notes into shares of common stock and, ~~2007)~~in turn, to reduce the Company’s debt and avoid potentially filing for bankruptcy, as of April 13, 2010, ~~December~~ we have entered in conversion notices to issue a total of 31, ~~2007~~000,000 inshares ~~conformity~~of ~~with~~the ~~accounting~~Company’s ~~principles~~Common ~~generally accepted~~Stock in ~~the~~settlement ~~United~~of ~~States~~$77,500 of ~~America~~principal and accrued interest on the August 2008 Notes.

~~The~~ ~~accompanying~~ ~~consolidated~~The ~~financial~~above ~~statements~~issuances ~~have~~were ~~been~~made ~~prepared~~in ~~assuming~~reliance ~~the Company~~upon ~~will~~exemptions ~~continue~~from asregistration apursuant ~~going concern. As discussed in Note 1~~ to ~~the consolidated~~Section ~~financial~~4(2) ~~statements,~~under the ~~Company~~Securities ~~has~~Act ~~incurred~~of ~~losses~~1933 ~~since inception, has not attained profitable operations~~ and isRule ~~dependent~~506 ~~upon obtaining~~promulgated ~~adequate~~under ~~financing~~Regulation toD ~~fulfill its exploration activities~~thereunder. ~~These factors~~The ~~raise~~holders ~~substantial~~of ~~doubt that~~ the ~~Company~~above ~~will~~securities beare ~~able~~accredited investors ~~to continue~~ as ~~a going~~defined ~~concern. Management's plans~~ in ~~regard~~Rule to501 ~~these~~of ~~matters~~Regulation ~~are~~D ~~also~~promulgated ~~discussed in~~under ~~Note 1. The consolidated financial statements do not include any adjustments that might result from~~ the ~~outcome~~Securities Act of ~~this uncertainty~~1933.

~~/s/~~ ~~Weaver and Tidwell, L.L.P.~~16

~~WEAVER~~ ~~AND~~Purchases ~~TIDWELL,~~of ~~L.L.P.~~Equity Securities by the Issuer and Affiliated Purchasers

~~Houston,~~ ~~Texas~~During the year ended December 31, 2009, the Company and the Affiliated Purchasers (as defined in Rule 10b-18(a)(3)) did not engage in any repurchases of the Company securities.

~~April~~ITEM ~~15, 2009~~6.

~~F-1~~ SELECTED FINANCIAL DATA

~~BONANZA~~ ~~OIL~~ ~~AND~~Since ~~GAS~~we are a company that qualifies as a “smaller reporting company,” ~~INC.~~as ~~AND~~defined ~~SUBSIDIARIES~~under Rule 12b-2, we are not required to provide the information required by this Item 6.

~~CONSOLIDATED BALANCE~~ITEM ~~SHEETS~~7.

	December 31,			December 31,
	2008			2007
				RESTATED
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,881		$	154,357
Accounts receivable		5,068			5,488
Drilling advances		395,350			46,011
Other		152,900			12,021
		557,199			217,877
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties		4,941,803			750,000
Unproved properties and properties under development		7,599,369			1,890,000
Other		11,679			-
		12,552,851			2,640,000
Less: Accumulated depreciation, depletion and amortization		(4,325,679	)		(5,627	)
		8,227,172			2,634,373
	$	8,784,371		$	2,852,250
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	138,389		$	27,781
Accrued operating expenses		52,224			7,203
Accrued exploration and development expenditures		1,558,408			-
Notes payable, net of $250,296 and $22,089 of
unamortized discount, respectively		2,099,704			227,911
		3,848,725			262,895
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value, 60,000,000 shares authorized;
36,100,317 and 25,649,654 issued and outstanding, respectively		36,100			25,650
Preferred stock - Series A, $0.001 par value, 5,000,000 shares authorized;
0 shares issued and outstanding, respectively		-			-
Preferred stock - Series B, $0.001 par value, 5,000,000 shares authorized;
0 shares issued and outstanding, respectively		-			-
Preferred stock - Series C, $0.001 par value, 5,000,000 shares authorized;
0 shares issued and outstanding, respectively		-			-
Additional paid-in capital		11,962,198			2,760,950
Accumulated deficit		(7,062,652	)		(197,245	)
		4,935,646			2,589,355
	$	8,784,371		$	2,852,250

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~The~~ ~~accompanying~~The following information should be read in conjunction with the consolidated financial statements and the notes thereto contained elsewhere in this report. Information in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this 10-K that does not consist of historical facts, are an"forward-looking ~~integral~~statements." ~~part~~Statements accompanied or qualified by, or containing words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements, and as such, are not a guarantee of ~~these~~future ~~consolidated~~performance. The ~~financial~~statements involve factors, risks and uncertainties including those discussed in the “Risk Factors” section contained elsewhere in this report, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or all of which may be beyond the Company's control. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. The Company disclaims any obligation to update the forward-looking statements in this report. The following discussion should be read together with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, which are included in Item 8 of this Form 10-K, and the Risk Factors information, which are set forth in item 1A of this Form 10-K.

~~F-2~~ Overview

~~BONANZA~~ ~~OIL~~Our ~~AND~~Company ~~GAS~~is an independent energy company engaged primarily in the acquisition, ~~INC~~development, production and the sale of crude oil, natural gas and natural gas liquids. ~~AND~~Our ~~SUBSIDIARIES~~production activities are located in the United States of America. The principal executive offices of the Company are located at 3417 Mercer, Suite E, Houston, TX 77027. Our operations were originally conducted through PWI, which held a working interest (22.5% pre-payout, 15% post-payout) in eight oil and gas wells in Gonzales County, TX.

~~STATEMENTS~~ OFOn ~~CONSOLIDATED~~October ~~OPERATIONS~~23, 2007, PWI merged with NFLA, which was the entity that survived the merger, by entering into an Acquisition Agreement and Plan of Merger (the "Acquisition Agreement"), pursuant to which NFLA acquired, through an exchange transaction, all of the issued and outstanding capital stock of privately held PWI, a 25% interest in a lease on Cadillac Prospect in Mercedes field in Hidalgo County, TX and a 50% interest in a lease on the Point Bar Prospect in the Damon Mound field in Brazoria County, TX and other properties and assets from its members and issued 21,533,352 shares of the Company’s Common Stock. In addition, on October 23, 2007, in conjunction with the Acquisition Agreement, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Lucas Energy, Inc. to acquire a 25% working interest in the ApClark field located in Borden County, TX through the issuance of 12,600,000 shares of the Company’s Common Stock. In conjunction with the transaction, NFLA amended its Articles of Incorporation to change the Company's name to Bonanza Oil & Gas, Inc., forward split its Common Stock on a 2.1 to 1 ratio, and changed its trading symbol on the Over-the-Counter Bulletin Board to "BGOI". All share amounts herein reflect the 2.1:1 forward stock split.

	For the YearEndedDecember 31, 2008			For the Periodfrom Inception(August 17, 2007) toDecember 31, 2007
REVENUES:
Crude oil sales	$	229,579		$	26,664
		229,579			26,664
OPERATING EXPENSES:
Depreciation, depletion and amortization
Recurring		399,289			5,627
Additional		3,920,764			-
Lease operating expenses		71,760			7,938
Severance and other taxes		10,584			1,229
General and administrative		1,467,659			206,883
Financing costs, net		1,224,930			2,232
		7,094,986			223,909
OPERATING LOSS		(6,865,407	)		(197,245	)
Provision for income taxes		-			-
NET LOSS	$	(6,865,407	)	$	(197,245	)
BASIC AND DILUTED LOSS
PER COMMON SHARE	$	(0.22	)	$	(0.04	)
Weighted average number of common shares
outstanding - basic and fully diluted		30,884,707			4,837,537

~~The~~ ~~accompanying~~On ~~notes~~January ~~are~~26, an2010, ~~integral~~the ~~part~~Company implemented a second forward split of ~~these~~the ~~consolidated~~issued ~~financial~~and outstanding shares of the Company’s Common Stock, whereby every share of the Company’s Common Stock held was exchanged for ~~statements~~two shares of the Company’s Common Stock. All share and per share amounts reflected throughout this document also reflect the January 2010 2.0 for 1.0 forward stock split unless otherwise so indicated.

F On July 18, 2008, the Company, Borland Good North Inc., a wholly-3owned subsidiary of the Company (“Borland”), Black Pearl Energy, Inc. (“Black Pearl”), and the shareholders holding a majority of the issued and outstanding shares of Black Pearl, (collectively the “Black Pearl Majority Shareholders), entered into an Agreement and Plan of Merger (the “Merger Agreement”), which closed on July 18, 2008. Pursuant to the terms of the Merger Agreement, Black Pearl merged with and into Borland, which became a wholly-owned subsidiary of the Company (the “Merger”). In consideration for the Merger, the Company issued an aggregate of 14,049,330 (the “Black Pearl Acquisition Shares”) shares of the Company’s Common Stock to the Black Pearl Majority Shareholders and the other shareholders of Black Pearl at the closing of the merger. Prior to the Merger Agreement, Black Pearl owned 5,418,000 shares of the Company, which were cancelled in conjunction with the Merger.

~~BONANZA~~ ~~OIL~~Black ~~AND~~Pearl ~~GAS~~was an exploration and development company located in Midland, ~~INC~~Texas. ~~AND~~On ~~SUBSIDIARIES~~July 14, 2008, Black Pearl acquired options to purchase an undivided 75% working interest in two drilling projects for total consideration of $500,000. These two projects were known as the Bourland and the Good North prospects. Concurrently with executing these options, Black Pearl entered into a note agreement with the Company for $500,000. The note bore interest at 8% per year with a maturity date of November 14, 2008, or the date at which a letter of intent to merge the Company expired. The note was cancelled in conjunction with the Merger. At the closing of the acquisition, a total of $2,000,000 in additional consideration was due to fully exercise the option to purchase the 75% working interest in the Bourland and Good North prospects.

~~STATEMENTS~~ OFDue ~~CONSOLIDATED~~to ~~STOCKHOLDERS'~~our ~~EQUITY~~ongoing financial difficulties, we were unable to meet our continuing obligations on the Bourland and Good North prospects and in December 2009 forfeited our rights to any further exploration on this acreage and recorded an impairment charge of the costs incurred to date at December 31, 2009.

																Total
	Members'			Common Stock						Paid-In			Accumulated			Stockholders'
	Interest			Shares			Amount			Capital			Deficit			Equity
BALANCE AT AUGUST 17, 2007 (Date of Inception)	$	-			-		$	-		$	-		$	-		$	-
Initial contribution		100			-			-			-			-			100
Issuance of LLC interests, net		874,000			-			-			-			-			874,000
Reverse merger with NFLA		(874,100	)		19,274,655			19,275			854,825			-			-
Common shares issued
in asset acquisition - RESTATED		-			6,300,000			6,300			1,883,700			-			1,890,000
Common shares issued with
December 2007 Note - RESTATED		-			74,999			75			22,425			-			22,500
Net loss		-			-			-			-			(197,245	)		(197,245	)
BALANCE AT DECEMBER 31, 2007	$	-			25,649,654		$	25,650		$	2,760,950		$	(197,245	)	$	2,589,355
Common shares issued with the
January 2008 Notes		-			160,000			160			119,840			-			120,000
Common shares issued for
consulting services - April 9, 2008		-			75,000			75			52,425			-			52,500
Common shares issued for
consulting services - May 7, 2008		-			600,000			600			155,400			-			156,000
Common shares issued for
consulting services - May 15, 2008		-			800,000			800			359,200			-			360,000
Common shares issued with the
May 2008 Convertible Note		-			375,000			375			99,087			-			99,462
Fair value of beneficial conversion feature
of the May 2008 Convertible Note		-			-			-			305,576			-			305,576
Fair value of warrants to acquire common shares
issued with the May 2008 Convertible Note		-			-			-			278,844			-			278,844
Fair value of warrants to acquire common shares
issued with the August 2008 Notes		-			-			-			569,606			-			569,606
Fair value of warrants to acquire common shares
issued with the October 2008 Note		-			-			-			29,180			-			29,180
Common shares issued in the acquisition of
Black Pearl Energy, Inc.		-			7,024,665			7,024			8,211,834			-			8,218,858
Common shares retired in the acquisition of
Black Pearl Energy, Inc.		-			(2,709,000	)		(2,709	)		(3,164,113	)		-			(3,166,822	)
Equity offerings, net		-			4,124,998			4,125			2,184,368			-			2,188,493
Net loss		-			-			-			-			(6,865,407	)		(6,865,407	)
BALANCE AT DECEMBER 31, 2008	$	-			36,100,317		$	36,100		$	11,962,198		$	(7,062,652	)	$	4,935,646

Furthermore, our interest in the eight oil and gas wells acquired by PWI secured $250,000 of short-term debt at December 31, 2008, which matured on December 17, 2008. During 2009, we made a partial payment of $125,000, however at September 30, 2009, we remained in default with respect to the remaining principal and accrued interest totaling $161,388 with respect to this obligation. On June 30, 2009, the lender filed suit against the Company seeking repayment of the principal balance outstanding plus all accrued interest, along with their attorney fees and court costs. In October 2009, we reached a settlement agreement, whereby for a complete release and satisfaction of the unpaid principal and accrued interest the lender foreclosed on the eight oil and gas wells securing this obligation.

The Company has incurred significant losses and had negative cash flow from operations since inception on August 17, 2007, and has an accumulated deficit of $15,940,953 at December 31, 2009. Substantial portions of ~~accompanying~~the ~~notes~~losses are anattributable ~~integral~~to ~~part~~non-cash writedowns of ~~these~~oil ~~consolidated~~and ~~financial~~gas properties, with the balance attributable to primarily personnel costs, legal and professional fees, and financing costs. The Company's operating plans require additional funds that ~~statements~~may take the form of debt or equity financings. There can be no assurance that any additional funds will be available. The Company's ability to continue as a going concern is in substantial doubt and is dependent upon achieving a profitable level of operations and obtaining additional financing.

~~F-4~~ We have undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing, if available, (b) converting debt and accounts payable into common shares (c) increasing our current production (d) continuing development drilling or farming out our interest in our proved, undeveloped properties and (e) controlling overhead and expenses.

~~BONANZA~~ ~~OIL~~There ~~AND~~can ~~GAS~~be no assurance that we will successfully accomplish these steps and it is uncertain we will achieve a profitable level of operations and/or obtain additional financing. There can be no assurance that any additional financings will be available to us on satisfactory terms and conditions, ~~INC~~if at all. ~~AND~~In ~~SUBSIDIARIES~~the event we are unable to continue as a going concern, we may elect or be required to seek protection from our creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

~~STATEMENTS~~ ~~OF CONSOLIDATED CASH FLOWS~~18

		For the YearEndedDecember 31, 2008				For the Periodfrom Inception(August 17, 2007) toDecember 31, 2007
Results of Operations
CASH FLOWS FROM OPERATING ACTIVITIES:
		For the Year Ended
Net loss		$	(6,865,407	)		$	(197,245	)
		December 31,
Adjustments to reconcile net loss to net cash
		2009			2008
used in operating activities:
REVENUES:
Depreciation, depletion and amortization			4,320,053				5,627
Crude oil sales	$	257,897		$	229,579
Fair value of shares issued for consulting services			568,500				-
		257,897			229,579
Amortization of deferred financing costs			1,225,143				411
OPERATING EXPENSES:
Changes in operating assets and liabilities:
Depreciation, depletion and amortization
Accounts receivable			420				(5,488	)
Recurring		93,947			399,289
Drilling advances			(462,193	)			(46,011	)
Additional		6,485,455			3,920,764
Other current assets			(1,562	)			(12,021	)
Lease operating expenses		142,993			71,760
Accounts payable and accrued expenses			155,632				34,984
Severance and other taxes		11,260			10,584
Net cash provided by (used in) operating activities			(1,059,414	)			(219,743	)
General and administrative		1,498,294			1,467,659
CASH FLOWS FROM INVESTING ACTIVITIES
Loss on conversion of debt and accounts payable		386,120			-
Oil and gas capital expenditures			(2,892,876	)			(750,000	)
Financing costs, net		518,129			1,224,930
Proceeds from sale of unproved oil and gas property			115,000				-
		9,136,198			7,094,986
Additions to other property and equipment			(11,679	)			-
OPERATING LOSS		(8,878,301	)		(6,865,407	)
Issuance of Black Pearl Energy, Inc. note receivable			(500,000	)			-
Provision for income taxes		-			-
Net cash provided by (used in) investing activities			(3,289,555	)			(750,000	)
NET LOSS	$	(8,878,301	)	$	(6,865,407	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable			2,100,000				275,000
Debt issue costs			(90,000	)			(25,000	)
Proceeds from equity issuances, net			2,188,493				874,100
Net cash provided by (used in) financing activities			4,198,493				1,124,100
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(150,476	)			154,357
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR			154,357				-
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	3,881			$	154,357
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest		$	158,027			$	-
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of oil and gas property for common shares		$	5,052,036			$	1,890,000
Non-cash exploration and development activities			1,671,262				-
Foregiveness of Black Pearl Energy, Inc. note receivable		$	500,000			$	-
Fair value of common shares and warrants to purchase common
shares issued with notes payable		$	1,402,668			$	22,500

~~The~~During the years ended December ~~accompanying~~31, ~~notes~~2009 ~~are~~and an2008, ~~integral~~the ~~part~~Company realized gross revenue from its first two development wells drilled in the exploitation of ~~these~~the ~~consolidated~~Apclark ~~financial~~field in the second ~~statements~~half of 2008. During the year ended December 31, 2008, the Company also realized production from three of its eight wells in the Plantation field, while in 2009 the Company only realized such production during the first three months of the year. During the years ended December 31, 2009 and 2008, the Company had total sales, net to its interest, of 4,563 and 3,197 barrels of crude oil, respectively, and realized average prices of $56.52 and $71.80, respectively. During the same periods, lease operating expenses, including severance and other taxes and transportation costs, totaled $33.05 and $24.94 per barrel, respectively, resulting in netbacks to the Company of $23.47 and $46.86 per barrel, respectively.

~~F-5~~The oil and gas industry as a whole experienced a year of extremes in 2008. Crude oil and natural gas prices climbed precipitously in the first half of the year, only to pull back in the third quarter before collapsing in the fourth quarter. Global demand continued to stay weak during early 2009 and only started to rebound in the latter half of the year.

~~BONANZA~~Recurring ~~OIL~~depreciation, &depletion and ~~GAS~~amortization expense totaled $93,947 ~~INC~~and $399,289 for the years ended December 31, 2009 and 2008, respectively, most of which is attributable to depletion on our Apclark field and Plantation field producing properties. In addition, despite higher realized prices during 2008, the low oil and gas prices in effect at the end of the year resulted in a $3,920,764 non-cash write-down of the carrying value of Company’s proved oil and gas properties. As a result of our ongoing financial difficulties, we forfeited our right to develop the Bourland and Good North prospects and were required to include the capitalized cost incurred in securing those assets in our amortization base. As a result, we were required to record an additional $6,485,455 non-cash write-down of the carrying value of our proved oil and gas properties at December 31, 2009. See Note 2 — Summary of Significant Accounting Policies in this Form 10-K – to our consolidated financial statements.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~19

For the years ended December 31, 2009 and 2008, general and administrative expenses totaled $1,498,294 and $1,467,659, respectively. ~~ORGANIZATION~~ For 2009, these expenses consisted primarily of payroll and other personnel ~~AND~~expenses ~~HISTORY~~($447,129), stock compensation ($327,920), legal and other business consulting expenses ($386,182), audit and accounting services ($100,500) and rent expense ($88,111). For 2008, these expenses were comprised primarily of non-cash charges resulting from the issuance of 1,475,000 shares of the Company’s Common Stock to consultants for services provided ($568,500), payroll and other personnel expenses ($422,668), legal expenses ($171,204) and audit and accounting services ($86,777).

~~Bonanza~~ On ~~Oil~~December &2, ~~Gas~~2009, ~~Inc.~~the (Company entered into a Letter Agreement with the holder of $750,000 principal amount of the January 2008 Notes whereby, in order to induce the holder to convert the notes into shares of the “Company”)’s common stock and, ain ~~Nevada~~turn, ~~corporation~~to ~~formed~~reduce onthe ~~December~~Company’s 24debt and avoid potentially filing for bankruptcy, ~~2002~~the $750,000 ~~under~~of principal of January 2008 Notes held by holder were amended providing that the ~~name~~holder may from time to time ~~National~~convert ~~Filing~~all ~~Agents~~or any part of the outstanding and unpaid principal amount of their January 2008 Notes into shares of the Company’s common stock, ~~Inc~~at the holder's option, at the lesser of (i) $0.0025 or (~~"NFA"~~ii) a 50% discount to the average of the three lowest trading prices of the common stock during the 20 trading day period prior to conversion (the “Variable Conversion Price”). On January 29, is2010, anthe ~~independent~~Company ~~energy~~entered ~~company~~into ~~that~~a isLetter Agreement with the holder removing the ~~engaged~~holder’s inability to convert at the ~~exploration~~Variable Conversion Price. During December 2009, ~~development~~the ~~and~~holder ~~production~~converted $75,200 of ~~crude~~principal ~~oil~~and accrued interest due into 30,080,000 ~~natural~~shares ~~gas~~of the Company’s Common Stock. The Company recognized a loss of $347,720 on conversion as a result of the difference between the conversion price and ~~natural~~the ~~gas~~fair ~~liquids~~market invalue of the ~~United~~Company’s ~~States. On~~common shares, as determined by the closing price of the Company’s common stock on the OTC Bulletin Board on the day prior to the conversion. In addition, during December 18 2009, ~~2006~~ we issued 2,400,000 ~~NFA~~of ~~filed~~the Company’s Common Stock in settlement of $6,000 of accounts payable. We recognized a ~~registration~~loss ~~statement~~of $38,400 on ~~Form~~conversion ~~SB-2~~as toa result of the ~~register~~difference between the ~~stock~~conversion price and the fair market value of ~~its~~the ~~non-affiliated~~Company’s ~~shareholders. The registration~~common ~~was~~shares, ~~declared~~as ~~effective~~determined by the closing price of the Company’s common stock on ~~January~~the ~~22,~~OTC ~~2007~~Bulletin Board on the day prior to the conversion.

~~On October 23, 2007, NFA acquired~~ ~~Plantation~~Financing ~~Working Interests~~costs, ~~LLC~~net ~~("PWI"),~~for athe ~~privately-held~~years ~~Texas~~ended ~~limited liability~~December ~~company organized on August 17~~21, ~~2007,~~2009 ~~by entering into an Acquisition Agreement~~ and ~~Plan of Merger (collectively the "PWI Agreement") pursuant to which NFA acquired a 100% interest in PWI and other assets in exchange for 10~~2008,~~766,676~~ ~~shares~~totaled ~~of NFA common stock. Immediately following the acquisition of PWI~~$518,129 ~~two~~and ~~former affiliated shareholders of NFA~~$1, ~~cancelled 6~~224,~~180~~930,~~000~~ ~~unregistered shares of NFA common stock held by them~~respectively. The ~~acquisition~~ ofCompany ~~PWI~~capitalized ~~was~~$458,353 ~~accounted for as a reverse merger~~ and, ~~therefore~~$208,690 ~~the historical financial statements presented herein are those~~ of ~~PWI. Effective~~ ~~January~~interest ~~10,~~associated ~~2008,~~with ~~NFA changed its name to “Bonanza Oil~~unproved &properties ~~Gas,~~during ~~Inc.”~~the ~~from~~years ~~“National~~ended ~~Filing~~December ~~Agents~~31, ~~Inc.” In~~2009 ~~addition, effective~~and ~~January 10,~~ 2008, ~~the~~respectively. ~~Company’s~~The ~~quotation~~balance ~~symbol~~of onfinancing ~~the Over-the-Counter~~costs ~~Bulletin~~recognized ~~Board~~ was ~~changed~~primarily ~~from~~attributable ~~NFLA~~ to ~~BGOI and~~ the ~~Company implemented~~amortization ~~a forward split~~ of ~~the~~deferred ~~issued~~financing fees and ~~outstanding~~discounts ~~common~~associated ~~shares~~with of the ~~Company,~~ ~~whereby~~outstanding ~~every share of the Company’s Common Stock held was exchanged for 2~~debt.1 ~~shares of the Company’s Common Stock. All share amounts reflected throughout this document reflect the 2.1 for 1 forward stock split, unless otherwise so indicated.~~

~~Going~~ ~~Concern~~Liquidity and Capital Resources

~~The Company~~ ~~has~~At ~~incurred~~December ~~significant~~31, ~~losses~~2009, ~~and~~we had ~~negative~~ cash ~~flow from~~ ~~operations~~ on ~~since~~hand ~~Inception~~of ~~(August 17~~$9, ~~2007),~~892 and ~~has~~a anworking ~~accumulated~~ capital deficit of $73,~~062~~753,~~652~~491 atconsisting primarily ~~December~~of 31$2,542,528 ~~2008. Substantial portions~~ of ~~the~~ ~~losses are attributable to non~~short-~~cash~~term ~~writedowns of oil and gas properties~~debt, ~~with~~ ~~the~~representing ~~balance attributable to primarily personnel costs~~$2, ~~legal and professional fees~~569, ~~and financing costs. The Company's operating plans~~800 ~~require~~ face ~~additional~~value ~~funds~~of ~~that~~all ~~may take the form~~ of our debt oroutstanding ~~equity financings. There~~less ~~can~~$27,272 beof nounamortized ~~assurance that any additional funds will~~discount ~~be available. The Company's ability to continue as a going concern is in substantial doubt~~ and is$1,223,444 ~~dependent~~of ~~upon~~accounts ~~achieving~~payable ~~a profitable level of operations~~ and ~~obtaining~~other ~~additional~~accrued ~~financing~~expenses.

We have ~~undertaken~~ ~~steps~~raised asnet ~~part~~proceeds of a$6,093,723 ~~plan~~in tovarious ~~improve~~debt ~~operations~~and ~~with~~equity financings since our inception (August 17, 2007), including $771,130 since January 1, 2009, and have used the ~~goal~~majority of the net proceeds to ~~sustaining~~successfully begin the exploitation of our ~~operations~~interest ~~for~~in the ~~next~~Apclark ~~twelve~~field ~~months~~with ~~and~~the ~~beyond.~~completion ~~These~~of ~~steps include~~the ~~(a)~~first ~~raising~~two ~~additional~~wells ~~capital~~to ~~and/or~~be ~~obtaining financing~~drilled, ifthe ~~available, (b)~~acquisition ~~increasing~~of our ~~current~~interest ~~production~~in ~~(c)~~the ~~continuing~~Plantation ~~development~~field, ~~drilling~~initial payments on ~~our proved~~the Bourland and ~~undeveloped~~Good ~~properties~~North ~~and~~prospects acquired ~~(d)~~in ~~controlling~~the ~~overhead~~merger with Black Pearl Energy, Inc., as well as for general and administrative expenses and working capital purposes.

