UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~MARCH 3031, ~~2008.~~2009

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

~~ACT OF 1934~~ FOR THE TRANSITION PERIOD FROM __________ TO ____________.

COMMISSION FILE NO. ~~333~~000-~~121070~~51710

~~ABC~~CROSS ~~FUNDING,~~CANYON ~~INC~~ENERGY CORP.

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

Nevada		56-2458730
(State or other jurisdiction of incorporation or organization)		(IIRS.~~R.S.~~ Employer Identification No.)

~~4606~~6630 FMCypresswood ~~1960 West~~Drive, Suite ~~400~~200

~~Houston~~Spring, Texas ~~77069~~77379

(Address of principal executive offices, including zip code)

(~~281~~832) ~~315~~559-~~8890~~6060

(~~Registrant~~Issuer’s telephone number, including area code)

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

Yes þ No o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company þ

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

Yes o No þ

At ~~November~~ 18June 1, ~~2008~~2009, the number of outstanding shares of the issuer’s common stock ~~was~~ 24was 48,~~885~~649,~~397~~990.

~~ABC~~CROSS ~~FUNDING,~~CANYON ~~INC~~ENERGY CORP.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of September 30, 2008, (unaudited) and June 30, 2008	3
	Consolidated Balance Sheets as of March 31, 2009, (successor) and December 31, 2008 (successor) (unaudited)	3
	Consolidated Statements of Operations for the Three Months Ended September 30, 2008 and 2007 (unaudited)	4
	Consolidated Statements of Operations for the Three Months Ended March 31, 2009 (successor) and March 31, 2008 (predecessor) (unaudited)	4
	Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2008 and 2007 (unaudited)	5
	Consolidated Statement of Changes in Stockholders’ Equity from December 31, 2008 to March 31, 2009 (unaudited)	5
	Notes to Unaudited Consolidated Financial Statements	7
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 (successor) and March 31, 2008 (predecessor) (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 4T.	Controls and Procedures	28
	PART II – OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders	30
Item 6.	Exhibits	30
	SIGNATURES	31
	Signatures	31
	INDEX TO EXHIBITS
	Index to Exhibits	32
	EXHIBIT 31.1
	EXHIBIT 31.2
	EXHIBIT 32.1
	EXHIBIT 32.2

PART I~~. FINANCIAL INFORMATION~~

FINANCIAL INFORMATION

Item 1. Financial Statements.

~~ABC FUNDING,~~CROSS ~~INC~~CANYON ENERGY CORP.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2008			June 30, 2008
	March 31,			December 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	~~774~~502,~~805~~713		$	121,~~158~~323,077
Restricted cash		50,000			--
Accounts receivable		608,858			616,754
Accounts receivable:
Current portion of derivative asset		1,785,395			1,356,279
Accrued oil and gas production revenue		1,059,541			--
Prepaid expenses and other current assets		43,334			11,564
Other		92,116			--
Total current assets		2,940,300			3,307,674
Prepaid expenses and other current assets		26,984			31,215
Oil and gas properties, using successful efforts method:
Deferred financing costs, net of accumulated amortization of $55,871		--			143,472
Proved properties		40,856,092			40,280,739
Total current assets		2,003,446			186,845
Unproved properties		11,889,814			11,989,150
Oil and gas properties, using full cost method:
Less accumulated depletion and depreciation		(1,503,542	)		(991,003	)
Proved properties		33,447,300			--
Net oil and gas properties		51,242,364			51,278,886
Unevaluated properties		7,291,249			976,284
Other property and equipment, net		88,505			40,950
Less accumulated depletion		(205,959	)		--
Deferred financing costs, net		1,591,957			1,728,411
Net oil and gas properties		40,532,590			976,284
Derivative asset		1,107,745			812,784
Fixed assets, net of accumulated depreciation of $675 and $183 at September 30 and June 30, 2008, respectively		9,461			7,881
TOTAL ASSETS	$	56,970,871		$	57,168,705
Deferred financing costs, net of accumulated amortization of $45,485		1,864,865			--
LIABILITIES AND STOCKHOLDERS' EQUITY
Derivative assets		634,528			--
		2,508,854			7,881
Total assets	$	45,044,890		$	1,171,010
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	~~564~~665,~~530~~905		$	~~404~~576,~~027~~619
Accounts payable – related parties		10,671			20,825
Deferred taxes, current		--			416,212
Accrued liabilities		1373,~~062,266~~604			1522,~~397~~000
Convertible debt		25,000			25,000
Convertible debt and other note payable		49,375			25,000
Note payable, net of unamortized discount of $14,552		542,948			--
Credit facility – revolving loan		11,500,000			11,500,000
Senior secured convertible debentures, net of unamortized discount of $778,362		--			121,638
Credit facility - term loan, net of unamortized discounts of $9,100,370 and $9,572,412		12,899,630			12,427,588
Derivative liabilities		28,717,058			11,893,573
Series C Preferred stock, $0.001 par value, 1,000 shares authorized and outstanding, with mandatory redemption		100,000			100,000
Total current liabilities		30,922,473			12,466,460
Derivative liabilities		1,033,104			554,181
Credit facility – revolving loan		10,500,000			--
Income taxes currently payable		508,991			508,991
Credit facility - term loan, net of unamortized discount of $200,278		21,799,722			--
Total current liabilities		27,130,609			26,630,591
Asset retirement obligations		765,658			--
Asset retirement obligation		897,781			878,621
Total liabilities		63,987,853			12,466,460
Deferred income taxes		9,609,767			9,855,816
Total liabilities		37,638,157			37,365,028
Commitments and contingencies		--			--
Series C Preferred stock , $0.001 par value, 1,000 shares authorized and outstanding at September 30, 2008, with mandatory redemption		100,000			--
Stockholders’ equity:
Stockholders’ deficit:
Preferred stock, $0.001 par value, 1,000,000 shares authorized, 999,000 and 842,505 undesignated authorized at March 31, 2009 and December 31, 2008, respectively
Preferred stock, $0.001 par value, 1,000,000 shares authorized, 842,505 and 863,505 undesignated authorized at September 30 and June 30, 2008, respectively
Series A Preferred stock, $0.001 par value, 99,395 shares authorized and outstanding		--			99
Series A Preferred stock, $0.001 par value, 99,395 shares authorized and outstanding at September 30 and June 30, 2008		99			99
Series B Preferred stock, $0.001 par value, 37,100 shares authorized and outstanding		--			37
Series B Preferred stock, $0.001 par value, 37,100 shares authorized and outstanding at September 30 and June 30, 2008		37			37
Series D Preferred stock, $0.001 par value, 10,000 shares authorized and outstanding		--			10
Series D Preferred stock, $0.001 par value, 10,000 shares authorized and outstanding at September 30, 2008		10			--
Series E Preferred stock, $0.001 par value, 10,000 shares authorized and outstanding		--			10
Series E Preferred stock, $0.001 par value, 10,000 shares authorized and outstanding at September 30, 2008		10			--
Common stock, $0.001 par value, 149,000,000 shares authorized, 47,711,464 and 25,264,260 outstanding at March 31, 2009 and December 31, 2008, respectively		47,711			25,264
Common stock, $0.001 par value, 24,000,000 shares authorized, 24,709,198 and 24,378,375 issued and outstanding at September 30 and June 30, 2008, respectively		24,709			24,378
Additional paid-in capital		15,519,051			14,782,392
Additional paid-in capital		12,560,783			769,318
Retained earnings		3,765,952			4,995,865
Accumulated deficit		(31,628,611	)		(12,089,282	)
Total stockholders’ equity		19,332,714			19,803,677
Total stockholders’ deficit		(19,042,963	)		(11,295,450	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	56,970,871		$	57,168,705
Total liabilities and stockholders' deficit	$	45,044,890		$	1,171,010

~~The accompanying~~See notes to ~~are~~unaudited anconsolidated ~~integral part of these~~ financial statements.

~~ABC FUNDING,~~CROSS ~~INC~~CANYON ENERGY CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

	Three Months Ended September 30,
	Successor Entity			Predecessor Entity
	2008			2007
	Three Months Ended March 31,			Three Months Ended March 31,
Operating revenues:
	2009			2008
Natural gas sales	$	456,831		$	--
Revenue:
Oil sales		337,353			--
Oil	$	268,889		$	1,943,482
Total operating revenue		794,184			--
Natural gas		484,271			1,944,061
Total revenue		753,160			3,887,543
Operating costs and expenses:
Lease operating expenses		~~154~~303,~~373~~497			--1,447,304
Production taxes		5557,~~361~~645			--236,518
General and administrative expenses		707,345			208,711
Exploration expense		193,139			--
Depreciation, depletion and amortization		206,451			--
Accretion of asset retirement obligation		19,160			15,233
Total operating costs and expenses		1,123,530			208,711
Depletion, depreciation and amortization		517,669			717,452
Loss from operations		(329,346	)		(208,711	)
General and administrative expense		1,128,071			176,334
Total operating costs and expenses		2,219,181			2,592,841
Income (loss) from operations		(1,466,021	)		1,294,702
Other income (expense):
Interest income		1,397			4,833
Interest expense, net		(1,125,521	)		(251,449	)
Interest expense		(1,167,454	)		(171,303	)
Risk management		1,355,277			(489,050	)
Risk management		683,391			--
Change in fair value of derivatives		(655,909	)		--
Loss on extinguishment of debt		(804,545	)		--
Total other income (expense)		(426,153	)		(740,499	)
Change in fair value of derivatives		(17,922,772	)		--
Income (loss) before income taxes		(1,892,174	)		554,203
Total other income (expense)		(19,209,983	)		(166,470	)
Income tax provision (benefit)		(662,261	)		193,971
Net loss	$	(19,539,329	)	$	(375,181	)
Net income (loss)		(1,229,913	)		360,232
Net loss per share: Basic and diluted	$	(0.80	)	$	(0.02	)
Deemed dividend – beneficial conversion feature of preferred stock		(5,089,641	)		--
Weighted average common shares outstanding: Basic and diluted		24,487,451			22,227,374
Net income (loss) available to common shareholders	$	(6,319,554	)	$	360,232
Net income (loss) per common share:
Basic and diluted	$	(0.05	)	$	36,023.00
Weighted average number of common shares outstanding:
Basic and diluted		27,396,378			10

~~The accompanying~~See notes to ~~are~~unaudited anconsolidated ~~integral part of these~~ financial statements.

~~ABC FUNDING,~~CROSS ~~INC~~CANYON ENERGY CORP.

~~AND~~ CONSOLIDATED ~~SUBSIDIARIES~~STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

		Three Months Ended September 30,
	Preferred Stock										Additional		Total
		2008				2007
	Series A		Series B		Series D		Series E		Common Stock		Paid-In	Retained	Stockholders’
Cash flows from operating activities:
	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Earnings	Equity
Net loss		$	(19,539,329	)		$	(375,181	)
Balances, December 31, 2008	99,395	$ 99	37,100	$ 37	10,000	$ 10	10,000	$ 10	25,264,260	$ 25,264	$ 14,782,392	$ 4,995,865	$ 19,803,677
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Series A Preferred converted to common	(99,395)	(99)	--	--	--	--	--	--	1,987,900	1,988	(1,889)	--	--
Depreciation, depletion and amortization			206,450				--
Series B Preferred converted to common	--	--	(37,100)	(37)	--	--	--	--	1,060,318	1,060	(1,023)	--	--
Share based compensation			337,984				145,500
Series D Preferred converted to common	--	--	--	--	(10,000)	(10)	--	--	17,500,000	17,500	(17,490)	--	--
Common stock issued for interest			--				5,266
Series E Preferred converted to common	--	--	--	--	--	--	(10,000)	(10)	1,363,636	1,364	(1,354)	--	--
Common stock issued for loan extensions			--				98,100
Discount for beneficial conversion feature on preferred stock	--	--	--	--	--	--	--	--	--	--	5,089,641	--	5,089,641
Amortization of deferred financing costs			188,956				--
Deemed dividend on preferred stock	--	--	--	--	--	--	--	--	--	--	(5,089,641)	--	(5,089,641)
Amortization of debt discounts			786,509				36,973
Stock-based compensation	--	--	--	--	--	--	--	--	535,349	535	581,429	--	581,964
Change in fair value of derivatives			17,922,772				--
Resolution of tainted liabilities	--	--	--	--	--	--	--	--	--	--	176,986	--	176,986
Loss on extinguishment of debt			804,545				--
Net loss	--	--	--	--	--	--	--	--	--	--	--	(1,229,913)	(1,229,913)
Gain on derivative			(634,528	)			--
Balances, March 31, 2009	--	$ --	--	$ --	--	$ --	--	$ --	47,711,463	$ 47,711	$ 15,519,051	$ 3,765,952	$ 19,332,714
Changes in assets and liabilities:
Accounts receivable			(1,191,068	)			--
Prepaid and other current assets			610				1,251
Accounts payable, related parties and other			477,912				13,562
Accrued liabilities			1,120,869				16,328
Net cash provided by (used in) operating activities			481,682				(58,201	)
Cash flows from investing activities:
Cash paid for acquisition of oil and gas properties, net of acquisition costs			(30,590,707	)			--
Purchase of fixed assets			(2,071	)			--
Restricted cash supporting letter of credit issuance			(50,000	)			--
Net cash used in investing activities			(30,642,778	)			--
Cash flows from financing activities:
Proceeds from issuance of mandatorily redeemable preferred stock			100,000				--
Repayment of convertible debenture			(450,000	)			--
Repayment of convertible notes			--				(410,000	)
Proceeds from credit facility			33,500,000				--
Repayment of credit facility			(1,000,000	)
Debt issuance costs			(1,226,257	)			--
Net cash provided by (used in) financing activities			30,923,743				(410,000	)
Net increase (decrease) in cash			762,647				(468,201	)
Cash at beginning of period			12,158				550,394
Cash at end of period		$	774,805			$	82,193
Supplemental information:
Cash paid for interest		$	15,768			$	14,637
Cash paid for income taxes		$	--			$	--

~~The accompanying~~See notes to ~~are~~unaudited anconsolidated ~~integral part of these~~ financial statements.

~~ABC FUNDING,~~CROSS ~~INC~~CANYON ENERGY CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Unaudited)

(Continued)

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

	Three Months Ended September 30,
	2008		2007
Non-Cash Investing and Financing Activities:
Common shares issued in payment of interest	$	--	$	39,358
Preferred shares issued for acquisition of oil and gas properties		9,100,000		--
Current assets acquired with acquisition		43,032		--
Current liabilities assumed with acquisition		531,132		--
Preferred shares issued in payment of convertible debenture		450,000		--
Note issued for debt issuance costs		557,500		--
Removal of derivative liability due to repayment of debt		1,099,287		--
Debt discount due to imputed interest		16,977		--
Debt discount due to overriding revenue royalty interest		206,000		--
Asset retirement obligation assumed		765,658		--
Debt issuance costs accrued		143,569		--

See notes to unaudited consolidated financial statements.

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

~~ABC~~CROSS ~~FUNDING,~~CANYON ~~INC~~ENERGY CORP.

~~AND~~CONSOLIDATED ~~SUBSIDIARIES~~STATEMENTS OF CASH FLOWS

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~(Unaudited)

~~SEPTEMBER 30, 2008~~(Continued)

NOTE 1. ORGANIZATION AND BASIS OF PREPARATION

	Successor Entity		Predecessor Entity
	Three Months Ended March 31,		Three Months Ended March 31,
	2009		2008

Non-cash investing and financing activities:
Conversion of Series A Preferred to common	$	1,988	$	--
Conversion of Series B Preferred to common		1,060		--
Conversion of Series D Preferred to common		17,500		--
Conversion of Series E Preferred to common		1,364		--
Resolution of tainted warrants		176,986		--

~~Headquartered in~~See ~~Houston, Texas, ABC Funding, Inc. (the “Company” or “ABC”), is incorporated~~notes ~~under the laws of the State of Nevada, with its primary business focus~~ to ~~engage in~~unaudited ~~the~~consolidated ~~acquisition,~~financial ~~exploitation and development of properties for the production of crude oil and natural gas~~statements. The Company intends to explore for oil and gas reserves through the drill bit and acquire established oil and gas properties. ABC intends then to exploit such properties through the application of conventional and specialized technology to increase production, ultimate recoveries, or both, and participate in joint venture drilling programs with repeatable low risk results.

The Company’s stock is traded on the OTC Bulletin Board (“OTCBB”) under the ticker symbol AFDG. Upon the effectiveness of an amendment to its Articles of Incorporation increasing the number of authorized shares of common stock that it may issue and changing its name (the “Charter Amendment”), the Company will change its name to Cross Canyon Energy Corp. and obtain a new ticker symbol for trading of its stock on the OTCBB. The name change will better reflect its business model.

On September 2, 2008, the Company consummated the acquisition of Voyager Gas Corporation, a Delaware corporation, (the “Voyager Acquisition”), whereby it purchased all of the outstanding capital stock of Voyager Gas Corporation, the owner of interests in oil and gas lease blocks located in Duval County, Texas, including working and other interests in oil and gas leases, producing wells, and properties, together with rights under related operating, marketing, and service contracts and agreements, seismic exploration licenses and rights, and personal property, equipment and facilities. Upon the completion of the Voyager Acquisition, Voyager Gas Corporation became a wholly-owned subsidiary of ABC. (See Note. 3) and the Company no longer qualified as a development stage enterprise as defined under SFAS No. 7 “Accounting and Reporting by Development State Enterprises”.

As of September 30, 2008, the Company has two subsidiaries, Energy Venture, Inc., and Voyager Gas Corporation. Energy Venture, Inc. currently has no operations, assets or liabilities. However, the Company has begun using this subsidiary as an operating company to perform the operations of its oil and gas business.

The consolidated financial statements herein have been prepared in accordance with generally accepted accounting principles (“GAAP”) and include the accounts of ABC Funding, Inc. and its subsidiaries, which are wholly owned. All inter-company transactions are eliminated upon consolidation.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements. The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the Unites States of America for interim financial information and with the instructions to Form 10-Q as prescribed by the SEC for smaller reporting companies and do not include all of the financial information and disclosures required by GAAP. The financial information as of September 30, 2008, and for the three months ended September 30, 2008 and 2007, is unaudited. In the opinion of management, such information contains all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation of the results of the interim periods. The results of operations for the three months ended September 30, 2008, are not necessarily indicative of the results of operations that will be realized for the year ended June 30, 2009. The interim financial statements should be read in conjunction with the financial statements as of June 30, 2008, and notes thereto, included in the Company’s Form 10-KSB filed with the SEC on September 9, 2008.

Use of Estimates. The 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. Actual results could differ from these estimates. Significant estimates affecting these financial statements include estimates for quantities of proved oil and gas reserves, period end oil and gas sales and expenses and asset retirement obligations, and are subject to change.

~~Cash~~CROSS ~~and~~CANYON ~~Cash Equivalents. For~~ENERGY ~~purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents~~CORP.

~~Revenue and Cost~~NOTES ~~Recognition. The~~TO ~~Company~~UNAUDITED ~~uses~~CONSOLIDATED ~~the~~FINANCIAL sales method of accounting for oil and natural gas revenues. Under this method, revenues are recognized based on the actual volumes of natural gas and oil sold to purchasers. The volume sold may differ from the volumes to which the Company is entitled based on its interest in the properties. Costs associated with production are expensed in the period incurred.STATEMENTS

~~Income~~NOTE ~~Taxes~~1. ~~Pursuant to Statement of Financial Accounting Standards~~ ~~(“SFAS”)~~BASIS ~~No.~~OF ~~109,~~PRESENTATION ~~“Accounting~~AND ~~for~~SIGNIFICANT ~~Income~~ACCOUNTING Taxes,” (“SFAS No. 109”), the Company follows the asset and liability method of accounting for income taxes, under which the Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which the Company expects to recover or settle those temporary differences.POLICIES

AsThe accompanying ~~changes~~unaudited inconsolidated ~~tax~~financial ~~laws~~statements of Cross Canyon Energy Corp. (“Cross Canyon” or ~~rates~~“the ~~are~~Company”) have been prepared in accordance with ~~enacted,~~accounting ~~deferred~~principles ~~income~~generally ~~tax~~accepted ~~assets~~in ~~and~~the ~~liabilities~~United ~~are~~States ~~adjusted~~of ~~through~~America, pursuant to the rules and regulations of the U.S. Securities and Exchange ~~provision~~Commission (the “SEC”) for ~~income~~interim ~~taxes~~financial information. ~~Deferred~~Accordingly, ~~tax~~the ~~assets~~financial ~~are~~statements ~~reduced~~do not include all information and footnotes required by agenerally accepted accounting principles ~~valuation~~in ~~allowance~~the ~~if,~~United ~~based~~States on(“GAAP”) ~~available~~for ~~evidence,~~complete itannual isfinancial statements. In ~~more~~the ~~likely~~opinion ~~than~~of ~~not~~management, the accompanying unaudited ~~that~~consolidated ~~some~~financial ~~portion~~statements orreflect all adjustments, consisting of ~~the~~normal recurring ~~deferred~~adjustments, ~~tax~~considered ~~assets~~necessary ~~will~~for a fair presentation. Interim operating results are not necessarily indicative of results that may be expected for the year ending December 31, ~~realized~~2009, or for any subsequent period. ~~The~~Therefore, ~~classification~~please ofread ~~current~~these financial statements and ~~noncurrent~~notes ~~deferred~~to ~~tax~~the consolidated financial statements together ~~assets~~with the audited consolidated financial statements and ~~liabilities~~notes isthereto ~~based~~in ~~primarily~~Cross Canyon’s Transition Report on ~~the~~Form ~~classification~~10-K offor the ~~assets~~transition period July 1, 2008 ~~and~~through ~~liabilities~~December ~~generating~~31, ~~the~~2008. Cross ~~difference~~Canyon has made certain reclassifications to prior year financial statements in order to conform to current year presentations.

