UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2009

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

For the transition period from _____ to _____

BONANZA OIL AND GAS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	000-52411	76-0720654
(State or Other Jurisdiction of Incorporation or Organization)	(Commission File No.)	(I.R.S. Employer Identification No.)

3417 Mercer Suite E Houston, TX 77027		(713) 333-5808
(Address of Principal Executive Offices)		(Registrant’s telephone number)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes o No o

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

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company x
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in section 12b-2 of the Exchange Act)

Yes o No x

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.

Common Stock, par value $0.001

(Class)

44,936,017

(Outstanding at November 18, 2009)

BONANZA OIL & GAS, INC.

TABLE OF CONTENTS


PART I
	ITEM 1.	FINANCIAL STATEMENTS	3
	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
		CONDITION AND RESULTS OF OPERATIONS	17
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
		MARKET RISK	23
	ITEM 4.	CONTROLS AND PROCEDURES	24
	ITEM 4T.	CONTROLS AND PROCEDURES	24

PART II
	ITEM 1.	LEGAL PROCEEDINGS	24
	ITEM 1A.	RISK FACTORS	24
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
		PROCEEDS	24
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	25
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	25
	ITEM 5.	OTHER INFORMATION	25
	ITEM 6.	EXHIBITS	26

SIGNATURES			27

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2009			2008
	(Unaudited)			(Audited)

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	209		$	3,881
Accounts receivable		-			5,068
Drilling advances		-			395,350
Other		494			152,900
		703			557,199
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties		5,246,926			4,941,803
Unproved properties and properties under development		8,265,889			7,599,369
Other		9,669			11,679
		13,522,484			12,552,851
Less: Accumulated depreciation, depletion and amortization		(4,421,931	)		(4,325,679	)
		9,100,553			8,227,172

	$	9,101,256		$	8,784,371

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable	$	593,677		$	138,389
Accrued operating expenses		355,387			52,224
Accrued exploration and development expenditures		1,584,894			1,558,408
Notes payable, net of $250,296 of unamortized
discount at December 31, 2008		2,660,000			2,099,704
		5,193,958			3,848,725

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value, 60,000,000 shares authorized;
41,208,017 and 36,100,317 issued and outstanding, respectively		41,208			36,100
Preferred stock - Series A, $0.001 par value, 5,000,000 shares authorized;
0 shares issued and outstanding, respectively		-			-
Preferred stock - Series B, $0.001 par value, 5,000,000 shares authorized;
0 shares issued and outstanding, respectively		-			-
Preferred stock - Series C, $0.001 par value, 5,000,000 shares authorized;
0 shares issued and outstanding, respectively		-			-
Additional paid-in capital		12,442,502			11,962,198
Accumulated deficit		(8,576,412	)		(7,062,652	)
		3,907,298			4,935,646

	$	9,101,256		$	8,784,371

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

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


	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
REVENUES:
Crude oil sales	$	59,506		$	83,031		$	192,323		$	112,497
		59,506			83,031			192,323			112,497
OPERATING EXPENSES:
Depreciation, depletion and amortization		22,976			21,011			96,251			25,942
Lease operating expenses		43,668			7,138			113,372			25,911
Severance and other taxes		2,578			3,759			8,416			5,185
General and administrative		160,124			295,618			988,849			1,249,638
Financing costs, net		69,416			810,475			499,195			1,038,711
		298,762			1,138,001			1,706,083			2,345,387

OPERATING LOSS		(239,256	)		(1,054,970	)		(1,513,760	)		(2,232,890	)

Provision for income taxes		-			-			-			-

NET LOSS	$	(239,256	)	$	(1,054,970	)	$	(1,513,760	)	$	(2,232,890	)

BASIC AND DILUTED LOSS
PER COMMON SHARE	$	(0.01	)	$	(0.03	)	$	(0.04	)	$	(0.08	)

Weighted average number of common shares
outstanding - basic and fully diluted		41,157,474			34,714,191			38,546,047			29,114,754