~~There can~~ beNet nocash ~~assurance~~used ~~that~~in weoperating ~~will~~activities ~~successfully~~for ~~accomplish~~the ~~these~~year ~~steps~~ended December 31, 2009, totaled $314,874 and itconsisted ~~is uncertain~~primarily weof ~~will~~the ~~achieve~~net aloss ~~profitable~~of ~~level~~$8,878,301, net of ~~operations~~non-cash ~~and/or~~charges ~~obtain~~totaling $6,579,402 related to ~~additional~~depreciation, ~~financing. There~~depletion ~~can~~and beamortization noexpense, ~~assurance~~including ~~that~~$6,485,455 ~~any~~of ~~additional financings~~non-cash ~~will~~ceiling belimitation ~~available~~required writedown, $518,129 related to usthe onamortization ~~satisfactory~~of ~~terms~~deferred financing fees and ~~conditions~~discount on outstanding debt, if$386,120 atloss on ~~all. In~~conversion of debt and accounts payable into shares of the ~~event~~Company’s wecommon ~~are~~stock, ~~unable~~$327,920 in stock-based compensation, $304,227 related to ~~continue~~the fair value of common shares issued for consulting services, and $53,000 non-cash charge for the value of the Company’s common shares issued as a ~~going~~charitable ~~concern~~contribution. The Company also had $394,629 ~~we may~~of ~~elect~~other orworking becapital ~~required~~changes. toNet ~~seek~~cash ~~protection~~used ~~from~~in ~~our~~operating ~~creditors~~activities byfor ~~filing~~the ayear ended December 31, 2008, ~~voluntary~~totaled ~~petition~~$1,059,414 inand ~~bankruptcy~~consisted orprimarily ~~may~~of bethe ~~subject~~net loss of $6,865,407, net of non-cash charges totaling $4,320,053 related to andepreciation, ~~involuntary~~depletion ~~petition~~and inamortization expense, including $3,920,764 of non-cash ceiling limitation ~~bankruptcy. To~~required ~~date~~writedown, ~~management~~$568,500 ~~has~~related ~~not~~to ~~considered~~the ~~this~~fair ~~alternative~~value of common shares issued for consulting services and $1,225,143 related to the amortization of deferred financing fees and discount on outstanding debt. The Company also had $307,703 ~~nor~~of ~~does~~other ~~management~~working ~~view~~capital itchanges, asprimarily aconsisting ~~likely~~of ~~occurrence~~drilling costs advanced.

~~F-6~~ 20

~~BONANZA~~ Net ~~OIL~~cash &used ~~GAS~~in investing activities for the year ended December 31, ~~INC~~2009, totaled $32,170 and consisted primarily of the payments made by the Company on outstanding amounts due for its initial drilling activity in its Apclark field. Net cash used in investing activities for the year ended December 31, 2008, totaled $3,289,555 and consisted primarily of the Company’s drilling activity in its Apclark field and the initial payments on the Bourland and Good North prospects.

~~NOTES~~ Net TOcash ~~CONSOLIDATED~~provided ~~FINANCIAL~~by financing activities for the year ended December 31, 2009, resulted from the issuance of several notes payable during the year. Net cash provided by financing activities for the year ended December ~~STATEMENTS~~31, 2008, totaled $4,198,493 and consisted of $2,188,493 in net proceeds from the Company’s equity offering and the issuance of several notes payable during the year. The Company incurred $56,370 and $90,000 of cash issue costs related to the issuance of various debt instruments during the years ended December 31, 2009 and 2008, respectively. See Note 4 to the Company’s Consolidated Financial Statements for a complete discussion of the note issuances and Note 5 for a complete discussion of the equity issuances.

~~Restatement~~ We are in default on the January 2008 Notes

In ~~the~~January ~~course~~2008, ofwe ~~preparing~~entered ~~the consolidated~~into ~~financial~~three ~~statements~~14% ~~for~~Senior ~~the~~Secured ~~year~~Promissory ~~ended~~Note ~~December~~and ~~31,~~Security ~~2008~~Agreements, ~~the Company~~and ~~determined~~Securities ~~that~~Purchase itAgreements, ~~had~~with ~~not~~accredited ~~properly~~investors ~~calculated~~for ~~the~~an ~~valuation~~aggregate principal amount of ~~the 6~~$800,~~300,~~000 ~~common~~(the "January ~~shares~~2008 ~~issued~~Notes") inand ~~consideration of~~ the ~~purchase~~issuance of ~~its 25% interest in approximately 6~~320,~~700~~000 ~~acres~~shares inof ~~Apclark~~our ~~field~~Common inStock. ~~Southwestern~~The ~~Borden County,~~January ~~Texas~~2008 inNotes ~~October~~matured ~~2007. When~~on ~~originally~~January ~~calculated~~31, ~~the Company~~2009. ~~multiplied~~Under the ~~original~~terms ~~number~~ of ~~shares given in consideration, pre-forward stock split, of 3,000,000 common shares, by~~ the ~~effective~~January ~~share price~~2008 ~~after the forward stock split~~Notes, ~~$0.30,~~as ~~resulting in~~ a ~~value~~result of ~~$900,000. Rather,~~ ~~the~~their ~~Company should have used the post~~non-~~forward~~repayment ~~stock split~~as ~~shares~~of ~~issued~~July of31, 62009,~~300,000~~ ~~multiplied~~we bywere ~~the~~obligated ~~effective share price after~~to ~~the~~issue ~~forward~~an ~~stock~~additional ~~split~~300,000 ~~resulting~~shares ~~in a value~~ of ~~$1,890,000. As~~our ~~the Company~~Common ~~had~~Stock ~~not~~as ~~yet~~an ~~started~~additional ~~amortizing~~interest ~~the~~payment. ~~recorded~~We ~~value,~~issued the ~~result~~additional ~~of this error on the Company’s consolidated financial statements as of December 31~~300, ~~2007, was a $990,~~000 ~~understatement~~shares of ~~Oil~~Common ~~and~~Stock ~~Gas~~in ~~Property~~August ~~and Equipment – Unproved Properties and Properties Under Development and Additional Paid-in Capital~~2009.

In We ~~addition,~~are in default with respect to the ~~Company~~repayment ~~determined that~~obligation itupon ~~had~~maturity ~~not~~which ~~properly~~occurred ~~calculated~~on January 31, 2009. Pursuant to the ~~valuation~~terms of the 74January 2008 Notes,~~999~~ ~~common~~upon ~~shares issued~~becoming in ~~connection~~default, the interest rate on all amounts outstanding increased to 24% per annum. On December 2, 2009, we entered a Letter Agreement with the ~~issuance~~holder of ~~promissory~~$750,000 ~~notes~~principal inamount ~~December 2007. When~~of ~~originally~~the ~~calculated~~January 2008 Notes whereby, in order to induce the ~~Company~~holder ~~multiplied~~to convert the ~~original number~~notes ofinto shares ~~given~~of our common stock and, in ~~consideration~~turn, ~~pre-forward~~to ~~stock~~reduce ~~split~~our debt and avoid potentially filing for bankruptcy, the terms of ~~35,714 common~~the ~~shares~~$750,000 of principal of January 2008 Notes held by holder were amended providing that the ~~effective~~holder ~~share~~may ~~price~~from ~~after~~time to time convert all or any part of the ~~forward~~outstanding and unpaid principal amount of their January 2008 Notes into shares of our common stock, ~~split~~at the holder's option, at the lesser of (i) $0.~~30,~~0025 ~~resulting~~or in(ii) a ~~value~~50% ofdiscount ~~$10,714. Rather,~~to the ~~Company~~average ~~should have~~of ~~used~~the three lowest trading prices of the ~~post-forward~~common stock ~~split~~during ~~shares~~the ~~issued~~20 oftrading ~~74,999~~day ~~multiplied~~period byprior to conversion (the ~~effective~~ ~~share~~“Variable ~~price~~Conversion ~~after~~Price”). ~~the~~On ~~forward~~January ~~stock~~29, ~~split~~2010, ~~resulting~~we inentered into a ~~value~~Letter ~~of $22,500. As~~Agreement with the ~~Company~~holder ~~had~~removing ~~not~~the ~~yet~~holder’s ~~started~~ability ~~amortizing~~to convert at the ~~recorded~~Variable ~~value~~Conversion ofPrice. ~~these~~During ~~deferred~~December ~~financing costs~~2009, the ~~result~~holder converted $75,200 of ~~this~~principal ~~error~~and onaccrued ~~the Company’s~~interest ~~consolidated~~due ~~financial~~into ~~statements~~30,080,000 asshares of ~~December~~our 31Common Stock. As of April 13, ~~2007~~2010, ~~was~~we have entered into conversion agreements whereby an additional $11868,~~786~~750 ~~understatement~~ of ~~Other~~principal ~~Current~~and ~~Assets~~accrued ~~and~~interest ~~Additional~~on ~~Paid-in Capital.~~the January 2008 Notes has been, or will be, converted into 347,500,000 million shares of our Common Stock

~~These~~ We ~~errors~~have ~~did~~ not cured the underlying default with respect to any of the January 2008 Notes; however, the lenders have not yet taken any ~~impact~~further onaction with respect to the default. Although we are actively seeking additional financing to remedy this default, continuing to convert principal and accrued interest into shares of our Common Stock and are in constant communication with the ~~Company’s~~lenders, ~~results~~there can be no assurances that the lenders will continue to delay the enforcement of ~~operations~~their orremedies ~~cash~~under ~~flows~~the January 2008 Notes.

~~2. SUMMARY~~ ~~OF SIGNIFICANT ACCOUNTING POLICIES~~21

~~Accounting~~ ~~policies~~We ~~used~~are ~~by the Company and its subsidiaries reflect industry practices and conform to accounting principles generally accepted~~ in ~~the~~default ~~United States (GAAP). Certain~~on ~~reclassifications have been made to prior periods to conform with~~ the ~~current~~May ~~presentations. Significant~~2008 ~~policies are~~Convertible ~~discussed below.~~Note

~~Principles~~ In May 2008, we entered into a Securities Purchase Agreement with an accredited investor providing for the sale of an 8% convertible note in the principal amount of $750,000 (the "May 2008 Convertible Note") and the ~~Consolidation~~ issuance of 750,000 shares of our Common Stock, a Series A Common Stock Purchase Warrant to purchase 1,500,000 shares of our Common Stock (the “Series A May Warrant”) and a Series B Common Stock Purchase Warrant to purchase 1,500,000 shares of our Common Stock (the “Series B May Warrant”). The May 2008 Convertible Note matured on May 14, 2009, and interest is payable on a quarterly basis. The May 2008 Convertible Note was convertible into our Common Stock, at a conversion price of $0.1871 per common share, as adjusted, and is subject to normal and customary anti-dilution provisions.

~~The~~ ~~accompanying~~We ~~consolidated~~have ~~financial~~not ~~statements~~made ~~include~~any required interest payment since March 31, 2009, and we were unable to repay the ~~accounts~~May 2008 Convertible Note at maturity on May 14, 2009. Pursuant to the terms of the May 2008 Convertible Note, upon ~~Company~~becoming in default, the interest rate on all amounts outstanding increased to 15% per annum. On December 2, 2009, we entered into a Letter Agreement with the holder of the May 2008 Convertible Note whereby, in order to induce the holder to convert the May 2008 Convertible Note into shares of our common stock and, ~~its~~in ~~subsidiaries~~turn, ~~after~~to ~~elimination~~reduce our debt and avoid potentially filing for bankruptcy, the May 2008 Convertible Note was amended providing that the holder may from time to time convert all or any part of ~~intercompany~~the ~~balances~~outstanding and unpaid principal amount of the May 2008 Convertible Note into shares of our common stock, at the holder's option, at the lesser of (i) $0.0025 or (ii) a 50% discount to the average of the three lowest trading prices ~~transactions~~of the common stock during the 20 trading day period prior to conversion (the “Variable Conversion Price”). ~~The~~ ~~Company~~On January 29, 2010, we entered into a Letter Agreement with the holder removing the holder’s ~~interest~~ability into ~~oil~~convert ~~and~~at ~~gas~~the Variable ~~exploration~~Conversion ~~and~~Price. The holder did not convert any of the May 2008 Convertible Note into shares of our Common Stock during the year ended December 31, 2009. As of April 13, 2010, we have entered into conversion agreements whereby a total of ~~production~~$380,000 ~~ventures~~principal and ~~partnerships~~accrued ~~are~~interest ~~proportionately consolidated~~of the May 2008 Convertible Note has been, or will be, converted into 152,000,000 shares of our Common Stock.

~~Use~~ We have not cured the default with respect to the May 2008 Convertible Note; however, the lender has not yet taken any further action with respect to the default. Although we are actively seeking additional financing to remedy this default, continuing to convert principal and accrued interest into shares of ~~Estimates~~our Common Stock and are in constant communication with the lender, there can be no assurances that the lender will continue to delay the enforcement of their remedies under the May 2008 Convertible Note.

~~Preparation~~ ofWe ~~financial~~are ~~statements~~ in ~~conformity~~default with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on ~~historical experience and various other assumptions that are believed to be reasonable under~~ the ~~circumstances,~~August ~~the~~2008 results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. The Company evaluates its estimates and assumptions on a regular basis. Actual results may differ from these estimates and assumptions used in preparation of its financial statements and changes in these estimates are recorded when known. Significant estimates with regard to these financial statements include the estimate of proved oil and gas reserves and related present value estimates of future net cash flows there from (See Note 9 — Supplemental Oil and Gas Disclosures (Unaudited)), asset retirement obligations, income taxes and contingency obligations including legal and environmental risks and exposures.Notes

~~F-7~~ In August 2008, we entered into four 12% Unsecured Promissory Notes, and Securities Purchase Agreements, with accredited investors for an aggregate principal amount of $500,000 (the "August 2008 Notes"). The August 2008 Notes matured on September 28, 2008.

~~BONANZA~~ ~~OIL~~We &are ~~GAS~~in default of the repayment provision with respect to the August 2008 Notes; however, ~~INC~~the lenders have not yet taken any further action with respect to the default. Although we are actively seeking additional financing, began, in 2010, to convert principal and accrued interest into shares of our Common Stock and are in constant communication with the lenders, there can be no assurances that the lenders will continue to delay the enforcement of their remedies under the August 2008 Notes. Pursuant to the terms of the August 2008 Notes, we are required to issue to the holders of the August 2008 Notes, a total of 250,000 warrants to purchase shares of our Common Stock every 30 days that amounts remain outstanding under the August 2008 Notes. In order to induce certain of the holders to convert their August 2008 Notes into shares of common stock and, in turn, to reduce the Company’s debt and avoid potentially filing for bankruptcy, as of April 13, 2010, we have entered in conversion notices to issue a total of 31,000,000 shares of the Company’s Common Stock in settlement of $77,500 of principal and accrued interest on the August 2008 Notes.

~~NOTES TO CONSOLIDATED FINANCIAL~~ ~~STATEMENTS~~22

~~Cash~~ ~~and~~We ~~Cash~~are ~~Equivalents~~in default on the October 2008 Note

~~The~~ ~~Company~~On ~~considers~~October ~~all~~17, ~~highly~~2008, ~~liquid~~we ~~short-term~~entered ~~investments~~into ~~with~~a an12% ~~original maturity~~Unsecured ofPromissory ~~three~~Note, ~~months~~and orSecurities ~~less~~Purchase atAgreement, ~~time~~with ofan ~~purchase~~accredited toinvestor befor ~~cash~~an ~~equivalents. These~~aggregate ~~investments~~principal ~~are~~amount ~~carried~~of ~~at cost~~$50,000 ~~which~~(the ~~approximates~~"October ~~fair value~~2008 Note"). At ~~December 31,~~The October 2008 ~~and~~Notes ~~2007, the~~matured ~~Company~~on ~~had~~November $317,~~881~~ ~~and $154,357 of cash and cash equivalents, respectively~~2008.

~~Allowance~~ ~~for~~We ~~Doubtful~~are in default of the repayment provision with respect to the October 2008 Note; however, the lender has not yet taken any further action with respect to the default. Although we are actively seeking additional financing to remedy this default, ~~Accounts~~and are in constant communication with the lender, there can be no assurances that the lender will continue to delay the enforcement of their remedies under the October 2008 Note. Pursuant to the terms of the October 2008 Notes, we are required to issue to the holders of the October 2008 Notes, a total of 25,000 warrants to purchase shares of our Common Stock every 30 days that amounts remain outstanding under the October 2008 Notes.

~~The~~ ~~Company~~We ~~routinely assesses the recoverability of all material receivables to determine their collectability. All of the Company’s receivables~~ are ~~from~~ ~~the operators of properties~~ in ~~which~~default ~~the Company has an interest. Generally, the Company’s crude oil and natural gas receivables are collected within two months. The Company accrues a reserve~~ on ~~a receivable when, based on~~ the ~~judgment~~May of2009 management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated. As of December 31, 2008 and 2007, the Company had no amount recorded as an allowance for doubtful accounts.Note

~~Oil~~ On May 26, 2009, we entered into a 16% Unsecured Promissory Note with an accredited investor for an aggregate principal amount of $340,000 (the "May 2009 Note"). The May 2009 Note matured on August 24, 2009. In the event that the May 2009 Note was not repaid by August 24, 2009, the interest rate increased to 18% per annum and ~~Gas~~the ~~Property~~lender, at its option, could convert all outstanding amounts in shares of the Company’s Common Stock at a conversion price of $0.05 per share.

~~The~~ ~~Company~~ ~~uses~~We ~~the~~are ~~full-cost~~in ~~method~~default of ~~accounting~~the ~~for~~repayment ~~its~~provision ~~exploration~~with ~~and development~~respect ~~activities. Under~~to ~~this~~the ~~method~~May of2009 ~~accounting~~Note; however, the ~~cost~~lender ofhas ~~both successful~~not ~~and~~yet ~~unsuccessful~~taken ~~exploration~~any ~~and~~further ~~development~~action ~~activities~~with ~~are capitalized~~respect asto ~~property~~the ~~and equipment~~default. ~~The~~ ~~Company~~Although ~~has~~we ~~not~~are ~~incurred~~actively ~~any internal~~seeking ~~costs~~additional ~~that~~financing ~~are directly related~~ to ~~exploration~~remedy ~~and~~this ~~development activities~~default, ~~including salaries~~ and ~~benefits, which could be capitalized as part~~ ofare ~~property~~in ~~and~~constant ~~equipment. Proceeds~~communication ~~from~~with the ~~sale~~lender, orthere ~~disposition~~can ofbe ~~oil and~~no ~~gas~~assurances ~~properties~~that ~~are~~the ~~accounted~~lender ~~for~~will ascontinue ~~a reduction~~ to ~~capitalized~~delay ~~costs~~the ~~unless a~~enforcement ~~significant~~of ~~portion~~their ~~(greater~~remedies ~~than~~under ~~25 percent) of~~ the ~~Company’s~~May ~~reserve quantities~~2009 ~~in a particular country are sold, in which case a gain or loss is recognized~~Note.

~~Costs~~ ~~Excluded~~We are in default on the July 2009 Note

~~Oil and~~ ~~gas~~On ~~unevaluated~~July ~~properties~~16, ~~and~~2009, ~~properties~~we ~~under~~issued ~~development~~an ~~include~~unsecured ~~costs~~promissory ~~that are~~note ~~excluded~~to ~~from~~an ~~costs~~accredited ~~being~~investor ~~depreciated~~providing orfor ~~amortized. These costs represent investments in unproved properties and major development projects in which the Company owns~~ a ~~direct~~loan ~~interest. The~~of ~~Company excludes these costs until proved reserves are found~~$40,000 ~~until it is determined that~~ (the ~~costs~~“July ~~are impaired,~~2009 ~~or major development projects are placed in service~~Note”). ~~All~~ ~~costs excluded~~The ~~are~~July ~~reviewed~~2009 atNote ~~least~~matured ~~quarterly~~on toOctober ~~determine~~13, ~~if impairment has occurred~~2009.

~~Ceiling~~ ~~Test~~ We are in default of the repayment provision with respect to the July 2009 Note; however, the lender has not yet taken any further action with respect to the default. Although we are actively seeking additional financing to remedy this default, and are in constant communication with the lender, there can be no assurances that the lender will continue to delay the enforcement of their remedies under the July 2009 Note.

~~Under the~~ ~~full-cost~~We ~~method~~are ofin ~~accounting,~~default ~~a ceiling test is performed each quarter. The test establishes a limit (ceiling),~~ on ~~a country-by-country basis, on~~ the ~~book~~November value of oil and gas properties. The capitalized costs of proved oil and gas properties, net of accumulated depreciation, depletion and amortization (DD&A) and the related deferred income taxes, may not exceed this “ceiling.” The ceiling limitation is the estimated after-tax future net cash flows from proved oil and gas reserves, excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet. The estimate of after-tax future net cash flows is calculated using a discount rate of 10 ~~percent per annum and both costs and commodity prices in effect at the end of the period held flat for the life of production~~, ~~except where~~2009 future oil and gas sales are covered by physical contract terms or by derivative instruments that qualify, and are accounted for, as cash flow hedges. If capitalized costs exceed this limit, the excess is charged to expense and reflected as additional DD&A. See Note ~~9— Supplemental Oil and Gas Disclosures (Unaudited) for a discussion on calculation of estimated future net cash flows.~~

~~The~~ ~~Company~~ ~~recorded~~On aNovember $310,~~920~~ 2009,~~764~~ ~~non-cash~~we ~~write-down~~entered ofinto ~~the~~a ~~carrying~~loan ~~value~~agreement ofwith ~~its proved~~an ~~oil~~accredited ~~and~~investor ~~gas~~providing ~~properties~~for ~~as of December 31, 2008, as~~ a ~~result~~loan of ~~the ceiling test limitations~~$50,000 ~~which is reflected as additional DD&A expense in~~ (the ~~accompanying~~“November ~~statement~~10, of2009 ~~consolidated operations~~Note”). If ~~oil~~The ~~and gas~~November ~~prices~~10, at2009 ~~the~~Note ~~end~~matured ofon ~~the~~December ~~first quarter are below year-end levels~~31, ~~additional write-downs of oil and gas properties are likely to occur~~2009. ~~No write-down was required during 2007.~~

~~F-8~~ We are in default of the repayment provision with respect to the November 10, 2009 Note; however, the lender has not yet taken any further action with respect to the default. Although we are actively seeking additional financing to remedy this default, and are in constant communication with the lender, there can be no assurances that the lender will continue to delay the enforcement of their remedies under the November 10, 2009 Note.

~~BONANZA~~ We ~~OIL~~are &in ~~GAS~~default on the November 30, ~~INC.~~2009 Note

~~NOTES~~ TOOn ~~CONSOLIDATED~~November ~~FINANCIAL STATEMENTS~~30, 2009, the Company entered into a loan agreement with an accredited investor providing for a loan of $15,000 (the “November 30, 2009 Note”). The November 30, 2009 Note matured on April 1, 2010.

~~Depreciation,~~ ~~Depletion and Amortization~~23

~~DD&A~~ of ~~oil~~We ~~and~~are ~~gas~~in ~~properties~~default isof ~~calculated~~the ~~quarterly,~~repayment ~~using~~provision ~~the~~with ~~Units~~respect ofto ~~Production Method~~the ~~(UOP). The~~November ~~UOP calculation~~30, in2009 ~~simplest~~Note; ~~terms~~however, ~~multiplies~~ the ~~percentage~~ oflender ~~estimated~~has ~~proved~~not ~~reserves~~yet ~~produced~~taken ~~each~~any ~~quarter~~further ~~times~~action ~~the~~with ~~costs~~respect ~~of those~~to ~~reserves~~the default. ~~The~~ ~~result~~Although iswe toare ~~recognize~~actively ~~expense~~seeking atadditional ~~the~~financing ~~same~~to ~~pace~~remedy ~~that~~this ~~the~~default, ~~reservoirs~~and are ~~actually depleting. The amortization base~~ in ~~the~~constant ~~UOP calculation~~communication ~~includes~~with the ~~sum~~lender, ofthere ~~proved~~can ~~property~~be ~~costs~~no ~~net~~assurances ofthat ~~accumulated DD&A,~~the ~~estimated~~lender ~~future~~will ~~development~~continue ~~costs (future costs~~ to ~~access~~delay ~~and~~the ~~develop reserves)~~enforcement ~~and~~of ~~asset~~their ~~retirement~~remedies ~~costs~~under ~~which~~the ~~are~~November ~~not already included in oil and gas property~~30, ~~less~~2009 ~~related salvage value~~Note.

~~Asset~~ ~~Retirement~~Capital ~~Obligation~~Expenditures and 2010 Outlook

~~The~~ ~~initial~~We ~~estimated~~presently ~~retirement~~do ~~obligation~~not ofhave ~~properties~~any isavailable ~~recognized as a liability~~credit, ~~with~~bank anfinancing ~~associated~~or ~~increase~~other inexternal ~~properties~~sources ~~and~~of ~~equipment~~liquidity. ~~for~~Due ~~the~~to ~~asset retirement~~our ~~cost. Accretion~~brief ~~expense~~history isand ~~recognized~~historical ~~over~~operating ~~the~~losses, ~~estimated productive~~our ~~life~~operations ofhave ~~the~~not ~~related~~been ~~assets. If~~a ~~the~~source ~~fair value~~ of ~~the~~liquidity. ~~estimated~~We will ~~asset~~need ~~retirement~~to ~~obligation~~obtain ~~changes,~~additional ancapital ~~adjustment~~in isorder ~~recorded~~ to ~~both~~expand ~~the~~operations ~~asset retirement obligation~~ and ~~the~~become ~~asset retirement cost~~profitable. ~~Revisions~~ ~~in estimated~~In ~~liabilities~~order ~~can~~to ~~result~~obtain ~~from~~capital, ~~revisions~~we ofmay ~~estimated~~need ~~inflation~~to ~~rates, changes~~sell inadditional ~~service~~shares ~~and~~of ~~equipment~~our ~~costs~~common ~~and~~stock ~~changes~~or inborrow ~~the~~funds ~~estimated~~from ~~timing~~private ~~of settling asset retirement obligations~~lenders. As ofThere ~~December~~can ~~31,~~be ~~2008 and~~no ~~2007 the~~assurance ~~Company’s~~that ~~estimated~~we ~~asset~~will be ~~retirement~~successful ~~obligation~~in ~~was~~obtaining ~~not significant~~additional funding.