~~Basic and Diluted Net Loss Per Share.~~ The ~~Company~~consolidated ~~computes~~financial ~~net income (loss) per share~~statements ~~pursuant~~herein tohave ~~SFAS~~been ~~No.~~prepared ~~128~~in ~~“Earnings~~accordance ~~per~~with ~~Share”. Basic~~generally ~~net~~accepted ~~income~~accounting principles (~~loss~~“GAAP”) ~~per~~and ~~share~~include ~~is computed by dividing income or loss applicable to common shareholders by~~ the ~~weighted~~accounts ~~average number~~ of ~~shares~~Cross ofCanyon ~~the~~Energy ~~Company’s~~Corp. ~~common~~and ~~stock~~its ~~outstanding~~wholly-owned ~~during the period~~subsidiaries. ~~Diluted~~ ~~net~~All ~~income~~inter-company ~~(loss)~~transactions ~~per share~~are ~~is determined in the same manner as basic net income (loss) per share~~eliminated ~~except~~upon that the number of shares is increased assuming exercise of dilutive stock options, warrants and convertible debt using the treasury stock method and dilutive conversion of the Company’s convertible preferred stockconsolidation.

~~Stock Based~~Impact ~~Compensation. In~~of ~~December~~recently ~~2004, the Financial Accounting Standards Board (“FASB”)~~ issued SFAS No. 123R, "Share-Based Payments". The Company adopted the disclosure requirements of SFAS 123R as of July 1, 2006, using the modified prospective transition method approach as allowed under SFAS 123R. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are performed. The Company did not issue any stock options or restricted stock awards during the quarterly period ended September 30, 2008.standards

~~Oil~~In ~~and Natural Gas~~April ~~Properties. The~~2009, ~~Company~~the ~~follows~~FASB ~~the~~issued ~~full~~FASB ~~cost~~Staff ~~method~~Position ~~of accounting~~(FSP) ~~for~~No. ~~its~~FAS ~~oil~~107-1 and ~~gas~~Accounting Principles ~~properties. Accordingly~~Board (APB) 28-1, ~~all~~Interim ~~costs associated~~Disclosures ~~with~~about ~~the~~Fair ~~acquisition~~Value of Financial Instruments, ~~exploration~~(FAS ~~and~~107-1) ~~development~~to ofamend ~~oil~~SFAS ~~and~~No. ~~gas properties~~107, ~~including~~Disclosures ~~costs~~about Fair Value of Financial ~~undeveloped~~Instruments ~~leasehold~~and APB 28, ~~geological~~Interim ~~and~~Financial ~~geophysical~~Reporting. FAS 107-1 changes ~~expenses,~~the ~~dry~~reporting ~~holes,~~requirements ~~leasehold~~on ~~equipment~~certain ~~and~~fair ~~overhead~~value ~~charges~~disclosures ~~directly~~of ~~related~~financial instruments to ~~acquisition,~~include ~~exploration~~interim ~~and~~reporting ~~development~~periods. ~~activities,~~FAS ~~are~~107-1 is effective for ~~capitalized. Proceeds~~interim ~~received~~reporting ~~from~~periods ~~disposals~~ending ~~are~~after ~~credited~~June ~~against accumulated~~15, ~~cost~~2009, ~~except~~with ~~when~~early ~~the~~adoption encouraged. ~~sale~~The ~~represents~~Company ais ~~significant~~currently ~~disposal~~assessing ~~of reserves~~the impact, inif ~~which~~any, ~~case~~that athe adoption ~~gain~~of orthis ~~loss~~pronouncement iswill ~~recognized~~have on its disclosures.

~~The~~In ~~sum~~April of2009, ~~net~~the ~~capitalized~~FASB ~~costs~~issued ~~and~~FSP ~~estimated~~No. ~~future~~FAS ~~development~~157-4, ~~and~~Determining ~~dismantlement costs~~Fair ~~for~~Value ~~each~~When ~~cost~~the ~~center~~Volume and isLevel ~~depleted~~of onActivity for the ~~equivalent~~Asset ~~unit-of-production~~or Liability Have Significantly Decreased ~~method,~~and ~~based~~Identifying onTransactions ~~proved~~That ~~oil~~Are ~~and~~Not ~~gas~~Orderly, ~~reserves~~(FAS as157-4) ~~determined~~to byamend ~~independent petroleum~~SFAS ~~engineers~~No. ~~Excluded~~ 157, ~~from~~Fair ~~amounts~~Value ~~subject~~Measurements, to(SFAS ~~depletion~~157). ~~are~~FAS 157-4 provides additional guidance ~~costs~~for ~~associated~~estimating fair value in accordance with ~~unevaluated~~SFAS ~~properties. Natural~~157 ~~gas~~when the volume and ~~crude~~level ~~oil~~of ~~are~~activity ~~converted~~for toan ~~equivalent~~asset ~~units~~or ~~based~~liability ~~upon~~has ~~the~~significantly ~~relative~~decreased. ~~energy~~In ~~content~~addition, ~~which~~FAS 157-4 includes guidance on identifying circumstances that indicate a transaction is ~~six~~not ~~thousand~~orderly. ~~cubic~~FAS ~~feet~~157-4 ofis ~~natural~~effective ~~gas~~for tointerim ~~one~~and ~~barrel~~annual reporting periods ending after June 15, 2009. The Company is currently assessing the impact, if any, that the adoption of ~~crude~~this pronouncement will have on its ~~oil~~operating results, financial position or cash flows.

On December 31, 2008, the Securities and Exchange Commission (SEC) issued the final rule, “Modernization of Oil and Gas Reporting” (“Final Rule”). The Final Rule adopts revisions to the SEC’s oil and gas reporting disclosure requirements and is effective for annual reports on Form 10-K for years ending on or after December 31, 2009. The revisions are intended to provide investors with a more meaningful and comprehensive understanding of oil and natural gas reserves to help investors evaluate their investments in oil and gas companies. The amendments are also designed to modernize the oil and natural gas disclosure requirements to align them with current practices and technological advances. Revised requirements in the Final Rule include, but are not limited to:

Oil and gas reserves must be reported using a 12-month average of the closing prices on the first day of each of such months, rather than a single day year-end price; companies will be allowed to report, on a voluntary basis, probable and possible reserves, previously prohibited by SEC rules; and easing the standard for the inclusion of proved undeveloped reserves (“PUD’s”) and requiring disclosure of information indicating any progress toward the development of PUD’s.

The Company ~~performs~~is acurrently ~~review~~evaluating of the ~~carrying~~potential ~~value~~impact of ~~its~~adopting ~~oil and natural gas properties, referred to as a ceiling test, under~~ the ~~full~~Final ~~cost accounting rules~~Rule. ofThe ~~the~~ SEC onis adiscussing ~~quarterly basis. Under~~ the ~~ceiling~~Final ~~test,~~Rule ~~capitalized costs,~~with ~~less~~the ~~accumulated~~FASB ~~depletion~~ and ~~related~~IASB ~~deferred~~staffs ~~income~~to ~~taxes, may not~~align ~~exceed~~accounting anstandards ~~amount~~with ~~equal to~~ the ~~sum~~Final ofRule. ~~the~~These ~~present~~discussions ~~value~~may ofdelay ~~estimated future net~~the ~~revenues~~required ~~less~~compliance ~~estimated~~date. ~~future~~Absent ~~expenditures~~any tochange ~~be incurred~~ in ~~developing~~such ~~and producing~~date, the ~~proved~~Company ~~reserves,~~will ~~less~~begin complying ~~any~~with ~~related~~the ~~income~~disclosure ~~tax effects. Future~~requirements ~~net~~in ~~revenues~~its ~~are~~annual ~~calculated~~report byon ~~using~~Form ~~the~~10-K ~~current~~for ~~prices~~the ~~and~~year ~~costs~~ended asDecember of31, ~~the~~2009. ~~end~~Voluntary ofearly ~~the~~compliance ~~appropriate~~is ~~quarterly or annual~~not ~~period~~permitted.

~~Asset~~In ~~Retirement~~May ~~Obligations. The~~2008, ~~Company~~the ~~records~~FASB aissued ~~liability~~Staff ~~for~~Position ~~legal obligations~~No. ~~associated~~APB ~~with the retirement of tangible long~~14-~~lived~~1, ~~assets~~“Accounting infor ~~the~~Convertible ~~period~~Debt inInstruments ~~which~~That ~~they~~May ~~are~~be ~~incurred~~Settled in ~~accordance~~Cash ~~with~~upon ~~SFAS~~Conversion ~~No.~~(Including ~~143 “Accounting~~Partial ~~for~~Cash ~~Asset Retirement Obligations.~~Settlement)” ~~Under~~ ~~this~~(“FSP ~~method,~~APB ~~when liabilities~~14-1”). ~~for~~FSP ~~dismantlement~~APB ~~and~~14-1 ~~abandonment~~states ~~costs~~that ~~(“ARO”)~~convertible ~~are initially~~debt ~~recorded,~~instruments ~~the~~that ~~carrying~~may ~~amount~~be ofsettled ~~the~~in ~~related~~cash ~~oil~~upon ~~and~~conversion ~~natural~~(including ~~gas~~partial ~~properties~~cash settlement) are ~~increased. Accretion~~ ofnot ~~the~~addressed ~~liability~~by isparagraph ~~recognized~~12 ~~each~~of ~~period~~Accounting ~~using~~Principles Board ~~the~~Opinion ~~interest~~No. ~~method~~14 ofand ~~allocation,~~that ~~and~~issuers ~~the~~of ~~capitalized~~such ~~cost~~instruments isshould ~~depleted~~account ~~over~~separately for the ~~useful~~ ~~life~~liability and equity components of the ~~related~~instruments ~~asset. Revisions~~in toa ~~such~~manner ~~estimates~~that ~~are~~will ~~recorded~~reflect asthe ~~adjustments~~entity’s tononconvertible ~~the~~debt ~~ARO,~~borrowing ~~capitalized~~rate ~~asset~~when ~~retirement~~interest ~~costs~~cost ~~and~~is ~~charges~~recognized toin ~~operations~~subsequent ~~during~~periods. ~~the~~FSP ~~periods~~APB in14-1 ~~which~~is ~~they~~effective ~~become~~for financial ~~known. At~~statements ~~the~~issued ~~time~~for ~~the~~fiscal ~~abandonment~~years ~~cost~~beginning isafter ~~incurred~~December 15, ~~the~~2008, ~~Company~~and ~~will~~must be ~~required~~applied retrospectively to ~~recognize~~all aperiods ~~gain~~presented. orAdoption ~~loss~~of ifthis ~~the~~statement did ~~actual~~not ~~costs~~have doa ~~not~~material ~~equal~~effect on the ~~estimated~~ ~~costs~~Company’s ~~included in ARO~~financial statements.

~~Valuation~~In ofJune 2008, the ~~Embedded~~FASB ~~and Warrant~~ratified ~~Derivatives. The~~EITF ~~valuation~~Issue of07-5, ~~the~~“Determining ~~Company’s embedded~~Whether ~~derivatives~~an ~~and~~Instrument ~~warrant~~(or ~~derivatives~~Embedded isFeature) ~~determined~~Is ~~primarily~~Indexed byto aan ~~lattice~~Entity’s ~~model~~Own Stock” (“EITF ~~using~~07-5”). Paragraph ~~probability~~11(a) ~~weighted~~of ~~discounted~~Statement ~~cash~~of Financial ~~flow~~Accounting ~~based~~Standards ~~upon~~No ~~future~~133 ~~projections over~~“Accounting afor ~~range~~Derivatives ofand ~~potential~~Hedging Activities” ~~outcomes~~(“SFAS ~~and~~133”) ~~the~~specifies ~~Black-Scholes~~that ~~option~~a ~~pricing model. An~~contract ~~embedded~~that ~~debenture~~would ~~derivative~~otherwise ismeet the definition of a derivative ~~instrument that~~but is ~~embedded~~both ~~within~~ (a) ~~contract,~~indexed ~~which~~to ~~under~~ the ~~convertible~~Company’s ~~debenture~~own ~~(the~~stock ~~host~~and ~~contract~~(b) ~~includes~~classified ~~the~~in ~~right~~stockholders’ toequity ~~convert~~in the ~~debenture~~statement byof ~~the holder, reset~~financial ~~provisions~~position ~~with~~would ~~respect~~not tobe ~~the~~considered ~~conversion~~a ~~provisions,~~derivative ~~call/redemption options~~financial ~~and liquidated damages~~instrument. InEITF ~~accordance~~07-5 ~~with~~provides ~~SFAS~~a ~~No.~~new ~~133,~~two-step model asto ~~amended, “Accounting~~be ~~for~~applied ~~Derivative~~in ~~Instruments~~determining ~~and~~whether ~~Hedging~~a ~~Activities”,~~financial ~~these~~instrument or an embedded ~~derivatives~~feature ~~are~~is ~~marked-~~indexed to~~-market~~ ~~each~~an ~~reporting~~issuer’s ~~period,~~own ~~with~~stock aand ~~corresponding non-cash~~thus ~~gain~~able orto ~~loss~~qualify ~~charged~~for to the SFAS ~~current~~133 ~~period~~paragraph 11(a) scope exception. AEITF ~~warrant derivative~~07-5 ~~liability~~ is ~~determined~~effective infor ~~accordance~~the ~~with~~first ~~Emerging~~annual ~~Issues~~reporting ~~Task Force~~period ~~(“EITF”)~~beginning ~~Issue~~after ~~No.~~December ~~00-19~~15, ~~“Accounting~~2008, ~~for~~and ~~Derivative~~early ~~Financial~~adoption ~~Instruments~~is ~~Indexed~~prohibited. On toJanuary 1, ~~and Potentially Settled in~~2009, athe Company’s ~~Own~~adopted ~~Stock” (“~~EITF 00 07-~~19”). Based~~5 onand ~~EITF~~the ~~00-19,~~adoption ~~warrants~~of ~~which~~this ~~are~~statement ~~determined~~resulted toin bea derivative ~~classified~~liability asof ~~derivative~~$1,033,104. There ~~liabilities~~was ~~are~~not ~~marked-to-market~~transition ~~each~~accounting ~~reporting~~for ~~period,~~this ~~with~~derivative aas ~~corresponding~~these ~~non-cash~~warrants ~~gain~~were oraccounted ~~loss~~for ~~charged~~as derivatives under EITF 00-19 prior to the ~~current period~~adoption of EITF 07-5. ~~The~~However, ~~practical~~on ~~effect~~March of24, ~~this~~2009, ~~has~~the Company ~~been~~authorized ~~that~~additional ~~when~~shares ~~the~~of ~~Company’s~~ common stock, ~~price~~which ~~increases~~was sosufficient ~~does~~to convert ~~its~~all ~~derivative~~potentially ~~liability,~~convertible ~~resulting~~instruments. As in a ~~non-cash~~result, the ~~loss~~derivative ~~charge~~liabilities ~~that~~associated ~~reduces~~with ~~earnings~~these ~~and~~warrants ~~earnings~~would ~~per~~have ~~shares. When the~~been ~~Company’s~~extinguished ~~stock~~under ~~price~~EITF ~~declines~~00-19, itbut ~~records~~are anow ~~non-cash~~considered ~~gain,~~derivatives ~~increasing~~under ~~its~~EITF ~~earnings~~07-5. See ~~and~~Note ~~earnings~~4 ~~per~~for ~~share~~additional discussion.

ToIn ~~determine~~June 2008, the ~~fair~~Emerging ~~value~~Issues ofTask ~~its~~Force (EITF) reached final consensuses on EITF ~~embedded~~Issue ~~derivatives~~08-4, ~~management~~“Transition Guidance ~~evaluates~~for ~~assumptions~~Conforming ~~regarding~~Changes ~~the~~to ~~probability of~~Issue ~~certain~~No. ~~events~~98-5.” ~~Other~~Certain conclusions ~~factors~~reached ~~used~~in toEITF Issue ~~determine~~No. ~~fair~~98-5, ~~value~~“Accounting ~~include~~for Convertible Securities with Beneficial ~~the~~Conversion ~~Company’s~~Features ~~period~~or ~~end~~Contingently ~~stock~~Adjustable ~~price~~Conversion Ratios,” ~~historical~~were nullified ~~stock~~in ~~volatility~~EITF Issue No. 00-27, ~~risk~~“Application ~~free~~of Issue No. 98-5 to ~~interest~~Certain ~~rate~~Convertible Instruments.” Moreover, some of the conclusions in Issue No. 98-5 and ~~derivative~~Issue ~~term~~No. ~~The~~ ~~fair~~00-27 ~~value~~were ~~recorded~~superseded by SFAS No. 150, “Accounting for ~~the~~Certain ~~derivative~~Financial ~~liability~~Instruments ~~varies~~with ~~from~~Characteristics ~~period~~of toboth ~~period~~Liabilities and Equity.” ~~This~~While ~~variability may~~the ~~result~~conclusions reached in ~~the~~Issue ~~actual~~No. ~~derivative~~98-5 ~~liability~~were subsequently ~~for~~updated ato ~~period~~reflect ~~either~~the ~~above~~issuance orof ~~below~~Issue No. 00-27 and SFAS No. 150, the ~~estimates~~transition ~~recorded~~guidance onin ~~the~~Issue ~~Company’s~~No. ~~consolidated~~98-5 ~~financial~~was ~~statements,~~not revised. On ~~resulting~~January in1, ~~significant~~2009, ~~fluctuations~~the inCompany ~~other~~adopted ~~income~~EITF ~~(expense)~~08-4. The ~~because~~adoption of this standard did not have a material impact on the Company’s financial condition, ~~corresponding~~results ~~non-cash~~of ~~gain~~operations or ~~loss~~cash ~~recorded~~flows.