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

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(Unaudited)
													Total
	Common Stock						Paid-In			Accumulated			Stockholders'
	Shares			Amount			Capital			Deficit			Equity

BALANCE AT DECEMBER 31, 2007		25,649,654		$	25,650		$	2,760,950		$	(197,245	)	$	2,589,355

Common shares issued with the
January 2008 Notes		160,000			160			119,840			-			120,000
Common shares issued for
consulting services - April 9, 2008		75,000			75			52,425			-			52,500
Common shares issued for
consulting services - May 7, 2008		600,000			600			155,400			-			156,000
Common shares issued for
consulting services - May 15, 2008		800,000			800			359,200			-			360,000
Common shares issued with the
May 2008 Convertible Note		375,000			375			99,087			-			99,462
Fair value of beneficial conversion feature
of the May 2008 Convertible Note		-			-			305,576			-			305,576
Fair value of warrants to acquire common shares
issued with the May 2008 Convertible Note		-			-			278,844			-			278,844
Fair value of warrants to acquire common shares
issued with the August 2008 Notes		-			-			569,606			-			569,606
Fair value of warrants to acquire common shares
issued with the October 2008 Note		-			-			29,180			-			29,180
Common shares issued in the acquisition of
Black Pearl Energy, Inc.		7,024,665			7,024			8,211,834			-			8,218,858
Common shares retired in the acquisition of
Black Pearl Energy, Inc.		(2,709,000	)		(2,709	)		(3,164,113	)		-			(3,166,822	)
Equity offerings, net		4,124,998			4,125			2,184,368			-			2,188,493
Net loss		-			-			-			(6,865,407	)		(6,865,407	)

BALANCE AT DECEMBER 31, 2008		36,100,317		$	36,100		$	11,962,198		$	(7,062,652	)	$	4,935,646

Common shares issued for
consulting services - January 21, 2009		75,700			76			15,821			-			15,897
Common shares issued as penalty upon default
of the January 2008 Notes		150,000			150			10,350			-			10,500
Fair value of warrants to acquire common shares
issued with the August 2008 Notes		-			-			89,053			-			89,053
Fair value of warrants to acquire common shares
issued with the October 2008 Note		-			-			8,903			-			8,903
Fair value of warrants to acquire common shares
issued with the May 2009 Note		-			-			33,139			-			33,139
Stock Compensation		4,882,000			4,882			323,038			-			327,920
Net loss		-			-			-			(1,513,760	)		(1,513,760	)

BALANCE AT SEPTEMBER 30, 2009		41,208,017		$	41,208		$	12,442,502		$	(8,576,412	)	$	3,907,298

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

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


	For the Nine Months Ended September 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,513,760	)	$	(2,232,890	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization		96,251			25,942
Stock-based compensation		327,920			-
Fair value of shares issued for consulting services		15,897			568,500
Amortization of deferred financing costs		499,195			894,353
Changes in operating assets and liabilities:
Accounts receivable		5,068			(9,424	)
Other current assets		36,036			(458,166	)
Accounts payable and accrued expenses		389,808			(17,030	)
Net cash used in operating activities		(143,585	)		(1,228,715	)

CASH FLOWS FROM INVESTING ACTIVITIES
Oil and gas capital expenditures		(105,642	)		(2,566,532	)
Additions to other property and equipment		-			(11,679	)
Issuance of Black Pearl Energy, Inc. note receivable		-			(500,000	)
Net cash used in investing activities		(105,642	)		(3,078,211	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable		720,000			2,050,000
Repayment of notes payable		(418,075	)		-
Debt issue costs		(56,370	)		(90,000	)
Proceeds from equity issuances, net		-			2,203,499
Net cash provided by financing activities		245,555			4,163,499

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(3,672	)		(143,427	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		3,881			154,357
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	209		$	10,930

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	15,000		$	139,310

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of oil and gas property for common shares	$	-		$	5,052,036
Non-cash exploration and development activities	$	26,486		$	1,631,834
Foregiveness of Black Pearl Energy, Inc. note receivable	$	-		$	500,000
Fair value of common shares and warrants to purchase common
shares issued with notes payable	$	141,595		$	1,310,703