~~Capitalized~~ ~~Interest~~ We will still need additional capital in order to continue operations until we are able to achieve positive operating cash flow. Additional capital is being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the North American stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

~~Interest~~ isContractual capitalized on oil and gas investments in unproved properties and exploration and development activities that are in progress qualify for capitalized interest. Capitalized interest is calculated by multiplying the Company’s weighted-average interest rate on debt by the amount of qualifying costs. Capitalized interest cannot exceed gross interest expense. As oil and gas costs excluded are transferred to unproved properties, any associated capitalized interest is also transferred. Capitalized interest totaled $208,690 in 2008. No interest was capitalized during 2007.Obligations

~~Commitments~~ We are subject to various financial obligations and ~~Contingencies~~commitments in the normal course of operations. These contractual obligations represent future cash payments that we are required to make and relate primarily to notes payable and accounts payable, all of which are due currently and which are reflected on the Company’s Consolidated Balance Sheet at December 31, 2009, found in Item 15 in this Form 10-K. The Company does have an operating lease obligation with annual payments totaling $103,790 in 2010, $108,321 in 2011 and $36,610 in 2012. The Company expects to fund these contractual obligations with additional financing, either in the form of equity or debt issuances, for which there is no assurance that any additional financings will be available to us on satisfactory terms and conditions, if at all.

~~Accruals~~ ~~for~~Off-balance ~~loss~~Sheet contingencies arising from claims, assessments, litigation, environmental and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change.Arrangements

~~Revenue~~ ~~Recognition~~The Company does not currently utilize any off-balance sheet arrangements with unconsolidated entities to enhance liquidity and capital resource positions.

~~The~~ ~~Company~~Critical ~~recognizes~~Accounting ~~oil~~Policies and natural gas revenue under the sales method of accounting for its interests in producing wells as crude oil and natural gas is produced and sold from those wells. Crude oil and natural gas sold by the Company is not significantly different from the Company’s share of production. The Company recognizes revenue upon transfer of ownership of the product to the customer which occurs when (i) the product is physically received by the customer, (ii) an invoice is generated which evidences an arrangement between the customer and the Company, (iii) a fixed sales price has been included in such invoice and (iv) collection from such customer is reasonably assured.Estimates

F Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-9going basis, management evaluates our estimates and judgments, including those related to revenue recognition, recovery of oil and gas reserves, financing operations, and contingencies and litigation.

~~BONANZA OIL & GAS, INC.~~ 24

~~NOTES~~ Oil TOand ~~CONSOLIDATED~~Gas ~~FINANCIAL STATEMENTS~~Properties

~~Income~~ ~~Taxes~~ We follow the full cost method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells including directly related overhead costs and related asset retirement costs are capitalized.

~~The~~ ~~Company~~ ~~uses~~Under ~~the~~this ~~liability~~ method, ~~for~~all ~~accounting~~costs, ~~for~~including ~~income taxes. Under~~internal ~~this~~costs ~~method,~~directly ~~deferred~~related ~~tax~~to ~~assets~~acquisition, exploration and ~~liabilities~~development activities are ~~determined~~ ~~based~~capitalizable onas ~~differences~~oil ~~between~~and ~~financial~~gas ~~reporting~~property ~~and~~costs. ~~tax~~Properties ~~bases~~not subject to amortization consist of ~~assets~~ exploration and development ~~liabilities~~costs ~~and~~which are ~~measured~~evaluated ~~using~~on ~~the~~a ~~enacted~~property-by-property ~~tax~~basis. ~~rates~~Amortization ~~and~~of ~~laws that~~these ~~will~~unproved beproperty incosts ~~effect~~begins when the ~~differences~~properties ~~are~~become ~~expected~~proved ~~to reverse~~or their values become impaired. ~~The~~ Bonanza assesses the realizability of ~~deferred~~unproved ~~tax~~properties, if ~~assets~~any, ~~are~~on ~~evaluated annually~~at ~~and~~least aan ~~valuation~~annual ~~allowance~~basis isor ~~provided~~when ifthere ithas been an indication that impairment in value may have occurred. Impairment of unproved properties is ~~more~~assessed ~~likely~~based ~~than~~on ~~not~~management's intention with regard to future exploration and development of individually significant properties and the ability of Bonanza to obtain funds to finance such exploration and development. If the results of an assessment indicate that the ~~deferred~~properties ~~tax~~are ~~assets~~impaired, ~~will~~the ~~not~~amount of the impairment is added to the capitalized costs to be ~~realized~~amortized.

~~The~~ ~~Company’s~~ ~~estimates~~The ~~are~~provision ~~based~~for depreciation and depletion of oil and gas properties is computed on the ~~information~~unit-of-production ~~available~~method. toUnder itthis atmethod, we compute the ~~time that~~provision itby ~~prepares~~multiplying the ~~income~~total ~~tax~~unamortized ~~provision. The~~costs ~~Company~~of ~~generally~~oil and gas properties including future ~~files~~development, ~~its~~site ~~annual~~restoration, ~~income~~and ~~tax~~dismantlement ~~returns~~abandonment ~~several~~costs, ~~months~~but ~~after~~excluding ~~its~~costs ~~fiscal~~of unproved properties by an overall rate determined by dividing the physical units of oil and gas produced during the period by the total estimated units of ~~year-end~~proved oil and gas reserves. ~~Income~~ ~~tax~~This ~~returns~~calculation ~~are~~is ~~subject~~done toon ~~audit~~a country-by-country ~~federal~~basis. As of December 31, ~~state~~2009, all of our oil production operations are conducted in the United States of America. The cost of unevaluated properties not being amortized, ~~and~~to ~~local~~the ~~governments~~extent there is such a cost, ~~generally~~is ~~years~~assessed ~~after~~quarterly to determine whether the ~~returns~~value ~~are filed~~has been impaired below the capitalized cost. ~~These~~ ~~returns~~The ~~could~~cost beof ~~subject~~any impaired property is transferred to ~~material~~the ~~adjustments~~balance orof oil and gas properties being depleted. The ~~differing~~costs ~~interpretations~~associated ofwith unevaluated properties relate to projects which were undergoing exploration or development activities or in which we intend to commence such activities in the ~~tax~~future. ~~laws~~We will begin to amortize these costs when proved reserves are established or impairment is determined.

At ~~Inception~~ ~~(August~~In ~~17,~~accordance ~~2007),~~with ~~the~~Financial ~~Company~~Accounting ~~adopted~~Standards ~~Financial~~Board Accounting Standards ~~Board~~ Codification (“~~FASB~~ASC”) ~~Interpretation~~Topic ~~Number~~410 48“Asset Retirement and Environmental Obligations," ~~“Accounting~~we report a liability for ~~Uncertainty~~any inlegal ~~Income~~retirement obligations on our oil and ~~Taxes”~~gas ~~(“FIN~~properties. ~~48”),~~The ~~which~~asset isretirement ~~intended~~obligations represent the estimated present value of the amounts expected to ~~clarify~~be incurred to plug, abandon, and remediate the ~~accounting~~producing ~~for~~properties ~~income~~at ~~taxes~~the end of their productive lives, in accordance with state ~~prescribing~~laws, aas ~~minimum~~well ~~recognition~~as ~~threshold~~the ~~for~~estimated costs associated with the reclamation of the property surrounding. The Company determines the asset retirement obligations by calculating the present value of estimated cash flows related to the liability. The asset retirement obligations are recorded as a ~~tax~~liability ~~provision~~at ~~before~~the ~~being~~estimated present value as of the asset's inception, with an offsetting increase to producing properties. Periodic accretion of the discount related to the estimated liability is recorded as ~~recognized~~an expense in the ~~consolidated~~statement ~~financial~~of ~~statements~~operations. ~~FIN~~ 48The ~~also provides~~estimated ~~guidance~~liability onis ~~derecognition,~~determined ~~measurement,~~using ~~classification~~significant assumptions, ~~interest~~including current estimates of plugging and ~~penalties~~ abandonment costs, ~~accounting~~annual ininflation ~~interim~~of ~~periods~~these costs, ~~disclosure~~the productive lives of wells, and a ~~transition~~risk-adjusted interest rate. As aChanges in any of these assumptions can result, in significant revisions to the ~~Company~~estimated ~~has~~asset ~~concluded~~retirement ~~that~~obligations. itRevisions ~~does~~to ~~not have~~the ~~any~~asset ~~unrecognized~~retirement ~~tax~~obligations ~~benefits~~are orrecorded ~~any~~with ~~additional~~an ~~tax~~offsetting ~~liabilities~~change ~~after~~to producing ~~applying~~properties, ~~FIN~~resulting ~~48. The~~in ~~adoption~~prospective changes to depletion and depreciation expense and accretion of ~~FIN~~the 48discount. ~~therefore~~Because ~~had~~of nothe ~~impact~~subjectivity on of assumptions and the ~~Company’s~~relatively ~~consolidated~~long ~~financial~~lives ~~statements. See~~of ~~Note~~most 6of the wells, the costs to ultimately retire the Company’'s ~~consolidated~~wells ~~financial~~may ~~statement~~vary ~~for~~significantly ~~further~~from ~~discussion~~prior estimates. As of December 31, 2009, our asset retirement obligation was not significant.

~~Earnings~~ ~~Per Share~~25

~~The~~ ~~Company’s~~Reserve basic earnings per share (EPS) amounts have been computed based on the weighted-average number of shares of Common Stock outstanding for the period. Diluted EPS reflects the potential dilution, using the treasury stock method, which could occur if the Company’s dilutive securities (namely outstanding warrants to acquire shares of the Company’s Common Stock) were exercised. As the Company realized a net loss for both the year ended December 31, 2008 and for the period from Inception (August 17, 2007) through December 31, 2007, no potentially dilutive securities were included in the calculation of diluted earnings per share as their impact would have been anti-dilutive.Estimates

~~Stock-Based~~ ~~Compensation~~Our estimate of proved reserves is based on the quantities of oil and gas that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment. For example, we must estimate the amount and timing of future operating costs, severance taxes, development costs and workover costs, all of which may in fact vary considerably from actual results. In addition, as prices and cost levels change from year to year, the estimate of proved reserves also changes. Any significant variance in these assumptions could materially affect the estimated quantity and value of our reserves. As such, our reserve engineers review and revise our reserve estimates at least annually.

~~The~~ ~~Company~~Despite ~~accounts~~the ~~for~~inherent ~~stock-based~~imprecision ~~compensation~~in ~~under~~these ~~the~~engineering ~~fair~~estimates, ~~value~~our ~~recognition provisions~~reserves ofare ~~SFAS No~~used throughout our financial statements. ~~123-R~~ For example, ~~“Accounting~~since ~~for~~we ~~Stock-Based Compensation,”~~use asthe ~~amended~~units-of-production ~~and~~method ~~revised. The~~to ~~Company~~amortize ~~has~~our ~~not~~oil ~~granted~~and gas ~~any~~properties, ~~type~~the quantity of ~~stock-based~~reserves ~~awards~~could significantly impact our DD&A expense. ~~Stock~~ ~~compensation~~Our ~~awards~~oil ~~granted~~and gas properties are ~~valued~~ onalso ~~the~~subject ~~date~~to ofa ~~grant~~“ceiling” ~~and~~limitation ~~are~~based ~~expensed,~~in ~~net~~part on the quantity of ~~estimated~~our ~~forfeitures~~proved reserves. Finally, onthese areserves are ~~straight-line~~the basis ~~over~~for ~~the~~our ~~required~~supplemental ~~service~~oil ~~period~~and gas disclosures.

~~Recently~~ ~~Issued~~Revenue ~~Accounting Standards Not Yet Adopted~~Recognition

In ~~December~~We ~~2007,~~recognize oil and natural gas revenue under the ~~Financial~~sales ~~Accounting~~method ~~Standards~~of ~~Board~~accounting ~~(FASB)~~for ~~issued~~our ainterests ~~revision to~~in ~~SFAS No. 141,~~producing ~~“Business~~wells ~~Combinations”~~as ~~(SFAS No~~crude oil and natural gas is produced and sold from those wells. ~~141(R)).~~ Crude oil and natural gas sold is ~~The~~not ~~revision~~significantly ~~broadens~~different ~~the~~from ~~definition~~our share of aproduction. ~~business~~We ~~combination~~recognize torevenue ~~include all~~upon ~~transactions~~transfer orof ~~other~~ownership ~~events~~of inthe ~~which~~product ~~control~~to ofthe ~~one~~customer orwhich ~~more~~occurs ~~businesses~~when (i) the product is ~~obtained. Further,~~ physically received by the ~~statement~~customer, ~~establishes~~(ii) ~~principles~~an ~~and~~invoice ~~requirements for~~is ~~how~~generated which evidences an ~~acquirer~~arrangement ~~recognizes~~between ~~assets~~the ~~acquired~~customer and us, ~~liabilities~~(iii) ~~assumed~~a ~~and~~fixed ~~any non-controlling~~sales ~~interests~~price ~~acquired. The~~has ~~Company will~~been ~~adopt SFAS No. 141~~included in such invoice and (Riv) ascollection offrom ~~January 1,~~such ~~2009~~customer is probable.

~~F-10~~ Income Taxes

~~BONANZA~~ We ~~OIL~~use &the ~~GAS~~liability method for accounting for income taxes. Under this method, ~~INC~~deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The realizability of deferred tax assets are evaluated annually and a valuation allowance is provided if it is more likely than not that the deferred tax assets will not give rise to future benefits in our tax returns.

~~NOTES~~ Our TOestimates ~~CONSOLIDATED~~are ~~FINANCIAL~~based on the information available to it at the time that we prepare the income tax provision. Income tax returns are subject to audit by federal, state, and local governments, generally years after ~~STATEMENTS~~the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws.

~~Also in~~ ~~December~~At ~~2007,~~Inception ~~the~~(August ~~FASB~~17, ~~issued SFAS No. 160~~2007), ~~“Noncontrolling~~we ~~Interests in~~adopted ~~Consolidated~~the ~~Financial~~provisions ~~Statements.”~~of ~~This~~ASC ~~statement~~Topic ~~amends~~740 ~~Accounting~~“Income ~~Research Bulletin No. 51~~Taxes,” ~~“Consolidated~~which ~~Financial~~is ~~Statements.” SFAS No. 160~~intended ~~establishes~~to ~~accounting~~clarify ~~and~~the ~~reporting~~accounting ~~standards~~ for ~~the noncontrolling~~income ~~interests~~taxes inprescribing a ~~subsidiary~~minimum ~~and~~recognition threshold for ~~the deconsolidation of~~ a tax ~~subsidiary. It~~provision ~~clarifies~~before ~~that~~being arecognized ~~noncontrolling interest~~ in athe ~~subsidiary, sometimes~~consolidated ~~called~~financial astatements. ~~minority~~Topic ~~interest,~~740 isalso anprovides ~~ownership~~guidance ~~interest~~on inderecognition, ~~the consolidated~~measurement, ~~entity~~classification, ~~that~~interest ~~should~~and bepenalties, ~~reported~~accounting ~~as equity~~ in ~~the~~interim ~~consolidated financial statements. Additionally~~periods, ~~the~~disclosure ~~amounts~~and oftransition. ~~consolidated~~As ~~net income~~a ~~attributable~~result, towe ~~both~~concluded ~~the~~we ~~parent~~do ~~and~~not ~~the~~have ~~noncontrolling~~any ~~interest~~unrecognized ~~must~~tax bebenefits ~~reported separately~~or onany ~~the~~additional ~~face~~tax ofliabilities ~~the~~after ~~income~~applying ~~statement~~Topic 740. The ~~Company will adopt~~adoption ~~SFAS No. 160~~of asTopic of740 ~~January 1,~~therefore ~~2009. Adoption~~had ofno ~~this standard~~impact ison ~~not~~our ~~expected~~consolidated tofinancial ~~have~~statements. anSee ~~effect~~Note on6 ~~the~~to the Company’s consolidated financial ~~position or~~statement ~~results~~for offurther ~~operations~~discussion.

InITEM ~~March 2008, the FASB issued SFAS No~~7A. 161, “Disclosures about Derivative Instruments and Hedging Activities,” an amendment to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities to include enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133 and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The Company will adopt SFAS No. 161 as of January 1, 2009. Adoption of this standard is not expected to have an effect on the Company’s financial position or results of operations.

~~In June~~ ~~2008,~~QUANTITATIVE ~~the~~AND ~~FASB~~QUALATATIVE ~~issued~~DISCLOSURES ~~FASB~~ABOUT ~~Staff~~MARKET ~~Position~~RISK (FSP) Emerging Issues Task Force (EITF) Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF No. 03-6-1 addresses whether instruments granted in share-based payment transactions should be considered participating securities for the purposes of applying the two-class method of calculating earnings per share (EPS) pursuant to FASB Statement No. 128, “Earnings Per Share.” This FSP concludes that unvested share-based payment awards that contain rights to receive nonforfeitable dividends or dividend equivalents are participating securities prior to vesting and, therefore, should be included in the earnings allocations in computing basic EPS under the two-class method. This FSP is effective for financial statements issued beginning after December 15, 2008, with prior-period retrospective allocation. The Company will adopted FSP EITF Issue No. 03-6-1 as of January 1, 2009. The Company does not expect the effect of this FSP on its financial statements to be material.

In ~~January~~ ~~2009,~~Since ~~the~~we ~~Securities~~are ~~and~~a ~~Exchange~~company ~~Commission~~that ~~(SEC)~~qualifies ~~issued~~as ~~Release No. 33-8995,~~a “~~Modernization~~smaller ofreporting ~~Oil and Gas Reporting~~company,” ~~amending~~as ~~oil~~defined ~~and gas reporting requirements~~ under Rule ~~4-10~~ ~~of Regulation S~~12b-~~X and Industry Guide~~ 2, inwe ~~Regulation S-K~~are ~~and~~not ~~bringing~~required ~~full-cost accounting rules into alignment with the revised disclosure requirements. The new rules include changes~~ to ~~the~~provide ~~pricing used to estimate reserves,~~ the ~~ability~~information torequired ~~include nontraditional~~by ~~resources~~this inItem ~~reserves, the use of new technology for determining reserves and permitting disclosure of probable and possible reserves~~7A. ~~The final rules are effective for registration statements filed on or after January 1, 2010, and for annual reports for fiscal years ending on or after December 31, 2009.~~

~~3. ACQUISITIONS~~ ~~OF OIL AND GAS PROPERTIES~~26

~~During~~ITEM ~~September 2007, the Company obtained a 22~~8.5% pre-payout (15% post- payout) working interest in eight oil and gas wells in Gonzales County, Texas. The Company paid a total of $750,000 to acquire the wells. The Company will receive 15.75% of the net revenues from the wells until it has recovered its $750,000 cost at which time the net revenue interest will drop to 10.5% of net revenues. Five of the wells are currently inactive. The Company believes that the pre-acquisition results of operations for the wells acquired would be immaterial, as adjusted on a pro-forma basis.

~~F-11~~ FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

~~BONANZA~~ The ~~OIL~~financial &statements ~~GAS,~~and ~~INC~~supplementary financial information required to be filed under this item are presented on pages F-1 through F-25 of this Form 10-K and are incorporated herein by reference.

~~NOTES~~ITEM ~~TO CONSOLIDATED FINANCIAL STATEMENTS~~9.

~~In October 2007, the Company purchased~~ aCHANGES ~~25%~~IN ~~interest~~AND inDISAGREEMENTS ~~approximately~~WITH ~~6,700~~ACCOUNTANTS ~~acres~~ON inACCOUNTING ~~Apclark~~AND ~~Field~~FINANCIAL in southwestern Borden County, Texas for a total of 6,300,000 shares of the Company's Common Stock. The Company recorded the acreage as part of Oil and Gas Property and Equipment – Unproved Properties and Properties Under Development based on the fair value of the Company’s common shares at that time, $1,890,000. The Company believes that the pre-acquisition results of operations for the acreage acquired would be immaterial, as adjusted on a pro-forma basis.DISCLOSURE

~~On July~~ 18, 2008, the Company, Borland Good North Inc., a wholly-owned subsidiary of the Company (“Borland”), Black Pearl Energy, Inc. (“Black Pearl”), and the shareholders holding a majority of the issued and outstanding shares of Black Pearl, (collectively the “Black Pearl Majority Shareholders), entered into an Agreement and Plan of Merger (the “Merger Agreement”), which closed on July 18, 2008. Pursuant to the terms of the Merger Agreement, Black Pearl merged with and into Borland, which became a wholly-owned subsidiary of the Company (the “Merger”). In consideration for the Merger, the Company issued an aggregate of 7,024,665 shares (the “Black Pearl Acquisition Shares”) of the Company’s Common Stock to the Black Pearl Majority Shareholders and the other shareholders of Black Pearl at the closing of the merger. Prior to the Merger Agreement, Black Pearl owned 2,709,000 shares of the Company’s Common Stock, which were cancelled in conjunction with the Merger.None

~~Black Pearl~~ITEM ~~was an exploration and development company located in Midland, Texas~~9A. On July 14, 2008, Black Pearl acquired options to purchase an undivided 75% working interest in two drilling projects for total consideration of $500,000. Concurrently with executing these options, Black Pearl entered into a note agreement with the Company for $500,000. The note bore interest at 8% per year with a maturity date of November 14, 2008, or the date at which a letter of intent to merge the Company expired. The note was cancelled in conjunction with the Merger.

~~The~~ ~~Company~~CONTROLS ~~allocated~~AND the total consideration of $5,552,036 to Oil and Gas Property and Equipment – Unproved Properties and Properties Under Development, based on the closing price per share of the Company’s Common Stock on July 18, 2008, of $1.17, and the $500,000 cancelled note receivable discussed above. The operations of Black Pearl were combined with the Company as of July 18, 2008.PROCEDURES

~~Subsequent~~ to ~~acquisition~~Disclosure ~~closing,~~Controls the Company made additional payments totaling $900,000 toward the acquisition of two projects under option. In October 2008, the Company sold 10% of the interest it acquired in one of the projects for $115,000. As of December 31, 2008, the Company had $1,100,000 of additional payments, accrued as part of the Company’s accrued exploration and ~~development~~ ~~expenditures, required to fully exercise the option for the two projects.~~Procedures

~~The~~ William Wiseman, the Company’s ~~believes~~Chairman ~~that~~and Chief Executive Officer, in his capacity as principal executive officer, and Robert Teague, the ~~pre-acquisition~~Company’s ~~results~~Vice ofPresident, ~~operations~~in ~~for~~his ~~Black~~capacity ~~Pearl would~~as beprincipal ~~immaterial~~financial officer, evaluated the effectiveness of our disclosure controls and procedures as ~~adjusted~~of December 31, 2009, the end of the period covered by this report. Based on athat ~~pro-forma~~evaluation ~~basis~~and as of the date of that evaluation, these officers concluded that the Company’s disclosure controls and procedures were effective, providing effective means to ensure that the information we are required to disclose under applicable laws and regulations is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. We also made no changes in internal controls over financial reporting during the quarter ending December 31, 2009, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~F-12~~ We periodically review the design and effectiveness of our disclosure controls, including compliance with various laws and regulations that apply to our operations. We make modifications to improve the design and effectiveness of our disclosure controls and may take other corrective action, if our reviews identify deficiencies or weaknesses in our controls.

~~BONANZA~~ Management’s ~~OIL~~Report &on ~~GAS,~~Internal ~~INC.~~Control Over Financial Reporting

~~NOTES~~ Management TOof ~~CONSOLIDATED~~the ~~FINANCIAL~~Company is responsible for the preparation and integrity of the consolidated financial statements appearing in this annual report on Form 10-K. The financial statements were prepared in conformity with ~~STATEMENTS~~accounting principles generally accepted in the United States and include amounts that are based on management’s best estimates and judgments.

4 Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 (Exchange Act). ~~NOTES~~ The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements. Our internal control over ~~PAYABLE~~financial reporting is supported by appropriate reviews by management, written policies and guidelines, careful selection and training of qualified personnel and a written code of business conduct adopted by our Company’s board of directors, applicable to all Company directors and all officers and employees of our Company and subsidiaries.

~~The~~ ~~Company’s~~Because ~~notes~~of ~~payable~~its atinherent ~~December 31~~limitations, ~~2008~~internal control over financial reporting may not prevent or detect misstatements and ~~December~~even 31when determined to be effective, ~~2007~~can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, ~~consisted~~projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the ~~following:~~policies or procedures may deteriorate.

	Balance as of
	December 31, 2008			December 31, 2007
December 2007 Secured Promissory Note	$	250,000		$	250,000
January 2008 Secured Promissory Notes		800,000			-
May 2008 Convertible Note		750,000			-
August 2008 Unsecured Promissory Notes		500,000			-
October 2008 Unsecured Promissory Notes		50,000			-
Total		2,350,000			250,000
Unamortized discount		(250,296	)		(22,089	)
Balance, net of discount	$	2,099,704		$	227,911

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December ~~2007~~31, ~~Secured~~2009. ~~Promissory~~In making this assessment, management used the criteria set ~~Note~~forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on our assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2009.

~~In December~~This ~~2007,~~annual ~~the~~report ~~Company~~on ~~entered~~Form ~~into a 14% Senior Asset Backed Secured~~10-K ~~Promissory~~does ~~Note~~not ~~and~~include ~~Security~~an ~~Agreement,~~attestation ~~and~~report ~~a Securities Purchase Agreement, with Phoenix Capital Opportunity Fund, L.P. ("Phoenix") in principal amount~~ of ~~$250,000~~ (the ~~"December~~Company’s ~~2007~~registered ~~Note) and the issuance of 74,999 shares (on a~~accounting ~~post-split~~firm ~~adjusted~~regarding ~~basis)~~internal ofcontrol ~~Common~~over ~~Stock~~financial ~~of the Company~~reporting. ~~The December~~ ~~2007 Note matured on December 17, 2008, and interest is payable on a quarterly basis. The Company's obligations under the December 2007 Note are secured by the Company~~Management’s ~~interest in eight oil and gas wells located in~~report ~~Gonzales~~was ~~County,~~not ~~Texas. The~~subject ~~shares~~to ~~issued~~attestation inby ~~conjunction with~~ the ~~December~~ ~~2007 Note were valued at $22,500, based on the price of the~~ Company’s ~~Common~~ ~~Stock~~registered ~~issued~~accounting ~~in its then most recent private placement offering, and was~~firm ~~recorded~~pursuant ~~as a discount~~ to ~~the~~temporary ~~December~~rules ~~2007 Note and additional paid-in capital. The Company also incurred $12,500 in issue costs which it has recorded as deferred financing costs as a component~~ of ~~prepaid and other current expenses. The discount and deferred financing costs are being amortized using~~ the ~~effective~~Securities ~~interest rate method over the term of the indebtedness. The Company had an unamortized discount of $22,089,~~ and ~~deferred~~ ~~financing~~Exchange ~~costs of $12,021, at December 31, 2007, on the December 2007 Note~~Commission. ~~These~~ balances were fully amortized as of December 31, 2008. Under the terms of the December 2007 Note, the interest rate will increase to an annual rate of 24%, plus all enforcement costs, if in default. The Company paid $26,370 in interest on the December 2007 Note during the year ended December 31, 2008.