~~Fair Value of Financial~~NOTE ~~Instruments~~2. ~~The Company’s financial instruments consist of~~ GOING ~~cash~~CONCERN and cash equivalents, accounts receivable, accounts payable, notes payable and derivative liabilities/assets associated with the Company’s oil and gas hedging activities and certain instruments issued by the Company that are convertible into common stock (see Note 5). The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and notes payable approximate fair value due to the highly liquid nature of these short-term instruments. The derivative liabilities/assets have been marked-to-market as of September 30, 2008.UNCERTAINTY

~~New~~As ~~Accounting~~part ~~Pronouncements. In~~of ~~March~~a ~~2008,~~semi-annual redetermination of the ~~FASB~~Company’s ~~issued~~borrowing ~~SFAS~~base Nounder the CIT Capital USA Inc. ~~161~~credit facility (the “CIT Credit Facility,”) on May 5, 2009, ~~“Disclosures~~the ~~about~~Company’s ~~Derivative~~senior ~~Instruments~~lender ~~and~~notified ~~Hedging~~the ~~Activities~~Company –that anits ~~amendment~~borrowing base was ofbeing ~~SFAS~~reduced Noto $1.0 ~~133”~~million ~~(“SFAS~~causing Nothe Company’s outstanding loans under the Revolving Loan to exceed the new borrowing base by $10.5 ~~161”)~~million. ~~SFAS~~The Company’s Nocredit agreement provides that it repay such revolving loan amount in excess of the reduced borrowing base within sixty days of such notification. In ~~161~~addition ~~requires~~to ~~additional~~the deficiency under the Company’s ~~disclosures~~Revolving ~~about~~Loan, ~~derivative~~the ~~and~~capital ~~hedging~~expenditures ~~activities~~required to maintain and/or isgrow production ~~effective~~and ~~for~~reserves ~~fiscal~~are substantial. The Company's stock price ~~years~~has ~~and~~significantly ~~interim~~declined ~~periods~~over ~~beginning~~the ~~after~~past ~~November~~year 15with its last reported sale price on May 27, ~~2008~~2009 being $0.10 per share, which makes it more difficult to obtain equity financing on acceptable terms to address its liquidity issues. ~~The~~In addition, as a result of reporting the Company’s total borrowings under its CIT Credit Facility as a current liability, the Company is reporting ~~evaluating~~negative ~~the~~working ~~impact~~capital at March 31, 2009. The Company is currently in discussions with its senior lender to extend the ~~adoption~~sixty-day ofcure period ~~SFAS~~to Noenable it to negotiate a readjustment to its borrowing base and a schedule for repaying any then-remaining borrowing base deficit. Whereas ~~161~~management believes it will ~~have~~be onsuccessful in obtaining an acceptable forbearance agreement with its senior lender, there can ~~financial~~be ~~statement~~no ~~disclosures~~assurance it will be successful in this regard. ~~The~~Therefore, there is substantial doubt as to the Company’'s ~~adoption~~ability ofto ~~SFAS~~continue Noas a going concern for a period longer than the current fiscal year. Should the ~~161~~Company be unsuccessful in obtaining an acceptable forbearance agreement with its senior lender, it will ~~not~~be ~~affect~~required to seek other financial and strategic alternative processes, which may include the sale of some or all of its ~~current~~assets, ~~accounting~~a ~~for~~merger ~~derivative~~or other business combination involving the Company or the restructuring or recapitalization of the Company. Until the possible completion of the financial and ~~hedging~~strategic alternatives process, the Company's ~~activities~~future remains uncertain and there can be no assurance that its efforts in this regard will be successful.

The Inaccompanying ~~December~~consolidated ~~2007,~~financial ~~the~~statements ~~FASB~~have ~~issued~~been ~~SFAS~~prepared ~~No.~~in ~~141(R), “Business~~accordance ~~Combinations”. This~~with ~~statement~~generally ~~requires~~accepted ~~assets~~accounting ~~acquired~~principles ~~and liabilities~~applicable ~~assumed~~ to bea ~~measured~~going ~~at fair value as of the acquisition date~~concern, ~~acquisition-related~~which ~~costs~~implies ~~incurred~~that ~~prior~~the toCompany ~~the~~will ~~acquisition~~continue to bemeet ~~expensed~~its obligations and ~~contractual~~continue ~~contingencies~~its tooperations befor ~~recognized~~the atnext ~~fair~~twelve ~~value~~months. Realization asvalues ofmay be ~~the~~substantially ~~acquisition date. This~~different ~~statement~~from iscarrying ~~effective~~values ~~for~~as ~~financial~~shown, ~~statements~~and ~~issued~~these ~~for~~consolidated ~~fiscal~~financial ~~years~~statements ~~beginning~~do ~~after~~not ~~December~~include ~~15,~~any ~~2008. The~~adjustments ~~Company~~relating ~~is currently~~to ~~assessing~~ the recoverability ~~impact,~~or ifclassification ~~any,~~of ~~the~~recorded ~~adoption~~asset ofamounts ~~this~~or ~~statement~~the ~~will~~amount ~~have~~and onclassification ~~its~~of ~~financial~~liabilities ~~position,~~that ~~results~~might ofbe ~~operations~~necessary oras ~~cash~~a ~~flows~~result of this uncertainty.

NOTE 3. ~~ACQUISITION~~NOTES ~~OF BUSINESS~~PAYABLE

~~On September~~Notes 2,payable ~~2008,~~consisted ~~the Company consummated the acquisition~~ of ~~Voyager Gas Corporation, a Delaware corporation, (~~the ~~“Voyager Acquisition”), whereby it~~ ~~purchased~~following ~~all~~as of ~~the~~March ~~outstanding capital stock of Voyager Gas Corporation~~31, ~~the owner~~2009 ~~of interests in oil~~ and ~~gas~~December ~~lease blocks located in Duval County~~31, Texas, including working and other interests in oil and gas leases, producing wells, and properties, together with rights under related operating, marketing, and service contracts and agreements, seismic exploration licenses and rights, and personal property, equipment and facilities.2008:

Upon the completion of the Voyager Acquisition, Voyager Gas Corporation became a wholly-owned subsidiary of ABC. The newly acquired subsidiary’s properties consist of approximately 14,300 net acres located in Duval County, Texas. The purchase price also included a proprietary 3-D seismic data base covering a majority of the acquired properties.

	March 31, 2009			December 31, 2008
2006 convertible notes, convertible at $0.50 per share into 50,000 shares of common stock due February 28, 2008	$	25,000		$	25,000
Nine month note at 7.5% to finance the Company’s insurance premiums for general liability, umbrella, control of well and pollution		24,375			--
First lien revolving credit facility with CIT Capital USA Inc., as administrative agent, bearing interest at an adjusted rate as defined in the agreement (4.05% at March 31, 2009) payable quarterly, principal and unpaid interest due on September 1, 2011, collateralized by a first mortgage on the Company’s oil and gas properties.		11,500,000			11,500,000
Second lien term credit facility with CIT Capital USA Inc., as administrative agent, bearing interest at an adjusted rate as defined in the agreement (6.55% at March 31,2009) payable quarterly, principal and unpaid interest due on March 1, 2012, collateralized by a second mortgage on the Company’s oil and gas properties.		22,000,000			22,000,000
Unamortized discount on second lien term credit facility		(9,100,370	)		(9,572,412	)
	$	24,449,005		$	23,952,588

The purchase price paid in the Voyager Acquisition consisted of cash consideration of $35.0 million and 10,000 newly issued shares of the Company’s preferred stock designated as Series D preferred stock having an agreed upon value of $7.0 million. The Company performed a fair value valuation of the preferred on the date of the acquisition and recorded the fair value of the preferred stock at $9.1 million. Upon the effectiveness of an amendment to the Company’s Articles of Incorporation increasing the number of shares of common stock that it may issue (the “Charter Amendment”), the Series D Preferred will automatically convert into 17.5 million shares of ABC’s common stock.

The acquired properties have established production over a substantial acreage position with proved reserves from over ten different horizons located at depths ranging from 4,000 to 7,500 feet. As of April 1, 2008, the Duval County Properties had independently engineered proved reserves of 16.2 Bcfe. By category, this includes 5.2 Bcfe of proved developed producing, 5.6 Bcfe of proved developed non-producing, and 5.4 Bcfe of proved undeveloped reserves. Approximately 69% of total proved reserves is natural gas. In addition to proved reserves, the Company’s management has identified additional exploration opportunities on the acquired acreage utilizing its acquired 3-D seismic data base.

The preliminary allocation of the purchase price and the estimated fair market values of the assets acquired and liabilities assumed are subject to modification and are shown below.

Cash	$	1,864,446
Accounts receivables		39,410
Security deposit		3,622
Oil and gas property		39,972,891
Total assets acquired		41,880,369
Severance tax payable		65,418
Royalties payable		405,714
Ad valorem taxes payable		60,000
Total liabilities assumed		531,132
Retained earnings assumed		1,376,346
Net assets acquired	$	39,972,891

The following summary presents unaudited pro forma consolidated results for the three months ended September 30, 2008 and 2007, respectively, as if the Voyager Acquisition had occurred as of July 1, 2007. The pro forma results are for illustrative purposes only and include adjustments in addition to the pre-acquisition historical results, such as increased depreciation, depletion and amortization expense resulting from the allocation of fair value to oil and gas properties acquired. The unaudited pro forma information is not necessarily indicative of the operating results that would have occurred if the acquisition had been consummated at that date, nor is it necessarily indicative of future operating results.

	Pro Forma
	Three Months Ended September 30,
	2008			2007
Revenues	$	3,009,771		$	2,556,515
Operating costs and expenses		1,821,479			1,958,258
Income (loss) from operations		1,188,292			598,257
Other income (expense)		(19,611,246	)		(761,889	)
Net income (loss)	$	(18,422,954	)	$	(163,632	)
Earnings (loss) per share – basic and diluted	$	(0.75	)	$	(0.01	)
Production volumes:
Natural gas (Mcf)		166,041			259,291
Oil (Bbls)		11,868			7,129
Mcfe		237,249			302,065
Mcfe/day		2,579			3,283

NOTE 4. ACCRUED LIABILITIES

Accrued liabilities consisted of the following at September 30 and June 30, 2008:

	September 30, 2008		June 30, 2008
Royalties payable	$	610,392	$	--
Severance taxes payable		108,815		--
Accrued interest payable		176,492		1,000
Accrued ad valorem taxes payable		166,178		--
Other		389		397
	$	1,062,266	$	1,397

NOTE 5. NOTES PAYABLE

Notes payable consisted of the following at September 30 and June 30, 2008:

	September 30, 2008			June 30, 2008
2006 convertible notes, convertible at $0.25 into 50,000 shares of common stock due February 28, 2008	$	25,000		$	25,000
Senior secured convertible debentures due September 29, 2008		--			900,000
Short-term, interest free note payable due March 15, 2009		557,500			--
First lien revolving credit facility with CIT Capital USA Inc., as administrative agent, bearing interest at an adjusted rate as defined in the agreement (5.31313% at September 30, 2008) payable quarterly, principal and unpaid interest due on August 31, 2011, collateralized by a first mortgage on the Company’s oil and gas properties.		10,500,000			--
Second lien term credit facility with CIT Capital USA Inc., as administrative agent, bearing interest at an adjusted rate as defined in the agreement (7.81313% at September 30, 2008) payable quarterly, principal and unpaid interest due on March 31, 2012, collateralized by a second mortgage on the Company’s oil and gas properties.		22,000,000			--
Unamortized discount on senior secured convertible debentures		--			(778,362	)
Unamortized discount on second lien term credit facility		(200,278	)		--
Unamortized discount on short-term note payable due March 15, 2009		(14,552	)		--
	$	32,867,670		$	146,638

CIT Credit Facility

On September 2, 2008, the Company entered into (i) a credit agreement (the “Revolving Loan”) among the Company, CIT Capital USA Inc. (“CIT Capital”), as Administrative Agent and the lender named therein and (ii) a second lien term loan agreement (the “Term Loan”) among the Company, CIT Capital and the lender. The Revolving Loan and Term Loan are collectively referred to herein as the “CIT Credit Facility.”

~~The~~On April ~~Revolving~~21, ~~Loan~~2009, ~~provides~~the ~~for~~administrative aagent ~~$50.0~~and ~~million~~lenders ~~senior~~agreed ~~secured~~to ~~revolving~~waive ~~credit~~the Company’s ~~facility~~failure ~~which~~to iscomply ~~subject~~with tocertain anfinancial ~~initial~~ratios, ~~borrowing~~measured ~~base~~as of ~~$14.0~~December ~~million~~31, 2008, orin ~~an amount~~the ~~determined~~CIT ~~based~~Credit onFacility ~~semi-annual~~with ~~review~~respect ofto (i) the ~~Company’s~~ratio ~~proved~~of ~~oil~~EBITDAX ~~and~~to ~~gas~~interest ~~reserves. As~~expense and the ratio of ~~September~~total ~~30,~~debt ~~2008,~~to ~~the~~EBITDAX ~~Company~~under ~~had~~the ~~$10.5~~Revolving ~~million~~Loan ~~borrowed~~and (ii) the ratio of total reserve value to ~~finance~~total debt under the ~~Voyager~~Term Loan. Such ~~Acquisition,~~agent toand ~~repay~~lenders also waived compliance by the ~~related~~Company ~~bridge~~of ~~loan~~these ratios for and ~~transaction~~during ~~expenses,~~each ~~and~~fiscal toperiod ~~fund~~ending ~~capital~~in ~~expenditures generally~~2009. ~~Monies~~ As ~~advanced~~a ~~under~~condition to these waivers, the ~~Revolving~~Company ~~Loan~~agreed ~~mature~~that ~~on September~~no 1,further ~~2011,~~borrowings ~~and~~or ~~bear~~loans ~~interest~~may atbe requested aor ~~rate~~made ~~equal~~under tothe ~~LIBOR~~CIT ~~plus~~Credit ~~1.75%~~Facility ~~to 2.50%,~~unless asand until the ~~case~~lenders, ~~may~~in their besole and absolute discretion, shall otherwise agree in writing.

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

On May 5, 2009, as part of a semi-annual redetermination of the borrowing base under the CIT Credit Facility, the Company’s senior lender notified the Company that its borrowing base was being reduced to $1 million, causing the Company’s outstanding loans under the Revolving Loan to exceed the new borrowing base by $10.5 million. The Company’s credit agreement provides that it repay such revolving loan amount in excess of the reduced borrowing base within sixty days of such notification. The Company is currently in discussions with its senior lender to extend the sixty-day cure period to enable it to negotiate a readjustment to its borrowing base and a schedule for repaying any then-remaining borrowing base deficit.

In addition to financial covenants, the Company is subject to various reporting obligations under the credit agreement. As part of the Company’s aforementioned discussions with its senior lender with respect to the adjusted borrowing base, the Company has obtained a waiver from its senior lender with respect to certain financial covenants under the credit agreement. The credit agreement includes the requirement that none of the audited financial statements for the Company, as reported on by its independent public accountants, contain a “going concern” or like qualification or exception. As a result of the senior lender reducing the Company’s borrowing base to $1 million resulting in the Company having a borrowing base excess of $10.5 million, the Company’s independent public accountants have reported a “going concern” qualification. The Company is in discussions with its senior lender to enter into a forbearance agreement and obtain a waiver of the going concern opinion and the financial covenant to not permit the ratio of its consolidated current assets to consolidated current liabilities to be less than 1.0 to 1.0, however, as of the date of this filing the Company has not received a waiver or entered into a forbearance agreement. As a result, all of the Company’s debt pursuant to the CIT Credit Agreement has been classified as a current liability on the Company’s balance sheet.

NOTE 4. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE

Derivative Assets

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

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

Crude Oil

				Total Barrels
Instrument	Beginning Date	Ending Date	Fixed	April 1 thru December 31, 2009	2010	2011
Swap	Oct-08	Dec-11	$ 110.35	7,684	7,575	5,712

Indexed to NYMEX WTI

Natural Gas

				Total MMBtu’s
Instrument	Beginning Date	Ending Date	Fixed	April 1 thru December 31, 2009	2010	2011
Swap	Oct-08	Dec-11	$ 7.82	309,508	328,203	262,080

Indexed to Inside FERC Houston Ship Channel

Derivative Liabilities

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

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

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

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

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

	As of March 31, 2009
	Carrying	Fair Value Measurements Using
	Value		Level 1	Level 2	Level 3	Total
Assets	$ 2,893,140		$ --	$ 2,893,140	$ --	$ 2,893,140
Total derivative assets	$ 2,893,140		$ --	$ 2,893,140	$ --	$ 2,893,140

Liabilities	$ 1,033,104		$ --	$ 1,033,104	$ --	$ 1,033,104
Total derivative liabilities	$ 1,033,104		$ --	$ 1,033,104	$ --	$ 1,033,104

The ~~Term~~table ~~Loan~~below provides ~~for~~ a ~~one-time~~summary ~~advance to the Company~~ of ~~$22.0 million. The Company drew down~~ the ~~full~~changes ~~amount~~in onfair ~~September 2~~value, ~~2008 to~~including ~~finance~~net ~~the~~transfers in ~~Voyager Acquisition~~ and/or toout ~~repay~~of ~~the~~all ~~related~~financial ~~bridge~~liabilities ~~loan~~measured ~~and transaction~~at ~~expenses. Monies~~fair ~~borrowed~~value ~~under the Term Loan mature~~ on ~~March~~ ~~1, 2012, and bear interest at~~ a ~~rate~~recurring basis ~~equal~~using tosignificant ~~LIBOR~~unobservable ~~plus~~inputs 5% (Level 3) during the three ~~first~~month ~~twelve~~period ~~months~~ended ~~after~~March ~~closing and LIBOR plus 7.50%~~31, ~~thereafter.~~2009:

The loan instruments evidencing the Revolving Loan contain various restrictive covenants, including financial covenants requiring that the Company will not: (i) as of the last day of any fiscal quarter, permit its ratio of EBITDAX for the period of four fiscal quarters then ending to interest expense for such period to be less than 2.0 to 1.0; (ii) at any time permit its ratio of total debt as of such time to EBITDAX for the four fiscal quarters ending on the last day of the fiscal quarter immediately preceding the date of determination for which financial statements are available to be greater than 4.0 to 1.0; and (iii) permit, as of the last day of any fiscal quarter, its ratio of (a) consolidated current assets (including the unused amount of the total commitments, but excluding non-cash assets under FASB Statement No. 133) to (b) consolidated current liabilities (excluding non-cash obligations under FAS 133 and current maturities under the CIT Credit Facility) to be less than 1.0 to 1.0.

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

~~The loan~~NOTE instruments evidencing the Term Loan contain various restrictive covenants, including financial covenants requiring that the Company will not: (i) permit, as of the last day of any fiscal quarter, its ratio of (a) consolidated current assets (including the unused amount of the total commitments, but excluding non-cash assets under FASB Statement No5. ~~133) to (b) consolidated current~~ PREFERRED ~~liabilities~~STOCK ~~(excluding~~AND ~~non-cash~~COMMON obligations under FAS 133 and current maturities under the CIT Credit Facility) to be less than 1.0 to 1.0; and (ii) as of the date of any determination permit its ratio of total reserve value as in effect on such date of determination to total debt as of such date of determination to be less than 2.0 to 1.0STOCK

Upon the Company’s failure to comply with covenants, the lender has the right to refuse to advance additional funds under the revolver and/or declare any outstanding principal and interest immediately due and payable. As of September 30, 2008, the Company is in compliance with all of the restrictive covenants of the CIT Credit Facility.

All borrowings under the Revolving Loan are secured by a first lien on all of the Company’s assets and those of its subsidiaries. All borrowings under the Term Loan are secured by a second lien on all of the Company’s assets and those of its subsidiaries.

Under the CIT Credit Facility, the Company was required to enter into hedging arrangements mutually agreeable between the Company and CIT Capital. Effective on September 2, 2008, the Company entered into hedging arrangements with a bank whereby effective October 1, 2008, the Company hedged 65% of its proved developed producing natural gas production and 25% of its proved developed producing oil production through December 2011 at $7.82 per Mmbtu and $110.35 per barrel, respectively. (See Note 6).

CIT Capital is entitled to one percent (1%) overriding royalty interest of the Company’s net revenue interest in the oil and gas properties acquired in the Voyager Acquisition. The overriding royalty interest is applicable to any renewal, extension or new lease taken by the Company within one year after the date of termination of the ORRI Properties, as defined in the overriding royalty agreement covering the same property, horizons and minerals. The Company recorded a discount of $206,000 based upon the estimated fair value of the overriding royalty interest that was conveyed to the lender upon closing. The Company is amortizing this discount to interest expense over the term of the Term Loan. As of September 30, 2008, $5,722 of this discount had been amortized as a component of interest expense.

CIT Capital also received, and is entitled to receive in its capacity as administrative agent, various fees from the Company while monies advanced or loaned remain outstanding, including an annual administrative agent fee of $20,000 for each of the Revolving Loan and Term Loan and a commitment fee ranging from 0.375% to 0.5% of any unused portion of the borrowing base available under the Revolving Loan.

In connection with the Company’s entering into the CIT Credit Facility, upon closing the Voyager Acquisition, the Company paid its investment banker, Global Hunter Securities, LLC (“GHS”), the sum of $557,500 and delivered to GHS a non-interest bearing promissory note, payable on or before March 15, 2008, in the principal amount of $557,500.

The Company incurred debt issuance costs of $1,910,350 associated with the CIT Credit Facility. These costs were capitalized as deferred financing costs and are being amortized over the life of the CIT Credit Facility using the effective interest method. Amortization expense related to the CIT Credit Facility was $45,485 for the period September 2, 2008 (inception) through September 30, 2008.