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

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009 (unaudited)

1. BASIS OF PRESENTATION

Bonanza Oil and Gas, Inc. (“Bonanza” or the “Company”) has prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) instructions to Form 10-Q and Item 310(b) of regulation S-K. These financial statements should be read together with the financial statements and notes in the Company’s 2008 Form 10-K filed with the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The accompanying financial statements reflect all adjustments and disclosures, which, in the Company’s opinion, are necessary for fair presentation. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of the entire year.

Going Concern

The Company has incurred significant losses and had negative cash flow from operations since Inception (August 17, 2007), and has an accumulated deficit of $8,576,412 at September 30, 2009. Substantial portions of the losses are attributable to non-cash writedowns of oil and gas properties, with the balance attributable to primarily personnel costs, legal and professional fees, and financing costs. The Company's operating plans require additional funds that may take the form of debt or equity financings. There can be no assurance that any additional funds will be available. The Company's ability to continue as a going concern is in substantial doubt and is dependent upon achieving a profitable level of operations and obtaining additional financing.

We have undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing, if available, (b) increasing our current production (c) continuing development drilling on our proved and undeveloped properties and (d) controlling overhead and expenses.

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

Principles of Consolidation

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

Use of Estimates

Preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. The Company evaluates its estimates and assumptions on a regular basis. Actual results may differ from these estimates and assumptions used in preparation of its financial statements and changes in these estimates are recorded when known.

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009 (unaudited)

Recently Adopted Accounting Pronouncement

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles,” which has been primarily codified into ASC Topic 105, “Generally Accepted Accounting Standards.” This guidance establishes the FASB Accounting Standards Codification, which officially commenced July 1, 2009, to become the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All other accounting literature excluded from the Codification is considered nonauthoritative. The subsequent issuances of new standards will be in the form of Accounting Standards Updates that will be included in the Codification. Generally, the Codification does not change U.S. GAAP. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has adopted this standard for the quarter ending September 30, 2009. The standard has had a minimal effect on the Company’s financial statement disclosures, as all references to authoritative accounting literature are referenced in accordance with the Codification.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” which was primarily codified into FASB Accounting Standards Codification (ASC, also known collectively as the Codification) Topic 855, “Subsequent Events.” This guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. In particular, this statement sets forth:

·	The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; and

·	The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and

·	The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

ASC Topic 855 is effective for interim or annual periods ending after June 15, 2009, and is to be applied prospectively. The Company adopted ASC Topic 855 as of June 30, 2009. We evaluated all events or transactions that occurred after September 30, 2009, up through the date we issued the Company’s financial statements on November 20, 2009. For further discussion about subsequent events, see Note 4 – Subsequent Events of this Form 10-Q.

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009 (unaudited)

New Pronouncements Issued But Not Yet Adopted

In January 2009, the SEC issued Release No. 33-8995, “Modernization of Oil and Gas Reporting,” amending oil and gas reporting requirements under Rule 4-10 of Regulation S-X and Industry Guide 2 in Regulation S-K and bringing full-cost accounting rules into alignment with the revised disclosure requirements. The new rules include changes to the pricing used to estimate reserves, the ability to include nontraditional resources in reserves, the use of new technology for determining reserves and permitting disclosure of probable and possible reserves. In September 2009, the FASB issued Proposed Accounting Standards Update (ASU), “Extractive Industries—Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures” (Exposure Draft No. 1730-100), to align the guidance in U.S. GAAP with the changes the SEC made in December 2008. The final rules are effective for registration statements filed on or after January 1, 2010, and for annual reports for fiscal years ending on or after December 31, 2009. The public comment period for the Proposed ASU ended October 15, 2009; however, no final guidance has been issued by the FASB. The Company is continuing to evaluate the impact of this release.