~~At December~~Changes ~~31, 2008, the Company was~~ in ~~default~~Internal ~~with~~Control ~~respect~~Over ~~to the repayment~~Financial obligation upon maturity on December 17, 2008, with respect to the December 2007 Note. Pursuant to the terms of the December 2007 Note, the interest rate on all amounts outstanding increased to 24% per annum, effective December 17, 2008. On February 6, 2009, the Company made a partial payment of $125,000 toward satisfaction of this obligation. As of April 15, 2009, the Company has not remitted the balance of amount due; however the lender has not, as of April 15, 2009, taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lender, there can be no assurances that the lender will continue to delay the enforcement of its remedies under the December 2007 Note.Reporting

~~January~~There was no change in our internal controls over financial ~~2008~~reporting ~~Secured~~during ~~Promissory~~the ~~Notes~~quarter ending December 31, 2009, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

~~In January~~ITEM 2008, the Company entered into three 14% Senior Secured Promissory Note and Security Agreements, and Securities Purchase Agreements, with accredited investors for an aggregate principal amount of $800,000 (the "January 2008 Notes") and the issuance of 160,000 shares of the Company’s Common Stock9B. The January 2008 Notes mature on January 31, 2009, with interest payable on a monthly basis. The Company's obligations under the January 2008 Notes are secured by the Company’s interest in three prospect areas located in Borden, Hidalgo and Brazoria counties of Texas. The shares issued in conjunction with the January 2008 Notes were valued at $120,000, based on the market price of the Company’s Common Stock at the time of issuance, and was recorded as a discount to the January 2008 Notes and additional paid-in capital. This discount is being amortized using the effective interest rate method over the term of the indebtedness and as of December 31, 2008, the unamortized discount had a balance of $9,862. Under the terms of the January 2008 Notes, the interest rate will increase to an annual rate of 24%, plus all enforcement costs, if in default. In addition, if the Company does not repay the January 2008 Notes by July 31, 2009, the Company is obligated to issue an additional 150,000 shares of its Common Stock as an additional interest payment. The Company paid $92,726 in interest on the January 2008 Notes during the year ended December 31, 2008.

~~F-13~~OTHER INFORMATION

~~BONANZA OIL & GAS, INC~~None.

~~NOTES~~PART ~~TO CONSOLIDATED FINANCIAL STATEMENTS~~III

AtITEM ~~April 15, 2009, the Company was in default with respect to the repayment obligation upon maturity on January 31, 2009, with respect to the January 2008 Notes~~10. Pursuant to the terms of the January 2008 Notes, the interest rate on all amounts outstanding increased to 24% per annum, effective January 31, 2009. In addition, if the January 2008 Notes are not repaid prior to July 31, 2009, the Company is obligated to issue an additional 150,000 shares of its Common Stock as an additional interest payment. As of April 15, 2009, the Company has not cured its default; however the lenders have not yet taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lenders, there can be no assurances that the lenders will continue to delay the enforcement of their remedies under the January 2008 Notes.

~~May~~DIRECTORS ~~2008~~AND ~~Convertible~~EXECUTIVE ~~Note~~OFFICERS OF THE REGISTRANT

~~In May~~ ~~2008, the Company entered into a Securities Purchase Agreement with an~~ ~~accredited investor providing for the sale by the Company of an 8% convertible~~ ~~note~~ Directors ~~in the principal amount of $750,000 (the "May 2008 Convertible Note")~~ and ~~the~~ ~~issuance~~Executive ofOfficers ~~375,000 shares of Common Stock of the Company, a Series A Common~~ ~~Stock Purchase Warrant to purchase 750,000 shares of the Company’s Common Stock~~ ~~(the “Series A May Warrant”) and a Series B Common Stock Purchase Warrant to~~ ~~purchase 750,000 shares of the Company’s Common Stock (the “Series B May~~ ~~Warrant”). The May 2008 Convertible Note matures on May 14, 2009,~~ ~~and interest is payable on a quarterly basis. The May 2008~~ ~~Convertible~~ Names ~~Note is unsecured, however, in the event that the Company grants a~~ ~~secured~~ Ages ~~interest in its assets in connection with any future financing, then the~~ ~~holder~~ Titles William ofWiseman ~~the May 2008 Convertible Note will be entitled to a pari passu~~ ~~interest~~ 56 ~~in such secured interest. The May 2008 Convertible Note is~~ ~~convertible~~ Chairman ~~into~~of the ~~Company’s Common Stock~~Board, ~~at a conversion price of $0.3742~~Chief ~~per~~ Executive ~~common~~Officer ~~share, as adjusted,~~ and isPresident ~~subject to normal and customary~~ ~~anti-dilution provisions. The Company may require that the holder of~~ ~~the May 2008 Convertible Note convert all or a portion of the May 2008~~ ~~Convertible Note in the event that the Company’s closing market price for any 10~~ ~~consecutive trading days exceeds 300% of the then conversion~~ ~~price. However, in no event can the holder of the May 2008~~ ~~Convertible Note convert the May 2008 Convertible Note into such shares which~~ ~~would~~ Robert ~~provide~~Teague ~~for the holder to own more than 4.9% of the then outstanding~~ ~~shares~~ 62 ~~of the Company’s Common Stock~~ Director, ~~including~~Executive ~~the shares for which the holder~~Vice is President ~~entitled upon exercise of the Series A May Warrant~~ and ~~Series~~Chief BOperating ~~May~~Officer ~~Warrant.~~

~~The Series~~Directors Aare ~~May~~elected ~~Warrant~~to ~~and~~serve ~~Series~~until Bthe ~~May~~next ~~Warrant~~annual ~~are~~meeting ~~exercisable for a period~~ of ~~two~~stockholders ~~years~~and atuntil antheir ~~exercise~~successors ~~price~~are ofelected ~~$0.75~~ and $1qualified.00 ~~per share,~~Currently ~~respectively. In~~there ~~the~~are ~~event~~two ~~that~~directors ~~the~~on ~~Company~~our ~~issues~~Board ~~securities~~of atDirectors. ~~a per~~Officers ~~share~~are ~~price~~appointed ~~less than the conversion price, then the exercise price~~to ~~associated~~serve ~~with~~until the ~~Series~~meeting Aof ~~May Warrant and Series B May Warrant and~~ the ~~conversion~~ ~~price~~Board ~~for the May 2008 Convertible Note shall be adjusted to equal such price. However, no adjustment will be made for issuances relating to shares~~ of ~~the~~Directors ~~Company’s~~following ~~Common Stock or options to employees, officers, consultants or directors of~~ the ~~Company,~~next ~~securities outstanding as of~~annual ~~the~~meeting ~~date~~ of ~~the~~stockholders ~~closing,~~and ~~securities~~until ~~issued~~their insuccessors ~~connection~~have ~~with~~been ~~acquisitions~~elected orand ~~strategic~~qualified. ~~transactions or securities issued as equity enhancements in connection with standard non-convertible debt transactions~~

~~Pursuant to~~Set ~~EITF~~forth ~~98-5,~~below ~~"Accounting~~is ~~for~~a ~~Convertible~~biographical ~~Securities~~description ~~with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" and EITF 00-27, “Application~~ of ~~Issue~~each ~~No. 98-5 in Certain Convertible Instruments,” based on~~executive ~~relative~~officer ~~fair values of the warrant~~ and ~~the debt, the proceeds from the debt were allocated to the common shares issued, the warrants issued and the debt on a relative fair value basis~~director.

~~F-14~~William Wiseman, Chairman of the Board, Chief Executive Officer and President

~~BONANZA~~Mr. ~~OIL~~Wiseman &joined ~~GAS~~the Company as Chairman of the Board, ~~INC~~Chief Executive Officer and President in August 2007. Mr. Wiseman has over 30 years as a financial, marketing and sales professional with geophysical projects along the Texas and Gulf Coast area, with worldwide experience in identifying, developing, acquiring and marketing oil and gas properties. Since January 2001, Mr. Wiseman has been president of United Production and Exploration, Ltd. Also since August 2004, Mr. Wiseman has been founder, partner and president of Global Production, Inc. From November 1993 to November 2000, Mr. Wiseman was vice president of administration and marketing for Seismic Ventures Incorporated. Mr. Wiseman's previous experience including founder of two seismic companies: Seis Scan and Alliance Research Company where he was directly responsible for the acquisition of 20,000 miles of 2D seismic data in the Gulf Coast, as well as Chief Financial Officer and Vice President of Continental/Seiscan Seismic Services, Inc. Mr. Wiseman studied marketing at Texas Tech University.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~28

~~The~~ ~~Company~~Robert ~~calculated the value of the beneficial conversion feature as $305~~Teague,~~576, and~~ ~~recorded~~Director ~~such value as a discount to the May 2008 Convertible Note~~ and ~~to additional~~Vice ~~paid-in capital. Using the Black Scholes pricing model~~President, ~~with~~ volatility of 140.69%, a risk-free interest rate of 3.88% and a 0% dividend yield, the Series A May Warrant and Series B May Warrant were determined to have a fair value of $236,114, with such value also recorded as a discount to the May 2008 Convertible Note and to additional paid-in capital. The value of the 375,000 common shares was determined to be $99,462, based on the market price of the Company’s Common Stock at the time of issuance, and was also recorded as a discount to the May 2008 Convertible Note and as Common Stock and additional paid-in capital. The aggregate discount of $641,152 attributable to the shares, the warrants and the beneficial conversion feature is being amortized using the effective interest rate method over the term of the indebtedness and as of December 31, 2008, had an unamortized balance of $240,434. The Company also incurred issue costs of $90,000 associated with the May 2008 Convertible Note which it has recorded as deferred financing costs as a component of prepaid and other current expenses. The Company also issued 75,000 Series A May Warrants and 75,000 Series B May Warrants, valued at $42,730, to its investment banking firm as additional compensation. The deferred financing costs are being amortized using the effective interest rate method over the term of the indebtedness. At December 31, 2008, the Company had unamortized deferred financing costs of $51,338.Operations

~~The~~ Mr. Teague joined the Company ~~paid~~as ~~$23~~a Director and as Vice President,~~808~~ Operations in ~~interest~~August on2007. ~~the~~Mr. ~~May~~Teague ~~2008~~has ~~Convertible~~over 30 ~~Note~~years ~~during~~experience in the evaluation, leasing, acquisition and marketing of ~~year~~ oil ~~ended~~and ~~December 31~~gas properties. Since January 2001, ~~2008~~ Mr. Teague has been founder, vice president and partner of United Production and Exploration, Ltd. Also, since August 2004, Mr. Teague has been founder, vice president and partner of Global Production, Inc. Mr. Teague's previous experience including founder and owner of Teague Interest, Inc., an oil and gas brokering firm, an officer for American Crude, Inc., general manager and partner of BLD and Associates and a landman for Pennzoil Producing, Inc. Mr. Teague studied business administration and accounting at Texas Christian University and attended the University of Texas for Petroleum Land Management.

~~As of~~ ~~April~~Audit 15, 2009, the Company had not made quarterly interest payment due on March 31, 2009, with respect to the May 2008 Convertible Note. Pursuant to the terms of the May 2008 Convertible Note, the interest rate on the past due quarterly interest payment increased to 15% per annum, effective March 31, 2009. The Company has 90 days to make the scheduled quarterly interest payment before an Event of Default should occur. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lender, there can be no assurances that the Company will make the scheduled quarterly interest payment within 90 days of March 31, 2009, and if not, that the lender will delay the enforcement of its remedies under the May 2008 Convertible Note.Committee

~~August~~ We ~~2008~~do ~~Unsecured~~not ~~Promissory~~have an Audit Committee, as our Board of Directors during 2009 performed the same functions as an Audit Committee, such as: recommending a firm of independent certified public accountants to audit the annual ~~Note~~financial statements; reviewing the independent auditors independence, the financial statements and their audit report; and reviewing management's administration of the system of internal accounting controls. We do not currently have a written audit committee charter or similar document.

~~In August~~ ~~2008,~~Nominating the Company entered into four 12% Unsecured Promissory Notes, and Securities Purchase Agreements, with accredited investors for an aggregate principal amount of $500,000 (the "August 2008 Notes") and the issuance of 250,000 shares of the Company’s Common Stock. The August 2008 Notes matured on September 28, 2008. In the event that the August 2008 Notes were not repaid by September 28, 2008, the Company became required to issue 125,000 shares of the Company’s Common Stock every thirty days that any amounts remain outstanding under the August 2008 Notes (the “Additional Shares”). An entity controlled by the Company’s Chief Financial Officer purchased $50,000 of the August 2008 Notes.Committee

In ~~October~~ ~~2008,~~We ~~and~~do ~~prior~~not tohave ~~the~~a ~~issuance~~Nominating ofCommittee ~~the either the 250,000 shares of the Company’s Common Stock~~ or ~~the~~Nominating ~~Additional~~Committee ~~Shares, the Company and the holders of the August 2008 Notes elected to amend the terms of the August 2008 Notes~~Charter. In ~~connection~~Our ~~therewith,~~Board ~~in exchange for the holders~~ of ~~the August~~Directors ~~2008~~performed ~~Notes~~some ~~election to forego their right to receive the 250,000 shares~~ of the ~~Company’s~~functions ~~Common~~associated ~~Stock~~with ~~and~~a ~~the~~Nominating ~~Additional~~Committee. ~~Shares,~~We ~~the~~have ~~Company~~elected ~~agreed~~not to ~~issue~~ ~~the~~have holders of the August 2008 Notes common stock purchase warrants to purchase an aggregate of 500,000 common shares of the Company’s Common Stock (the “August 2008 Warrants”). The August 2008 Warrants are exercisable for a ~~period~~Nominating ofCommittee ~~three years~~ at athis ~~price~~time; ~~of $1.00 per share. As the August 2008 Notes were not repaid by September 28~~however, ~~2008,the~~ ~~Company is required to issue the holders of the August 2008 Notes an~~our ~~aggregate~~Board of ~~125,000~~Directors ~~warrants~~intends to ~~purchase~~continually ~~shares~~evaluate of the ~~Company’s~~need ~~Common Stock every thirty days that any amounts remain outstanding under the August 2008 Notes (the “Additional Warrants”). The Additional Warrants shall be exercisable~~ for a ~~period~~Nominating ~~of three years at a price equal to the greater of $1~~Committee.~~00 or~~ ~~the market price as of the date of the issuance. As of December 31, 2008, a total of 500,000 Additional Warrants have been issued.~~

~~F-15~~ Compensation Committee

~~BONANZA~~ ~~OIL~~We &currently ~~GAS~~do not have a Compensation Committee of the Board of Directors. Until a formal committee is established, ~~INC~~if at all, our entire Board of Directors will review all forms of compensation provided to our executive officers, directors, consultants and employees including stock compensation and loans.

~~NOTES~~ Section TO16(a) ~~CONSOLIDATED~~Beneficial ~~FINANCIAL STATEMENTS~~Ownership Reporting Compliance

~~Using~~ Section 16(a) of the ~~Black~~ ~~Scholes~~Securities ~~pricing~~Exchange ~~model~~Act of 1934, ~~with~~as ~~volatility~~amended ~~ranging~~(the ~~from~~“Exchange ~~146.59%~~Act”), requires our executive officers and directors, and persons who beneficially own more than ten percent of the Company’s common stock, to file ~~181~~initial reports of ownership and reports of changes in ownership with the SEC.~~19%~~ Executive officers, a ~~risk-free~~directors ~~interest~~and ~~rate~~greater ~~ranging~~than ~~from~~ten ~~1.25%~~percent beneficial owners are required by SEC regulations to ~~4.50%~~furnish ~~and~~us with copies of all Section 16(a) forms they 0%file. ~~dividend~~Based ~~yield~~upon a review of the copies of such forms furnished to us and written representations from our executive officers and directors, we believe that during the ~~August~~years ended 2008 ~~Warrants~~ and 2009, the ~~Additional~~officers ~~Warrants~~and ~~were~~directors filed all of their ~~determined~~respective toSection ~~have~~16(a) anreports ~~aggregate~~on ~~fair~~a ~~value~~timely basis except that Robert Teague, a Director and Vice President of ~~$569~~Operations,~~606~~ and William Wiseman, ~~with~~the ~~such~~Chairman ~~value~~of ~~recorded~~the Board of Directors, Chief Executive Officer and President, failed to file Form 4s. asMr. Teague failed to file a ~~discount~~Form 4 relating to the ~~August~~transfer of 1,398,000 common shares on September 23, 2008, ~~Notes~~the ~~and~~receipt of 4,523,000 common shares pursuant to ~~additional~~his ~~paid-in capital. This~~employment ~~discount~~contract ~~was~~on ~~amortized~~June ~~using~~3, 2009, the ~~effective~~transfer ~~interest~~of 2,800,000 common shares on June ~~rate~~3, ~~method~~2009, ~~over~~and the ~~term~~transfer of ~~the~~1,877,002 ~~indebtedness~~common ~~and~~shares ason July 24, 2009. Mr. Wiseman failed to file a Form 4 relating to the transfer of ~~December~~1,066,000 31shares on September 23, 2008, ~~was fully~~the ~~amortized. The~~receipt ~~Company~~of ~~had~~4,241,000 ~~accrued~~common ~~and~~shares ~~unpaid~~pursuant ~~interest~~to ~~totaling~~his employment contract ~~$20~~on June 3,~~383~~ ~~associated~~2009, ~~with~~the transfer of 2,850,000 common shares on June 3, 2009, and the ~~August~~transfer ~~2008~~of ~~Notes~~1,200,000 atcommon ~~December~~shares 31on July 24, ~~2008~~2009. Each of the parties are currently working to update all filings.

~~As of April 15, 2009, the Company had~~ not repaid any of the amounts due under the August 2008 Notes. As noted above, pursuant to the terms of the August 2008 Notes, the Company is required to issue to the holders of the August 2008 Notes, a total of 125,000 warrants to purchase shares of the Company’s Common Stock every 30 days that amounts remain outstanding under the August 2008 Notes.29

~~October~~ ~~2008~~Code ~~Unsecured~~of ~~Promissory Note~~Conduct

On ~~October~~ ~~17,~~We ~~2008,~~have ~~the~~adopted ~~Company entered into~~ a ~~12%~~written ~~Unsecured~~code ~~Promissory Note, and Securities Purchase Agreement, with an accredited investor for an aggregate principal amount~~ of ~~$50,000~~conduct ~~(the~~that ~~"October~~governs ~~2008~~all ~~Note") and the issuance~~ of ~~common stock~~our ~~purchase~~officers, ~~warrants to purchase an aggregate of 50~~directors,~~000~~ ~~common~~employees ~~shares~~and ~~of the Company’s Common Stock (the “October 2008 Warrants”)~~contractors. The ~~October 2008~~code ~~Warrants are exercisable for a period~~ of ~~three~~conduct ~~years~~relates atto awritten ~~price~~standards ~~of $1.00 per share. The October 2008 Notes matured on November 17, 2008. In the event~~ that ~~the~~are ~~October~~reasonably ~~2008~~designed ~~Notes were not repaid by November 17, 2008, the Company became required~~ to ~~issue~~deter ~~12,500~~wrongdoing ~~warrants~~and to ~~purchase~~ ~~shares~~promote: of the Company’s Common Stock every thirty days that any amounts remain outstanding under the October 2008 Notes (the “Additional October Warrants”). The Additional October Warrants shall be exercisable for a period of three years at a price equal to the greater of $1.00 or the market price as of the date of the issuance. As of December 31, 2008, a total of 25,000 Additional Warrants have been issued.

Using the Black Scholes pricing model, with volatility ranging from 150.67% to 176.24%, a risk-free interest rate ranging of 1.25% and a 0% dividend yield, the October 2008 Warrants and the Additional October Warrants were determined to have an aggregate fair value of $29,180, with such value recorded as a discount to the October 2008 Note and to additional paid-in capital. This discount was amortized using the effective interest rate method over the term of the indebtedness and as of December 31, 2008, was fully amortized. . The Company had accrued and unpaid interest totaling $1,233 associated with the October 2008 Notes at December 31, 2008.

	(1)	Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

	(2)	Full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the Securities and Exchange Commission and in other public communications made by the Company;

	(3)	Compliance with applicable governmental laws, rules and regulations;

	(4)	The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and

	(5)	Accountability for adherence to the code.

~~As of April 15, 2009, the Company had~~ not repaid any of the amounts due under the October 2008 Notes. As noted above, pursuant to the terms of the October 2008 Notes, the Company is required to issue to the holders of the October 2008 Notes, a total of 12,500 warrants to purchase shares of the Company’s Common Stock every 30 ~~days that amounts remain outstanding under the October 2008 Notes.~~

~~F-16~~ITEM 11.

~~BONANZA OIL & GAS, INC.~~EXECUTIVE COMPENSATION

~~NOTES~~The TOfollowing ~~CONSOLIDATED~~table ~~FINANCIAL~~sets forth all compensation paid in respect ~~STATEMENTS~~of our Chief Executive Officer and our most highly compensated three executive officers, the only employees of the Company, for the last two fiscal years:

5. CAPITAL STOCK

Summary Compensation Table
Name and Principal Position	Year		Salary ($)			Bonus ($)		Stock Awards ($)		Stock Options ($)		Non-Equity Incentive Plan Compensation ($)		Non-Qualified Deferred Compensation Earnings ($)		All Other Compensation ($) ⁽⁴⁾		Total ($)

William Wiseman, Chairman of the Board,	2009	$	180,000		$	-	$	127,230	$	-	$	-	$	-	$	-	$	307,230
Chief Executive Officer and President	2008	$	140,000	⁽¹⁾	$	-	$	-	$	-	$	-	$	-	$	5,516	$	145,516

Robert Teague, Director and Vice President,	2009	$	180,000		$	-	$	135,690	$	-	$	-	$	-	$	-	$	315,690
Operations	2008	$	140,000	⁽¹⁾	$	-	$	-	$	-	$	-	$	-	$	1,461	$	141,461

G. Wade Stubblefield, Former Chief Financial	2009	$	39,097		$	-	$	65,000	$	-	$	-	$	-	$	-	$	104,097
Officer ⁽²⁾	2008	$	27,000		$	-	$	-	$	-	$	-	$	-	$	-	$	27,000

Ran Furman, Former Director and Chief Financial Officer ⁽³⁾	2008	$	54,000		$	-	$	-	$	-	$	-	$	-	$	-	$	54,000

Common Stock


⁽¹⁾	Mr. Wiseman and Mr. Teague's salaries were each $120,000 per year effective October 1, 2007. Effective September 1, 2008, each of their annual salaries were increased to $180,000 per year.
⁽²⁾	Mr. Stubblefield's employment with the Company began August 18, 2008. Mr. Stubblefield resigned his position on July 17, 2009.
⁽³⁾	Mr. Furman resigned as a Director and Chief Financial Officer effective August 18, 2008. Mr. Furman assisted with the transition to Mr. Stubblefield until September 30, 2008.
⁽⁴⁾	All Other Compensation consists of, for the periods presented, the value of health benefits provided by the Company to Mr. Wiseman and Mr. Teague.

~~The~~Equity ~~Company~~Compensation ~~has~~Plan authorized 60,000,000 shares of Common Stock, with a par value of $.001 per share. As of December 31, 2008, the Company had 36,100,317 shares of Common Stock issued and outstanding. Prior to entering into the PWI Agreement, NFA had 10,231,419 shares of common stock outstanding (pre-forward stock split).Information

InDuring ~~September 2007~~2009, ~~PWI~~the Company issued ~~LLC~~4,241,000 shares of Common ~~membership~~Stock ~~interests~~to ~~for~~Mr. ~~gross~~Wiseman, ~~proceeds~~4,523,000 shares of ~~$950~~Common Stock to Mr. Teague and 1,000,000 shares of Common Stock to Mr. ~~PWI~~ ~~incurred~~Stubblefield pursuant to their ~~transaction~~employment ~~costs~~contracts. ofThe ~~$76~~Company did not issue any equity compensation during the two years ended December 31,~~000~~ 2008 and 2007, ~~resulting~~and indid ~~net~~not ~~proceeds~~have ofany equity ~~$874,000~~awards outstanding at the end of either period.

InDirector connection with the PWI Agreement, NFA acquired 100% interest in PWI and other assets and issued a total 10,766,676 shares of NFA common stock. Immediately following the acquisition of PWI, two former affiliated shareholders of NFA, cancelled 6,180,000 (pre-forward split) unregistered shares of NFA common stock held by them. The acquisition of PWI was accounted for as a reverse merger and, therefore, the historical financial statements presented herein are those of PWI. Effective January 10, 2008, the Company implemented a forward split of the issued and outstanding common shares of the Company, whereby every share of the Company’s Common Stock held was exchanged for 2.1 shares of the Company’s Common Stock. Unless otherwise indicated, all share amounts reflected throughout this annual report reflect the 2.1 for 1 forward stock split.Compensation

~~Concurrent~~Directors ~~with~~currently ~~entering~~serve ~~into~~without ~~the~~cash ~~PWI Agreement,~~compensation ~~the~~and ~~Company purchased a 25% interest in approximately 6,700 acres in~~without ~~the~~other ~~Apclark~~fixed ~~Field~~remuneration inalthough ~~southwestern~~we ~~Borden~~may ~~County,~~consider ~~Texas~~providing ~~for~~cash aand ~~total~~or ~~of 6,300,000~~stock ~~shares~~options ofto ~~the~~our ~~Company's~~Directors ~~Common~~in ~~Stock and recorded such acquisition based on~~ the ~~fair~~ ~~value of the Company’s common shares at that time, $1,890,000~~future.