Convertible Debentures

On May 21, 2008, the Company entered into a Securities Purchase Agreement with those purchasers identified therein (the “Bridge Financing”), whereby the Company received proceeds of $800,000 evidenced by senior secured convertible debentures (the “Debentures”). The proceeds from the Debentures were used to fund the Company’s payment of the deposit for the Voyager Acquisition.

The Debentures were to mature the earlier of September 29, 2008, or the closing date under the Voyager Agreement, and were to be satisfied in full by the Company’s payment of the aggregate redemption price of $900,000 or, at the election of the purchasers, by the conversion of the Debentures into shares of the Company’s common stock (the “Conversion Shares”), at an initial conversion price of $0.33, subject to adjustments and full-ratchet protection under certain circumstances.

As additional consideration for the bridge loan evidenced by the Debentures, the Company issued common stock purchase warrants to the purchasers and their affiliates, exercisable to purchase up to 3,000,000 shares of the Company’s common stock (the “Warrant Shares”), based upon an initial exercise price of $0.33 subject to adjustments and full-ratchet protection under certain circumstances. These warrants remain outstanding as of September 30, 2008.

The Company incurred debt issuance costs of $199,343 associated with the issuance of the Debentures. These costs were capitalized as deferred financing costs and were being amortized over the life of the Debentures using the effective interest method. Amortization expense related to the deferred financing costs was $55,871 for the period May 21, 2008 (inception) through June 30, 2008 and the remaining balance of $143,472 was charged to expense during the three months ended September 30, 2008.

The Debentures and the other outstanding convertible instruments of the Company, specifically the Series A, B, D and E Preferred and the convertible note, if converted, would exceed the number of authorized shares the Company has available for issuance. In addition, the Debentures contain more than one embedded derivative feature which would individually warrant separate accounting as derivative instruments under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock”. The Company evaluated the application of SFAS No. 133 and EITF 00-19 and determined the various embedded derivative features have been bundled together as a single, compound embedded derivative instrument that has been bifurcated from the debt host contract, and referred to as the "Single Compound Embedded Derivatives within Convertible Note". The single compound embedded derivative features include the conversion feature with the reset provisions within the Debentures, the call/redemption options, the interest rate adjustment and liquidated damages. The value of the single compound embedded derivative liability was bifurcated from the debt host contract and recorded as a derivative liability, which results in a reduction of the initial carrying amount (as unamortized discount) of the Debentures of the value at inception. The value of the embedded derivative at issuance exceeded the notional amount of the loan, and the excess amount was expensed to interest in the amount of $1,468,316. The unamortized discount has been amortized to interest expense using the effective interest method over the life of the Debentures. At June 30, 2008, $121,638 had been amortized and the remaining balance of $778,362 was charged to expense during the three months ended September 30, 2008.

Due to the insufficient unissued authorized shares to settle the Debentures, other outstanding convertible instruments of the Company, specifically the Series A, B, D and E Preferred, convertible note and non-employee stock options, have been classified as derivative liabilities under SFAS No. 133. Each reporting period, this derivative liability is marked-to-market with the non-cash gain or loss recorded in the period as a gain or loss on derivatives. At September 30, 2008, the aggregate derivative liability was $28,717,058.

On September 2, 2008, the Company satisfied in full the Debentures by repayment of $450,000 of principal with funds advanced under the CIT Credit Facility and by delivery of shares of the Company’s Series E Preferred in exchange for the principal amount of $450,000, which shares of preferred stock automatically convert into an aggregate of 1,363,636 shares of the Company’s common stock, based upon an implied conversion price of $0.33 per share of common stock upon the effectiveness of the Charter Amendment. The fair value of the underlying shares of common stock on August 31, 2008, the date of the conversion into Series E Preferred exceeded the conversion price of $0.33 per share and the company recorded a loss on the extinguishment of debt of $804,545 during the three months ended September 30, 2008.

Probability - Weighted Expected Cash Flow Methodology

Assumptions: Single Compound Embedded Derivative within Debentures

	Inception			As of
	May 21, 2008			September 30, 2008
Risk free interest rate		4.53	%		4.43	%
Timely registration		95.00	%		95.00	%
Default status		5.00	%		5.00	%
Alternative financing available and exercised		0.00	%		0.00	%
Trading volume, gross monthly dollars monthly rate increase		1.00	%		1.00	%
Annual growth rate stock price		29.14	%		29.05	%
Future projected volatility		150.00	%		60.00	%

The stock purchase warrants are freestanding derivative financial instruments which were valued using the Black-Scholes method. The fair value of the derivative liability of the compound embedded derivatives, the warrants issued with the Debentures and the other tainted convertible instruments was recorded at $1,470,868 and $5,967,587, respectively, on May 21, 2008. The unamortized discount was accreted to interest expense using the effective interest method over the life of the Debentures. The total accretion expense was $1,060,366 for the period May 21, 2008 through September 30, 2008. The remaining value of $1,468,316 was expensed at inception to interest expense since the total fair value of the derivatives at inception exceeded the face value of the Debentures. The effective interest rate on the Debentures was 1,551.9%.

The Debentures were settled in September 2008; however, as long as the other outstanding convertible instruments of the Company, specifically the Series A, B, D and E Preferred and the convertible note are outstanding, they are potentially convertible into an unlimited number of common shares, resulting in the Company no longer having the control to physically or net share settle existing non-employee stock options. Thus under EITF 00-19, all non-employee stock options that are exercisable during the period that these instruments are outstanding are required to be treated as derivative liabilities and recorded at fair value until the provisions requiring this treatment have been settled.

As of the date of issuance of the Debentures on May 21, 2008, the fair value of options to purchase 8,900,000 shares and other tainted convertible instruments totaling $5,856,395 was reclassified to the liability caption “Derivative liabilities” from additional paid-in capital. The change in fair value of $17,922,772 as of September 30, 2008, has been included in earnings under the caption “Change in fair value of derivatives.”

Variables used in the Black-Scholes option-pricing model include: (1) 4.53% to 4.59% risk-free interest rate; (2) expected warrant life is the actual remaining life of the warrant as of each period end; (3) expected volatility is 150.00%; and (4) zero expected dividends.

Both the embedded and freestanding derivative financial instruments were recorded as liabilities in the consolidated balance sheet and measured at fair value. These derivative liabilities will be marked-to-market each quarter with the change in fair value recorded as either a gain or loss in the income statement.

The impact of the application of SFAS No. 133 and EITF 00-19 in regards to the derivative liabilities on the balance sheet and statements of operations as of inception (May 21, 2008) and through September 30, 2008 are as follows:

	Transaction Date		Liability As of
	May 21, 2008		Sept. 30, 2008
Derivative liability – single compound embedded derivatives within the debentures	$	797,447	$	--
Derivative liability – other tainted convertible instruments		7,438,455		10,794,286
Net change in fair value of derivatives		--		17,922,772
Derivative liabilities	$	8,235,902	$	28,717,058

2006 Convertible Notes

During 2006, EV Delaware sold $1,500,000 of convertible promissory notes (the "2006 Notes") which were expressly assumed by the Company in the May 2006 merger of EV Delaware into our wholly-owned subsidiary. The 2006 Notes had an original maturity date of August 31, 2007, carried an interest rate of 10% per annum, payable in either cash or shares, and were convertible into shares of Common Stock at a conversion rate of $0.50 per share at the option of the investor. Each investor also received a number of shares of Common Stock equal to 20% of his or her investment divided by $0.50. Thus, a total of 600,000 shares were initially issued to investors in the 2006 Notes. The relative fair value of these shares was $250,000 and was recorded as a debt discount and as additional paid-in capital. The debt discount was amortized over the original term of the notes payable using the effective interest method. The original issue discount rate was 23.44%. During the period from February 21, 2006 (inception) to August 31, 2007, the entire discount of $250,000 was amortized and recorded as interest expense.

We evaluated the application of SFAS No. 133 and EITF 00-19. Based on the guidance of SFAS No. 133 and EITF 00-19, we concluded that these instruments were not required to be accounted for as derivatives.

On August 31, 2007 (the original Maturity Date), we repaid in cash six of the holders of the 2006 Notes an aggregate amount of $424,637, of which $410,000 represented principal and $14,637 represented accrued interest. On September 4, 2007, an additional $44,624 of accrued and current period interest was repaid through the issuance of 89,248 shares of our Common Stock. The remaining holders of the 2006 Notes entered into an agreement with us whereby the maturity date of the 2006 Notes was extended to February 28, 2008 and, beginning September 1, 2007 until the 2006 Notes are paid in full, the interest rate on the outstanding principal increased to 12% per annum. In addition, we agreed to issue to the remaining holders of the 2006 Notes, 218,000 shares of our common stock with a value of $98,100 as consideration for extending the 2006 Note's maturity date. We evaluated the application of EITF 96-19, "Debtor's Accounting for a Modification or Exchange of Debt Instruments" and concluded that the revised terms constituted a debt modification rather than a debt extinguishment and accordingly, the value of the common stock has been treated as interest expense in the accompanying statements of operations.

On February 28, 2008, $1,090,000 of the 2006 Notes came due and we were unable to repay them. We continued to accrue interest on the notes at 12%, the agreed upon rate for the extension period. On March 6, 2008, we issued 130,449 shares of common stock in lieu of cash in payment of $65,221 of accrued and current period interest to holders of 2006 Notes. On April 22, 2008, we repaid $100,000 principal amount in cash to one of the holders of the notes. During May 2008, we exchanged 99,395 shares of our Series A Preferred in full satisfaction of our obligation under the notes to pay $965,000 of principal and $28,950 of interest, with each share of such preferred stock being automatically convertible into 20 shares of our common stock, for an aggregate of 1,987,900 shares of our common stock. The Series A Preferred will automatically convert into shares of our Common Stock upon the effectiveness of the Charter Amendment. At September 30, 2008, the Company has outstanding $25,000 principal amount of the 2006 Notes with on note holder.

NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS

The Company, in an effort to manage its natural gas and crude oil commodity price risk exposures utilizes derivative financial instruments. The Company, from time to time, enters into over-the-counter swap transactions that convert its variable-based oil and natural gas sales arrangements to fixed-price arrangements. The Company accounts for its derivative instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 133 requires the recognition of all derivatives as either assets or liabilities in the consolidated balance sheet and the measurement of those instruments at fair value. The Company entered into various derivative instruments during the period ended September 30, 2008. These swap contracts are not being accounted for as cash flow hedges under SFAS No. 133, but are recognized as derivatives and fair valued.

The Company marks-to-market its open swap positions at the end of each period and records the net unrealized gain or loss during the period in derivative gains or losses in the consolidated statements of operations. For the three months ended September 30, 2008, the Company recorded gains of $634,528, related to its swap contracts in the consolidated statements of operations. These swap contracts were related to an agreement entered into on September 2, 2008, with Macquarie Bank Limited, and were entered into as a condition of the CIT Credit Facility. In the first contract the Company agreed to be the floating price payer (based on Inside FERC Houston Ship Channel) on specific quantities of natural gas over the period beginning October 1, 2008 through December 31, 2011 and receive a fixed payment of $7.82 per MMBTU. In the second contract the Company agreed to be the floating price payer (based on the NYMEX WTI Nearby Month Future Contract) on specific monthly quantities of crude oil over the period beginning October 1, 2008 through December 31, 2011 and receive a fixed payment of $110.35 per barrel.

Fair value is estimated based on forward market prices and approximates the net gains and losses that would have been realized if the contracts had been closed out at period-end. When forward market prices are not available, they are estimated using spot prices adjusted based on risk-free rates, carrying costs, and counterparty risk.

As of September 30, 2008, the Company had the following hedge contracts outstanding:

Instrument

Beginning Date

Ending Date

Fixed

Total Bbls 2008

Total Bbls 2009

Total Bbls 2010

Total Bbls 2011

Swap

Oct-08

Dec-11

110.35

3,522

10,762

7,575

5,712

Indexed to NYMEX WTI

Instrument

Beginning Date

Ending Date

Fixed

Total MMBtu 2008

Total MMBtu 2009

Total MMBtu 2010

Total MMBtu 2011

Swap

Oct-08

Dec-11

7.82

131,781

427,953

328,203

262,080

Indexed to Inside FERC Houston Ship Channel

NOTE 7. PREFERRED STOCK AND COMMON STOCK

Preferred Stock

OnUpon ~~August 20, 2008~~ the ~~Company issued~~ ~~500~~effectiveness ~~shares~~ of ~~its~~the ~~newly~~Charter ~~designated~~Amendment ~~Series~~on CMarch ~~Preferred~~24, 2009 to ~~Alan~~increase ~~D. Gaines,~~ the Company’s ~~largest~~authorized ~~stockholder~~common ~~and~~shares, aall ~~director~~ of the ~~Company~~outstanding Series A, inB, ~~exchange~~D ~~for~~and ~~the~~E ~~cancellation~~Preferred ofshares aautomatically ~~promissory~~converted ~~note~~into ~~made~~shares byof the Company’s ~~in favor of Mr. Gaines, in~~common ~~the principal amount of $50,000~~stock. InThe ~~addition~~99,395 tooutstanding ~~these~~ shares of Series CA Preferred, onconverted into ~~August 20~~1,987,900 ~~2008~~common shares, the ~~Company~~37,100 ~~also~~outstanding ~~issued an additional 500~~ shares of Series C B Preferred toconverted ~~Mr.~~into ~~Gaines~~1,060,318 ~~for~~common ~~cash~~shares, ~~consideration~~the ~~of $50~~10,000~~. The~~ ~~Series~~outstanding ~~C Preferred are automatically redeemable by the~~shares ~~Company at the rate~~ of ~~$100 for every one (1) share of~~ Series CD Preferred ~~being redeemed~~converted ~~upon~~into ~~the closing of a debt or equity financing whereby the Company realizes gross proceeds in excess of $5~~17,~~000~~500,000~~. The~~ ~~Company’s~~common ~~lender in~~shares ~~the~~and ~~CIT Credit Facility did not permit~~ the ~~Company to redeem the Series C~~10,000 ~~Preferred~~outstanding ~~upon~~shares ~~funding, with the understanding that, based upon the success~~ of ~~the~~ ~~Company’s~~Series ~~workover~~E ~~program~~Preferred ~~and~~converted ~~increased~~into ~~production resulting from the Voyager Acquisition~~1,363,636 ~~the lender would permit a subsequent distribution to Mr.~~common ~~Gaines for his Series C Preferred~~shares.

17In addition, the Series A Preferred, Series B Preferred and Series D Preferred were evaluated under EITF 98-5 and EITF 00-27 and it was determined that the Series A Preferred, Series B Preferred and Series D Preferred contained beneficial conversion features. Because the conversion features were contingent upon a future event, the effectiveness of the Charter Amendment and the availability of sufficient authorized common shares, the contingent beneficial conversion feature was measured using the commitment date stock prices, but recognized upon the removal of the contingency. Based on the commitment date stock prices, the beneficial conversion feature associated with the Series A, Series B and Series D Preferred was determined to be $5,089,641. This beneficial conversion feature was recognized as a deemed dividend on the Company’s statements of operations during the quarter ended March 31, 2009.

As set forth above in Note. 3, the Company issued 10,000 shares of Series D Preferred to the seller in the Voyager Acquisition. As set forth in the Certificate of Designations filed with the State of Nevada on August 27, 2008 with respect to the Series D Preferred, upon the effectiveness of the Charter Amendment, each share of Series D Preferred will automatically convert into 1,750 shares of common stock for an aggregate of 17,500,000 shares of the Company’s common stock.

Concurrent with the closing of the Voyager Acquisition, the Company issued 10,000 shares of its newly designated Series E Preferred to the former holder of a $450,000 Debenture in satisfaction of the Company’s obligations under such Debenture. As set forth in the Certificate of Designations filed with the State of Nevada on August 29, 2008, with respect to the Series E Preferred, upon the effectiveness of the Charter Amendment, each share of Series E Preferred will automatically convert into 136.3636 shares of common stock for an aggregate of 1,363,636 shares of the Company’s common stock.

The shares of Series D and Series E Preferred rank senior to all other shares of the Company’s capital stock and are on parity with each other.

Common Stock

On March 4, 2008, the Company’s Board of Directors approved the Charter Amendment providing for, among other things, an increase in the number of authorized common shares that the Company may issue from 24,000,000 to 149,000,000 shares. The holders of a majority of ~~the~~ the Company’s outstanding shares of common stock consented to the Charter ~~Amendment~~ Amendment on March 4, 2008, which consent was subsequently ratified on August 29, 2008~~. As of~~ , November 19, 2008 and January 28, 2009. On March 24, 2009, the Company filed an amendment to its Articles of Incorporation with the State of Nevada and increased the number of authorized shares of common stock ~~that~~it ~~the Company~~ may issue ~~remained at 24~~to 149,000,000 ~~shares,~~and ~~pending the~~changed ~~effectiveness~~its ofname ~~the~~to ~~Charter~~Cross ~~Amendment~~Canyon Energy Corp.

~~NOTE~~Pursuant to restricted stock 8agreements entered into with the Company’s executive officers, Robert P. ~~GRANTS~~ Munn, OFChief ~~WARRANTS~~Executive ~~AND~~Officer, ~~OPTIONS~~Carl A. Chase, Chief Financial Officer and Jim B. Davis, Senior Vice President of Operations, the Company has agreed, upon the effectiveness of the Charter Amendment, to grant restricted stock to each of Messrs. Munn, Chase and Davis. Mr. Munn is to receive 1,500,000 shares, Mr. Chase is to receive 1,125,000 shares, and Mr. Davis is to receive 750,000 shares of the Company’s common stock, each which vests equally as to one-third of the shares over a two year period, commencing on the effectiveness of the Charter Amendment and each of the first and second year anniversary of the grant dates. The Company valued the restricted stock issuances on the grant date of each respective restricted stock agreement, May 22, 2008 for Messrs. Munn and Chase and October 1, 2208 for Mr. Davis. Messrs. Munn and Chase restricted stock was valued at $0.52 per share and Mr. Davis’ restricted stock was valued at $0.70 per share and the Company recorded compensation expense for the vested portion of their stock awards of $96,164, $72,123 and $148,203 for Messrs. Munn, Chase and Davis, respectively, for the three month period ended March 31, 2009. In addition, the Company represents on its consolidated balance sheets the issuance of 1,143,151 shares of restricted stock to Mr. Munn, 857,363 shares of restricted stock to Mr. Chase and 435,959 shares of restricted stock to Mr. Davis through March 31, 2009.

The Company uses the Black-Scholes option-pricing model to estimate option fair values. The option-pricing model requires a number of assumptions, of which the most significant are: expected stock price volatility, the expected pre-vesting forfeiture rate and the expected option term (the amount of time from the grant date until the options are exercised or expire).13

~~Volatilities~~NOTE ~~are based on the historical volatility of the Company’s closing common stock price~~6. ~~Expected term of options and warrants granted represents the~~ COMMON ~~period~~STOCK ofOPTIONS ~~time~~AND that options and warrants granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the options and warrants is based on the comparable U.S. Treasury rates in effect at the time of each grant.WARRANTS

~~None~~A summary of ~~the~~ stock ~~options~~option ortransactions ~~warrants which~~for ~~have been granted are exercisable until such time as~~ the ~~Company~~three ~~files~~months ~~its Charter~~ended ~~Amendment~~March ~~with the State of Nevada to increase its authorized shares of common stock from the current authorized of 24~~31,~~000,000~~ ~~shares~~2009 tois ~~149,000,000~~as ~~shares.~~follows:

As part of the consideration for entry into the CIT Credit Facility, on September 2, 2008 the Company granted CIT Capital a warrant, exercisable for up to 24,199,996 shares of the Company’s common stock, at an exercise price of $0.35 per share (the “CIT Warrant”). The CIT Warrant expires on September 2, 2013 and is exercisable upon the effectiveness of the Charter Amendment.

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

18At March 31, 2009, the range of exercise prices and weighted average remaining contractual life of outstanding options was $0.30 to $0.65 per share and 4.52 years, respectively.