2. NOTES PAYABLE

The Company’s notes payable at September 30, 2009 and December 31, 2008, consisted of the following:

	Balance as of
	September 30, 2009		December 31, 2008

December 2007 Secured Promissory Note	$	125,000	$	250,000
January 2008 Secured Promissory Notes		800,000		800,000
May 2008 Convertible Note		750,000		750,000
August 2008 Unsecured Promissory Notes		500,000		500,000
October 2008 Unsecured Promissory Notes		50,000		50,000
May 2009 Unsecured Promissory Note		340,000		-
July 2009 Unsecured Promissory Note		40,000		-
September 2009 Unsecured Promissory Note		55,000		-
Total		2,660,000		2,350,000
Unamortized discount		-		(250,296	)
Balance, net of discount	$	2,660,000	$	2,099,704

December 2007 Secured Promissory Note

In December 2007, the Company entered into a 14% Senior Asset Backed Secured Promissory Note and Security Agreement, and a Securities Purchase Agreement, with Phoenix Capital Opportunity Fund, L.P. ("Phoenix") in principal amount of $250,000 (the "December 2007 Note) and the issuance of 74,999 shares (on a post-split adjusted basis) of Common Stock of the Company. The December 2007 Note matured on December 17, 2008, and interest was payable on a quarterly basis. The Company's obligations under the December 2007 Note are secured by the Company’s interest in eight oil and gas wells located in Gonzales County, Texas. The shares issued in conjunction with the December 2007 Note were valued at $22,500, based on the price of the Company’s Common Stock issued in its then most recent private placement offering, and was recorded as a discount to the December 2007 Note and additional paid-in capital. The Company also incurred $12,500 in issue costs which it recorded as deferred financing costs as a component of prepaid and other current expenses. The discount and deferred financing costs were amortized using the effective interest rate method over the term of the indebtedness. These balances were fully amortized as of December 31, 2008. Under the terms of the December 2007 Note, the interest rate increased to an annual rate of 24%, plus all enforcement costs, if in default.

At September 30, 2009, the Company was in default with respect to the repayment obligation upon maturity on December 17, 2008, with respect to the December 2007 Note. Pursuant to the terms of the December 2007 Note, the interest rate on all amounts outstanding increased to 24% per annum, effective December 17, 2008. On February 6, 2009, the Company made a partial payment of $125,000 toward satisfaction of this obligation. On June 30, 2009, Phoenix filed suit against the Company seeking repayment of the principal balance outstanding plus all accrued interest, along with their attorney fees and court costs. The Company has a total of $36,389 in accrued and unpaid interest on the December 2007 Note at September 30, 2009.

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009 (unaudited)

January 2008 Secured Promissory Notes

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

At September 30, 2009, the Company was in default with respect to the repayment obligation upon maturity on January 31, 2009, with respect to the January 2008 Notes. Pursuant to the terms of the January 2008 Notes, the interest rate on all amounts outstanding increased to 24% per annum, effective January 31, 2009. As of November 20, 2009, the Company had not cured the default; however the lenders have not yet taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lenders, there can be no assurances that the lenders will continue to delay the enforcement of their remedies under the January 2008 Notes. The Company has a total of $154,293 in accrued and unpaid interest on the January 2008 Notes at September 30, 2009.

May 2008 Convertible Note

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

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009 (unaudited)

The Series A May Warrant and Series B May Warrant are exercisable for a period of two years at an exercise price of $0.75 and $1.00 per share, respectively. In the event that the Company issues securities at a per share price less than the conversion price, then the exercise price associated with the Series A May Warrant and Series B May Warrant and the conversion price for the May 2008 Convertible Note shall be adjusted to equal such price. However, no adjustment will be made for issuances relating to shares of the Company’s Common Stock or options to employees, officers, consultants or directors of the Company, securities outstanding as of the date of the closing, securities issued in connection with acquisitions or strategic transactions or securities issued as equity enhancements in connection with standard non-convertible debt transactions