InEmployment connection with the issuance of the December 2007 Note, the Company issued 74,999 shares of Common Stock, with such shares valued at $22,500, based on the price of the Company’s Common Stock issued in its then most recent private placement offering, and ~~was~~Other ~~recorded as a discount to the December 2007 Note.~~Agreements

InOn ~~connection~~February ~~with~~6, 2009, the ~~issuance~~Company ofand ~~the January~~G. ~~2008~~Wade ~~Note~~Stubblefield, the Company’s ~~issued~~Chief ~~160,000~~Financial ~~shares~~Officer ofand ~~Common~~Senior ~~Stock~~Vice President, ~~with~~entered ~~such~~into an ~~shares~~Executive ~~valued~~Employment atAgreement ~~$120,000,~~for ~~based~~a onterm ~~the~~of ~~fair~~five ~~market~~years. ~~value~~Pursuant ofto the ~~Company’s~~ ~~Common~~agreement, ~~Stock on~~ the ~~date~~parties ofagreed ~~issue,~~that ~~and~~Mr. ~~was~~Stubblefield ~~recorded~~would asreceive: ~~a discount to the January 2008 Note.~~

InAn ~~connection~~annual ~~with~~salary ~~the issuance~~ of ~~the May 2008 Convertible Note~~$72, ~~the Company issued 375,~~000 ~~shares of Common Stock,~~; ~~with such shares valued at $99,462, based on the fair market value of the Company’s Common Stock on the date of issue, and was recorded as a discount to the May 2008 Convertible Note.~~
OnA ~~July~~signing ~~18,~~bonus ~~2008,~~consisting ~~the Company, Borland Good North Inc., a wholly-owned subsidiary~~ of ~~the Company (“Borland”)~~1, ~~Black Pearl Energy~~000,000 ~~Inc. (“Black Pearl”), and the shareholders holding a majority of the issued and outstanding~~ shares of ~~Black~~common ~~Pearl,~~stock; ~~(collectively the “Black Pearl Majority Shareholders), entered into an Agreement~~ and ~~Plan of Merger (the~~ “Merger Agreement”), which closed on July 18, 2008. Pursuant to the terms of the Merger Agreement, Black Pearl merged with and into Borland, which became a wholly-owned subsidiary of the Company (the “Merger”). In consideration for the Merger, the Company issued an aggregate of 7,024,665 (the “Black Pearl Acquisition Shares”) shares of the Company’s Common Stock to the Black Pearl Majority Shareholders and the other shareholders of Black Pearl at the closing of the merger. Prior to the Merger Agreement, Black Pearl owned 2,709,000 shares of the Company, which were cancelled in conjunction with the Merger.
~~F-17~~A bonus as established by the Company’s Compensation Committee, or Board of Directors in lieu thereof.

~~BONANZA~~If ~~OIL~~Mr. &Stubblefield ~~GAS~~was terminated for something other than cause or his disability, ~~INC~~then Mr. Stubblefield was entitled to receive severance representing 24 months of his then base salary. If Mr. Stubblefield was terminated for cause or was disabled for a period of six consecutive months or six months aggregate during any 12 month period, the Company was not required to make any further payments to Mr. Stubblefield. On July 17, 2009, Mr. Stubblefield voluntarily terminated his employment with the Company.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~31

~~Commencing~~ ~~June~~ ~~30,~~On ~~2008,~~June ~~through August 8~~1, ~~2008~~2009, the Company, ~~entered into~~ and ~~closed~~William a Securities Purchase Agreement (the "June 2008 Purchase Agreement") with several accredited investors (the “June 2008 Investors”) providing for the sale by the Company to the June 2008 Investors of 4Wiseman,~~124,998~~ ~~units with each unit consisting of one share of~~ the Company’s ~~Common~~President ~~Stock,~~and aChief ~~warrant~~Executive toOfficer, ~~purchase~~entered ~~one-half~~into ~~of one share of the Company’s Common Stock at~~ an ~~exercise~~Executive ~~price~~Employment ofAgreement ~~$1.00~~for ~~per common share (the “Series A June Warrant”) and~~ a ~~warrant~~term ~~to purchase one-half~~ of one ~~share~~ ~~of the Company’s Common Stock at an exercise price of $2~~year.00 ~~per~~Pursuant ~~common share (the “Series B June Warrant”). The per unit purchase price for the units was $0.60 resulting in gross proceeds of $2,474,999~~ to the ~~Company and the issuance of 4~~agreement,~~124,998~~ ~~shares of Common Stock, Series A June Warrants to purchase 2,062,499 shares of~~ the ~~Company’s~~parties ~~Common~~agreed ~~Stock~~that ~~and Series B June Warrants to purchase 2,062,499 shares of the Company’s Common Stock~~Mr. ~~The~~ ~~Company~~Wiseman ~~incurred transaction costs totaling $286,506 in~~shall ~~the~~receive: issuance of the units, thereby realizing $2,188,493 in net proceeds. The Company also issued 206,249 Series A June Warrants and 206,249 Series B June Warrants to its investment banking firm as additional compensation.

~~The Series~~An Aannual ~~June~~salary ~~Warrants are exercisable for a period~~ of ~~two years at an exercise price of~~ $1.00 per share. The Series B June Warrants are exercisable for a period of two years and had an original exercise price of $2.00 per share. In the event that the Company issues securities at a per share price less than the exercise price180, then the exercise price associated with the Series A June Warrants and Series B June Warrants shall be adjusted to equal such price. Further, if the Company issues securities at a price less than $0.60, then the June 2008 Investors will be entitled to receive additional shares of Common Stock to reflect the issuance of the additional shares. As a result of the Company entering into the August 2008 Notes and agreeing to issue the August 2008 Warrants with an exercise price of $1.00 per share, the exercise price of the Series B June Warrants was reduced to $1.00 per share as well.000;
~~During~~ An incentive salary equal to 2.5% of the adjusted net profits of the Company beginning with the Company's yearend 2008 and each fiscal year thereafter during the term of this Agreement. "Adjusted net profit" shall be the net profit of the Company before federal and state income taxes, determined in accordance with generally accepted accounting practices by the Company's ~~issued~~independent anaccounting ~~aggregate~~firm ofand 1adjusted to exclude: (i) any incentive salary payments paid pursuant to this Agreement; (ii) any contributions to pension and/or profit sharing plans; (iii) any extraordinary gains or losses (including,~~475~~ but not limited to,~~000~~ ~~common~~gains ~~shares~~or losses on disposition of assets); (iv) any refund or deficiency of federal and state income taxes paid in a prior year; and (v) any provision for ~~consulting~~federal or state income taxes made in prior years which is subsequently determined to be unnecessary. The determination of the adjusted net profits made by the independent accounting firm employed by the Company shall be final and ~~legal~~binding ~~services~~upon Mr. Wiseman and Company. The incentive salary payment shall be made within thirty (30) days after the Company's ~~recognized~~independent ~~expenses~~accounting ~~totaling~~firm ~~$568,500~~has concluded its audit. If the final audit is not prepared within ninety (90) days after the end of the fiscal year, then Company shall make a preliminary payment equal to fifty percent (50%) of the amount due based onupon the ~~fair~~adjusted ~~value~~net profits preliminarily determined by the independent accounting firm, subject to payment of the balance, if any, promptly following completion of the audit by the Company’'s ~~Common~~independent ~~Stock~~accounting atfirm. ~~date~~The maximum incentive salary payable for any one year shall not exceed $250,000.00 of the then applicable base salary of ~~issuance~~Mr. Wiseman; and
AsIn so far as approved by the Board of ~~December~~ 31Directors, ~~2008,~~to the ~~Company~~extent ~~had~~Mr. Wiseman receives restricted stock in the ~~following~~Company, ~~dilutive~~based ~~securities outstanding~~on certain milestones and other transactions contained herein:

	Number		Exercise		Expiration
Common Shares issuable:	of Shares		Price		Date
In connection with the May 2008 Convertible Note:
Upon conversion of May 2008 Convertible Note		2,004,276		-	-
Upon exercise of the Series A May Warrants		825,000	$	0.75	May 14, 2010
Upon exercise of the Series B May Warrants		825,000	$	1.00	May 14, 2010
In connection with the June 2008 Unit Offering:
Upon exercise of the Series A June Warrants		2,268,749	$	1.00	June 30, 2010
Upon exercise of the Series B June Warrants		2,268,749	$	1.00	June 30, 2010
In connection with the August 2008 Notes:
Upon exercise of the August 2008 Warrants		500,000	$	1.00	August 28, 2011
Upon exercise of the Penalty Warrants (9/08)		125,000	$	1.00	September 30, 2011
Upon exercise of the Penalty Warrants (10/08)		125,000	$	1.00	October 31, 2011
Upon exercise of the Penalty Warrants (11/08)		125,000	$	1.00	November 30, 2011
Upon exercise of the Penalty Warrants (12/08)		125,000	$	1.00	December 31, 2011
In connection with the October 2008 Notes:
Upon exercise of the October 2008 Warrants		50,000	$	1.00	October 17, 2011
Upon exercise of the Penalty Warrants (11/08)		12,500	$	1.00	November 17, 2011
Upon exercise of the Penalty Warrants (12/08)		12,500	$	1.00	December 17, 2011
Total dilutive securities at December 31, 2008		9,266,774

	1.	The completion of any merger, purchase or sale with assets in excess of $1 million gross dollars, Mr. Wiseman shall receive 2 million shares of restricted stock or an equivalent number of shares so that Mr. Wiseman maintains a 12.5% equity in the Company.

	2.	Transactions whereas the Mr. Wiseman transfers existing shares to others for benefit of the Company, then the Company will issue like shares, commensurate of shares transferred by Mr. Wiseman at a reasonable date thereafter the transaction.

	3.	The stock will accelerate vesting in order to become fully vested upon Mr. Wiseman’s termination of his employment for a Change of Control, upon termination of his employment for Good Reason or upon termination of his employment by the Company without Cause (as defined therein).

~~F-18~~ If Mr. Wiseman is terminated for something other than cause or his disability, then Mr. Wiseman is entitled to receive severance representing the greater of one year or the remaining term of his agreement of his then base salary. If Mr. Wiseman is terminated for cause or is disabled for a period of ninety consecutive days or six months aggregate during any 12 month period, the Company is not required to make any further payments to Mr. Wiseman.

~~BONANZA~~ ~~OIL~~On &June ~~GAS~~1, ~~INC~~ 2009, the Company and Robert Teague, the Company’s Executive Vice President and Chief Operating Officer, entered into an Executive Employment Agreement for a term of one year. Pursuant to the agreement, the parties agreed that Mr. Teague shall receive:

~~NOTES~~ An TOannual ~~CONSOLIDATED~~salary ~~FINANCIAL STATEMENTS~~of $180,000;
~~Preferred~~ ~~Stock~~An incentive salary equal to 2.5% of the adjusted net profits of the Company beginning with the Company's yearend 2008 and each fiscal year thereafter during the term of this Agreement. "Adjusted net profit" shall be the net profit of the Company before federal and state income taxes, determined in accordance with generally accepted accounting practices by the Company's independent accounting firm and adjusted to exclude: (i) any incentive salary payments paid pursuant to this Agreement; (ii) any contributions to pension and/or profit sharing plans; (iii) any extraordinary gains or losses (including, but not limited to, gains or losses on disposition of assets); (iv) any refund or deficiency of federal and state income taxes paid in a prior year; and (v) any provision for federal or state income taxes made in prior years which is subsequently determined to be unnecessary. The determination of the adjusted net profits made by the independent accounting firm employed by the Company shall be final and binding upon Mr. Teague and Company. The incentive salary payment shall be made within thirty (30) days after the Company's independent accounting firm has concluded its audit. If the final audit is not prepared within ninety (90) days after the end of the fiscal year, then Company shall make a preliminary payment equal to fifty percent (50%) of the amount due based upon the adjusted net profits preliminarily determined by the independent accounting firm, subject to payment of the balance, if any, promptly following completion of the audit by the Company's independent accounting firm. The maximum incentive salary payable for any one year shall not exceed $250,000.00 of the then applicable base salary of Mr. Teague; and

~~The Company has authorized 5,000,000~~ shares of Preferred Stock-Series A, with a par value of $0.001 per share, 5,000,000 shares of Preferred Stock-Series B, with a par value of $0.001 per share and 5,000,000 shares of Preferred Stock-Series C, with a par value of $0.001 per share. As of December 31, 2008 and 2007 the Company has no Preferred Stock issued and outstanding.32

~~6. INCOME~~ ~~TAXES~~In so far as approved by the Board of Directors, to the extent Mr. Teague receives restricted stock in the Company, based on certain milestones and other transactions contained herein:

1. The ~~Company’s~~completion ~~net~~of ~~loss~~any ~~before~~merger, ~~income taxes~~purchase ~~totaled~~or sale with assets in excess of $61 million gross dollars,~~865,407~~ ~~for~~Mr. Teague shall receive 2 million shares of restricted stock or an equivalent number of shares so that Mr. Teague maintains a 12.5% equity in the ~~year~~Company. ~~ended~~2. ~~December~~Transactions ~~31,~~whereas ~~2008,~~the ~~and~~Mr. ~~$197,245~~Wiseman transfers existing shares to others for benefit of the ~~period~~Company, ~~from~~then ~~Inception~~the ~~(August~~Company 17will issue like shares, ~~2007)~~commensurate ~~through~~of ~~December~~shares 31transferred by Mr. Wiseman at a reasonable date thereafter the transaction. 3. The stock will accelerate vesting in order to become fully vested upon Mr. Teague’s termination of his employment for a Change of Control, ~~2007~~ upon termination of his employment for Good Reason or upon termination of his employment by the Company without Cause (as defined therein).

~~The~~ ~~total~~If ~~provision~~Mr. Teague is terminated for ~~income~~something ~~taxes~~other than cause or his disability, ~~which~~ ~~consist~~then ~~solely~~Mr. Teague is entitled to receive severance representing the greater of Uone year or the remaining term of his agreement of his then base salary.S If Mr. ~~Federal~~Teague ~~taxes,~~is terminated ~~consist~~for cause or is disabled for a period of ninety consecutive days or six months aggregate during any 12 month period, the ~~following:~~ Company is not required to make any further payments to Mr. Teague.

			For the Period
			from Inception
	For the YearEnded		(August 17, 2007) to
	December 31, 2008		December 31, 2007
Current taxes	$	-	$	-
Deferred taxes		-		-
Total	$	-	$	-

ITEM 12.

A ~~reconciliation~~SECURITY ofOWNERSHIP ~~the~~OF ~~tax~~CERTAIN onBENEFICIAL ~~the~~OWNERS ~~Company’s~~AND ~~Operating~~MANAGEMENT ~~Loss and total tax expense is shown below:~~

				For the Period
				from Inception
	For the YearEnded			(August 17, 2007) to
	December 31, 2008			December 31, 2007
Income tax benefit at U.S. statutory rate	$	(2,402,892	)	$	(69,036	)
Implied interest expense associated with
outstanding debt instruments		148,975			-
50% limitation of meals and entertainment		5,322			435
Increase in valuation allowance		2,248,595			68,601
	$	-		$	-

The following table sets forth certain information regarding beneficial ownership of our common stock as of April 13, 2010:

~~F-19~~by each person who is known by us to beneficially own more than 5% of our common stock;
~~BONANZA~~by ~~OIL~~each &of ~~GAS, INC.~~our officers and directors; and
~~NOTES~~by TOall ~~CONSOLIDATED~~of ~~FINANCIAL STATEMENTS~~our officers and directors as a group

~~The~~ ~~components of net deferred tax assets and liabilities recognized are as follows:~~33

	December 31, 2008			December 31, 2007
			Shares Beneficially
Deferred noncurrent tax asset:
	Title		Owned (1)
Net operating loss carryforwards	$	1,698,528		$	68,601
Name and Address of Beneficial Owner	of Class		Number	%
Gross deferred noncurrent tax asset		1,698,528			68,601
Robert Teague	Common Stock		105,243,000 (2)	15.5%
Book-tax differences in property basis		-			-
3417 Mercer, Suite E
Valuation allowance		(2,317,196	)		(68,601	)
Houston, TX 77027
Deferred noncurrent tax asset	$	(618,668	)	$	-
William Wiseman	Common Stock		5,440,002	0.9%
Deferred noncurrent tax liability:
3417 Mercer, Suite E
Book-tax differences in property basis	$	618,668		$	-
Houston, TX 77027
Deferred noncurrent tax liability	$	618,668		$	-
All directors and executive officers as a group (2 persons)			110,683,002	16.4%
Net noncurrent tax asset	$	-		$	-

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. As of December 31, 2008 and 2007 the Company had net operating loss carryforwards of approximately $4.9 million and $196,000, respectively, which expire at various dates through 2028. The tax benefits of carryforwards are recorded as assets to the extent that management assesses the utilization of such carryforwards to be “more likely than not.” When the future utilization of some portion of the carryforwards is determined not to be “more likely than not,” a valuation allowance is provided to reduce the recorded tax benefits from such assets. At this time, based on current facts and circumstances, potential benefit of the deferred tax assets has not been recognized in the consolidated financial statements because the Company cannot be assured it is more likely than not it will utilize the deferred tax assets in future years. The Company had no uncertain tax positions as of December 31, 2008.

(1)	Gives effect to the shares of Common Stock issuable upon the exercise of all options, warrants and convertible securities exercisable within 60 days of April 13, 2010, and other rights beneficially owned by the indicated stockholders on that date. Shares of Common Stock issuable pursuant to warrants or options or upon conversion of convertible securities, to the extent such warrants, options or convertible securities are currently exercisable or convertible within 60 days of April 13, 2010, are treated as outstanding for computing the ownership percentage of the person holding such securities, but are not treated as outstanding for computing the ownership percentage of any other person. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power with respect to the shares. Unless otherwise indicated, the persons in the table have sole voting and sole investment control with respect to all shares beneficially owned. Percentage ownership is calculated based on 580,252,033 shares of Common Stock outstanding as of April 13, 2009. All information is based upon information furnished by the persons listed or otherwise available to the Company.

(2)	Includes 100,000,000 shares of Common Stock issuable upon conversion of 5,000,000 shares of Series A-1 Preferred Stock

~~7. COMMITMENTS AND~~ITEM ~~CONTINGENCIES~~13.

~~The~~CERTAIN ~~Company~~RELATIONSHIPS ~~leases~~AND ~~corporate office~~RELATED ~~space in Houston~~ TRANSACTIONS, ~~Texas. During~~AND ~~2008~~DIRECTOR ~~and 2007, the Company sublet its~~INDEPENDENCE office space from a company majority owned by Mr. Teague and Mr. Wiseman, executive officers and directors of the Company. The sublease was on a month-to-month basis and total payments during the years ended December 31, 2008 and 2007 were $40,261 and $11,734, respectively.

InDuring ~~November~~ 2008 and 2007, the Company ~~entered into~~sublet its office space from a ~~38-~~company ~~month~~majority ~~lease~~owned ~~agreement~~by ~~for~~Mr. ~~its~~Wiseman ~~corporate~~and ~~office~~Mr. As ~~of December 31~~Teague, ~~2008,~~executive ~~future~~officers ~~minimum~~and directors ~~lease~~of the Company. The sublease was on a month-to-month basis and total payments ~~for~~during ~~this~~the ~~lease~~years ended December 31, ~~the Company’s~~2008 ~~only~~and ~~non-cancelable~~2007 ~~operating~~were ~~lease~~$40,261 ~~was~~and $11,734, asrespectively. ~~follows:~~

2009	$	67,180
2010		103,790
2011		108,321
2012		36,610
Total	$	315,901

In August 2008, the Company entered into four 12% Unsecured Promissory Notes, and Securities Purchase Agreements, with accredited investors for an aggregate principal amount of $500,000 (the "August 2008 Notes") and the issuance of 500,000 shares of the Company’s Common Stock. An entity controlled by the Company’s former Chief Financial Officer purchased $50,000 of the August 2008 Notes. The August 2008 Notes matured on September 28, 2008. In the event that the August 2008 Notes were not repaid by September 28, 2008, the Company became required to issue 500,000 shares of the Company’s Common Stock every thirty days that any amounts remain outstanding under the August 2008 Notes (the “Additional Shares”).

~~F-20~~In October 2008, and prior to the issuance of the either the 500,000 shares of the Company’s Common Stock or the Additional Shares, the Company and the holders of the August 2008 Notes elected to amend the terms of the August 2008 Notes. In connection therewith, in exchange for the holders of the August 2008 Notes election to forego their right to receive the 500,000 shares of the Company’s Common Stock and the Additional Shares, the Company agreed to issue the holders of the August 2008 Notes common stock purchase warrants to purchase an aggregate of 1,000,000 common shares of the Company’s Common Stock (the “August 2008 Warrants”). The

~~BONANZA OIL & GAS, INC.~~34

~~NOTES~~ August TO2008 ~~CONSOLIDATED~~Warrants ~~FINANCIAL~~are exercisable for a period of three years at a price of $0.50 per share. As the August 2008 Notes were not repaid by September 28, 2008, the Company is required to issue the holders of the August 2008 Notes an aggregate of ~~STATEMENTS~~250,000 warrants to purchase shares of the Company’s Common Stock every thirty days that any amounts remain outstanding under the August 2008 Notes (the “Additional Warrants”). The Additional Warrants shall be exercisable for a period of three years at a price equal to the greater of $0.50 or the market price as of the date of the issuance.

8 As of April 13, 2010, the Company had not repaid any of the amounts due under the August 2008 Notes. ~~SUBSEQUENT~~ As noted above, pursuant to the terms of the August 2008 Notes, the Company is required to issue to the holders of the August 2008 Notes, a total ~~EVENTS~~of 250,000 warrants to purchase shares of the Company’s Common Stock every 30 days that amounts remain outstanding under the August 2008 Notes. As a participant in the above transaction, the entity controlled by the Company’s former Chief Financial Officer has acquired warrants to acquire 575,000 shares of the Company’s Common Stock.

OnITEM ~~February 2, 2009, the Company issued an unsecured promissory note with an accredited investor providing for a loan of $285,000. The promissory note is due on May 3, 2009, and bears interest at~~ 14~~% per annum~~. The Company incurred $23,850 of issue costs associated with the note. The net proceeds were used to reduce the principal amount due on the December 2007 Note ($125,000) and general corporate purposes.

~~9. SUPPLEMENTAL~~ ~~INFORMATION~~PRINCIPAL ~~ABOUT~~ACCOUNTANT ~~OIL~~FEES AND ~~GAS~~SERVICES ~~PRODUCING ACTIVITIES (Unaudited)~~

~~Oil~~ On ~~and~~February ~~Gas~~8, 2008 (the “RBSM Engagement Date”), the Company engaged RBSM LLP (“RBSM”) as its independent registered public accounting firm for the Company’s fiscal year ended December 31, ~~Operations~~2007. The decision to engage RBSM as the Company’s independent registered public accounting firm was approved by the Company’s Board of Directors.

~~The~~ ~~following~~On ~~table~~October ~~sets~~27, ~~forth~~2008 ~~revenue~~(the ~~and~~“RBSM ~~direct~~Dismissal ~~cost~~Date”), ~~information~~we ~~relating~~advised toRBSM that it was dismissed as the Company’s ~~oil~~independent ~~and~~registered ~~gas~~public ~~exploration~~accounting ~~and production activities:~~firm.

	2008			2007
Crude oil and natural gas production revenues	$	229,579		$	26,664
Operating cost:
Depreciation, depletion and amortization
Recurring (1)		397,671			5,627
Additional (2)		3,920,764			-
Lease operating expenses		71,760			7,938
Production taxes		10,584			1,229
Results of operations	$	(4,171,200	)	$	11,870
Barrels of oil produced		3,197			320
Recurring DD&A per barrel of oil	$	124.39		$	17.58

On October 27, 2008 (the “Weaver and Tidwell Engagement Date”), the Company engaged Weaver and Tidwell L.L.P.(“Weaver and Tidwell”) as its independent registered public accounting firm for the Company’s fiscal year ended December 31, 2008. The decision to engage Weaver and Tidwell as the Company’s independent registered public accounting firm was approved by the Company’s Board of Directors.

(1)	This amount only reflects DD&A of capitalized costs of oil and gas proved properties and, therefore, does not agree with DD&A reflected on the Company's Statements of Consolidated Operations.
(2)	This amount reflects the charge associate with the required ceiling test limitation. See Note 2.

Audit Fees

~~Costs~~ ~~Incurred~~The inaggregate ~~Oil~~fees ~~and~~billed ~~Gas~~by ~~Property Acquisition~~RBSM, ~~Exploration~~for professional services rendered for the audit of our annual financial statements for the year ended December 31, 2007, and ~~Development~~for ~~Activities~~the reviews of the financial statements included in our Quarterly Reports on Form 10-QSB and 10-Q through the second quarter of 2008, totaled $66,127.

	2008		2007
Acquisitions
Proved	$	-	$	750,000
Unproved (1)		7,759,502		1,890,000
Exploration		-		-
Development		2,256,670		-
Costs incurred	$	10,016,172	$	2,640,000

The aggregate fees billed by Weaver and Tidwell, for professional services rendered for the audits of our annual financial statements for the years ended December 31, 2008 and 2007, and for the review of the financial statements included in our Quarterly Report on Form 10-Q for the third quarter of 2008, totaled $74,500.

~~(1)~~ ~~2008~~The ~~Unproved~~aggregate ~~property~~fees ~~acquisition~~billed isby ~~gross~~Weaver ofand ~~$115~~Tidwell,~~000~~ ~~received~~for byprofessional services rendered for the ~~Company~~audits of our annual financial statements for the ~~sale~~years ended December 31, 2009 and 2008, and for the review of the financial statements included in our Quarterly Report on Form 10%-Q for each of ~~it's~~the ~~interest~~three inquarters ~~Goodnorth~~ended ~~field~~March 31, 2009, June 30, 2009, and ~~includes~~September ~~$208~~30,~~690~~ of2009 ~~capitalized~~totaled ~~interest~~$100,500.

~~F-21~~ Audit Related Fees

~~BONANZA OIL & GAS,~~ ~~INC.~~None

~~NOTES TO CONSOLIDATED FINANCIAL~~ ~~STATEMENTS~~Tax Fees

~~Capitalized~~ ~~Costs~~None

~~The following table sets forth the~~ ~~capitalized costs and associated accumulated depreciation, depletion and amortization relating to the Company’s oil and gas production, exploration and development activities:~~35

	2008			2007
Proved properties	$	4,941,803		$	750,000
Unproved properties		7,599,369			1,890,000
		12,541,172			2,640,000
Accumulated DD&A		(4,324,062	)		(5,627	)
	$	8,217,110		$	2,634,373

The Company’s Board of Directors has considered whether the provision of non-audit services is compatible with maintaining the principal accountant’s independence.