~~NOTE~~A summary ~~9. ASSET RETIREMENT~~of ~~OBLIGATIONS~~warrant transactions for the three months ended March 31, 2009 is as follows:

The Company’s asset retirement obligations relate to estimated future plugging and abandonment expenses or disposal of its oil and gas properties and related facilities. These obligations to abandon and restore properties are based upon estimated future costs which may change based upon future inflation rates and changes in statutory remediation rules. The following table provides a summary of the Company’s asset retirement obligations:

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

	Three Months Ended
	September 30, 2008
Balance as of June 30, 2008	$	--
Liabilities incurred in current period		--
Liabilities assumed in business combination		765,658
Accretion expense		--
Balance September 30, 2008	$	765,658

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

NOTE 107. ~~RELATED~~ SUBSEQUENT ~~PARTY TRANSACTION~~EVENTS

~~See~~On ~~Note.~~May 75, ~~for~~2009, as part of a semi-annual ~~discussion~~redetermination of ~~Series~~the borrowing base under the CIT Credit Facility, Cthe ~~Preferred~~Company’s ~~stock~~senior ~~issued~~lender tonotified athe ~~director~~Company ~~for~~that ~~cash~~its ~~consideration~~borrowing ofbase was being reduced to $~~100~~1 million,~~000~~ causing the Company’s outstanding loans under the Revolving Loan to exceed the new borrowing base by $10.5 million. The Company’s credit agreement provides that it repay such revolving loan amount in excess of the reduced borrowing base within sixty days of such notification. The Company is currently in discussions with its senior lender to extend the sixty-day cure period to enable it to negotiate a readjustment to its borrowing base and a schedule for repaying any then-remaining borrowing base deficit. (See Note 3)

~~NOTE~~ On 11June 2, 2009, Robert P. ~~COMMITMENTS~~ Munn, Chief Executive Officer, and Carl A. Chase, Chief ~~AND~~Financial ~~CONTINGENCIES~~Officer, agreed to defer the payment of : (i) guaranteed bonuses to be paid on May 22, 2009, in the amount of $45,000 and $36,000 for Messrs. Munn and Chase, respectively, and (ii) guaranteed salary increases from $225,000 to $260,000 and from $180,000 to $210,000 annually effective May 22, 2009, for Messrs. Munn and Chase, respectively. Payments of such earned amounts have been deferred until the earlier of: (i) the occurrence of an event requiring payment of such amounts under their respective employment agreements or (ii) January 2, 2010.

On May 29 and March 1, 2009, the Company failed to file and have declared effective by the SEC a registration statement registering for resale the common stock underlying the Series D Preferred issued to the seller in the Voyager Acquisition and the common stock underlying the warrants issued to CIT Capital in the related acquisition financing. As set forth below, the Company’s failure triggered potential monetary penalties under the registration statement governing its obligation to register such shares for resale.

~~Commencing~~Under ~~August~~the registration 1,rights ~~2008~~agreement, ~~Voyager~~if the Company fails to have declared effective ~~Gas~~by ~~Corporation~~the ~~entered~~SEC ~~into~~a anregistration ~~office~~statement ~~lease~~registering ~~agreement~~for ~~with~~resale ~~GPI~~the ~~Tollway~~aforementioned shares –of common stock within 180 days of the closing of the Voyager ~~Madison~~Acquisition, ~~LLC~~or ~~(“Landlord”)~~by March 1, 2009, the Company is obligated to ~~provide~~pay ~~office~~to ~~space~~the inseller and ~~Addison~~CIT Capital, ~~Texas. The~~ ~~lease~~as ~~provides~~partial ~~for~~liquidated ~~approximately~~damages 2and not as a penalty,~~173~~ ~~rentable~~cash, ~~square~~in ~~feet~~the ataggregate ~~monthly~~equal ~~rental~~to ~~rates~~(i) ~~ranging~~two ~~from~~percent ~~$3,622~~(2%) toof the product of $~~3,803~~0.40 ~~per~~(the ~~month~~agreed upon valuation of underlying common stock) and ~~terminates~~ onthe ~~October~~number 31of registerable securities, ~~2011. Effective~~as ~~November~~defined 1,in ~~2008~~the registration rights agreement, ~~Voyager~~held by such seller ~~Gas~~and ~~Corporation~~(i) ~~executed~~0.8855% anof ~~Assignment~~the product of ~~Lease~~(A) ~~between~~$0.35 ~~Voyager~~(the ~~Gas~~overlying ~~Corporation~~warrant exercise asprice) ~~Tenant,~~and ~~GPI~~(B) ~~Tollway~~the –number ~~Madison,~~of ~~LLC~~registerable assecurities ~~Landlord~~held ~~and~~by ~~Addison~~CIT ~~Oil~~Capital on such date. Furthermore, ~~LLC~~if asthe registration statement has not been ~~Assignee~~declared ~~pursuant~~effective toby ~~which~~the ~~Addison~~SEC ~~Oil,~~after ~~LLC~~90 ~~assumed~~days ~~and~~have ~~agreed~~elapsed tofrom ~~make~~the ~~all~~above 180 day ~~payments~~registration ~~and~~requirement, or May 29, 2009, the Company is further obligated to pay ~~perform~~the seller, as partial damages and ~~keep~~not ~~all~~as ~~promises~~a penalty, ~~covenants~~additional ~~and~~cash, ~~conditions~~in ~~and~~the ~~agreements~~aggregate equal to (i) three percent (3%) of the ~~lease~~product byof ~~Tenant~~$0.40 toand bethe ~~made,~~number of ~~kept~~registerable ~~and~~securities ~~performed~~held ~~from~~by the seller and ~~after~~ (ii) 2.48% of the ~~assignment~~product ~~date~~of (A) $0. ~~Pursuant~~35 toand (B) the ~~Assignment~~number of ~~Lease,~~registerable ~~Voyager~~securities ~~Gas Corporation~~held ~~does~~by ~~hereby~~CIT ~~remain~~Capital ~~liable~~on such ~~for~~date. Upon ~~the~~a ~~performance~~registration ofstatement ~~all~~being ~~covenants~~declared effective, ~~agreements~~the ~~and~~Company ~~conditions~~may ~~contained~~also inbe ~~the~~subject ~~lease~~to ~~should~~certain ~~Addison~~additional ~~Oil~~penalties ~~LLC~~for ~~default~~failing to onmaintain ~~its~~the ~~obligations~~effectiveness of such registration statement.

The foregoing provisions notwithstanding, CIT Capital had agreed in the registration rights agreement that the Company shall not be liable for liquidated damages with respect to any unexercised warrants and the seller’s designee in the Voyager Acquisition has subsequently agreed to waive the penalties with respect to the registration statement not being declared effective within the initial 180 day period and with respect to not being declared effective after 90 days have elapsed from the 180 day registration requirement. Although the Company does not anticipate the warrants being exercised at the current exercise price, it may become subject to the above-described monetary penalties should the holders choose to exercise the warrants.

~~NOTE~~14 ~~12. SUBSEQUENT EVENTS~~

~~Repayment~~Item 2. Management’s Discussion and Analysis of ~~Note~~Financial ~~Payable~~Condition and Results of Operations

OnCAUTIONARY ~~October~~NOTE 6,REGARDING ~~2008, pursuant to a mutual agreement between the Company and Global Hunter Securities, LLC, (“GHS”) the Company made a cash payment in the amount of $300,000 as full settlement of the non~~FORWARDING-~~interest bearing promissory note in the principal amount of $575,500~~LOOKING ~~originally due March 15, 2009.~~STATEMENTS

~~2008~~The ~~Stock~~Company ~~Incentive~~desires ~~Plan~~to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. This report contains a number of forward-looking statements that reflect management's current views and expectations with respect to our business, strategies, future results and events and financial performance. All statements made in this report other than statements of historical fact, including statements that address operating performance, events or developments that management expects or anticipates will or may occur in the future, including statements related to future reserves, projections, cash flows, revenues, profitability, adequacy of funds from operations, statements expressing general optimism about future operating results and non-historical information, are forward-looking statements. In particular, the words "believe," "expect," "intend," " anticipate," "estimate," "may," "will," variations of such words and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking. Forward-looking statements are subject to certain risks, uncertainties and assumptions. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed elsewhere in this report, and the risks discussed in our press releases and other communications to shareholders issued by us from time to time, which attempt to advise interested parties of the risks and factors that may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

On September 19, 2008, the Company’s Board of Directors authorized the adoption of the ABC Funding, Inc. 2008 Stock Incentive Plan (the “2008 Plan”). The 2008 Plan was approved by holders of a majority of the Company’s outstanding shares of common stock on September 19, 2008, effective on the twenty-first (21st) day after mailing to all stockholders of record the Company’s definitive Information Statement on Schedule 14C relating to adoption of the 2008 Plan, in compliance with Regulation 14C under the Securities Exchange Act of 1934, as amended. The 2008 Plan provides for the issuance of up to 8,500,000 shares of the Company’s common stock to employees and non-employee directors through the issuance of stock options, restricted stock awards, stock appreciation rights and bonus stock. The Company’s Board of Directors feel the stock options and stock-based incentives offered under the 2008 Plan play an important role in retaining the services of outstanding personnel and in encouraging such personnel, together with existing employees, to have a greater financial investment in the Company.

Issuance of Stock Options and Restricted Stock Awards

On October 1, 2008, the Company entered into an employment agreement pursuant to which the Company, effective as of October 1, 2008, engaged Jim B. Davis, to serve as its Senior Vice President of Operations. The Company also entered into a restricted stock agreement and option agreements with Mr. Davis, pursuant to which the Company has agreed to issue up to an aggregate of 1,750,000 shares of its common stock to Mr. Davis, subject to the effectiveness of the Charter Amendment in the State of Nevada.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Notice Regarding Forward Looking Statements

ABC Funding, Inc. (referred to herein as "we" or the "Company") desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. This report contains a number of forward-looking statements that reflect management's current views and expectations with respect to our business, strategies, future results and events and financial performance. All statements made in this quarterly report other than statements of historical fact, including statements that address operating performance, events or developments that management expects or anticipates will or may occur in the future, including statements related to future reserves, cash flows, revenues, profitability, adequacy of funds from operations, statements expressing general optimism about future operating results and non-historical information, are forward-looking statements. In particular, the words "believe," "expect," "intend," " anticipate," "estimate," "may," "will," variations of such words and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.

Readers should not place undue reliance on these forward-looking statements, which are based on management's current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below) and apply only as of the date of this report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed elsewhere in this report, and the risks discussed in our press releases and other communications to shareholders issued by us from time to time, which attempt to advise interested parties of the risks and factors that may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

General Overview

On September 2, 2008, we completed the Voyager Acquisition, ~~giving~~whereby usVoyager was designated as our predecessor and we succeeded to substantially all of its business operations and properties, including the Duval County Properties, consisting of ownership interests in oil and natural gas lease blocks in ~~the~~ Duval County, Texas ~~(the “Duval County Properties”)~~ covering approximately 14,300 net acres. We Since ~~paid~~completing ~~cash~~the Voyager ~~consideration~~Acquisition, ofwe ~~$35.0 million,~~are ~~plus~~engaged 10in the exploration,~~000~~ ~~shares~~production, development and exploitation of ~~our~~the ~~Series~~crude Doil ~~Preferred,~~and ~~having~~natural angas ~~agreed~~reserves ~~upon value~~located ofin $7the Duval County Properties.0 We ~~million,~~believe that these properties and other assets acquired in the Voyager Acquisition will provide us a number of opportunities to realize increased production and revenues. We ~~fair~~also ~~valued~~believe that the reserve ~~preferred~~base ~~stock~~located onin ~~September~~the 2Duval County Properties can be further developed through infill and step-out drilling of new wells, ~~2008~~workovers targeting proved reserves and stimulating existing wells. As such, we plan to investigate and evaluate ~~recorded~~various ~~the~~formations ~~fair~~therein ~~value~~to ofpotentially ~~the~~recover additional ~~preferred~~incremental ~~stock~~oil and natural gas reserves and to create new drilling programs to exploit the full reserve potential of ~~$9.1~~the ~~million~~reservoirs located therein.

~~Having~~To date, ~~consummated~~we ~~the~~have performed ~~Voyager~~recompletions ~~Acquisition,~~and/or weremedial ~~intend~~workovers toon ~~engage~~seven inof the ~~exploration,~~ ~~production,~~wells ~~development,~~acquired ~~acquisition~~in ~~and~~the ~~exploitation~~Voyager Acquisition. Three of the ~~crude~~wells ~~oil~~acquired ~~and~~were ~~natural~~not ~~gas~~producing ~~properties~~on ~~located in~~ the ~~Duval~~date ~~County~~of ~~Properties. We believe~~acquisition ~~that these properties~~ and ~~other~~two ~~assets~~of ~~acquired~~these inwells ~~the~~have ~~Voyager~~been ~~Acquisition~~successfully ~~will~~recompleted ~~provide~~to usnew aformations ~~number~~and ofreturned ~~opportunities~~ to ~~realize~~a ~~increased~~productive ~~production~~status. Attempts ~~and~~to ~~revenues. We~~return ~~also~~the ~~believe~~third ~~that~~well ~~the~~to ~~reserve~~a ~~base~~productive status were ~~located~~unsuccessful inand ~~the~~we ~~Duval~~will ~~County~~now ~~Properties~~convert ~~can~~this bewell ~~further~~to ~~developed~~a ~~through~~salt ~~infill~~water disposal well ~~and~~with ~~step-out~~the ~~drilling~~goal of ~~new~~reducing ~~wells,~~our ~~workovers~~salt ~~targeting~~water ~~proved~~disposal ~~reserves~~costs, ~~and~~a significant component ~~stimulating~~of ~~existing~~our ~~wells. As~~lease ~~such~~operating expenses, weby ~~plan~~approximately to$40,000 ~~investigate~~per ~~and~~month. Of the ~~evaluate~~remaining ~~various~~four ~~formations~~wells, ~~therein~~one toof ~~potentially~~the ~~recover~~recompletion ~~significant incremental~~attempts ~~oil~~was unsuccessful and three ~~natural~~were ~~gas~~successful. Since ~~reserves~~the ~~and~~date toof ~~create~~the ~~new~~acquisition, ~~drilling~~we ~~programs~~have toincurred ~~exploit~~approximately ~~the~~$882,000 ~~full~~in ~~reserve~~capital ~~potential~~expenditures ofon ~~the~~this ~~reservoirs located therein~~program.

ToWe ~~date,~~have a ~~management~~180 ~~has~~day ~~identified~~drilling ~~four~~clause ~~non-productive~~on ~~wells~~one of our major leases with ~~immediate~~the ~~capital~~initial well to ~~recompletion~~begin ordrilling ~~expense~~operations ~~workover~~by ~~potential~~March to31, ~~new~~2009, ~~and/~~or ~~existing formations. We~~at ~~have~~our ~~prepared~~option, ~~capital~~renew ~~recompletion~~the ~~and expense~~lease ~~workover~~by ~~procedures~~paying ona ~~three~~significant ofamount ~~these~~for ~~non-productive~~a ~~wells~~lease ~~and~~renewal. Based ~~have~~upon ~~begun~~our acquired ~~operations~~3-D toseismic ~~return~~database, ~~them~~we toidentified a ~~productive~~shallow, ~~status. In addition~~3,000 wefoot prospect with ~~have~~potential ~~identified~~for ~~two~~0.5 ~~currently~~Bcf ~~producing~~of ~~wells~~natural ~~whereby~~gas wereserves. On ~~intend~~March to26, ~~add~~2009, we began ~~additional~~drilling ~~perforations~~operations toand ~~the~~on ~~currently~~March ~~producing~~31, ~~and/or~~2009, ~~new~~ran ~~zones~~electric inlogs on the well and ~~anticipation~~determined ofthe ~~increasing~~target ~~production. Our~~reserves ~~total~~had ~~estimated~~been ~~cost~~pressure depleted. We elected to ~~perform~~plug and abandon the well ~~work~~ on ~~these~~April ~~five~~1, ~~identified~~2009. By ~~projects~~drilling isthis ~~approximately $410~~well,~~000. Our~~ ~~estimated~~we successfully ~~capital~~extended ~~expenditures for~~ the ~~one~~large ~~remaining capital~~lease ~~recompletion~~by we180 ~~have~~days. We ~~identified~~incurred approximately is $~~100~~180,000~~. In~~ ~~addition~~in ~~to the~~drilling ~~recompletions~~costs ~~and~~on ~~workovers,~~this wewell. We ~~have~~believe ~~identified~~there ~~drilling~~are additional shallow well opportunities ~~for six~~on ~~proved~~the ~~undeveloped~~acquired ~~locations~~acreage and, ~~seven~~with ~~potential exploratory~~the ~~locations. Total~~assistance ~~estimated~~of ~~capital~~our ~~expenditures~~consulting ~~for~~geoscientist, ~~drilling~~are ofcontinuing ~~these 13~~to ~~wells~~analyze isthe sub-surface ~~$11~~structure.7 Our ~~million. These~~next ~~recompletions~~drilling ~~and~~operations ~~drilling opportunities~~on ~~will~~this belease ~~funded~~must begin ~~through~~within a180 ~~combination~~days of ~~cash flow from~~ the ~~Duval County~~plugging ~~Properties~~ and ~~borrowings~~abandonment ~~under~~date, ~~our~~or ~~Credit~~September ~~Facility~~29, 2009.

2015

We ~~expect~~intend to utilize 3-D seismic analysis from our acquired seismic database and other modern technologies and production techniques to ~~improve~~enhance ~~drilling~~our ~~results~~production and ~~ultimately~~returns, ~~enhance~~and, ~~our~~although ~~production~~seismic indications of hydrocarbon saturation are generally not reliable indicators of productive reservoir rock and ~~returns. We~~other ~~also~~modern technologies such as well logs are not always reliable indicators of hydrocarbon productivity, we believe use of such technologies and production techniques in exploring for, developing and exploiting oil and natural gas properties will help us reduce drilling risks, lower finding costs and provide for more efficient production of oil and natural gas from our properties. This proprietary 3-D seismic data has been reprocessed by us and has improved the subsurface imaging over our acreage position.

We ~~will~~also intend to continue to review opportunities to acquire additional producing properties, leasehold acreage and drilling prospects that are located in and around the Duval County Properties, or which might result in the establishment of new drilling areas. When identifying acquisition candidates, we focus primarily on underdeveloped assets with significant growth potential. We seek acquisitions which allow us to absorb, enhance and exploit properties without taking on significant geologic, exploration or ~~integration~~ integration risk.

The implementation of our foregoing strategy will require that we make significant capital expenditures in order to replace current production and find and develop new oil and gas reserves. In order to finance our capital program, we will depend on cash flow from anticipated operations, cash or cash equivalents on hand, or committed credit facilities, as discussed below in “Liquidity and Capital Resources.”

If we are unable to raise additional capital from conventional sources, including lines of credit and sales of stock in the future, we may be forced to curtail or cease our business operations. We may also be required to seek additional capital by selling debt or equity securities, selling assets, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. We cannot assure you, however, that financing will be available in amounts or on terms acceptable to us, or at all. This is particularly a concern in light of the current illiquidity in the credit markets, as well as the current suppressed oil and natural gas pricing levels. Even if we are able to continue our operations, the failure to obtain sufficient financing could have a substantial adverse effect on our business prospects and financial results.

Our forecasted operating needs and funding requirements, as well as our projected ability to obtain adequate financial resources, involve risks and uncertainties, and actual results could vary as a result of a number of factors.

Our business and prospects must also be considered in light of the risks and uncertainties frequently encountered by companies in the oil and gas industry. The successful development of oil and natural gas fields is ~~highly~~ highly uncertain and we cannot reasonably estimate or know the nature, timing ~~and~~ and estimated expenses of the efforts necessary to complete the development of, or or the period in which material net cash inflows are expected to commence from, ~~any~~ any oil and natural gas production from our existing fields or other fields, if any, acquired in the future. Risks and uncertainties associated with oil and natural gas production include:

·	reservoir performance and natural field decline;

·	changes in operating conditions and costs, including costs of third party equipment or services such as drilling rigs and shipping;

·	the occurrence of unforeseen technical difficulties, including technical problems that may delay start-up or interrupt production;

·	the outcome of negotiations with co-venturers, governments, suppliers, or other third party operators;

·	our ability to manage expenses successfully;

·	regulatory developments, such as deregulation of certain energy markets or restrictions on exploration and production under laws and regulations related to environmental or energy security matters; and

volatility in crude oil and natural gas prices, actions taken by the Organization of Petroleum Exporting Countries to increase or decrease production and demand for oil and gas affected by general economic growth rates and conditions, supply disruptions, new supply sources and the competitiveness of alternative hydrocarbon or other energy sources.