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

The Company calculated the value of the beneficial conversion feature as $305,576, and recorded such value as a discount to the May 2008 Convertible Note and to additional paid-in capital. Using the Black Scholes pricing model, with volatility of 140.69%, a risk-free interest rate of 3.88% and a 0% dividend yield, the Series A May Warrant and Series B May Warrant were determined to have a fair value of $236,114, with such value also recorded as a discount to the May 2008 Convertible Note and to additional paid-in capital. The value of the 375,000 common shares was determined to be $99,462, based on the market price of the Company’s Common Stock at the time of issuance, and was also recorded as a discount to the May 2008 Convertible Note and as Common Stock and additional paid-in capital. The aggregate discount of $641,152 attributable to the shares, the warrants and the beneficial conversion feature was amortized using the effective interest rate method over the term of the indebtedness and was fully amortized at September 30, 2009. The Company also incurred issue costs of $90,000 associated with the May 2008 Convertible Note which it recorded as deferred financing costs as a component of prepaid and other current expenses. The Company also issued 75,000 Series A May Warrants and 75,000 Series B May Warrants, valued at $42,730, to its investment banking firm as additional compensation. The deferred financing costs were also amortized using the effective interest rate method over the term of the indebtedness.

As of September 30, 2009, the Company had not made the quarterly interest payment due on March 31, 2009, June 30, 2009, or September 30, 2009, with respect to the May 2008 Convertible Note. Pursuant to the terms of the May 2008 Convertible Note, the interest rate on the past due quarterly interest payment increased to 15% per annum, effective March 31, 2009. The Company had 90 days to make the scheduled quarterly interest payment before an Event of Default should occur. At September 30, 2009, the Company was in default with respect to the March 31, 2009 quarterly interest payment in addition to being in default with respect to the repayment obligation upon maturity on May 14, 2009. Pursuant to the terms of the May 2008 Convertible Note, the interest rate on all amounts outstanding increased to 15% per annum. As of November 20, 2009, the Company had not cured the default; however the lender has not yet taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lender, there can be no assurances that the lender will continue to delay the enforcement of their remedies under the May 2008 Convertible Note. The Company had a total of $57,187 in accrued and unpaid interest on the May 2008 Convertible Note at September 30, 2009.

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009 (unaudited)

August 2008 Unsecured Promissory Note

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

In October 2008, and prior to the issuance of the either the 250,000 shares of the Company’s Common Stock or the Additional Shares, the Company and the holders of the August 2008 Notes elected to amend the terms of the August 2008 Notes. In connection therewith, in exchange for the holders of the August 2008 Notes election to forego their right to receive the 250,000 shares of the Company’s Common Stock and the Additional Shares, the Company agreed to issue the holders of the August 2008 Notes common stock purchase warrants to purchase an aggregate of 500,000 common shares of the Company’s Common Stock (the “August 2008 Warrants”). The August 2008 Warrants are exercisable for a period of three years at a price of $1.00 per share. As the August 2008 Notes were not repaid by September 28, 2008, the Company is required to issue the holders of the August 2008 Notes an aggregate of 125,000 warrants to purchase shares of the Company’s Common Stock every thirty days that any amounts remain outstanding under the August 2008 Notes (the “Additional Warrants”). The Additional Warrants shall be exercisable for a period of three years at a price equal to the greater of $1.00 or the market price as of the date of the issuance. As of September 30, 2009, a total of 1,625,000 Additional Warrants have been issued.

Using the Black Scholes pricing model, with volatility ranging from 146.59% to 181.19%, a risk-free interest rate ranging from 1.25% to 4.50% and a 0% dividend yield, the 1,000,000 August 2008 Warrants and the Additional Warrants issued during 2008 were determined to have an aggregate fair value of $569,606, with such value recorded as a discount to the August 2008 Notes and to additional paid-in capital. This discount was amortized using the effective interest rate method over the term of the indebtedness and as of December 31, 2008, was fully amortized. Using the Black Scholes pricing model, with volatility ranging from 168.44% to 187.76%, a risk-free interest rate of 1.25% and a 0% dividend yield, the 1,125,000 Additional Warrants issued during 2009 were determined to have an aggregate fair value of $89,053, with such value recorded as additional interest expense and to additional paid-in capital.