~~Costs Not~~PART ~~Being~~IV ~~Amortized~~

AsITEM of December 31, 2008, the Company has $7,599,369 of property acquisition costs not being amortized, all of which was incurred during 2008 and consisted of $7,501,462 of property acquisition costs and $97,907 of capitalized interest15. ~~The majority of the evaluation activities with respect to these costs are expected to be completed within one to three years.~~

~~Oil and~~EXHIBITS ~~Gas~~AND ~~Reserve~~FINANCIAL STATEMENT ~~Information~~SCHEDULES

The estimate of reserves disclosed in this Annual Report on Form 10-K were based on estimates made by Forrest A. Garb & Associates, Inc. (“Garb”) and Joe C. Neal & Associates, (“Neal”) independent petroleum engineers. Garb and Neal were engaged by and provided their reports to our senior management team. We make representations to the independent engineers that we have provided all relevant operating data and documents, and in turn, we review the reserve reports provided by the independent engineers to ensure completeness and accuracy. Management cautions that there are many inherent uncertainties in estimating proved reserve quantities and related revenues and expenses, and in projecting future production rates and the timing and amount of development expenditures. Accordingly, these estimates will change, as future information becomes available. All of the Company’s oil and gas reserves are located in the United States.

(a) Documents included in this report:

1.	Financial Statements
	Report of independent registered public accounting firm	F-1
	Consolidated balance sheets as of December 31, 2009 and 2008	F-2
	Statements of consolidated operations for each of the two years in the period ended December 31, 2009	F-3
	Statements of consolidated stockholders’ equity (deficit) for each of the two years in the period ended December 31, 2009	F-4
	Statements of consolidated cash flows for each of the two years in the period ended December 31, 2009	F-5
	Notes to consolidated financial statements	F-6

F-22

2.	Financial Statement Schedules

	Financial statement schedules have been omitted because they are either not required, not applicable or the information required to be presented is included in the Company’s consolidated financial statements and related notes.

3.	Exhibits

BONANZA OIL & GAS, INC.

Exhibit No.	Description

2.2	Acquisition Agreement and Plan of Merger between National Filing Agents, Inc. and Plantation Working Interests, LLC dated October 23, 2007 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 24, 2007)

3.1	Articles of Incorporation of Bonanza Oil and Gas, Inc. (incorporated by reference to Exhibit 3.1 to the Bonanza Oil and Gas, Inc. Form SB-2 filed December 18, 2006)

3.2	Articles of Merger (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 11, 2008)

3.3	Bylaws of Bonanza Oil and Gas, Inc. (incorporated by reference to Exhibit 3.2 to the Bonanza Oil and Gas, Inc. Form SB-2 filed December 18, 2006)

3.4	Certificate of Amendment for the State of Nevada filed November 9, 2009 (incorporated by reference to the Schedule 14C filed with the Securities and Exchange Commission on January 6, 2010)

4.1	Securities Purchase Agreement (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 21, 2007)

4.2	14% Senior Asset Backed Secured Promissory Note dated December 17, 2007 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 21, 2007)

4.3*	Form of 14% Senior Secured Promissory Note dated January 31, 2008

4.4*	Form of Securities Purchase Agreement dated January 31, 2008

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~36

					Natural
4.5	Securities Purchase Agreement dated May 14, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 19, 2008)
		Crude Oil			Gas
4.6	8% Convertible Note issued May 14, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 19, 2008)
Proved developed		(bbl)			(mcf)
4.7	Series A Common Stock Purchase Warrants issued May 14, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 19, 2008)
reserves
4.8	Series B Common Stock Purchase Warrants issued May 14, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 19, 2008)
December 31, 2007			537,037			618,855
4.9	Form of Securities Purchase Agreement (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 7, 2008)
December 31, 2008			34,488			12,019
4.10	Form of Series A June 2008 Common Stock Purchase Warrants issued June 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 7, 2008)
Total proved reserves
4.11	Form of Series B June 2008 Common Stock Purchase Warrants issued June 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 7, 2008)
Balance December 31, 2006			-			-
4.12	Form of Securities Purchase Agreement dated August 28, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 3, 2008)
Extensions, discoveries and
4.13	Form of 12% Promissory Note dated August 28, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 3, 2008)
other additions			-			-
4.14	Amendment No. 1 to the Form of Securities Purchase Agreement dated August 28, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 10, 2008)
Purchases of minerals in-place			537,357			618,855
4.15	Form of Common Stock Purchase Warrant (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 10, 2008)
Revisions of previous estimates			-			-
4.16	Bridge Loan Letter Agreement dated February 2, 2009, (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 31, 2009)
Production			(320	)		-
4.17	14% Promissory Note issued February 2, 2009, (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 31, 2009)
Sales of properties			-			-
4.18	16% Promissory Note issued May 26, 2009, (incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on August 14, 2009)
Balance December 31, 2007			537,037			618,855
4.19	Bridge Loan Letter Agreement dated July 8, 2009, (incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on September 21, 2009)
Extensions, discoveries and
4.20	Bridge Loan Letter Agreement dated September 18, 2009, (incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on September 21, 2009)
other additions			-			-
4.21*	Form of Convertible Note issued October 2009
Purchases of minerals in-place			-			-
4.22	Bridge Loan Letter Agreement dated November 10, 2009, (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 4, 2009)
Revisions of previous estimates			(499,352	)		(606,836	)
4.23*	Bridge Loan Letter Agreement dated November 30, 2009
Production			(3,197	)		-
4.24*	Convertible Note issued December 14, 2009
Sales of properties			-			-
Balance December 31, 2008			34,488			12,019

As of December 31, 2008 and 2007, on a barrel of equivalent basis 0% and 95% percent of our estimated reserves, respectively, were classified as proved undeveloped. These reserves relate to zones that are either behind pipe, or that have been completed but not yet produced, or zones that have been produced in the past, but are not now producing because of mechanical reasons. These reserves are considered to be a lower tier of reserves than producing reserves because they are frequently based on volumetric calculations rather than performance data. Future production associated with behind pipe reserves is scheduled to follow depletion of the currently producing zones in the same wellbores. It should be noted that additional capital may have to be spent to access these reserves. The capital and economic impact of production timing are reflected in this Note 9, under “Future Net Cash Flows.”37

Future Net Cash Flows


4.25*	Bridge Loan Letter Agreement dated December 31, 2009

4.26*	Convertible Note issued January 28, 2010

4.27*	Promissory Note issued April 12, 2010 to Mirus Capital Management LLC

4.28*	Promissory Note issued April 12, 2010 to Triumph Small Cap Fund Ltd.

10.1	Asset Purchase Agreement between National Filing Agents, Inc. and Lucas Energy, Inc. dated October 23, 2007 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 24, 2007)

10.2	Agreement and Plan of Merger between Bonanza Oil & Gas, Inc., Borland Good North, Inc., Black Pearl Energy, Inc. and the shareholders holding a majority of the issued and outstanding shares of Black Pearl Energy, Inc. dated July 18, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 18, 2008)

10.3	Executive Employment Agreement between G. Wade Stubblefield and Bonanza Oil and Gas, Inc. (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 31, 2009)

10.4	Executive Employment Agreement between William Wiseman and Bonanza Oil and Gas, Inc., (incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on September 21, 2009)

10.5	Executive Employment Agreement between Robert L. Teague and Bonanza Oil and Gas, Inc., (incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on September 21, 2009)

10.6	Conversion Agreement between Bonanza Oil & Gas, Inc. and Robert Teague dated December 2, 2009, (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 4, 2009)

10.7	Letter Agreement between Bonanza Oil & Gas, Inc. and Triumph Small Cap Fund Ltd. dated December 2, 2009, (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 4, 2009)

10.8	Agreement between Bonanza Oil & Gas, Inc. and Whalehaven Capital Fund Limited, (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 4, 2009)

10.9	Letter Agreement between Bonanza Oil & Gas, Inc. and Triumph Small Cap Fund Ltd. dated January 29, 2010, (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on February 9, 2010)

10.10	Contract by and between Bonanza Oil & Gas, Inc. and Diversified Group, LLC dated March 24, 2010, (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 31, 2010)

10.11	Assignment by and between Bonanza Oil & Gas, Inc. and Diversified Group, LLC dated March 18, 2010, (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 31, 2010)

10.12*	Bonanza Accounts Receivable Agreement by and between Westerly Exploration, Inc. and Bonanza Oil and Gas, Inc.

The following information has been developed utilizing procedures prescribed by SFAS No. 69, “Disclosures about Oil and Gas Producing Activities—an amendment of FASB Statements 19, 25, 33, and 39,” and based on oil and natural gas reserve and production volumes estimated by the Company’s independent reserve engineers. It may be useful for certain comparison purposes but should not be solely relied upon in evaluating the Company or its performance. Further, information contained in the following table should not be considered as representative of realistic assessments of future cash flows nor should the Standardized Measure of Discounted Future Net Cash Flows be viewed as representative of the current value of the Company.38

The future cash flows presented below are computed by applying year-end prices to year-end quantities of proved oil and natural gas reserves. Operating costs, production and ad valorem taxes and future development costs are computed by estimating the expenditures to be incurred in developing and producing the Company’s proved reserves based on current costs with no escalation and assuming continuation of existing economic conditions. It is expected that material revisions to some estimates of oil and natural gas reserves may occur in the future, development and production of the reserves may occur in periods other than those assumed, and actual prices realized and costs incurred may vary significantly from those used. Additionally, capital funding constraints may impact the Company’s ability to develop the properties.

10.13*	Form of Westerly Debt Conversion Agreement

14.1	Code of Ethics and Business Conduct for Officers, Directors and Employees of Bonanza Oil & Gas, Inc. (incorporated by reference to the Amendment No. 1 to the Annual Report on Form 10- K/A filed with the Securities and Exchange Commission on April 29, 2009)

23.1*	Consent of Joe C. Neil & Associates
31.1*	Certification of Principal Executive Officer
31.2*	Certification of Principal Financial Officer
32.1*	Certification of Principal Executive Officer and Principal Financial Officer

~~F-23~~*Filed herewith

~~BONANZA~~(b) ~~OIL~~See &(a) ~~GAS, INC~~3. above (c) See (a) 2. above

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~39

Management does not rely upon the following information in making investment and operating decisions. Such decision are based upon a wide range of factors, including estimates of probable as well as proved reserves, and varying price and cost assumptions are considered more representative of a range of possible economic conditions that may be anticipated.SIGNATURES

~~The following~~Pursuant ~~table sets forth unaudited information concerning future net cash flows relating~~ to ~~proved~~the ~~oil~~requirements ~~and~~of ~~gas~~Section ~~reserves~~13 ~~based~~or on15(d) ~~the~~of ~~standardized measure~~the ~~prescribed~~Securities inExchange ~~SFAS~~Act ~~No.~~of ~~69. Income~~1934, ~~tax~~the ~~expense~~registrant has ~~been~~duly ~~computed~~caused ~~using expected~~this ~~future~~report ~~tax rates and giving effect~~ to ~~tax deductions and credits~~ ~~available,~~be ~~under~~signed ~~current~~on ~~laws,~~its ~~and~~behalf ~~which~~by ~~relate to oil and gas producing activities. This information does not purport to present~~ the ~~fair market value of the Company’s oil and gas assets~~undersigned, ~~but~~hereunto ~~does~~duly ~~present a standardized disclosure concerning possible future net cash flows that would result under the assumptions used~~authorized.

2008
Cash inflows	$	1,513,883
Production costs		(545,603	)
Development costs		-
Income tax expense		(19,100	)
Net cash flows		949,180
10 percent discount rate		(343,630	)
Discounted future net cash flows (1)	$	605,550
2007
Cash inflows	$	50,285,181
Production costs		(8,327,995	)
Development costs		(11,019,875	)
Income tax expense		(12,374,924	)
Net cash flows		18,562,387
10 percent discount rate		(7,134,480	)
Discounted future net cash flows (1)	$	11,427,907

BONANZA OIL & GAS, INC.

~~(1)~~BY: ~~Estimated~~/s/William ~~future~~Wiseman William ~~net cash flows before income tax expense discounted at 10 percent per annum, totaled approximately $617,742~~ Wiseman President and ~~$19,046,504~~Chief asExecutive ofOfficer (Principal ~~December~~Executive ~~31,~~Officer) ~~2008 and 2007, respectively.~~

~~F-24~~BY: /s/Robert Teague Robert Teague Executive Vice President and Chief Operating Officer (Principal Financial and Accounting Officer)

~~BONANZA~~Dated: ~~OIL~~April ~~& GAS~~15, ~~INC.~~ 2010

~~NOTES~~Pursuant TOto ~~CONSOLIDATED~~the ~~FINANCIAL~~requirements of the Securities Exchange Act of ~~STATEMENTS~~1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

The following table sets forth the principal changes in the discounted future net cash flows:

Name	Title	Date


/s/ William Wiseman	Chairman of the Board, Chief	April 15, 2010
William Wiseman	Executive Officer and President
	(principal executive officer)


/s/ Robert Teague	Executive Vice President, Chief	April 15, 2010
Robert Teague	Operating Officer and Director
	(principal financial officer)

	2008			2007
Sales, net of production costs	$	(147,235	)	$	(17,497	)
Net change in prices and production costs		(947,784	)		-
Discoveries and improved recoveries,		-			-
net of related costs		-			-
Development costs incurred		2,256,670			-
Change in future development costs		5,413,205			-
Revision of quantities		(24,172,676	)		-
Purchases of minerals in-place		-			11,445,404
Accretion of discount		1,904,650			-
Change in income taxes		7,616,584			-
Sales of properties		-			-
Change in timing and other		(2,745,771	)		-
	$	(10,822,357	)	$	11,427,907

~~F-25~~ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Bonanza Oil & Gas, Inc.

We have audited the accompanying consolidated balance sheets of Bonanza Oil & Gas, Inc. and Subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years ended December 31, 2009 and 2008. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bonanza Oil & Gas, Inc. and Subsidiaries at December 31, 2009 and 2008, and the related consolidated results of operations and cash flows for the years ended December 31, 2009 and 2008, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses since inception, has not attained profitable operations and is dependent upon obtaining adequate financing to fulfill its exploration activities. These factors raise substantial doubt that the Company will be able to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Weaver and Tidwell, L.L.P.

WEAVER AND TIDWELL, L.L.P.
Houston, Texas
April 14, 2010

F-1

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
		December 31,
		2009			2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	9,892		$	3,881
Accounts receivable		-			5,068
Drilling advances		-			395,350
Other		89			152,900
		9,981			557,199
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties		11,617,669			4,941,803
Unproved properties		488,444			7,599,369
Other		9,669			11,679
		12,115,782			12,552,851
Less: Accumulated depreciation, depletion and amortization		(10,905,081	)		(4,325,679	)
		1,210,701			8,227,172
	$	1,220,682		$	8,784,371
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$	680,459		$	138,389
Accrued operating expenses		419,004			52,224
Accrued exploration and development expenditures		123,981			1,558,408
Notes payable, net of $27,272 and $250,296 of unamortized
discount at December 31, 2009 and 2008, respectively		2,540,028			2,099,704
		3,763,472			3,848,725
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock - Series A, $0.001 par value, 5,000,000 shares authorized;
5,000,000 shares issued and outstanding as of December 31, 2009		5,000			-
Preferred stock - Series B, $0.001 par value, 5,000,000 shares authorized;
0 shares issued and outstanding, respectively		-			-
Preferred stock - Series C, $0.001 par value, 5,000,000 shares authorized;
0 shares issued and outstanding, respectively		-			-
Preferred stock - Series D, $0.001 par value, 10,000,000 shares authorized;
0 shares issued and outstanding, respectively		-			-
Preferred stock - Series E, $0.001 par value, 10,000,000 shares authorized;
0 shares issued and outstanding, respectively		-			-
Common stock, $0.001 par value, 1,500,000,000 shares authorized;
124,352,034 and 72,200,634 issued and outstanding, respectively		124,352			72,200
Additional paid-in capital		13,268,811			11,926,098
Accumulated deficit		(15,940,953	)		(7,062,652	)
		(2,542,790	)		4,935,646
	$	1,220,682		$	8,784,371

The accompanying notes are an integral part of these consolidated financial statements.

F-2

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS

		For the Year Ended
		December 31,
		2009			2008
REVENUES:
Crude oil sales	$	257,897		$	229,579
		257,897			229,579
OPERATING EXPENSES:
Depreciation, depletion and amortization
Recurring		93,947			399,289
Additional		6,485,455			3,920,764
Lease operating expenses		142,993			71,760
Severance and other taxes		11,260			10,584
General and administrative		1,498,294			1,467,659
Loss on conversion of debt and accounts payable		386,120			-
Financing costs, net		518,129			1,224,930
		9,136,198			7,094,986
OPERATING LOSS		(8,878,301	)		(6,865,407	)
Provision for income taxes		-			-
NET LOSS	$	(8,878,301	)	$	(6,865,407	)

BASIC AND DILUTED LOSS
PER COMMON SHARE	$	(0.11	)	$	(0.11	)

Weighted average number of common shares
outstanding - basic and fully diluted		83,708,079			61,769,414

The accompanying notes are an integral part of these consolidated financial statements.

F-3

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT)
																Total
	Preferred Stock - Series A			Common Stock						Paid-In			Accumulated			Stockholders'
	Shares		Amount	Shares			Amount			Capital			Deficit			Equity (Deficit)
BALANCE AT DECEMBER 31, 2007	-	$	-	51,299,308		$	51,300		$	2,735,300		$	(197,245	)	$	2,589,355
Common shares issued with the
January 2008 Notes	-		-	320,000			320			119,680			-			120,000
Common shares issued for
consulting services - April 9, 2008	-		-	150,000			150			52,350			-			52,500
Common shares issued for
consulting services - May 7, 2008	-		-	1,200,000			1,200			154,800			-			156,000
Common shares issued for
consulting services - May 15, 2008	-		-	1,600,000			1,600			358,400			-			360,000
Common shares issued with the
May 2008 Convertible Note	-		-	750,000			750			98,712			-			99,462
Fair value of beneficial conversion feature
of the May 2008 Convertible Note	-		-	-			-			305,576			-			305,576
Fair value of warrants to acquire common shares
issued with the May 2008 Convertible Note	-		-	-			-			278,844			-			278,844
Fair value of warrants to acquire common shares
issued with the August 2008 Notes	-		-	-			-			569,606			-			569,606
Fair value of warrants to acquire common shares
issued with the October 2008 Note	-		-	-			-			29,180			-			29,180
Common shares issued in the acquisition of
Black Pearl Energy, Inc.	-		-	14,049,330			14,048			8,204,810			-			8,218,858
Common shares retired in the acquisition of
Black Pearl Energy, Inc.	-		-	(5,418,000	)		(5,418	)		(3,161,404	)		-			(3,166,822	)
Equity offerings, net	-		-	8,249,996			8,250			2,180,243			-			2,188,493
Net loss	-		-	-			-			-			(6,865,407	)		(6,865,407	)
BALANCE AT DECEMBER 31, 2008	-	$	-	72,200,634		$	72,200		$	11,926,098		$	(7,062,652	)	$	4,935,646
Common shares issued for
consulting services	-		-	7,607,400			7,608			296,619			-			304,227
Common shares issued as penalty upon default
of the January 2008 Notes	-		-	300,000			300			10,200			-			10,500
Fair value of warrants to acquire common shares
issued with the August 2008 Notes	-		-	-			-			98,873			-			98,873
Fair value of warrants to acquire common shares
issued with the October 2008 Note	-		-	-			-			9,885			-			9,885
Fair value of warrants to acquire common shares
issued with the May 2009 Note	-		-	-			-			33,139			-			33,139
Preferred Shares - Series A issued in lieu
of compensation	5,000,000		5,000	-			-			55,000			-			60,000
Common shares issued as charitable contribution	-		-	2,000,000			2,000			51,000			-			53,000
Common shares issued in conversion
of notes payable and accounts payable	-		-	32,480,000			32,480			434,840			-			467,320
Fair value of beneficial conversion feature
of Convertible Notes	-		-	-			-			35,001			-			35,001
Stock Compensation	-		-	9,764,000			9,764			318,156			-			327,920
Net loss	-		-	-			-			-			(8,878,301	)		(8,878,301	)
BALANCE AT DECEMBER 31, 2009	5,000,000	$	5,000	124,352,034		$	124,352		$	13,268,811		$	(15,940,953	)	$	(2,542,790	)

The accompanying notes are an integral part of these consolidated financial statements.

F-4

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS

		For the Year Ended
		December 31,
		2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(8,878,301	)	$	(6,865,407	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization		6,579,402			4,320,053
Amortization of deferred financing costs		518,129			1,225,143
Loss on conversion of debt and accounts payable		386,120			-
Stock-based compensation		327,920			-
Fair value of shares issued for consulting services		304,227			568,500
Fair value of shares issued for charitable contribution		53,000			-
Changes in operating assets and liabilities:
Accounts receivable		5,068			420
Drilling advances		-			(462,193	)
Other current assets		36,037			(1,562	)
Accounts payable and accrued expenses		353,524			155,632
Net cash used in operating activities		(314,874	)		(1,059,414	)
CASH FLOWS FROM INVESTING ACTIVITIES
Oil and gas capital expenditures		(32,170	)		(2,892,876	)
Proceeds from sale of unproved oil and gas property		-			115,000
Additions to other property and equipment		-			(11,679	)
Issuance of Black Pearl Energy, Inc. note receivable		-			(500,000	)
Net cash used in investing activities		(32,170	)		(3,289,555	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable		827,500			2,100,000
Repayment of notes payable		(418,075	)		-
Debt issue costs		(56,370	)		(90,000	)
Proceeds from equity issuances, net		-			2,188,493
Net cash provided by financing activities		353,055			4,198,493
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		6,011			(150,476	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		3,881			154,357
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	9,892		$	3,881

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	30,000		$	158,027
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Fair value of equity issued upon conversion of
notes and accounts payable	$	138,700		$	-
Disposition of oil and gas property for debt forgiveness	$	161,389		$	-
Acquisition of oil and gas property for common shares	$	-		$	5,052,036
Non-cash exploration and development activities	$	(1,261,553	)	$	1,671,262
Foregiveness of Black Pearl Energy, Inc. note receivable	$	-		$	500,000
Fair value of common shares and warrants to purchase common
shares issued with notes payable	$	152,397		$	1,402,668

The accompanying notes are an integral part of these consolidated financial statements.

F-5

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND HISTORY

Bonanza Oil & Gas, Inc. (the “Company”), a Nevada corporation formed on December 24, 2002, under the name National Filing Agents, Inc. ("NFA"), is an independent energy company that is engaged in the exploration, development and production of crude oil, natural gas and natural gas liquids in the United States. On December 18, 2006, NFA filed a registration statement on Form SB-2 to register the stock of its non-affiliated shareholders. The registration was declared effective on January 22, 2007.

On October 23, 2007, NFA acquired Plantation Working Interests, LLC ("PWI"), a privately-held Texas limited liability company organized on August 17, 2007, by entering into an Acquisition Agreement and Plan of Merger (collectively the "PWI Agreement") pursuant to which NFA acquired a 100% interest in PWI and other assets in exchange for 10,766,676 shares of NFA common stock. Immediately following the acquisition of PWI, two former affiliated shareholders of NFA, cancelled 6,180,000 unregistered shares of NFA common stock held by them. The acquisition of PWI was accounted for as a reverse merger and, therefore, the historical financial statements presented herein are those of PWI. Effective January 10, 2008, NFA changed its name to “Bonanza Oil & Gas, Inc.” from “National Filing Agents, Inc.” In addition, effective January 10, 2008, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from NFLA to BGOI and the Company implemented a forward split of the issued and outstanding common shares of the Company, whereby every share of the Company’s Common Stock held was exchanged for 2.1 shares of the Company’s Common Stock. All share amounts reflected throughout this document reflect the January 2008 2.1 for 1 forward stock split, unless otherwise so indicated.

On January 20, 2010, the Company effected a 2 for 1 forward split of its outstanding common shares. All share amounts reflected throughout this document reflect the January 2010 2.0 for 1 forward stock split, unless otherwise so indicated.

Going Concern

The Company has incurred significant losses and had negative cash flow from operations since Inception (August 17, 2007), and has an accumulated deficit of $15,940,953 at December 31, 2009. Substantial portions of the losses are attributable to non-cash writedowns of oil and gas properties, with the balance attributable to primarily personnel costs, legal and professional fees, and financing costs. The Company's operating plans require additional funds that may take the form of debt or equity financings. There can be no assurance that any additional funds will be available. The Company's ability to continue as a going concern is in substantial doubt and is dependent upon achieving a profitable level of operations and obtaining additional financing.

The Company has undertaken steps as part of a plan to improve operations with the goal of sustaining its operations for the next twelve months and beyond. These steps include a) raising additional capital and/or obtaining financing, if available, (b) converting debt and accounts payable into common shares (c) increasing our current production (d) continuing development drilling or farming out our interest in our proved, undeveloped properties and (e) controlling overhead and expenses.

There can be no assurance that the Company will successfully accomplish these steps and it is uncertain if it will achieve a profitable level of operations and/or obtain additional financing. There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all. In the event the Company is unable to continue as a going concern, it may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

F-6

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting policies used by the Company and its subsidiaries reflect industry practices and conform to accounting principles generally accepted in the United States (GAAP). Certain reclassifications have been made to prior periods to conform with the current presentations. Significant policies are discussed below.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of intercompany balances and transactions. The Company’s interest in oil and gas exploration and production ventures and partnerships are proportionately consolidated.

Use of Estimates

Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. The Company evaluates its estimates and assumptions on a regular basis. Actual results may differ from these estimates and assumptions used in preparation of its financial statements and changes in these estimates are recorded when known. Significant estimates with regard to these financial statements include the estimate of proved oil and gas reserves and related present value estimates of future net cash flows there from (See Note 9 — Supplemental Oil and Gas Disclosures (Unaudited)), asset retirement obligations, income taxes and contingency obligations including legal and environmental risks and exposures.

Cash and Cash Equivalents

The Company considers all highly liquid short-term investments with an original maturity of three months or less at time of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value. At December 31, 2009 and 2008, the Company had $9,892 and $3,881 of cash and cash equivalents, respectively.

Allowance for Doubtful Accounts

The Company routinely assesses the recoverability of all material receivables to determine their collectability. All of the Company's receivables are from the operators of properties in which the Company has an interest. Generally, the Company's crude oil and natural gas receivables are collected within two months. The Company accrues a reserve on a receivable when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated. As of December 31, 2009 and 2008, the Company had no amount recorded as an allowance for doubtful accounts.