21Basis of Presentation

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

~~Revenue Drivers~~Three Months Ended March 31, 2009 and 2008

~~Crude Oil and Natural Gas~~The ~~Sales. Our~~following ~~revenues~~table ~~are~~represents ~~generated~~sales ~~from production~~ of ~~crude~~ oil and natural gas ~~which~~and ~~are~~realized ~~substantially dependent upon prevailing~~ prices~~. Our~~ ~~future production is impacted by our drilling success, acquisitions and decline curves on our existing production. Prices~~ for ~~oil and natural gas are subject to large fluctuations in response to~~ ~~relatively minor changes in~~ the ~~supply~~three ofmonths orended ~~demand~~March ~~for oil and natural gas~~31, ~~market~~ ~~uncertainty~~2009 and a variety of additional factors beyond our control. We enter into derivative instruments for a portion of our oil and natural gas production to achieve a more predictable cash flow and to reduce our exposure to adverse fluctuations in the prices of oil and natural gas.2008:

We generally sell our oil and natural gas at current market prices determined at the wellhead. We are required to pay gathering, compression and transportation costs with respect to substantially all of our products or incur such costs to deliver our products to a sales point. We market our products in several different ways depending upon a number of factors, including the availability of purchasers for the product at the wellhead, the availability and cost of pipelines near the well, market prices, pipeline constraints and operational flexibility.

	Successor Entity		Predecessor Entity
	Three Months Ended March 31,		Three Months Ended March 31,
	2009		2008
Net sales:
Oil (Bbls)		7,004		20,192
Natural gas (Mcf)		104,329		215,326

Average sales prices:
Oil ($ per Bbl)	$	38.39	$	96.25
Natural gas ($ per Mcf)	$	4.64	$	9.03

~~Operating Expenses~~Revenue

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

·For ~~Lease~~the ~~Operating.~~three ~~Our~~months ~~lease~~ended ~~operating~~March ~~expenses~~31, 2009, ~~include~~we ~~repair~~realized ~~and~~an ~~maintenance~~average ~~costs,~~price ~~contract~~for ~~labor~~the ~~and~~sale ~~supervision,~~of ~~salt~~our ~~water~~crude ~~disposal~~oil ~~costs,~~of ~~expense~~$38.39 ~~workover~~per barrel ~~costs,~~compared ~~compression,~~to ~~electrical~~$96.25 ~~power~~per ~~and~~barrel ~~fuel~~for ~~costs~~the ~~and~~2008 ~~other~~period. ~~expenses~~Prices ~~necessary~~received tofor the ~~maintain~~sale ~~our~~of ~~operations~~crude oil have seen a significant decline from the record highs experienced during 2008. ~~Our~~We ~~lease~~do ~~operating~~not ~~expenses~~foresee ~~are~~crude ~~driven~~oil inprices ~~part~~rising byto the ~~type~~levels seen ofin ~~commodity~~2008; ~~produced~~however, ~~and~~we are currently experiencing increases over the ~~level~~prices realized during the first fiscal quarter of ~~maintenance~~this ~~activity~~year. AdAs ~~valorem~~discussed ~~taxes~~below ~~represent~~under “Risk ~~property~~management,” ~~taxes~~we have entered into energy swap contracts to mitigate a portion of the changes in market prices for crude oil and recorded a realized gain on our ~~properties~~crude oil hedge of $206,887 for the three month period ended March 31, 2009.

· Production Taxes. Production taxes represent the taxes paid on produced oil and gas on a percentage of market (our price received from the purchaser) or at fixed rates established by federal, state or local taxing authorities.17

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

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

~~Other~~Operating ~~Income~~costs and ~~Expenses~~expenses

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

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

~~Interest~~We have recently rendered our Duval ~~Expense. Our~~County ~~interest~~Properties ~~expense~~to ~~reflects~~the Duval County tax assessor and have reduced our ~~borrowings~~ad valorem ~~under~~taxes for fiscal 2009 to approximately $57,000 from $209,000 for fiscal 2008. We are continuing to search our ~~CIT~~cost ~~Credit~~structure ~~Facility,~~to ~~other~~identify ~~short-term~~additional areas ~~notes~~where ~~and~~the ~~amortization~~costs of ~~debt~~operating our producing properties can be reduced to ~~discounts~~partially compensate for the reduction in production volumes and commodity prices.

~~Risk Management~~Production taxes. ~~The~~ ~~results~~Production taxes ofare ~~operations~~comprised ~~and~~of ~~operating~~the amounts ~~cash~~we ~~flows~~are obligated to pay to various regulatory agencies, which taxes are ~~impacted~~based byon ~~changes~~the value inwe ~~market~~receive ~~prices~~from ~~for~~the sale of our crude oil and natural gas. To Production ~~mitigate~~taxes afor ~~portion~~the ofthree ~~this~~months ~~exposure,~~ended weMarch ~~have~~31, ~~entered~~2009 ~~into~~were ~~certain~~$57,645 ~~derivative~~compared to ~~instruments~~$236,518 ~~which~~for ~~have~~the ~~not~~three ~~been~~months ~~elected~~ended toMarch be31, ~~designated~~2008. All asof ~~cash~~our ~~flow~~revenue ~~hedges for~~is ~~financial~~attributable ~~reporting~~to ~~purposes~~the State of Texas. ~~Generally,~~ Severance ~~our~~taxes ~~derivative~~in ~~instruments~~the State of Texas are ~~comprised~~based upon the value of ~~fixed~~crude ~~price~~oil ~~swaps~~sold asand ~~defined~~natural ingas ~~the~~produced and ~~instrument~~sold. ~~These~~ Crude ~~instruments~~oil ~~are~~is ~~recorded~~taxed at ~~fair~~the rate of 4.6% of the value sold and ~~changes~~natural ingas ~~fair~~is taxed at the rate of 7.5% of the value, ~~including~~of ~~settlements,~~the ~~have~~natural ~~been~~gas produced. Oil ~~reported~~and asnatural ~~risk~~gas ~~management~~revenue infor the 2008 period was significantly higher than the ~~statements~~2009 ofperiod ~~operations~~resulting in the significant difference in production taxes when comparing the two periods.

Change in Fair Value of Derivatives. We mark-to-market our derivative liabilities each reporting period and record the change in the derivative liability to change in fair value of derivatives in the statements of operations.18

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

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

We ~~review~~anticipate ~~the carrying value of~~ our ~~oil~~exploration ~~and~~expenses ~~natural~~will ~~gas~~increase ~~properties~~in ~~under~~ the ~~full~~future ~~cost accounting rules of the SEC on a quarterly and annual basis. This review is referred to~~ as awe ~~ceiling test. Under~~continue ~~the ceiling test, capitalized costs, less accumulated depletion and related deferred income taxes, may not exceed an amount equal~~ to ~~the~~ ~~sum~~analyze ofour ~~the~~3-D ~~present value of estimated future net revenues less estimated~~seismic ~~future~~database ~~expenditures~~for toadditional bedrilling ~~incurred in developing and producing the proved reserves, less any related income tax effects~~opportunities. ~~Any excess of the net book value, less deferred income taxes, is generally written off to expense as an impairment.~~

~~Results~~Accretion of asset retirement obligation. We have recorded the fair value of ~~Operations~~the asset retirement obligation relating to dismantlement and plugging and abandonment costs, excluding salvage values, of the Voyager Acquisition. Over time, accretion of this liability is recognized each period, and the capitalized cost is amortized over the useful life of the related assets. For the periods ended March 31, 2009 and 2008, we recorded accretion expense of $19,160 and $15,233, respectively.

~~Three~~Depletion, depreciation and ~~months~~amortization. ~~Ended~~We ~~September~~use 30the unit-of-production method to charge to expense the capitalized costs of our proved oil and natural gas properties on a field by field basis. Under this method, depletion is calculated by multiplying our capitalized costs of proved oil and natural gas properties by a fraction, the numerator being the equivalent production during the period and the denominator being the total proved equivalent oil and natural gas reserves. Depletion expense for the period ended March 31, 2009, was $512,539, or $3.50 per equivalent Mcf (“Mcfe”), compared to depletion expense of the Predecessor Entity of $714,948, or $1.06 per Mcfe for the period ended March 31, 2008. The increase in the depletion rate per Mcfe for the period ended March 31, 2009, was attributable to the increased value of our proved properties and decrease in the quantity of proved reserves when compared to the Predecessor Entity. We depreciate our fixed assets on a straight-line basis over the useful lives of the assets ranging from one to seven years. Depreciation expense for the period ended March 31, 2009 was $5,130 compared to $2,504 for the 2008 period.

~~Revenues. The~~19 following table summarizes our oil and natural gas revenues and sales for the three months ended September 30, 2008. As the Voyager Acquisition was our initial oil and gas acquisition, we did not have any revenue for the three months ended September 30, 2007.

Natural gas sales:
Revenue	$	456,831
Volumes – Mmbtu		57,945
Price - $/Mmbtu	$	7.88
Oil sales:
Revenue	$	337,353
Volumes – Bbls		3,278
Price - $/Bbl	$	102.91

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

We closed on the Voyager Acquisition on September 2, 2008, and therefore reported revenue only for the month of September 2008. The effective date of the Voyager Acquisition was April 1, 2008, and all revenue and lease operating expenses for the period April 1 through September 1, 2008 were treated as a purchase price adjustment. Total revenue for the month of September 2008 was $794,184. Revenue from the sale of natural gas for the month of September totaled $456,831 at an average price of $7.88 per Mmbtu. Natural gas sales volume was 57,945 Mmbtu’s, or a daily rate of 1,932 Mmbtu’s. Revenue from the sale of crude oil for the month of September was $337,353 at an average price of $102.91 per barrel. Crude oil sales volume was 3,278 barrels, or a daily rate of 109 barrels.

	Successor Entity		Predecessor Entity
	Three Months Ended March 31,		Three Months Ended March 31,
	2009		2008

Payroll and related expenses	$	878,358	$	115,623
Office administration		47,824		6,256
Professional fees		162,985		47,543
Other expenses		38,904		6,912
Total general and administrative expenses	$	1,128,071	$	176,334

~~Lease Operating~~General ~~Expenses. Lease~~and ~~operating~~administrative expenses for the ~~month~~three ofmonths ~~September 2008~~ended March 31, 2009 were $1,128,071 compared to $~~154~~176,~~373. The~~334 ~~primary~~for ~~components~~the ofPredecessor ~~lease~~Entity ~~operating~~for the three months ~~expenses~~ended ~~were~~March ~~salt~~31, ~~water~~2008. ~~disposal~~Payroll ~~costs~~and ofrelated expenses increased by $63762,~~479~~735 to $878,358 ~~lease~~for ~~road~~the ~~maintenance~~period of ended March 31, 2009 compared to $17115,~~964~~623 for the period ended March 31, ad2008. ~~valorem~~In ~~taxes~~accordance ofwith ~~$17~~the employment agreements we entered into with our Chief Executive Officer,~~695~~ Chief Financial Officer and ~~costs~~Senior ~~associated~~Vice President ~~with~~of ~~natural~~Operations, ~~gas~~we granted restricted stock awards and stock options to ~~compression~~each of these individuals and recorded non-cash compensation expense of $22581,~~338~~964 for the 2009 period. ~~The~~ ~~remainder~~Our ofPredecessor ~~the~~Entity ~~lease~~was ~~operating~~not ~~expenses~~a publicly traded company ~~were~~and ~~comprised~~had ofno ~~contract~~restricted ~~gauging~~stock ofor ~~wells~~stock option compensation expense during the 2008 period. In conjunction with the restricted stock awards, ~~contract~~we ~~services~~agreed to pay to our CEO and ~~other~~CFO an additional payment equal to the applicable taxes incurred on the ~~expenses. We~~restricted ~~did~~stock ~~not~~awards, ~~have~~which ~~lease~~payment ~~operating~~was ~~expenses~~recorded ~~during~~as a bonus in the ~~2007~~amount of $97,608. During the 2009 period, we employed four individuals, one which left the Company in February, compared to three individuals being employed by our Predecessor Entity.

~~Production Taxes. Production~~Office ~~taxes~~administration expenses for the 2009 ~~month~~period oftotaled ~~September 2008, were~~ $5547,~~361. All~~824 ofwhich ~~our~~was ~~revenue~~comprised ~~is attributable to the State~~ of ~~Texas. Severance~~ ~~taxes~~office inrent, ~~the~~telephone ~~State of Texas are based upon the value~~and ofcommunications ~~crude oil sold~~ and ~~natural~~other ~~gas~~office ~~produced~~expenses. ~~Crude~~ ~~oil~~This iswas ~~taxed~~an atincrease ~~the rate~~ of ~~4.6%~~$41,568 ofwhen compared to the ~~value~~2008 ~~sold~~period ~~and~~which ~~natural~~increase ~~gas~~was isprimarily ~~taxed~~attributable atto relocating ~~the~~to ~~rate~~our ofnew ~~7.5%~~executive ~~of the natural gas produced~~offices. We ~~did~~anticipate ~~not~~that ~~have~~office administration ~~production~~expenses ~~taxes~~will ~~during~~decrease in the ~~2007~~ ~~period~~near term.

~~General~~Professional ~~and~~fees, ~~Administrative~~which are comprised ~~Expenses. General~~of legal, accounting and ~~administrative~~audit, ~~expenses~~engineering ~~were~~and other consulting fees were $~~707~~162,~~345~~ 985 for the three months ended ~~September~~March 3031, ~~2008~~2009, compared to $~~208~~47,~~711~~543 for the three months ended ~~September~~March 3031, ~~2007~~2008. ~~Payroll~~ ~~and~~Our ~~related~~Predecessor ~~expenses~~Entity was not a public ~~for~~company ~~the~~and ~~2008~~did ~~period~~not ~~were~~incur ~~$472,312~~the ~~compared~~public toreporting ~~$145,500~~expenses ~~for~~we ~~the~~did ~~2007~~during the ~~period~~quarter. We ~~had~~Our noaccounting ~~employees~~and ~~during~~audit fees for the ~~2007~~2009 period ~~and~~were ~~incurred~~$71,850 which ~~non-cash~~included ~~stock~~fees ~~expense~~for ofauditing ~~$145,500~~our ~~during~~financial statements for the ~~2007~~transition period~~. During the~~ ~~2008~~July ~~period,~~1 wethrough ~~had~~December ~~three~~31, ~~employees~~2008, ~~resulting~~as inwell ~~salaries,~~as ~~payroll~~our ~~taxes~~predecessor’s ~~and~~financial ~~health~~statements ~~insurance~~for ofthe ~~$134~~year ended December 31,~~328. In~~ ~~addition~~2008, weand ~~incurred~~our ~~$337,984~~Form ~~for non~~S-~~cash~~1 ~~stock~~filings ~~expense~~with the ~~pursuant~~SEC. toWe ~~stock~~incurred ~~options~~legal ~~and~~fees ~~restricted~~of ~~stock~~$46,235 ~~awards granted~~primarily attributable to our ~~CEO~~SEC filings and ~~CFO~~corporate governance. We ~~incurred~~As ~~professional~~we ~~fees~~do ~~during~~not ~~the~~employ a reservoir engineer, we ~~2008~~incurred ~~period~~engineering fees of $~~161~~34,~~336~~352 ~~comprised~~attributable ofto ~~legal,~~reserve ~~accounting~~analysis ~~and~~from ~~engineering~~our ~~fees. The~~engineering ~~increase~~consultant inand ~~professional~~independent ~~fees~~third ~~was~~party aengineering ~~result~~firm for preparation of ~~increased activity~~our ~~primarily~~year-end ~~attributable~~reserve toreport. ~~the~~Our ~~Voyager~~predecessor ~~Acquisition~~incurred directors’ fees and ~~public~~financial ~~company reporting. Professional~~advisory fees ~~for~~due ~~the~~to ~~2007~~Natural ~~period~~Gas ~~were $33,933. Expenses~~Partners ~~associated~~in accordance with a ~~office~~financial ~~administration~~advisory ~~were~~agreement totaling $1226,~~963 and~~250 ~~other~~for ~~expenses~~the ~~comprised~~three ofmonth ~~investor~~period ~~relations,~~ended March ~~travel and meals~~31, ~~filing fees~~2008. ~~and~~Upon ~~directors’~~closing ~~and~~of ~~officers’~~the ~~liability~~Voyager ~~insurance were $60~~Acquisition,~~732. This~~ ~~compares~~the tofinancial ~~$29,278~~advisory agreement ~~incurred~~between ~~for~~Voyager ~~other~~and ~~expenses~~Natural ofGas ~~the 2007~~Partners ~~period~~was terminated.

23Other expenses increased from $6,912 for the 2008 period to $38,904 for the 2009 period. Included in other expenses are the cost of travel and entertainment, directors’ and officers’ liability insurance and investor relations.

~~Interest~~Income ~~Expense. Interest~~(loss) ~~expense~~from for the three months ended September 30, 2008, totaled $1,167,454 and was comprised of interest expense incurred pursuant to our CIT Credit Facility of $190,375, amortization of deferred financing costs of $188,956, amortization of debt discounts of $786,509 and other interest expense of $1,614. Interest expense for the 2007 period was $171,303 which was comprised of accrued interest on notes payable of $134,330 and amortization of debt discounts of $36,973.operations

~~Risk Management. The~~For ~~gain recorded from our risk management position for~~ the three months ended ~~September~~March 3031, ~~2008, was~~ ~~$683~~2009,~~391. We~~ ~~mark-to-market~~we ~~our~~reported ~~open~~a ~~swap positions at the end of each period and record the net unrealized gain or~~ loss ~~during~~from ~~the period in derivative gains or losses in our statements of~~ operations~~. For~~ ~~the three months ended September 30, 2008, we recorded gains~~ of $~~634~~1,~~528~~466,021 ~~related~~compared to ~~our~~ ~~swap~~income ~~contracts. These swap contracts are related to an agreement~~from ~~entered~~operations ~~into on September 2, 2008, with Macquarie Bank Limited. In the first contract we agreed to be the floating price payer (based on Inside FERC Houston Ship Channel) on specific quantities~~ of ~~natural gas over the period beginning October~~ $1, ~~2008 through December 31~~294,702 ~~2011~~for ~~and receive a fixed payment of $7.82 per MMBTU. In~~ the ~~second~~three ~~contract~~months weended ~~agreed~~March ~~to be the floating price payer (based on the NYMEX WTI Nearby Month Future Contract) on specific monthly quantities of oil over the period beginning October 1, 2008 through December~~ 31, ~~2011 and receive a fixed payment of $110~~2008.~~35 per barrel.~~

Other income (expense)

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

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

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

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

Risk management. The gain recorded from our risk management position for the three months ended March 31, 2009, was $1,355,277 compared to a loss for the 2008 period of $489,050. We mark-to-market our open swap positions at the end of each period and record the net unrealized gain or loss during the period as risk management in our consolidated statements of operations. At March 31, 2009, we recorded an unrealized gain of $724,077 related to our swap contracts. These swap contracts are related to an agreement entered into on September 2, 2008, with Macquarie Bank Limited. In the first contract we agreed to be the floating price payer (based on Inside FERC Houston Ship Channel) on specific quantities of natural gas over the period beginning October 1, 2008 through December 31, 2011 and receive a fixed payment of $7.82 per MMBTU. In the second contract we agreed to be the floating price payer (based on the NYMEX WTI Nearby Month Future Contract) on specific monthly quantities of oil over the period beginning October 1, 2008 through December 31, 2011 and receive a fixed payment of $110.35 per barrel. During the 2009 period, we recorded realized gains on our energy swaps for oil and natural gas of $206,887 and $424,313, respectively.

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

In addition to the above, we were required to unwind Voyager Gas Corporation’s hedge positions upon closing of the Voyager Acquisition on September 2, 2008. We recorded a gain from unwinding Voyager’s hedge position of $48,863.21

~~Loss~~Change onin ~~Extinguishment~~fair value of derivative ~~Debt~~liabilities. On ~~August~~We ~~31,~~have ~~2008,~~evaluated wethe ~~converted~~application ~~$450,000~~of ~~principal~~SFAS No. 133 and EITF ~~amount~~Issue of07-05 to the ~~Debentures~~warrants toissued 10with the May 21,~~000~~ ~~shares~~2008 ofconvertible debentures used for our ~~Series~~deposit Efor ~~Preferred~~the ~~stock~~Voyager ~~which will~~Acquisition ~~convert~~and ~~into~~the ~~1,363,636~~warrants ~~shares~~issued with the Term Loan portion of the CIT Credit Facility to purchase our common stock issued ~~upon~~on September 2, 2008. Based on the ~~effectiveness~~guidance ofin SFAS 133 and EITF ~~our~~07-05, ~~Charter~~we ~~Amendment~~concluded these instruments were required to continue to be ~~filed~~accounted for ~~with~~as ~~the~~derivatives ~~State~~as of ~~Nevada~~March 31, 2009, due to the “down round” protection feature on the exercise prices. We recorded the fair value of these ~~valued~~derivatives ~~the~~on ~~common~~our ~~stock~~balance sheet at ~~August~~fair ~~31,~~value ~~2008,~~with ~~and~~changes in the values of these derivatives are reflected in the consolidated statements of operations as “Change in fair value of derivatives.” Based upon the foregoing, we recorded a ~~loss~~change ~~on extinguishment~~in fair value of ~~debt~~derivatives of $~~804~~655,~~545~~909 during the period ended March 31, 2009.