As of September 30, 2009, the Company had not repaid any of the amounts due under the August 2008 Notes. As noted above, pursuant to the terms of the August 2008 Notes, the Company is required to issue to the holders of the August 2008 Notes, a total of 125,000 warrants to purchase shares of the Company’s Common Stock every 30 days that amounts remain outstanding under the August 2008 Notes. The Company has a total of $64,528 in accrued and unpaid interest on the August 2008 Notes at September 30, 2009.

October 2008 Unsecured Promissory Note

On October 17, 2008, the Company entered into a 12% Unsecured Promissory Note, and Securities Purchase Agreement, with an accredited investor for an aggregate principal amount of $50,000 (the "October 2008 Note") and the issuance of common stock purchase warrants to purchase an aggregate of 50,000 common shares of the Company’s Common Stock (the “October 2008 Warrants”). The October 2008 Warrants are exercisable for a period of three years at a price of $1.00 per share. The October 2008 Notes matured on November 17, 2008. In the event that the October 2008 Notes were not repaid by November 17, 2008, the Company became required to issue 12,500 warrants to purchase shares of the Company’s Common Stock every thirty days that any amounts remain outstanding under the October 2008 Notes (the “Additional October Warrants”). The Additional October Warrants shall be exercisable for a period of three years at a price equal to the greater of $1.00 or the market price as of the date of the issuance. As of September 30, 2009, a total of 137,500 Additional October Warrants have been issued.

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009 (unaudited)

Using the Black Scholes pricing model, with volatility ranging from 150.67% to 176.24%, a risk-free interest rate ranging of 1.25% and a 0% dividend yield, the 75,000 October 2008 Warrants and the Additional October Warrants issued during 2008, were determined to have an aggregate fair value of $29,180, with such value recorded as a discount to the October 2008 Note and to additional paid-in capital. This discount was amortized using the effective interest rate method over the term of the indebtedness and as of December 31, 2008, was fully amortized. Using the Black Scholes pricing model, with volatility ranging from 168.44% to 187.76%, a risk-free interest rate of 1.25% and a 0% dividend yield, the 112,500 Additional October Warrants issued during 2009 were determined to have an aggregate fair value of $8,903, with such value recorded as additional interest expense and to additional paid-in capital.

As of September 30, 2009, the Company had not repaid any of the amounts due under the October 2008 Notes. As noted above, pursuant to the terms of the October 2008 Notes, the Company is required to issue to the holders of the October 2008 Notes, a total of 12,500 warrants to purchase shares of the Company’s Common Stock every 30 days that amounts remain outstanding under the October 2008 Notes. The Company has a total of $6,453 in accrued and unpaid interest on the October 2008 Note at September 30, 2009.

February 2009 Unsecured Promissory Note

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

May 2009 Unsecured Promissory Note

On May 26, 2009, the Company entered into a 16% Unsecured Promissory Note with an accredited investor for an aggregate principal amount of $340,000 (the "May 2009 Note") and the issuance of common stock purchase warrants to purchase an aggregate of 500,000 common shares of the Company’s Common Stock (the “May 2009 Warrants”). The May 2009 Warrants are exercisable for a period of three years at a price of $0.10 per share. The May 2009 Note matured on August 24, 2009. In the event that the May 2009 Note was not repaid by August 24, 2009, the interest rate increased to 18% per annum and the lender, at its option, could convert all outstanding amounts in shares of the Company’s Common Stock at a conversion price of $0.10 per share. The Company incurred $17,000 of issue costs associated with the May 2009 Note, which was amortized using the effective interest rate method over the term of the indebtedness and as of September 30, 2009, was fully amortized. The net proceeds were used to repay the principal and accrued interest due on the February 2009 Note, the due date of which had been extended until July 24, 2009, and for general corporate purposes.