Oil and Gas Property

The Company uses the full-cost method of accounting for its exploration and development activities. Under this method of accounting, the cost of both successful and unsuccessful exploration and development activities are capitalized as property and equipment. The Company has not incurred any internal costs that are directly related to exploration and development activities, including salaries and benefits, which could be capitalized as part of property and equipment. Proceeds from the sale or disposition of oil and gas properties are accounted for as a reduction to capitalized costs unless a significant portion (greater than 25 percent) of the Company’s reserve quantities in a particular country are sold, in which case a gain or loss is recognized.

F-7

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The guidance in FASB Accounting Standards Codification (ASC, also known collectively as the Codification) Topic 805, “Business Combinations” broadens the definition of a business combination to include all transactions or other events in which control of one or more businesses is obtained. Further, the guidance establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interests in the acquiree and the goodwill acquired. The guidance requires the acquiring entity in a business combination to recognize the fair value of all the assets acquired and liabilities assumed in the transaction. It also modifies disclosure requirements. The Company adopted this guidance effective January 1, 2009. However, since the Company did not close any business combinations during the year ended 2009, the adoption had no impact on the Company’s consolidated financial statements.

Costs Excluded

Oil and gas unevaluated properties include costs that are excluded from costs being depreciated or amortized. These costs represent investments in unproved properties and major development projects in which the Company owns a direct interest. The Company excludes these costs until proved reserves are found, until it is determined that the costs are impaired, or major development projects are placed in service. All costs excluded are reviewed at least quarterly to determine if impairment has occurred.

Ceiling Test

Under the full-cost method of accounting, the Company applies a ceiling test, on a quarterly basis, to the capitalized cost in the full cost pool. The Company computes the ceiling test so that capitalized cost, less accumulated depletion and related deferred income tax, do not exceed an amount (the ceiling) equal to the sum of: (A) The present value, using a ten percent discount rate, of estimated future net revenue, less estimated future expenditures (based on current cost) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; plus (B) the cost of unevaluated properties and major development projects excluded from the costs being amortized; plus (C) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less (D) income tax effects related to differences between the book and tax basis of the property. If capitalized costs exceed this limit, the excess is charged to expense and reflected as additional DD&A.

In January 2009, the SEC issued Release No. 33-8995, “Modernization of Oil and Gas Reporting” (Release 33-8995), amending oil and gas reporting requirements under Rule 4-10 of Regulation S-X and Industry Guide 2 in Regulation S-K and bringing full-cost accounting rules into alignment with the revised disclosure requirements. In January 2010, the FASB amended ASC Topic 932, “Extractive Industries — Oil and Gas” (ASC Topic 932) to align the guidance with the changes made by the SEC. The Company adopted Release 33-8995 and the amendments to ASC Topic 932 (collectively, the Modernization Rules) effective December 31, 2009.

The estimated future net revenue, under the Modernization Rules, is derived based upon an unweighted arithmetic average of commodity prices in effect on the first day of each month in 2009, held flat for the life of the production, except where prices are defined by contractual arrangements. Prior to adoption of the Modernization Rules, effective in the fourth quarter of 2009, estimated future net revenue was calculated using commodity prices in effect at the end of each quarter. See Note 9— Supplemental Oil and Gas Disclosures (Unaudited) for a discussion of the calculation of estimated future net cash flows.

F-8

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As a result of the Company’s year-end ceiling test calculations, using the then existing full-cost accounting rules, the Company recorded non-cash write-downs of the carrying value of its proved oil and gas properties of $6,485,455 and $3,920,764 as of December 31, 2009 and December 31, 2008, respectively, which is reflected as additional DD&A expense in the accompanying statement of consolidated operations.

Depreciation, Depletion and Amortization

DD&A of oil and gas properties is calculated quarterly, using the Units of Production Method (UOP). The UOP calculation, in simplest terms, multiplies the percentage of estimated proved reserves produced each quarter times the costs of those reserves. The result is to recognize expense at the same pace that the reservoirs are actually depleting. The amortization base in the UOP calculation includes the sum of proved property costs net of accumulated DD&A, estimated future development costs (future costs to access and develop reserves) and asset retirement costs which are not already included in oil and gas property, less related salvage value.

Asset Retirement Obligation

The initial estimated retirement obligation of properties is recognized as a liability, with an associated increase in properties and equipment for the asset retirement cost. Accretion expense is recognized over the estimated productive life of the related assets. If the fair value of the estimated asset retirement obligation changes, an adjustment is recorded to both the asset retirement obligation and the asset retirement cost. Revisions in estimated liabilities can result from revisions of estimated inflation rates, changes in service and equipment costs and changes in the estimated timing of settling asset retirement obligations. As of December 31, 2009 and 2008, the Company’s estimated asset retirement obligation was not significant.

Capitalized Interest

Interest is capitalized on oil and gas investments in unproved properties and exploration and development activities that are in progress qualify for capitalized interest. Capitalized interest is calculated by multiplying the Company’s weighted-average interest rate on debt by the amount of qualifying costs. Capitalized interest cannot exceed gross interest expense. As oil and gas costs excluded are transferred to unproved properties, any associated capitalized interest is also transferred. Capitalized interest totaled $458,353 and $208,690 during the years ended December 31, 2009 and 2008, respectively.

Commitments and Contingencies

Accruals for loss contingencies arising from claims, assessments, litigation, environmental and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change.

F-9

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

The Company recognizes oil and natural gas revenue under the sales method of accounting for its interests in producing wells as crude oil and natural gas is produced and sold from those wells. Crude oil and natural gas sold by the Company is not significantly different from the Company’s share of production. The Company recognizes revenue upon transfer of ownership of the product to the customer which occurs when (i) the product is physically received by the customer, (ii) an invoice is generated which evidences an arrangement between the customer and the Company, (iii) a fixed sales price has been included in such invoice and (iv) collection from such customer is reasonably assured.

Income Taxes

The Company records deferred tax assets and liabilities to account for the expected future tax consequences of events that have been recorded in its financial statements. The Company routinely assesses the realizability of its deferred tax assets. If the Company concludes that it is more likely than not that some portion or all of the deferred tax assets will not be realized under accounting standards, the tax asset is reduced by a valuation allowance. Numerous judgments and assumptions are inherent in the determination of future taxable income, including factors such as future operating conditions (particularly as related to prevailing oil and gas prices).

Earnings Per Share

The Company’s basic earnings per share (EPS) amounts have been computed based on the weighted-average number of shares of Common Stock outstanding for the period. Diluted EPS reflects the potential dilution, using the treasury stock method, which could occur if the Company’s dilutive securities (namely outstanding warrants to acquire shares of the Company’s Common Stock) were exercised. As the Company realized a net loss for both the years ended December 31, 2009 and 2008, no potentially dilutive securities were included in the calculation of diluted earnings per share as their impact would have been anti-dilutive.

Stock-Based Compensation

The Company accounts for stock-based compensation under the fair value recognition provisions of ASC Topic 718, “Compensation - Stock Compensation.” The Company has not granted any type of stock-based awards. Stock compensation awards granted are valued on the date of grant and are expensed, net of estimated forfeitures, on a straight-line basis over the required service period.

Recently Issued Accounting Standards Not Yet Adopted

All new accounting pronouncements previously issued have been adopted as of or prior to December 31, 2009

ACQUISITIONS AND DISPOSITIONS OF OIL AND GAS PROPERTIES

During September 2007, the Company obtained a 22.5% pre-payout (15% post- payout) working interest in eight oil and gas wells in Gonzales County, Texas. The Company paid a total of $750,000 to acquire the wells. The Company was to receive 15.75% of the net revenues from the wells until it had recovered its $750,000 cost at which time the net revenue interest was to drop to 10.5% of net revenues. The Company believes that the pre-acquisition results of operations for the wells acquired would be immaterial, as adjusted on a pro-forma basis. These eight wells secured the Company’s obligations under the December 2007 Note (See Note 4). As the Company was unable to repay the December 2007 Note at maturity, the lender foreclosed on the eight wells in satisfaction of all amounts due.

F-10

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In October 2007, the Company purchased a 25% interest in approximately 6,700 acres in Apclark Field in southwestern Borden County, Texas for a total of 12,600,000 shares of the Company's Common Stock. The Company recorded the acreage as part of Oil and Gas Property and Equipment – Unproved Properties and Properties Under Development based on the fair value of the Company’s common shares at that time, $1,890,000. The Company believes that the pre-acquisition results of operations for the acreage acquired would be immaterial, as adjusted on a pro-forma basis.

Black Pearl was an exploration and development company located in Midland, Texas. On July 14, 2008, Black Pearl acquired options to purchase an undivided 75% working interest in two drilling projects for total consideration of $500,000. Concurrently with executing these options, Black Pearl entered into a note agreement with the Company for $500,000. The note bore interest at 8% per year with a maturity date of November 14, 2008, or the date at which a letter of intent to merge the Company expired. The note was cancelled in conjunction with the Merger.

The Company allocated the total consideration of $5,552,036 to Oil and Gas Property and Equipment – Unproved Properties, based on the closing price per share of the Company’s Common Stock on July 18, 2008, of $0.585, and the $500,000 cancelled note receivable discussed above. The operations of Black Pearl were combined with the Company as of July 18, 2008.

Subsequent to acquisition closing, the Company made additional payments totaling $900,000 to satisfy the acquisition of two projects, in accordance with the purchase and sale agreement. In addition, as of December 31, 2008, the Company had an obligation of $1,100,000 accrued as part of the Company’s accrued exploration and development expenditures, which related to broker fees due in consideration of the acquisition of these two projects. Finally, in October 2008, the Company sold 10% of the interest it acquired in one of the projects for $115,000.

The Company believes that the pre-acquisition results of operations for Black Pearl would be immaterial, as adjusted on a pro-forma basis.

As a result of the Company’s ongoing financial difficulties, the Company forfeited its right to develop the two projects acquired in the Merger and was required to include the capitalized cost incurred in securing those assets in its amortization base. The Company was able to secure a release of the $1,100,000 accrued broker fees as a result of forfeiting its ownership. As a result, the Company was required to record an additional $6,485,455 non-cash write-down of the carrying value of its proved oil and gas properties at December 31, 2009.

F-11

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES PAYABLE

The Company’s notes payable at December 31, 2009 and December 31, 2008, consisted of the following:

		Balance as of December 31,
		2009			2008

December 2007 Note	$	-		$	250,000
January 2008 Notes		724,800			800,000
May 2008 Convertible Note		750,000			750,000
August 2008 Notes		500,000			500,000
October 2008 Notes		50,000			50,000
May 2009 Note		340,000			-
July 2009 Note		40,000			-
September 2009 Note		55,000			-
October 2009 Convertible Notes		15,000			-
November 10, 2009 Note		50,000			-
November 30, 2009 Note		15,000			-
December 2009 Convertible Note		20,000			-
December 2009 Note		7,500			-
Total		2,567,300			2,350,000
Unamortized discount		(27,272	)		(250,296	)
Balance, net of discount	$	2,540,028		$	2,099,704

December 2007 Note

In December 2007, the Company entered into a 14% Senior Asset Backed Secured Promissory Note and Security Agreement, and a Securities Purchase Agreement, with Phoenix Capital Opportunity Fund, L.P. ("Phoenix") in principal amount of $250,000 (the "December 2007 Note) and the issuance of 149,998 shares of Common Stock of the Company. The December 2007 Note matured on December 17, 2008, and interest was payable on a quarterly basis. The Company's obligations under the December 2007 Note were secured by the Company’s interest in eight oil and gas wells located in Gonzales County, Texas. The shares issued in conjunction with the December 2007 Note were valued at $22,500, based on the price of the Company’s Common Stock issued in its then most recent private placement offering, and was recorded as a discount to the December 2007 Note and additional paid-in capital. The Company also incurred $12,500 in issue costs which it recorded as deferred financing costs as a component of prepaid and other current expenses. The discount and deferred financing costs were amortized using the effective interest rate method over the term of the indebtedness. The Company had an unamortized discount of $22,089, and deferred financing costs of $12,021, at December 31, 2007, on the December 2007 Note. These balances were fully amortized as of December 31, 2008. The Company made no interest payments on the December 2007 Note during 2009 and paid $26,370 in interest on the December 2007 Note during the year ended December 31, 2008.

At December 31, 2008, the Company was in default with respect to the repayment obligation upon maturity on December 17, 2008, with respect to the December 2007 Note. Pursuant to the terms of the December 2007 Note, the interest rate on all amounts outstanding increased to 24% per annum, effective December 17, 2008. On February 6, 2009, the Company made a partial payment of $125,000 toward satisfaction of this obligation. On June 30, 2009, Phoenix filed suit against the Company seeking repayment of the principal balance outstanding plus all accrued interest, along with their attorney fees and court costs. In October 2009, the Company reached a settlement agreement, whereby for a complete release and satisfaction of the unpaid principal and accrued interest the lender foreclosed on the eight oil and gas wells securing this obligation.

F-12

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2008 Notes

In January 2008, the Company entered into three 14% Senior Secured Promissory Note and Security Agreements, and Securities Purchase Agreements, with accredited investors for an aggregate principal amount of $800,000 (the "January 2008 Notes") and the issuance of 320,000 shares of the Company’s Common Stock. The January 2008 Notes matured on January 31, 2009, with interest payable on a monthly basis. The Company's obligations under the January 2008 Notes are secured by the Company’s interest in three prospect areas located in Borden, Hidalgo and Brazoria counties of Texas. The shares issued in conjunction with the January 2008 Notes were valued at $120,000, based on the market price of the Company’s Common Stock at the time of issuance, and was recorded as a discount to the January 2008 Notes and additional paid-in capital. This discount was amortized using the effective interest rate method over the term of the indebtedness. These balances were fully amortized as of December 31, 2009. Under the terms of the January 2008 Notes, as a result of their non-repayment as of July 31,2009, the Company was obligated to issue an additional 300,000 shares of its Common Stock as an additional interest payment. The Company issued the additional 300,000 shares of its Common Stock in August 2009.

The Company is in default with respect to the repayment obligation upon maturity which occurred on January 31, 2009. Pursuant to the terms of the January 2008 Notes, upon becoming in default, the interest rate on all amounts outstanding increased to 24% per annum. The Company made no interest payments on the January 2008 Notes during 2009 and paid $92,726 in interest on the January 2008 Notes during the year ended December 31, 2008. As of December 31, 2009, the Company had total accrued and unpaid interest of $204,428 on the January 2008 Notes.

On December 2, 2009, the Company entered a Letter Agreement with the holder of $750,000 principal amount of the January 2008 Notes whereby, in order to induce the holder to convert the notes into shares of the Company’s common stock and, in turn, to reduce the Company’s debt and avoid potentially filing for bankruptcy, the terms with respect to $750,000 of principal of January 2008 Notes held by holder were amended providing that the holder may from time to time convert all or any part of the outstanding and unpaid principal amount of their January 2008 Notes into shares of the Company’s common stock, at the holder's option, at the lesser of (i) $0.0025 or (ii) a 50% discount to the average of the three lowest trading prices of the common stock during the 20 trading day period prior to conversion (the “Variable Conversion Price”). On January 29, 2010, the Company entered into a Letter Agreement with the holder removing the holder’s ability to convert at the Variable Conversion Price. During December 2009, the holder converted $75,200 of principal due into 30,080,000 shares of the Company’s Common Stock. The Company recognized a loss of $347,720 on conversion as a result of the difference between the conversion price and the fair market value of the Company’s common shares, as determined by the closing price of the Company’s common stock on the OTC Bulletin Board on the day prior to the conversion.

As of December 31, 2009, the Company had not cured its default with respect to any of the January 2008 Notes; however, the lenders have not yet taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, continuing to convert principal and accrued interest into shares of its Common Stock and are in constant communication with the lender, there can be no assurances that the lenders will continue to delay the enforcement of their remedies under the January 2008 Notes.

May 2008 Convertible Note

In May 2008, the Company entered into a Securities Purchase Agreement with an accredited investor providing for the sale by the Company of an 8% convertible note in the principal amount of $750,000 (the "May 2008 Convertible Note") and the issuance of 750,000 shares of Common Stock of the Company, a Series A Common Stock Purchase Warrant to purchase 1,500,000 shares of the Company’s Common Stock (the “Series A May Warrant”) and a Series B Common Stock Purchase Warrant to purchase 1,500,000 shares of the Company’s Common Stock (the “Series B May Warrant”). The May 2008 Convertible Note matured on May 14, 2009, and interest is payable on a quarterly basis. The May 2008 Convertible Note is unsecured, however, in the event that the Company grants a secured interest in its assets in connection with any future financing, then the holder of the May 2008 Convertible Note will be entitled to a pari passu interest in such secured interest. The May 2008 Convertible Note was convertible into the Company’s Common Stock, at a conversion price of $0.1871 per common share, as adjusted, and is subject to normal and customary anti-dilution provisions. The Company may require that the holder of the May 2008 Convertible Note convert all or a portion of the May 2008 Convertible Note in the event that the Company’s closing market price for any 10 consecutive trading days exceeds 300% of the then conversion price. However, in no event can the holder of the May 2008 Convertible Note convert the May 2008 Convertible Note into such shares which would provide for the holder to own more than 4.9% of the then outstanding shares of the Company’s Common Stock, including the shares for which the holder is entitled upon exercise of the Series A May Warrant and Series B May Warrant.

F-13

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Series A May Warrant and Series B May Warrant are exercisable until May 14, 2010, at an exercise price of $0.375 and $0.50 per share, respectively. In the event that the Company issues securities at a per share price less than the conversion price, then the exercise price associated with the Series A May Warrant and Series B May Warrant shall be adjusted to equal such price. However, no adjustment will be made for issuances relating to shares of the Company’s Common Stock or options to employees, officers, consultants or directors of the Company, securities outstanding as of the date of the closing, securities issued in connection with acquisitions or strategic transactions or securities issued as equity enhancements in connection with standard non-convertible debt transactions

Pursuant to ASC Topic 740-20, "Debt with Conversions and Other Options,” the proceeds from the debt were allocated to the common shares issued, the warrants issued and the debt on a relative fair value basis.

The Company calculated the value of the beneficial conversion feature as $305,576, and recorded such value as a discount to the May 2008 Convertible Note and to additional paid-in capital. Using the Black Scholes pricing model, with volatility of 140.69%, a risk-free interest rate of 3.88% and a 0% dividend yield, the Series A May Warrant and Series B May Warrant were determined to have a fair value of $236,114, with such value also recorded as a discount to the May 2008 Convertible Note and to additional paid-in capital. The value of the 750,000 common shares was determined to be $99,462, based on the market price of the Company’s Common Stock at the time of issuance, and was also recorded as a discount to the May 2008 Convertible Note and as Common Stock and additional paid-in capital. The aggregate discount of $641,152 attributable to the shares, the warrants and the beneficial conversion feature was amortized using the effective interest rate method over the term of the indebtedness and as was fully amortized as of December 31, 2009. The Company also incurred issue costs of $90,000 associated with the May 2008 Convertible Note which it recorded as deferred financing costs as a component of prepaid and other current expenses. The Company also issued 150,000 Series A May Warrants and 150,000 Series B May Warrants, valued at $42,730, to its investment banking firm as additional compensation. The deferred financing costs were amortized using the effective interest rate method over the term of the indebtedness.

The Company has not made any required interest payment since March 31, 2009, and was unable to repay the May 2008 Convertible Note at maturity on May 14, 2009. Pursuant to the terms of the May 2008 Convertible Note, upon becoming in default, the interest rate on all amounts outstanding increased to 15% per annum. The Company made no interest payments on the May 2008 Convertible Note during 2009 and paid $23,808 in interest on the May 2008 Convertible Note during the year ended December 31, 2008. As of December 31, 2009, the Company had total accrued and unpaid interest of $85,543 on the May 2008 Convertible Note.

F-14

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 2, 2009, the Company entered a Letter Agreement with the holder of the May 2008 Convertible Note whereby, in order to induce the holder to convert the May 2008 Convertible Note into shares of the Company’s common stock and, in turn, to reduce the Company’s debt and avoid potentially filing for bankruptcy, the May 2008 Convertible Note was amended providing that the holder may from time to time convert all or any part of the outstanding and unpaid principal amount of the May 2008 Convertible Note into shares of the Company’s common stock, at the holder's option, at the lesser of (i) $0.0025 or (ii) a 50% discount to the average of the three lowest trading prices of the common stock during the 20 trading day period prior to conversion (the “Variable Conversion Price”). On January 29, 2010, the Company entered into a Letter Agreement with the holder removing the holder’s ability to convert at the Variable Conversion Price. The holder did not convert any of the May 2008 Convertible Note into shares of the Company’s Common Stock during the year ended December 31, 2009.

As of December 31, 2009, the Company had not cured its default with respect to the May 2008 Convertible Note; however, the lender has not yet taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, continuing to convert principal and accrued interest into shares of its Common Stock and are in constant communication with the lender, there can be no assurances that the lender will continue to delay the enforcement of their remedies under the May 2008 Convertible Note.

August 2008 Note

In August 2008, the Company entered into four 12% Unsecured Promissory Notes, and Securities Purchase Agreements, with accredited investors for an aggregate principal amount of $500,000 (the "August 2008 Notes") and the issuance of 500,000 shares of the Company’s Common Stock. The August 2008 Notes matured on September 28, 2008. In the event that the August 2008 Notes were not repaid by September 28, 2008, the Company became required to issue 250,000 shares of the Company’s Common Stock every thirty days that any amounts remain outstanding under the August 2008 Notes (the “Additional Shares”). An entity controlled by the Company’s former Chief Financial Officer purchased $50,000 of the August 2008 Notes.

In October 2008, and prior to the issuance of the 500,000 shares of the Company’s Common Stock or the Additional Shares, the Company and the holders of the August 2008 Notes elected to amend the terms of the August 2008 Notes. In connection therewith, in exchange for the holders of the August 2008 Notes election to forego their right to receive the 500,000 shares of the Company’s Common Stock and the Additional Shares, the Company agreed to issue the holders of the August 2008 Notes common stock purchase warrants to purchase an aggregate of 1,000,000 common shares of the Company’s Common Stock (the “August 2008 Warrants”). The August 2008 Warrants are exercisable for a period of three years at a price of $0.50 per share. As the August 2008 Notes were not repaid by September 28, 2008, the Company is required to issue the holders of the August 2008 Notes an aggregate of 250,000 warrants to purchase shares of the Company’s Common Stock every thirty days that any amounts remain outstanding under the August 2008 Notes (the “Additional Warrants”). The Additional Warrants shall be exercisable for a period of three years at a price equal to the greater of $0.50 or the market price as of the date of the issuance. As of December 31, 2009, a total of 4,000,000 Additional Warrants have been issued.

Using the Black Scholes pricing model, with volatility ranging from 146.59% to 181.19%, a risk-free interest rate ranging from 1.25% to 4.50% and a 0% dividend yield, the August 2008 Warrants and the Additional Warrants issued during 2008 were determined to have an aggregate fair value of $569,606, with such value recorded as a discount to the August 2008 Notes and to additional paid-in capital. This discount was amortized using the effective interest rate method over the term of the indebtedness and as of December 31, 2008, was fully amortized. Using the Black Scholes pricing model, with volatility ranging from 168.44% to 241.61%, a risk-free interest rate of ranging from 1.25% to 1.46% and a 0% dividend yield, the 3,000,000 Additional Warrants issued during 2009 were determined to have an aggregate fair value of $98,873, with such value recorded as additional interest expense and to additional paid-in capital.

F-15

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2009, the Company was in default of the repayment provision with respect to the August 2008 Notes; however, the lenders have not yet taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, converting principal and accrued interest into shares of its Common Stock and are in constant communication with the lender, there can be no assurances that the lenders will continue to delay the enforcement of their remedies under the August 2008 Notes. As noted above, pursuant to the terms of the August 2008 Notes, the Company is required to issue to the holders of the August 2008 Notes, a total of 250,000 warrants to purchase shares of the Company’s Common Stock every 30 days that amounts remain outstanding under the August 2008 Notes. The Company had accrued and unpaid interest totaling $65,384 associated with the August 2008 Notes at December 31, 2009.

October 2008 Note

On October 17, 2008, the Company entered into a 12% Unsecured Promissory Note, and Securities Purchase Agreement, with an accredited investor for an aggregate principal amount of $50,000 (the "October 2008 Note") and the issuance of common stock purchase warrants to purchase an aggregate of 100,000 common shares of the Company’s Common Stock (the “October 2008 Warrants”). The October 2008 Warrants are exercisable for a period of three years at a price of $0.50 per share. The October 2008 Notes matured on November 17, 2008. In the event that the October 2008 Notes were not repaid by November 17, 2008, the Company became required to issue 25,000 warrants to purchase shares of the Company’s Common Stock every thirty days that any amounts remain outstanding under the October 2008 Notes (the “Additional October Warrants”). The Additional October Warrants are exercisable for a period of three years at a price equal to the greater of $0.50 or the market price as of the date of the issuance. As of December 31, 2009, a total of 350,000 Additional Warrants have been issued.

Using the Black Scholes pricing model, with volatility ranging from 150.67% to 176.24%, a risk-free interest rate ranging of 1.25% and a 0% dividend yield, the October 2008 Warrants and the Additional October Warrants issued during 2008 were determined to have an aggregate fair value of $29,180, with such value recorded as a discount to the October 2008 Note and to additional paid-in capital. This discount was amortized using the effective interest rate method over the term of the indebtedness and as of December 31, 2008, was fully amortized. Using the Black Scholes pricing model, with volatility ranging from 168.44% to 241.61%, a risk-free interest rate of ranging from 1.25% to 1.46% and a 0% dividend yield, the 300,000 Additional Warrants issued during 2009 were determined to have an aggregate fair value of $9,885, with such value recorded as additional interest expense and to additional paid-in capital.

As of December 31, 2009, the Company was in default of the repayment provision with respect to the October 2008 Note; however, the lender has not yet taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lender, there can be no assurances that the lender will continue to delay the enforcement of their remedies under the October 2008 Note. As noted above, pursuant to the terms of the October 2008 Notes, the Company is required to issue to the holders of the October 2008 Notes, a total of 25,000 warrants to purchase shares of the Company’s Common Stock every 30 days that amounts remain outstanding under the October 2008 Notes. The Company has a total of $7,233 in accrued and unpaid interest on the October 2008 Note at December 31, 2009.