~~Change in Fair Value of~~Deemed Derivatives. We mark-to-market our derivative liabilities each period to report the change in fair value. For the three months ended September 30, 2008, the change in fair value of our derivative liabilities was a loss of $17,922,772. The derivative liabilities exist because we have insufficient authorized and unissued shares of our common stock to settle our contracts including the outstanding preferred stock (Series A, B, D, and E), our outstanding warrants and stock options and our outstanding convertible debt. Upon the effectiveness of the Charter Amendment to increase our number of authorized shares of common stock from 24,000,000 to 149,000,000, we will have sufficient authorized and unissued shares to settle these contracts. At that point, the derivative liability will be eliminated and we will record a gain on the change in fair value of derivatives.dividend

Our Series A Preferred, Series B Preferred and Series D Preferred were evaluated under EITF 98-5 and EITF 00-27 and it was determined that the Series A Preferred, Series B Preferred and Series D Preferred contained beneficial conversion features. Because the conversion features were contingent upon a future event, the effectiveness of the Charter Amendment and the availability of sufficient authorized common shares, the contingent beneficial conversion feature was measured using the commitment date stock prices. Based on the commitment date stock prices, the beneficial conversion feature associated with the Series A, Series B and Series D Preferred was $5,089,641, which beneficial conversion feature has been recognized as a deemed dividend on our statements of operations.

Net income (loss)

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

Liquidity and Capital Resources

Our main sources of liquidity and capital resources for the fiscal year 2009 will be ~~cash,~~ ~~short-term~~ cash ~~equivalent investments~~ on hand , ~~anticipated~~ internally generated cash flows from operations following the Voyager Acquisition and our CIT Credit Facility. As of March 31, 2009, we had cash ~~committed~~on ~~credit~~hand ~~facilities~~in unrestricted accounts of $502,713 and negative working capital as a result of reporting our debt from our CIT Credit Facility as a current liability.

Cash Flows

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

	Successor Entity			Predecessor Entity
	Three Months Ended March 31,			Three Months Ended March 31,
	2009			2009

Net cash provided by (used in) operating activities	$	(216,705	)	$	2,471,877
Net cash used in investing activities		(628,034	)		(229,435	)
Net cash provided by (used in) financing activities		24,375			(2,193,333	)
Net increase (decrease) in cash	$	(820,364	)	$	49,109

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

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

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

Credit Facility

On September 2, 2008 we entered into the CIT Credit Facility, consisting of a $50 million senior secured revolving loan (“Revolving Loan”) and a $22 million term loan (“Term Loan”).

The Revolving Loan is subject to an initial borrowing base of $14.0 million, or an amount determined based on semi-annual reviews of our proved oil and gas reserves. As of September 2, 2008, we had borrowed $11.5 million under the Revolving Loan to finance the Voyager Acquisition, to repay the related bridge loan and transaction expenses, and to fund capital expenditures generally. Monies advanced under the Revolving Loan mature on September 1, 2011 and bear interest at a rate equal to LIBOR plus 1.75% to 2.50%, as the case may be. On ~~September~~January 422, ~~2008~~2009, we obtained a ~~three~~ six month LIBOR rate expiring July ~~December 4~~22, ~~2008~~2009 on $1.0 million principal amount of the Revolving Loan, resulting in an annual interest rate of 54.31045%. On ~~September~~March 304, ~~2008~~2009, we ~~repaid~~obtained $1a ~~million of principal on~~three ~~the~~month ~~revolver~~LIBOR ~~and~~rate onexpiring ~~October~~June 224, ~~2008,~~2009 weon ~~borrowed~~ $110.5 million onprincipal ~~the~~amount ~~Revolving~~of the Revolving Loan, resulting in an annual interest rate of 3.77%.

24The Term Loan provides for a one-time advance to us of $22.0 million. We drew down the full amount on September 2, 2008, to finance the Voyager Acquisition and to repay the related bridge loan and transaction expenses. Monies borrowed under the Term Loan mature on March 1, 2012 and bear interest at a rate equal to LIBOR plus 5% during the first twelve months after closing and LIBOR plus 7.50%, thereafter. On March 4, 2009, we obtained a three month LIBOR rate expiring June 4, 2009, resulting in an annual interest rate of 6.27%.

~~The~~On ~~Term~~May 5, ~~Loan~~2009, ~~provides~~as ~~for~~part of a ~~one~~semi-~~time~~annual ~~advance~~redetermination toof usthe ofborrowing ~~$22.0~~base ~~million. We~~under ~~drew~~the ~~down~~CIT ~~the~~Credit ~~full~~Facility, ~~amount~~our onsenior ~~September~~lender 2,notified ~~2008,~~us tothat ~~finance~~our ~~the~~borrowing ~~Voyager~~base ~~Acquisition~~was ~~and~~being reduced to ~~repay~~$1.0 ~~the~~million, ~~related~~causing ~~bridge~~our ~~loan~~outstanding ~~and~~loans ~~transaction~~under ~~expenses. Monies~~the Revolving ~~borrowed~~Loan ~~under~~to exceed the ~~Term~~new ~~Loan~~borrowing ~~mature~~base onby ~~March~~$10.5 1,million. ~~2012~~Our ~~and~~credit ~~bear~~agreement provides ~~interest~~that atwe arepay ~~rate equal~~such torevolving ~~LIBOR~~loan ~~plus~~amount 5%in ~~during~~excess of the ~~first~~reduced borrowing ~~twelve~~base ~~months~~within ~~after~~sixty ~~closing~~days ~~and~~of ~~LIBOR plus~~such 7notification.~~50%,~~ ~~thereafter. On~~We ~~September~~are 4,currently ~~2008,~~in discussions wewith ~~obtained~~our asenior ~~three~~lender to extend the sixty-day cure period to enable ~~month~~us ~~LIBOR~~to ~~rate~~negotiate ~~expiring~~a ~~December~~readjustment 4,to ~~2008,~~our ~~resulting~~borrowing inbase anand ~~annual~~a ~~interest~~schedule ~~rate~~for repaying ofany 7then-remaining borrowing base deficit.~~81%.~~

On April 21, 2009, the administrative agent and lenders agreed to waive our failure to comply with certain financial ratios, measured as of December 31, 2008, in the CIT Credit Facility with respect to (i) our ratio of EBITDAX to interest expense and our ratio of total debt to EBITDAX under the Revolving Loan and (ii) our ratio of total reserve value to total debt under the Term Loan. Such agent and lenders also waived compliance by us of these ratios for and during each fiscal period ending in 2009. As a condition to these waivers, we agreed that no further borrowings or loans may be requested or made under the Credit Facility unless and until the lenders, in their sole and absolute discretion, shall otherwise agree in writing.

In addition to financial covenants, the Company is subject to various reporting obligations under the credit agreement. As part of the Company’s aforementioned discussions with its senior lender with respect to the adjusted borrowing base, the Company has obtained a waiver from its senior lender with respect to certain covenants under the credit agreement. The credit agreement includes the requirement that none of the audited financial statements for the Company, as reported on by its independent public accountants, contain a “going concern” or like qualification or exception. As a result of the senior lender reducing the Company’s borrowing base to $1 million resulting in the Company having a borrowing base excess of $10.5 million, the Company’s independent public accountants have reported a “going concern” qualification. The Company is in discussions with its senior lender to enter into a forbearance agreement and obtain a waiver of the going concern opinion, however, as of the date of this filing the Company has not received a waiver or entered into a forbearance agreement. As a result, all of the Company’s debt pursuant to the CIT Credit Agreement has been classified as current on the Company’s balance sheet. Failure to obtain a waiver or otherwise remedy the “going concern” qualification by June 19, 2009 constitutes an Event of Default under our credit facility, permitting our senior lender to declare all outstanding loans to the Company, together with any accrued and unpaid interest thereon, immediately due and payable.

All borrowings under the Revolving Loan are secured by a first lien on all of our assets and those of our subsidiaries. All borrowings under the Term Loan are secured by a second lien on all of our assets and those of our subsidiaries.

The loan instruments evidencing the ~~revolver~~Revolving Loan contain various restrictive covenants, including financial covenants requiring that we will not: (i) as of the last day of any fiscal quarter, permit our ratio of EBITDAX (earnings before interest, taxes depreciation amortization and exploration expenses) for the period of four ~~fiscal~~ fiscal quarters then ending to interest expense for such period to be less than 2.0 to 1.0; (ii) at any time permit our ratio of total debt as of such time to ~~EBITDAX~~ EBITDAX for the four fiscal quarters ending on the last day of the fiscal ~~quarter~~ quarter immediately preceding the date of determination for which financial ~~statements~~ statements are available to be greater than 4.0 to 1.0; and (iii) permit, as of the last day of any fiscal quarter, our ratio of (a) consolidated current assets (including the unused amount of the total commitments, but excluding non-cash assets under FAS 133) to (b) consolidated current liabilities (excluding non-cash obligations under SFAS No. 133 and current maturities under the Credit Facility) to be less than 1.0 to 1.0.

The loan instruments evidencing the ~~term~~Term ~~loan~~Loan also contain various restrictive covenants, including financial covenants requiring that we will not: (i) permit, as of the last day of any fiscal quarter, our ratio of (a) consolidated current assets (including the unused amount of the total commitments, but excluding non-cash assets under SFAS No. 133) to (b) consolidated current liabilities (excluding non-cash obligations under FAS 133 and current maturities under the ~~Credit~~ Credit Facility) to be less than 1.0 to 1.0; and (ii) as of the date of any determination permit our ratio of total reserve value as in effect on such date of determination to total debt as of such date of determination to be less than 2.0 to 1.0.

~~Upon~~As ~~our~~of ~~failure~~March to31, ~~comply~~2009, ~~with~~we ~~covenants,~~were not in compliance with the ~~lender~~financial ~~has~~covenant requiring the ~~right~~Company to ~~refuse~~not permit its consolidated current assets to ~~advance~~consolidated ~~additional~~current ~~funds~~liabilities ~~under~~to ~~the~~be ~~revolver~~less ~~and/or~~than ~~declare~~1.0 ~~any~~to ~~outstanding~~1.0 ~~principal~~as ~~and interest~~required ~~immediately~~by ~~due~~the Revolving Loan and ~~payable~~Term Loan agreements. We ~~were~~As inpart ~~compliance~~of our discussions with ~~all~~our senior lender, we ~~covenants~~are asrequesting a waiver of ~~September~~this ~~30,~~financial ~~2008~~covenant.

~~CIT~~As part ~~Capital~~of the consideration for entry into the Credit Facility, ason ~~lender~~September 2, is2008 ~~entitled~~we granted toCIT Capital a ~~one~~warrant, ~~percent~~exercisable ~~(1%)~~for ~~overriding~~up ~~royalty interest~~to 24,199,996 shares of our common ~~net~~stock, ~~revenue~~at ~~interest~~an inexercise price of $0.35 per share (the ~~oil~~“CIT Warrant”). The CIT Warrant expires on September 2, 2013 and ~~gas~~became ~~properties~~automatically ~~acquired~~exercisable inon March 24, 2009, with the ~~Voyager~~effectiveness ~~Acquisition~~of the Charter Amendment. ~~The~~ ~~overriding~~We ~~royalty~~fair ~~interest~~valued the iswarrants based upon the average closing price of our common stock for the ~~applicable~~five todays ~~any~~prior ~~renewal,~~to ~~extension~~executing orthe ~~new~~Stock ~~lease~~Purchase ~~taken~~and bySale usAgreement ~~within~~at ~~one~~$0.52 ~~year~~per ~~after~~share and recorded a discount to the ~~date~~Term Loan of ~~termination~~$9,952,336 based upon the estimated fair value of the ~~ORRI~~warrants. ~~Properties,~~We asare ~~defined~~amortizing inthis ~~the~~discount to ~~overriding~~interest ~~royalty~~expense ~~agreement~~over ~~covering~~the term of the ~~same~~Term ~~property~~Loan. As of March 31, ~~horizons~~2009, $1,023,633 ~~and~~of this discount had been amortized as a component of interest ~~minerals~~expense.

CIT Capital, as lender, received a one percent (1%) overriding royalty interest (“ORRI”) of our net revenue interest in the oil and gas properties acquired in the Voyager Acquisition. The overriding royalty interest is applicable to any renewal, extension or new lease taken by us within one year after the date of termination of the ORRI Properties, as defined in the overriding royalty agreement covering the same property, horizons and minerals. We recorded a discount of $206,000 based upon the estimated fair value of the overriding royalty interest that was conveyed to the lender upon closing. We are amortizing this discount to interest expense over the term of the Term Loan. As of March 31, 2009, $34,333 of this discount had been amortized as a component of interest expense.

CIT Capital also received, and is entitled to receive in its capacity as administrative agent, various fees from us while monies advanced or loaned remain outstanding, including an annual administrative agent fee of $20,000 for each of the Revolving Loan and Term Loan and a commitment fee ranging from 0.375% to 0.5% of any unused portion of the borrowing base available under the Revolving Loan.

Under the Credit Facility, we were required to enter into hedging arrangements mutually agreeable between us and CIT Capital. ~~Effective~~ On on September 2, 2008, and effective October 1, 2008, we entered into hedging arrangements with a ~~bank~~Macquarie Bank Limited whereby we hedged 65% of our then proved developed producing natural gas production and 25% of our then proved developed producing oil production from October 1, 2008 through December 31, 2011 at $7.82 per Mmbtu and $110.35 per barrel, respectively.

Registration Rights Agreement

On May 29 and March 1, 2009, we failed to file and have declared effective by the SEC a registration statement registering for resale the common stock underlying the Series D Preferred issued to the seller in the Voyager Acquisition and the common stock underlying the warrants issued to CIT Capital in the related acquisition financing. As set forth below, our failure triggered potential monetary penalties under the registration statement governing our obligation to register such shares for resale.

Under the registration rights agreement, if we fail to have declared effective by the SEC a registration statement registering for resale the aforementioned shares of common stock within 180 days of the closing of the Voyager Acquisition, or by March 1, 2009, we are obligated to pay to the seller and CIT Capital, as partial liquidated damages and not as a penalty, cash, in the aggregate equal to (i) two percent (2%) of the product of $0.40 (the agreed upon valuation of underlying common stock) and the number of registerable securities, as defined in the registration rights agreement, held by such seller and (i) 0.8855% of the product of (A) $0.35 (the overlying warrant exercise price) and (B) the number of registerable securities held by CIT Capital on such date. Furthermore, if the registration statement has not been declared effective by the SEC after 90 days have elapsed from the above 180 day registration requirement, or May 29, 2009, we are further obligated to pay the seller, as partial damages and not as a penalty, additional cash, in the aggregate equal to (i) three percent (3%) of the product of $0.40 and the number of registerable securities held by the seller and (ii) 2.48% of the product of (A) $0.35 and (B) the number of registerable securities held by CIT Capital on such date. Upon a registration statement being declared effective, we may also be subject to certain additional penalties for failing to maintain the effectiveness of such registration statement.

The foregoing provisions notwithstanding, CIT Capital had agreed in the registration rights agreement that we shall not be liable for liquidated damages with respect to any unexercised warrants and the seller’s designee in the Voyager Acquisition has subsequently agreed to waive the penalties with respect to the registration statement not being declared effective within the initial 180 day period and with respect to not being declared effective after 90 days have elapsed from the 180 day registration requirement. Although we do not anticipate the warrants being exercised at the current exercise price, we may become subject to the above-described monetary penalties should the holders choose to exercise the warrants.

**********

We generally will rely on cash generated from operations and cash on hand to fund our operations during the next twelve-month period. As previously discussed, as a condition to obtain waivers of certain financial covenants, we agreed that no further borrowings or loans may be requested or made under the CIT Credit Facility unless and until the lenders, in their sole and absolute discretion, shall otherwise agree in writing. Additionally, we were notified by our senior lender on May 5, 2009, that our borrowing base had been reduced to $1.0 million and we have a borrowing base deficiency of $10.5 million. We are currently in discussions with our senior lender to extend the sixty-day cure period to enable us to negotiate a readjustment to our borrowing base and a schedule for repaying any then outstanding borrowing base deficiency. We can give you no assurance that we will be successful in extending the sixty-day cure period or entering into a forbearance agreement that is acceptable to us.

In addition to the deficiency under our Revolving Loan, the capital expenditures required to maintain and/or grow production and reserves are substantial. Our stock price has significantly declined over the past year with its last reported sale price at May 27, 2009 being $0.10 per share, which makes it more difficult to obtain equity financing on acceptable terms to address its liquidity issues. In addition, as a result of reporting our total debt pursuant to the CIT Credit Facility as a current liability, we are reporting negative working capital at March 31, 2009. We are currently in discussions with our senior lender to extend the sixty-day cure period to enable us to negotiate a readjustment to our borrowing base and a schedule for repaying any then-remaining borrowing base deficit. Whereas management believes it will be successful in obtaining an acceptable forbearance agreement with our senior lender, there can be no assurance we will be successful in this regard. Therefore, there is substantial doubt as to our ability to continue as a going concern for a period longer than the current fiscal year. Should we be unsuccessful in obtaining an acceptable forbearance agreement with our senior lender, we will be required to seek other financial and strategic alternative processes, which may include the sale of some or all of our assets, a merger or other business combination involving the Company or the restructuring or recapitalization of the Company. Until the possible completion of the financial and strategic alternatives process, the Company's future remains uncertain and there can be no assurance that its efforts in this regard will be successful.

Our cash ~~Convertible~~flow ~~Debentures~~from ~~(Bridge~~operations ~~Loan)~~is driven by commodity prices and production volumes and the effect of our energy swap hedges. Whereas we have no control over commodity prices, we do have control over a significant portion of our operating costs and expenses. We have identified two specific opportunities at the Duval County Properties were we can reduce our salt water disposal costs by approximately $40,000 per month through the conversion of an idle wellbore to a salt water disposal well and have renegotiated the rental fees charged for our rental compressors producing a monthly savings of approximately $10,000. We also have significantly reduced our ad valorem taxes from the levels experienced in fiscal 2008 totaling $209,000 to approximately $57,000 for fiscal 2009 as a result of lower commodity prices and reserve quantities experienced to date during fiscal 2009. We are constantly reviewing our field operations to identify areas that would generate cost savings and will continue to monitor those costs throughout fiscal 2009.

On Our ~~May~~CEO and CFO have agreed to defer guaranteed bonuses and salary increases ~~21,~~which ~~2008,~~were weto ~~entered~~be ~~into~~effective ~~the~~during ~~Bridge~~our ~~Loan,~~second ~~whereby~~fiscal wequarter ~~issued~~until the ~~Debentures and~~earlier ~~used~~of: (i) the ~~proceeds~~occurrence toof ~~fund~~an ~~our~~event requiring payment of ~~the~~such ~~deposit~~amounts ~~required~~ under ~~the~~their respective ~~Voyager~~employment agreements or (ii) January 2, 2010. In ~~Acquisition~~addition, we have negotiated reduced consulting fees from some of our critical consultants and postponed hiring of any additional technical and administrative personnel.

~~The~~We have ~~Debentures~~postponed ~~matured~~drilling ~~the~~any ~~earlier~~ of ~~September~~our ~~29,~~proved ~~2008~~ and ~~the~~probable ~~completion~~well oflocations ~~the Voyager~~during ~~Acquisition~~fiscal 2009, ~~and~~except ~~may~~for bethose ~~satisfied~~that inare ~~full~~required byto hold our ~~payment~~lease ~~of the aggregate redemption price of $900~~acreage,~~000~~ ~~or,~~which ~~at the election of the purchasers, by~~is ~~the~~comprised ~~conversion~~ of ~~the~~one ~~Debentures~~additional ~~into~~well ~~shares~~to ofbegin ~~our~~drilling ~~common~~operations ~~stock,~~prior ~~at an initial conversion price of $0.33 subject~~ to ~~adjustments and full-ratchet protection~~September ~~under~~29, ~~certain circumstances~~2009.

OnWe ~~September~~believe 2,that ~~2008,~~based weupon ~~repaid $450,000 principal amount of~~ the ~~Debentures~~above inactions ~~cash from~~we ~~our~~have ~~Credit Facility and issued~~taken, ~~in full satisfaction of~~ our ~~obligation with~~short-term ~~respect~~liquidity tois ~~the~~adequate ~~other~~to ~~$450,000~~fund ~~principal~~our ~~amount~~operations, ~~10,000~~provide ~~shares~~the ofrequired ~~our Series E~~capital ~~Preferred. Each~~expenditures ~~share~~to ofhold ~~preferred stock automatically converted into 136.3636 shares of~~ our ~~common~~significant ~~stock,~~acreage ~~for~~position anin ~~aggregate~~tact ofand ~~1,363,636~~make ~~shares of~~ our ~~common~~interest ~~stock,~~payments onto ~~the~~our ~~Charter~~lender ~~Amendment~~during ~~Effective~~this ~~Date,~~fiscal ~~as provided by the Certificate of Designation governing the Series E Preferred~~year.

~~2007~~Should our ~~Convertible~~estimated ~~Notes~~capital needs prove to be greater than we currently anticipate, our cash flow from operating activities be less than we currently anticipate or should we change our current operations plan in a manner that will increase or accelerate our anticipated costs and expenses, the depletion of our working capital would be accelerated. To the extent it becomes necessary to raise additional cash in the future if our current cash and working capital resources are depleted, we will seek to raise it through the public or private sale of debt or our equity securities, funding from joint venture or strategic partners, or a combination of the foregoing. We may also seek to satisfy indebtedness without any cash outlay through the private issuance of debt or equity securities. The sale of additional equity securities or convertible debt securities would result in dilution to our shareholders. We cannot give you any assurance that we will be able to secure the additional cash or working capital we may require to continue our operations in such circumstances. Any assurance as to our present ability to raise additional capital outside of our existing credit facility and business operations is particularly uncertain given the current instability in the financial and equity markets and current oil and natural gas pricing levels.

On November 1, 2007, we sold $350,000 in convertible notes (the "2007 Notes"), which 2007 Notes mature on October 31, 2008 and bear interest at 10% per annum, payable in either cash or shares of our common stock based upon a conversion price of $0.35 per share. The investors in the 2007 Notes also received 200,004 shares of common stock. During May 2008, we exchanged 37,100 shares of our Series B Preferred in full satisfaction of our obligation under the 2007 Notes to pay $350,000 of principal and $21,000 of interest, with each share of such preferred stock becoming convertible into 28.58 shares of our common stock, for an aggregate of 1,060,318 shares of our common stock, on the Charter Amendment Effective Date.

2006 Convertible Notes

As a result of the May 2006 Merger, we assumed $1,500,000 of convertible promissory notes (the "2006 Notes") previously sold by Energy Venture. The 2006 Notes had an original maturity date of August 31, 2007, carried an interest rate of 10% per annum, payable in either cash or shares, and were convertible into shares of common stock at a conversion price of $0.50 per share at the option of the investor. Each investor also received a number of shares of common stock equal to 20% of his or her investment divided by $0.50. Thus, a total of 600,000 shares were initially issued to investors in the 2006 Notes.

On August 31, 2007 (the original maturity date), we repaid in cash six of the holders of the 2006 Notes an aggregate amount of $424,637, of which $410,000 represented principal and $14,637 represented accrued interest. On September 4, 2007, an additional $44,624 of accrued and current period interest was repaid through the issuance of 89,248 shares of our common stock. The remaining holders of the 2006 Notes entered into an agreement with us whereby the maturity date of the 2006 Notes was extended to February 28, 2008 and, beginning September 1, 2007 until the 2006 Notes are paid in full, the interest rate on the outstanding principal increased to 12% per annum. In addition, we agreed to issue to the remaining holders of the 2006 Notes, 218,000 shares of our common stock with a value of $98,100 as consideration for extending the 2006 Note's maturity date.

On February 28, 2008, $1,090,000 of the 2006 Notes came due and we were unable to repay them. We continued to accrue interest on the notes at 12%, the agreed upon rate for the extension period. On March 6, 2008, we issued 130,449 shares of common stock in lieu of cash in payment of $65,221 of accrued and current period interest to holders of 2006 Notes. On April 22, 2008, we repaid $100,000 principal amount in cash to one of the holders of the 2006 Notes in satisfaction thereof. During May 2008, we exchanged 99,395 shares of our Series A Preferred for the remaining 2006 Notes in payment of the $965,000 of principal and $28,950 of interest thereunder. Each share of Series A Preferred is automatically convertible into 20 shares of our common stock, for an aggregate of 1,987,900 shares of our common stock, upon the Charter Amendment Effective Date, as provided by the Certificate of Designation with respect to the Series A Preferred filed with the State of Nevada on May 15, 2008. At September 30, 2008, $25,000 principal amount of the 2006 Notes held by one note holder remained outstanding.

We believe our short-term and long-term liquidity is adequate to fund operations, including capital expenditures and interest during our fiscal year ending June 30, 2009.

Should our estimated capital needs prove to be greater than we currently anticipate, our cash flow from operating activities be less than we currently anticipate or should we change our current operations plan in a manner that will increase or accelerate our anticipated costs and expenses, the depletion of our working capital would be accelerated. Although we anticipate that adequate funds will remain available to us under the Credit Facility, if we were unable to access such funding by reason of our failure to satisfy borrowing covenants thereunder we would have to use other alternative resources. To the extent it becomes necessary to raise additional cash in the future if our current cash and working capital resources are depleted, we will seek to raise it through the public or private sale of debt or our equity securities, funding from joint venture or strategic partners, or a combination of the foregoing. We may also seek to satisfy indebtedness without any cash outlay through the private issuance of debt or equity securities. The sale of additional equity securities or convertible debt securities would result in dilution to our shareholders. We cannot give you any assurance that we will be able to secure the additional cash or working capital we may require to continue our operations in such circumstances. Any assurance as to our present ability to raise additional capital outside of our existing credit facility and business operations is particularly uncertain given the current instability in the financial and equity markets and current oil and natural gas pricing levels.

Recent Accounting and Reporting Pronouncements

In ~~March~~April ~~2008~~2009, the FASB issued ~~SFAS~~FASB Staff Position (FSP) No. ~~161,~~FAS ~~“Disclosures~~107-1 ~~about~~and ~~Derivative Instruments~~Accounting ~~and~~Principles ~~Hedging~~Board ~~Activities~~(APB) –28-1, anInterim ~~amendment~~Disclosures ofabout ~~FASB~~Fair ~~Statement~~Value ~~No.~~of ~~133”~~Financial Instruments, (~~SFAS~~FAS ~~No. 161”~~107-1). to amend SFAS No. ~~161~~107, ~~requires~~Disclosures ~~additional~~about ~~disclosures~~Fair ~~about~~Value ~~derivative~~of ~~and~~Financial ~~hedging~~Instruments ~~activities~~ and isAPB ~~effective~~28, ~~for~~Interim ~~fiscal~~Financial ~~years~~Reporting. ~~and~~FAS ~~interim~~107-1 ~~periods~~changes ~~beginning~~the ~~after~~reporting ~~November~~requirements ~~15,~~on ~~2008. The~~certain ~~Company~~fair isvalue ~~evaluating~~disclosures ~~the~~of financial ~~impact~~instruments ~~the~~to ~~adoption~~include ofinterim ~~SFAS~~reporting Noperiods. ~~161~~FAS ~~will~~107-1 ~~have~~is oneffective ~~its~~for interim ~~financial~~reporting ~~statement~~periods ending after June 15, 2009, with early adoption ~~disclosures~~encouraged. The Company’s ~~adoption~~is ofcurrently ~~SFAS~~assessing ~~No.~~the ~~161~~impact, ~~will~~if ~~not~~any, ~~affect~~that the ~~its~~adoption ~~current~~of ~~accounting~~this ~~for~~pronouncement ~~derivative~~will ~~and~~have ~~hedging~~on ~~activities~~its disclosures.

In ~~December 2007~~April 2009, the FASB issued ~~SFAS~~ FSP No. ~~141(R)~~FAS 157-4, ~~“Business~~Determining ~~Combinations”. This~~Fair ~~statement~~Value ~~requires~~When ~~assets acquired~~the Volume and ~~liabilities~~Level ~~assumed~~of toActivity befor ~~measured~~the atAsset ~~fair~~or ~~value~~Liability asHave ofSignificantly ~~the~~Decreased ~~acquisition~~and ~~date,~~Identifying ~~acquisition-related~~Transactions ~~costs~~That ~~incurred~~Are ~~prior~~Not toOrderly, ~~the~~(FAS ~~acquisition~~157-4) to amend SFAS No. be157, ~~expensed~~Fair ~~and~~Value ~~contractual~~Measurements, ~~contingencies~~(SFAS to157). beFAS ~~recognized~~157-4 atprovides additional guidance for estimating fair value asin accordance with SFAS 157 when the volume and level of activity for an asset or liability has significantly decreased. In addition, ~~the~~FAS ~~acquisition~~157-4 ~~date~~includes guidance on identifying circumstances that indicate a transaction is not orderly. ~~This~~ ~~statement~~FAS 157-4 is effective for ~~financial statements~~interim ~~issued~~and ~~for~~annual reporting ~~fiscal~~periods ~~years~~ending ~~beginning~~ after ~~December~~June 15, ~~2008~~ 2009. The Company is currently assessing the impact, if any, that the adoption of this ~~statement~~pronouncement will have on its operating results, financial position, ~~results of operations~~ or cash flows.

·	Oil and gas reserves must be reported using a 12-month average of the closing prices on the first day of each of such months, rather than a single day year-end price;

·	Companies will be allowed to report, on a voluntary basis, probable and possible reserves, previously prohibited by SEC rules; and

·	Easing the standard for the inclusion of proved undeveloped reserves (“PUD’s”) and requiring disclosure of information indicating any progress toward the development of PUD’s.

The Company is currently evaluating the potential impact of adopting the Final Rule. The SEC is discussing the Final Rule with the FASB and IASB staffs to align accounting standards with the Final Rule. These discussions may delay the required compliance date. Absent any change in such date, the Company will begin complying with the disclosure requirements in its annual report on Form 10-K for the year ended December 31, 2009. Voluntary early compliance is not permitted.

In June 2008, the FASB ratified the consensus reached by the EITF on Issue 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (Issue 07-5). Under Issue 07-5, an instrument (or embedded feature) would not be considered indexed to an entity’s own stock if its settlement amount is affected by variables other than those used to determine the fair value of a “plain vanilla” option or forward contract on equity shares, or if the instrument contains a feature (such as a leverage factor) that increases exposure to those variables. An equity-linked financial instrument (or embedded feature) would not be considered indexed to the entity’s own stock if the strike price is denominated in a currency other than the issuer’s functional currency. This Issue is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early application is not permitted. Adoption of this statement did not have a material effect on the Company’s financial statements.

In June 2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming Changes to Issue No. 98-5 (“EITF No. 08-4”). The objective of EITF No. 08-4 is to provide transition guidance for conforming changes made to EITF No. 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, that result from EITF No. 00-27 “Application of Issue No. 98-5 to Certain Convertible Instruments”, and SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Issue is effective for financial statements issued for fiscal years ending after December 15, 2008. The adoption did not have a material impact on the Company’s financial statements.

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

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 is effective beginning January 1, 2009 and requires entities to provide expanded disclosures about derivative instruments and hedging activities including (1) the ways in which an entity uses derivatives, (2) the accounting for derivatives and hedging activities, and (3) the impact that derivatives have (or could have) on an entity’s financial position, financial performance, and cash flows. SFAS 161 requires expanded disclosures and does not change the accounting for derivatives. The Company is currently evaluating the impact of SFAS 161, but it does not expect the adoption of this standard to have a material impact on its financial results.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the three month period covered by this ~~Quarterly~~ ~~Report~~quarterly report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are not effective because of the identification of a material weakness in our internal control over financial reporting which is identified below, which we view as an integral part of our disclosure controls and procedures.

Evaluation of Internal Controls over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management carried out an assessment of the effectiveness of the Company’s internal control over financial reporting as of ~~September~~March 3031, ~~2008, using the criteria set forth in the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)~~2009. Based on that assessment, management concluded that our internal control over financial reporting was not effective as of ~~September~~March 3031, ~~2008~~ 2009. This conclusion results from the continued existence of material weaknesses in our internal control over financial reporting ~~first reported~~including a lack of segregation of duties in ~~our~~financial reporting, ~~annual~~a ~~report~~lack onof ~~Form~~accounting ~~10-KSB~~expertise ~~for~~at the ~~period~~Chief ~~ended~~Executive ~~June~~Officer 30level, ~~2008~~a general lack of entity level controls and an overreliance on consultants in the financial reporting process, specifically with regard to the valuation and reporting of our derivative assets and liabilities. . A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

~~As noted~~These inweaknesses ~~our~~stem ~~annual~~primarily ~~report,~~from the ~~material~~early ~~weaknesses~~stage inof our ~~internal~~business ~~control~~operations ~~over~~and ~~financial~~related ~~reporting~~lack ~~relates~~of toworking ~~the~~capital ~~lack~~to ofhire ~~segregation~~additional ofstaff ~~duties~~during inthe ~~financial~~period ~~reporting~~covered ~~because~~by ~~currently~~this ~~our~~quarterly ~~financial~~report. With ~~reporting~~the ~~and~~completion ~~all~~of ~~accounting~~the ~~functions~~Voyager ~~continue~~Acquisition toand beits ~~performed~~operations byon ~~the~~September ~~same~~2, ~~officer~~2008, ~~our~~there ~~Chief~~is ~~Financial~~an ~~Officer~~ever ~~hired~~greater onrisk ~~May~~that ~~22,~~a ~~2008,~~material ~~and~~misstatement ~~prior~~of tothe ~~then,~~financial bystatements ~~one~~could ~~external~~be ~~consultant. Our~~caused, ~~Chief~~or ~~Executive~~at ~~Officer~~least ~~does~~ not ~~possess~~detected ~~accounting~~in ~~expertise~~a ~~and~~timely wemanner, ~~presently do~~due ~~not~~to ~~have~~our anlimited ~~audit~~staff ~~committee~~and insufficient segregation of duties.

These weaknesses stem primarily from our lack of business operations and related working capital to hire additional staff during the periods covered by this report and our last report on Form 10-KSB. With the completion of the Voyager Acquisition, there is an ever greater risk that a material misstatement of the financial statements could be caused, or at least not detected in a timely manner, due to our limited staff and insufficient segregation of duties.

In light of the foregoing and our recent completion of the Voyager Acquisition, as a result of which we emerged from “shell company” status, during the current fiscal quarter, we intend to implement a number of measures to remediate such ineffectiveness and strengthen our internal controls environment. Planned action includes our initial retention of an outside consulting firm to assist us in the evaluation and testing of our internal control system and the identification of opportunities to improve the efficacy of our accounting and financial reporting processes. Additional anticipated remedial action will involve organizational and process changes to address the identified deficiencies, including (i) hiring additional personnel to assist with financial reporting and business operations as soon as our finances will allow, (ii) establishing and complying with delegation of authority guidelines to be prepared for approval by the Board of Directors, (iii) modifying analytical procedures to ensure the accurate, timely and complete reconciliation of all major accounts; (iv) ensuring proper segregation of duty controls throughout our company, and (v) implementing formal processes requiring periodic self-assessments and independent tests.

~~Along~~In light ~~these~~of ~~lines~~the foregoing, and as ~~previously~~we ~~reported,~~integrate onthe ~~October~~assets 1,and ~~2008~~business operations succeeded to in the Voyager Acquisition, we ~~retained~~intend to implement a ~~senior~~ ~~officer~~number of measures ~~operations~~to remediate such ineffectiveness and, asstrengthen aour ~~result,~~internal ~~separated~~controls environment. Planned ~~the~~action ~~responsibility~~includes our retention of an outside consulting ~~CFO~~firm to ~~pay~~assist ~~operational~~us ~~invoices~~in ~~from~~ the ~~review~~evaluation and ~~approval~~testing of ~~such~~our ~~invoices,~~internal acontrol system ~~process~~and ~~now~~the ~~within~~identification of opportunities to improve the ~~purview~~efficacy of ~~the~~our accounting ~~senior~~and ~~operating~~financial ~~officer~~reporting ~~just retained~~processes. ~~Recently,~~ Additional weanticipated remedial ~~have~~action ~~also~~will ~~approached~~involve ~~potential~~organizational ~~candidates~~and process changes to address the ~~serve~~identified asdeficiencies, including (i) hiring additional ~~members~~personnel to assist with financial reporting and business operations as soon as our finances will allow, (ii) establishing and complying with delegation of authority guidelines to be prepared for approval by the Board of Directors, ~~including~~(iii) ~~candidates~~modifying ~~having~~analytical ~~accounting~~procedures ~~backgrounds~~ to ~~form~~ensure anthe ~~audit~~accurate, ~~committee~~timely and complete reconciliation of all major accounts; (iv) ensuring proper segregation of duty controls throughout the Company, and (v) implementing formal processes requiring periodic self-assessments and independent tests.

Along these lines, on October 1, 2008 we retained a senior officer of operations and, as a result, separated the responsibility of our CFO to pay operational invoices from the review and approval of such invoices, a process now within the purview of the senior operating officer. We have also approached potential candidates to serve as additional members to our Board of Directors, including candidates having accounting backgrounds to form an audit committee.

At this time, our management recognizes that many of the intended actions and enhancements will require continual monitoring and evaluation for effectiveness, and will necessarily evolve as we continue to evaluate and improve our internal controls over financial reporting. Management will accordingly review progress on activities taken on a consistent and ongoing basis at the CEO and senior management level in conjunction with our Board of Directors.

Changes in Internal Controls over Financial Reporting

Aside from undertaking certain activity in anticipation of implementing remedial steps during the current and subsequent ~~quarters~~reporting periods, there have been no changes in our internal controls over financial reporting during the fiscal quarter just ~~ended~~ ended that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II~~. OTHER INFORMATION~~

OTHER INFORMATION

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

On March 4, 2008, the Company’s Board of Directors approved the Charter Amendment providing for, among other things, an increase in the number of authorized common shares that the Company may issue from 24,000,000 to 149,000,000 shares. The holders of a majority of the Company’s outstanding shares of common stock consented to the Charter Amendment on March 4, 2008, which consent was subsequently ratified on August 29, 2008, November 19, 2008 and January 28, 2009. On March 24, 2009, the Company filed an amendment to its Articles of Incorporation with the State of Nevada and increased the number of authorized shares of common stock it may issue to 149,000,000.

Item 6. Exhibits

No.	Description of Exhibit
31.1	Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(a)

Exhibits

Exhibit Nos.	Description of Exhibit
31.1 **	Certification of Chief Executive Officer required by Rule 13a-14(a) under the Exchange Act.
31.2 **	Certification of Chief Financial Officer required by Rule 13a-14(a) under the Exchange Act.
32.1 **	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
32.2 **	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted

** Filed herewith.

SIGNATURES

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

		ABC FUNDING, INC. (Registrant)
CROSS CANYON ENERGY CORP.
Date: November 19, 2008	By:	/s/ Robert P. Munn
By: /s/ Robert P. Munn	June 3, 2009
		Robert P. Munn President and Chief Executive Officer (Principal Executive Officer)
Robert P. Munn
Date: November 19, 2008	By:	/s/ Carl A. Chase
Chief Executive Officer and Director
		Carl A. Chase Chief Financial Officer (Principal Accounting and Financial Officer)
By: /s/ Carl A. Chase	June 3, 2009
Carl A. Chase
Chief Financial Officer and Principal Financial and Accounting Officer

INDEX TO EXHIBITS

No.	Description of Exhibit
Exhibit Nos.	Description of Exhibit
31.1	Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.1 **	Certification of Chief Executive Officer required by Rule 13a-14(a) under the Exchange Act.
31.2	Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 **	Certification of Chief Financial Officer required by Rule 13a-14(a) under the Exchange Act.
32.1	Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1 **	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
32.2	Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 **	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted

** Filed herewith.

Filing Compare · CROSS CANYON ENERGY CORP.