February 2009 Note

On February 2, 2009, the Company issued an unsecured promissory note to an accredited investor providing for a loan of $285,000 (the “February 2009 Note”). The February 2009 Note was due on May 3, 2009, and bore interest at 14% per annum. The Company incurred issue costs of $23,850 associated with the February 2009 Note which it recorded as deferred financing costs as a component of prepaid and other current expenses. The deferred financing cost was amortized using the effective interest rate method over the term of the indebtedness. The net proceeds were used to reduce the principal amount due on the December 2007 Note ($125,000) and for general corporate purposes. The February 2009 Note and accrued interest was repaid in May 2009.

F-16

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 2009 Note

On May 26, 2009, the Company entered into a 16% Unsecured Promissory Note with an accredited investor for an aggregate principal amount of $340,000 (the "May 2009 Note") and the issuance of common stock purchase warrants to purchase an aggregate of 1,000,000 common shares of the Company’s Common Stock (the “May 2009 Warrants”). The May 2009 Warrants are exercisable for a period of three years at a price of $0.05 per share. The May 2009 Note matured on August 24, 2009. In the event that the May 2009 Note was not repaid by August 24, 2009, the interest rate increased to 18% per annum and the lender, at its option, could convert all outstanding amounts in shares of the Company’s Common Stock at a conversion price of $0.05 per share. The Company incurred $17,000 of issue costs associated with the May 2009 Note, which was amortized using the effective interest rate method over the term of the indebtedness and as of December 31, 2009, was fully amortized. The net proceeds were used to repay the principal and accrued interest due on the February 2009 Note, the due date of which had been extended until July 24, 2009, and for general corporate purposes.

Using the Black Scholes pricing model, with volatility of 231%, a risk-free interest rate of 1.25% and a 0% dividend yield, the 1,000,000 May 2009 Warrants were determined to have an aggregate fair value of $33,139, with such value recorded as a discount to the May 2009 Note and to additional paid-in capital. This discount was amortized using the effective interest rate method over the term of the indebtedness and as of December 31, 2009, was fully amortized.

As of December 31, 2009, the Company was in default of the repayment provision with respect to the May 2009 Note; however, the lender has not yet taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lender, there can be no assurances that the lender will continue to delay the enforcement of their remedies under the May 2009 Note. The Company has a total of $37,377 in accrued and unpaid interest on the May 2009 Note at December 31, 2009.

July 2009 Note

On July 16, 2009, the Company issued an unsecured promissory note to an accredited investor providing for a loan of $40,000 (the “July 2009 Note”). The July 2009 Note matured on October 13, 2009, and bears interest at 14% per annum.

As of December 31, 2009, the Company was in default of the repayment provision with respect to the July 2009 Note; however, the lender has not yet taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lender, there can be no assurances that the lender will continue to delay the enforcement of their remedies under the July 2009 Note. The Company has a total of $2,613 in accrued and unpaid interest on the July 2009 Note at December 31, 2009.

September 2009 Note

On September 21, 2009, the Company issued an unsecured promissory note to an accredited investor providing for a loan of $55,000 (the “September 2009 Note”). The September 2009 Note is due on September 21, 2010, and bears interest at 12% per annum. The Company has a total of $1,833 in accrued and unpaid interest on the September 2009 Note at December 31, 2009.

F-17

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2009 Convertible Notes

On October 30, 2009, the Company issued unsecured convertible notes to two accredited investors for an aggregate principal amount of $15,000 (the “October 2009 Convertible Notes”). The October 2009 Notes are due on April 30, 2010, and bear interest at 18% per annum. The October 2009 Convertible Notes are convertible into the Company’s Common Stock at the discretion of the holder at any time, at the lesser of (i) $0.0025 or (ii) a 50% discount to the average of the three lowest trading prices of the common stock during the 20 trading day period prior to conversion.

Pursuant to ASC Topic 740-20, "Debt with Conversions and Other Options,” the proceeds from the debt were allocated to the beneficial conversion feature and the debt on a relative fair value basis. The Company calculated the value of the beneficial conversion feature as $15,000, and recorded such value as a discount to the October 2009 Convertible Notes and to additional paid-in capital. The discount is being amortized using the effective interest rate method over the term of the indebtedness and, as of December 31, 2009, had an unamortized balance of $9,524. The Company has a total of $510 in accrued and unpaid interest on the October 2009 Convertible Notes at December 31, 2009.

November 10, 2009 Note

On November 10, 2009, the Company entered into a loan agreement with an accredited investor providing for a loan of $50,000 (the “November 10, 2009 Note”). The November 10, 2009 Note matured on December 31, 2009, and bears interest at 12% per annum.

As of December 31, 2009, the Company was in default of the repayment provision with respect to the November 10, 2009 Note; however, the lender has not yet taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lender, there can be no assurances that the lender will continue to delay the enforcement of their remedies under the November 10, 2009 Note. The Company has a total of $833 in accrued and unpaid interest on the November 10, 2009 Note at December 31, 2009.

November 30, 2009 Note

On November 30, 2009, the Company entered into a loan agreement with an accredited investor providing for a loan of $15,000 (the “November 30, 2009 Note”). The November 30, 2009 Note matures on April 1, 2010, and bears interest at 12% per annum. The Company has a total of $150 in accrued and unpaid interest on the November 30, 2009 Note at December 31, 2009.

December 2009 Convertible Note

On December 14, 2009, the Company issued an unsecured convertible notes to an accredited investor for a principal amount of $20,000 (the “December 2009 Convertible Note”). The December 2009 Convertible Note is due on May 14, 2010, and bear interest at 18% per annum. The December 2009 Convertible Note is convertible into the Company’s Common Stock at the discretion of the holder at any time, at the lesser of (i) $0.0025 or (ii) a 50% discount to the average of the three lowest trading prices of the common stock during the 20 trading day period prior to conversion.

F-18

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to ASC Topic 740-20, "Debt with Conversions and Other Options,” the proceeds from the debt were allocated to the beneficial conversion feature and the debt on a relative fair value basis. The Company calculated the value of the beneficial conversion feature as $20,000, and recorded such value as a discount to the December 2009 Convertible Note and to additional paid-in capital. The discount is being amortized using the effective interest rate method over the term of the indebtedness and, as of December 31, 2009, had an unamortized balance of $17,748. The Company has a total of $168 in accrued and unpaid interest on the December 2009 Convertible Note at December 31, 2009.

December 2009 Note

On December 31, 2009, the Company entered into a loan agreement with an accredited investor providing for a loan of $7,500 (the “December 2009 Note”). The December 2009 Note matures on May 1, 2010, and bears interest at 12% per annum.

CAPITAL STOCK

Preferred Stock

The Company has authorized 5,000,000 shares of Preferred Stock-Series A, with a par value of $0.001 per share. Each Series A Preferred Share shall have voting rights and shall carry a voting weight equal to twenty shares of Common Stock. Each Series A Preferred Share may be converted into twenty shares of Common Stock upon approval by the Company’s Board of Directors.

The Company has authorized 5,000,000 shares of Preferred Stock-Series B, with a par value of $0.001 per share. Each Series B Preferred Share shall have voting rights and shall carry a voting weight equal to two shares of Common Stock. Each Series B Preferred Share may be converted into two shares of Common Stock upon approval by the Company’s Board of Directors.

The Company has authorized 5,000,000 shares of Preferred Stock-Series C, with a par value of $0.001 per share. No Series C Preferred Share shall have voting rights.

The Company has authorized 10,000,000 shares of blank-check Preferred Stock-Series D, with a par value of $0.001 per share.

The Company has authorized 10,000,000 shares of blank-check Preferred Stock-Series E, with a par value of $0.001 per share.

As of December 31, 2008, the Company had no Preferred Stock issued and outstanding. On December 2, 2009, the Company issued 5,000,000 shares of Series A Preferred Stock to Mr. Robert Teague, the Company’s Executive Vice President in satisfaction of $60,000 of unpaid wages.

Common Stock

The Company has authorized 1,500,000,000 shares of Common Stock, with a par value of $0.001 per share. As of December 31, 2009, the Company had 124,352,034 shares of Common Stock issued and outstanding.

In connection with the issuance of the January 2008 Note, the Company issued 320,000 shares of Common Stock, with such shares valued at $120,000, based on the fair market value of the Company’s Common Stock on the date of issue, and was recorded as a discount to the January 2008 Note.

F-19

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the issuance of the May 2008 Convertible Note, the Company issued 750,000 shares of Common Stock, with such shares valued at $99,462, based on the fair market value of the Company’s Common Stock on the date of issue, and was recorded as a discount to the May 2008 Convertible Note.

Commencing June 30, 2008, through August 8, 2008, the Company, entered into and closed a Securities Purchase Agreement (the "June 2008 Purchase Agreement") with several accredited investors (the “June 2008 Investors”) providing for the sale by the Company to the June 2008 Investors of 4,124,998 units with each unit consisting of two share of the Company’s Common Stock, a warrant to purchase one share of the Company’s Common Stock at an exercise price of $0.50 per common share (the “Series A June Warrant”) and a warrant to purchase one share of the Company’s Common Stock at an exercise price of $1.00 per common share (the “Series B June Warrant”). The per unit purchase price for the units was $0.30 resulting in gross proceeds of $2,474,999 to the Company and the issuance of 8,249,996 shares of Common Stock, Series A June Warrants to purchase 4,124,998 shares of the Company’s Common Stock and Series B June Warrants to purchase 4,124,998 shares of the Company’s Common Stock. The Company incurred transaction costs totaling $286,506 in the issuance of the units, thereby realizing $2,188,493 in net proceeds. The Company also issued 412,498 Series A June Warrants and 412,498 Series B June Warrants to its investment banking firm as additional compensation.

The Series A June Warrants are exercisable for a period of two years at an exercise price of $0.50 per share. The Series B June Warrants are exercisable for a period of two years and had an original exercise price of $1.00 per share. In the event that the Company issues securities at a per share price less than the exercise price, then the exercise price associated with the Series A June Warrants and Series B June Warrants shall be adjusted to equal such price. Further, if the Company issues securities at a price less than $0.30, then the June 2008 Investors will be entitled to receive additional shares of Common Stock to reflect the issuance of the additional shares (together, these two provisions are known as the “Anti-Dilution Provision”). As a result of the Company entering into the August 2008 Notes and agreeing to issue the August 2008 Warrants with an exercise price of $0.50 per share, the exercise price of the Series B June Warrants was reduced to $0.50 per share as well. During 2009, in connection with the Company obtaining a permanent waiver of the Anti-Dilution Provision, the Company was required to reduce the exercise price of the Series A June Warrant and Series B June Warrant for one of the investors from $0.50 to $0.0005, as well as issue to the investor a warrant to acquire 12,000,000 shares of the Company’s Common Stock at an exercise price of $0.0005 per common share (the “Series C June Warrant”). The Series C June Warrant is exercisable until November 30, 2012.

During 2008, the Company issued an aggregate of 2,950,000 common shares for consulting and legal services. The Company recognized expenses totaling $568,500 based on the fair value of the Company’s Common Stock at date of issuance.

On February 6, 2009, the Company issued 1,000,000 restricted shares of Common Stock to its former Chief Financial Officer pursuant to the terms of an Executive Employment Agreement entered into as of February 6, 2009, between the Company and its former Chief Financial Officer. The value of the 1,000,000 common shares was determined to be $65,000, based on the market price of the Company’s Common Stock at the time of issuance, and was recorded as stock compensation expense, common stock and additional paid-in capital.

F-20

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On June 3, 2009, pursuant to an Employment Agreement entered on June 1, 2009, the Company issued 4,523,000 restricted shares of Common Stock to its Executive Vice President. The value of the 4,523,000 common shares was determined to be $135,690, based on the market price of the Company’s Common Stock at the time of issuance, and was recorded as stock compensation expense, common stock and additional paid-in capital.

On July 31, 2009, pursuant to the terms of the January 2008 Notes, the Company was required to issue 300,000 shares of its Common Stock as a penalty for not having repaid the outstanding borrowings. The value of the 300,000 common shares was determined to be $10,500, based on the market price of the Company’s Common Stock at the time of issuance, and was recorded as interest expense, common stock and additional paid-in capital.

During 2009, the Company issued an aggregate of 7,607,400 common shares for consulting services. The Company recognized expenses totaling $304,227 based on the fair value of the Company’s Common Stock at date of issuance.

During 2009, the Company issued 2,400,000 common shares in settlement of $6,000 of accounts payable.

As of December 31, 2009, the Company had the following dilutive securities outstanding:

	Number		Exercise	Expiration
	of Shares		Price	Date
Common Shares issuable:
Upon conversion of the amended January 2008 Note	289,920,000		-	-
In connection with the May 2008 Convertible Note:
Upon conversion of May 2008 Convertible Note	300,000,000		-	-
Upon exercise of the Series A May Warrants	1,650,000	$	0.38	May 14, 2010
Upon exercise of the Series B May Warrants	1,650,000	$	0.50	May 14, 2010
In connection with the June 2008 Unit Offering:
Upon exercise of Series A June Warrants	3,704,165	$	0.50	June 30, 2010
Upon exercise of Series A June Warrants	833,334	$	0.0005	June 30, 2010
Upon exercise of Series B June Warrants	3,704,165	$	0.50	June 30, 2010
Upon exercise of Series B June Warrants	833,334	$	0.0005	June 30, 2010
Upon exercise of Series C June Warrants	12,000,000	$	0.0005	November 30, 2012
In connection with the August 2008 Notes:
Upon exercise of the August 2008 Warrants	1,000,000	$	0.50	August 28, 2011
Upon exercise of the Penalty Warrants (9/08 - 12/09)	4,000,000	$	0.50	September 30, 2011 - December 31, 2012
In connection with the October 2008 Notes:
Upon exercise of the October 2008 Warrants	100,000	$	0.50	October 17, 2011
Upon exercise of the Penalty Warrants (11/08 - 12/09)	350,000	$	0.50	November 17, 2011 - December 17, 2012
In connection with the May 2009 Note:
Upon exercise of the May 2009 Warrants	1,000,000	$	0.05	May 26, 2012
Upon conversion of May 2009 Note in the event of default	6,800,000		-	-
Upon conversion of the October 2009 Convertible Notes	6,000,000		-	-
Upon conversion of the December 2009 Convertible Notes	8,000,000		-	-
Total dilutive securities at December 31, 2009	641,544,998

F-21

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES

The Company’s net loss before income taxes totaled $8,878,301 and $6,865,407 for the years ended December 31, 2009 and 2008, respectively.

The total provision for income taxes, which consist solely of U.S. Federal taxes, consist of the following:

		For the Year		For the Year
		Ended		Ended
		December 31, 2009		December 31, 2008
Current taxes	$	-	$	-
Deferred taxes		-		-
Total	$	-	$	-

A reconciliation of the tax on the Company’s Operating Loss and total tax expense is shown below:

		For the Year			For the Year
		Ended			Ended
		December 31, 2009			December 31, 2008

Income tax benefit at U.S. statutory rate	$	(3,107,405	)	$	(2,402,892	)
Implied interest expense associated with outstanding debt instruments		181,345			148,975
50% limitation of meals and entertainment		1,021			5,322
Increase in valuation allowance		2,925,039			2,248,595
	$	-		$	-

The components of net deferred tax assets and liabilities recognized are as follows:

		December 31, 2009			December 31, 2008

Deferred noncurrent tax asset:
Net operating loss carryforwards	$	5,260,149		$	1,698,528
Gross deferred noncurrent tax asset		5,260,149			1,698,528
Book-tax differences in property basis		-			-
Stock-based compensation		114,772			-
Valuation allowance		(5,242,235	)		(2,317,196	)
Deferred noncurrent tax asset	$	132,686		$	(618,668	)

Deferred noncurrent tax liability:
Book-tax differences in property basis	$	(132,686	)	$	618,668
Deferred noncurrent tax liability	$	(132,686	)	$	618,668

Net noncurrent tax asset	$	-		$	-

F-22

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. As of December 31, 2009 and 2008, the Company had net operating loss carryforwards of approximately $15.0 million and $4.9 million, respectively, which expire at various dates through 2029. The tax benefits of carryforwards are recorded as assets to the extent that management assesses the utilization of such carryforwards to be “more likely than not.” When the future utilization of some portion of the carryforwards is determined not to be “more likely than not,” a valuation allowance is provided to reduce the recorded tax benefits from such assets. At this time, based on current facts and circumstances, potential benefit of the deferred tax assets has not been recognized in the consolidated financial statements because the Company cannot be assured it is more likely than not it will utilize the deferred tax assets in future years. The Company had no uncertain tax positions as of December 31, 2009.

COMMITMENTS AND CONTINGENCIES

The Company leases corporate office space in Houston, Texas. During 2008 the Company sublet its office space from a company majority owned by Mr. Teague and Mr. Wiseman, executive officers and directors of the Company. The sublease was on a month-to-month basis and total payments during the years ended December 31, 2008 was $40,261.

In November 2008, the Company entered into a 38- month lease agreement for its corporate office. Total rent expense during 2009 totaled $88,111. As of December 31, 2009, future minimum lease payments for this lease, the Company’s only non-cancelable operating lease, was as follows:

2010	$	103,790
2011		108,321
2012		36,610
Total	$	248,721

SUBSEQUENT EVENTS

During 2010, the Company entered into conversion agreements converting a total of $868,750 of principal and accrued interest of the January 2008 Notes into 347,500,000 shares of the Company’s Common Stock.

During 2010, the Company entered into conversion agreements converting a total of $380,000 of principal and accrued interest of the May 2008 Convertible Note into 152,000,000 shares of the Company’s Common Stock.

During 2010, the Company entered into conversion agreements converting a total of $77,500 of principal and accrued interest of the August 2008 Notes into 31,000,000 shares of the Company’s Common Stock.

During 2010, the Company entered into conversion agreements converting a total of $107,530 of accounts payable into 15,199,999 shares of the Company’s Common Stock.

On March 24, 2010, the Company entered into a contract and assignment agreement whereby the Company purchased a 10% interest in a producing crude oil well and associated oil and gas leases, in exchange for $15,000 and 15,000,000 shares of the Company’s Common Stock.

On April 12, 2010, the Company entered into an Accounts Receivable Agreement with Westerly Exploration, Inc. the operator of the Company’s Apclark producing field (“Operator”) whereby Operator is willing to settle all amounts then outstanding. Concurrent with entering into the Accounts Receivable Agreement, Operator sold $200,000 of the then outstanding amounts due to several accredited investors who, in turn, entered into conversion agreements with the Company to convert the amount due into shares of the Company’s Common Stock at a conversion price of $0.005 per share.

F-23

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2010, the Company was advanced $153,250 by two accredited investors for working capital purposes. On January 28, 2010, the Company issued one of the investors a $25,000 Convertible Note (“January Convertible Note) and on April 12, 2010, the Company issued two promissory notes totaling $129,250 for the balance of the monies advanced plus $1,000 due one investor as of December 31, 2009 (“April Promissory Notes”). The January Convertible Note matures on June 28, 2010, and bears interest at an annual rate of 18%. The January Convertible Note is convertible into the Company’s Common Stock at the discretion of the holder at any time, at the lesser of (i) $0.0025 or (ii) a 50% discount to the average of the three lowest trading prices of the common stock during the 20 trading day period prior to conversion. The April Promissory Notes mature on December 31, 2010, and bear interest at an annual rate of 10%.

SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES (Unaudited)

Oil and Gas Operations

The following table sets forth revenue and direct cost information relating to the Company’s oil and gas exploration and production activities:

		2009			2008
Crude oil and natural gas production revenues	$	257,897		$	229,579
Operating cost:
Depreciation, depletion and amortization
Recurring ⁽¹⁾		91,077			397,671
Additional ⁽²⁾		6,485,455			3,920,764
Lease operating expenses		142,993			71,760
Production taxes		11,260			10,584
Results of operations	$	(6,472,888	)	$	(4,171,200	)
Barrels of oil produced		4,563			3,197
Recurring DD&A per barrel of oil	$	19.96		$	124.39

⁽¹⁾	This amount only reflects DD&A of capitalized costs of oil and gas proved properties and, therefore, does not agree with DD&A reflected on the Company's Statements of Consolidated Operations.

⁽²⁾	This amount reflects the charge associate with the required ceiling test limitation. See Note 2.

F-24

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities

		2009		2008

Acquisitions
Proved	$	-	$	-
Unproved ⁽¹⁾		458,353		7,759,502
Exploration		-		-
Development		495,349		2,256,670
Costs incurred	$	953,702	$	10,016,172

(1)	2008 Unproved property acquisition is gross of $115,000 received by the Company for the sale of 10% of it's interest in Goodnorth field and includes $208,690 of capitalized interest. 2009 Unproved property acquisition includes $458,353 of capitalized interest.

Capitalized Costs

The following table sets forth the capitalized costs and associated accumulated depreciation, depletion and amortization relating to the Company’s oil and gas production, exploration and development activities:

		2009			2008

Proved properties	$	11,617,669		$	4,941,803
Unproved properties		488,444			7,599,369
		12,106,113			12,541,172
Accumulated DD&A		(10,900,593	)		(4,324,062	)
	$	1,205,520		$	8,217,110

Costs Not Being Amortized

As of December 31, 2009, the Company has $488,444 of property acquisition costs not being amortized, of which $65,649 was incurred during 2008, $395,350 was incurred in 2009 and $27,445 represented capitalized interest. The majority of the evaluation activities with respect to these costs are expected to be completed within one to three years.

Oil and Gas Reserve Information

The estimate of reserves disclosed in this Annual Report on Form 10-K were based on estimates made by Joe C. Neal & Associates, (“Neal”) independent petroleum engineers. Neal was engaged by and provided their report to the Company’s senior management team. The Company makes representations to the independent engineers that it provided all relevant operating data and documents, and in turn, the Company reviews the reserve reports provided by the independent engineers to ensure completeness and accuracy. Management cautions that there are many inherent uncertainties in estimating proved reserve quantities and related revenues and expenses, and in projecting future production rates and the timing and amount of development expenditures. Accordingly, these estimates will change, as future information becomes available. All of the Company’s oil and gas reserves are located in the United States.

F-25

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			Natural
	Crude Oil		Gas
	(bbl)		(mcf)
Proved developed reserves
December 31, 2008	34,488		12,019
December 31, 2009	14,787		12,849

Proved undeveloped reserves
December 31, 2008	-		-
December 31, 2009	33,041		34,720

Total proved reserves
Balance December 31, 2007	537,037		618,855
Extensions, discoveries and other additions	-		-
Purchases of minerals in-place	-		-
Revisions of previous estimates	(499,352	)	(606,836	)
Production	(3,197	)	-
Sales of properties	-		-
Balance December 31, 2008	34,488		12,019
Extensions, discoveries and other additions	-		-
Purchases of minerals in-place	-		-
Revisions of previous estimates	20,364		35,550
Production	(4,563	)	-
Sales of properties	(2,460	)	-
Balance December 31, 2009	47,829		47,569

As of December 31, 2009 and 2008, on a barrel of equivalent basis 70% and 0% percent of our estimated reserves, respectively, were classified as proved undeveloped. These reserves relate to zones that are either behind pipe, or that have been completed but not yet produced, or zones that have been produced in the past, but are not now producing because of mechanical reasons. These reserves are considered to be a lower tier of reserves than producing reserves because they are frequently based on volumetric calculations rather than performance data. Future production associated with behind pipe reserves is scheduled to follow depletion of the currently producing zones in the same wellbores. It should be noted that additional capital may have to be spent to access these reserves. The revisions in our estimates of crude oil and natural gas reserves by 499,352 bbl and 606,836 mcf for the year ended December 31, 2008, principally related to the proved undeveloped reserves of our Apclark Field no longer being economic based on year-end December 31, 2008 prices of $42.00 per bbl of crude oil and $4.90 per mcf of natural gas, as compared to year-end December 31, 2007 prices of $85.00 per bbl of crude oil and $7.00 per mcf of natural gas. The revisions in our estimates of crude oil and natural gas reserves by 20,364 bbl and 35,550 mcf for the year ended December 31, 2009, principally related to the proved undeveloped reserves of our Apclark Field becoming economic based average prices for 2009 of $57.02 per bbl of crude oil and $5.00 per mcf of natural gas. The capital and economic impact of production timing are reflected in this Note 9, under “Future Net Cash Flows.”

Future Net Cash Flows

Future cash inflows as of December 31, 2009, were calculated using an average of oil and gas prices in effect on the first day of each month in 2009, except where prices are defined by contractual arrangements. Future cash inflows as of December 31, 2008 were estimated using oil and gas prices in effect at the end of that year, in accordance with SEC guidance in effect prior to the issuance of the Modernization Rules. Operating costs, production and ad valorem taxes and future development costs are based on current costs with no escalation.

F-26

BONANZA OIL & GAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth unaudited information concerning future net cash flows for oil and gas reserves, net of income tax expense. Income tax expense has been computed using expected future tax rates and giving effect to tax deductions and credits available, under current laws, and which relate to oil and gas producing activities. This information does not purport to present the fair market value of the Company’s oil and gas assets, but does present a standardized disclosure concerning possible future net cash flows that would result under the assumptions used.

2009
Cash inflows	$	2,965,027
Production costs		(1,136,886	)
Development costs		(600,000	)
Income tax expense		-
Net cash flows		1,228,141
10 percent discount rate		(511,065	)
Discounted future net cash flows ⁽¹⁾	$	717,076


2008
Cash inflows	$	1,513,883
Production costs		(545,603	)
Development costs		-
Income tax expense		(19,100	)
Net cash flows		949,180
10 percent discount rate		(343,630	)
Discounted future net cash flows ⁽¹⁾	$	605,550

⁽¹⁾

Estimated future net cash flows before income tax expense discounted at 10 percent per annum, totaled approximately $717,076 and $617,742 as of December 31, 2009 and 2008, respectively.

The following table sets forth the principal changes in the discounted future net cash flows:

		2009			2008
Sales, net of production costs	$	(103,644	)	$	(147,235	)
Net change in prices and production costs		138,005			(947,784	)
Discoveries and improved recoveries,		-			-
net of related costs		-			-
Development costs incurred		-			2,256,670
Change in future development costs		(600,000	)		5,413,205
Revision of quantities		471,403			(24,172,676	)
Purchases of minerals in-place		-			-
Accretion of discount		61,774			1,904,650
Change in income taxes		2,018			7,616,584
Sales of properties		(32,400	)		-
Change in production rates and other		174,370			(2,745,771	)
	$	111,526		$	(10,822,357	)

F-27

Filing Compare · BONANZA OIL & GAS, INC.