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009 (unaudited)

Using the Black Scholes pricing model, with volatility of 231%, a risk-free interest rate of 1.25% and a 0% dividend yield, the 500,000 May 2009 Warrants were determined to have an aggregate fair value of $33,139, with such value recorded as a discount to the May 2009 Note and to additional paid-in capital. This discount was amortized using the effective interest rate method over the term of the indebtedness and as of September 30, 2009, was fully amortized. The Company has a total of $20,892 in accrued and unpaid interest on the May 2009 Note at September 30, 2009.

July 2009 Unsecured Promissory Note

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

September 2009 Unsecured Promissory Note

On September 21, 2009, the Company issued an unsecured promissory note with an accredited investor providing for a loan of $55,000 (the “September 2009 Note”). The September 2009 Note is due on September 21, 2010, and bears interest at 12% per annum.

3. EQUITY TRANSACTIONS

In January 2009, the Company issued 75,700 of its common shares to a consultant for prospect evaluation. The value of these shares was determined to be $15,897, based on the market price of the Company’s Common Stock at the time of issuance, and was recorded as general and administrative expense, common stock and additional paid-in capital.

On February 6, 2009, the Company issued 500,000 restricted shares of Common Stock to its Chief Financial Officer pursuant to the terms of an Executive Employment Agreement entered into as of February 6, 2009, between the Company and its Chief Financial Officer. The value of the 500,000 common shares was determined to be $65,000, based on the market price of the Company’s Common Stock at the time of issuance, and was recorded as stock compensation expense, common stock and additional paid-in capital.

On June 3, 2009, pursuant to an Employment Agreement entered on June 1, 2009, the Company issued 2,120,500 restricted shares of Common Stock to its Chief Executive Officer. The value of the 2,120,500 common shares was determined to be $127,230, based on the market price of the Company’s Common Stock at the time of issuance, and was recorded as stock compensation expense, common stock and additional paid-in capital.

On June 3, 2009, pursuant to an Employment Agreement entered on June 1, 2009, the Company issued 2,261,500 restricted shares of Common Stock to its Vice President, Operations. The value of the 2,261,500 common shares was determined to be $135,690, based on the market price of the Company’s Common Stock at the time of issuance, and was recorded as stock compensation expense, common stock and additional paid-in capital.

On July 31, 2009, pursuant to the terms of the January 2008 Notes, the Company was required to issue 150,000 shares of its Common Stock as a penalty for not having repaid the outstanding borrowings. The value of the 150,000 common shares was determined to be $10,500, based on the market price of the Company’s Common Stock at the time of issuance, and was recorded as interest expense, common stock and additional paid-in capital.

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009 (unaudited)

As of September 30, 2009, the Company had the following dilutive securities outstanding:

	Number		Exercise		Expiration
Common Shares issuable:	of Shares		Price		Date

In connection with the May 2008 Convertible Note:
Upon conversion of May 2008 Convertible Note		2,004,276		-		-
Upon exercise of the Series A May Warrants		825,000	$	0.75	May 14, 2010
Upon exercise of the Series B May Warrants		825,000	$	1.00	May 14, 2010

In connection with the June 2008 Unit Offering:
Upon exercise of the Series A June Warrants		2,268,749	$	1.00	June 30, 2010
Upon exercise of the Series B June Warrants		2,268,749	$	1.00	June 30, 2010

In connection with the August 2008 Notes:
Upon exercise of the August 2008 Warrants		500,000	$	1.00	August 28, 2011
Upon exercise of the Penalty Warrants (9/08)		125,000	$	1.00	September 30, 2011
Upon exercise of the Penalty Warrants (10/08)		125,000	$	1.00	October 31, 2011
Upon exercise of the Penalty Warrants (11/08)		125,000	$	1.00	November 30, 2011
Upon exercise of the Penalty Warrants (12/08)		125,000	$	1.00	December 31, 2011
Upon exercise of the Penalty Warrants (1/09)		125,000	$	1.00	January 31, 2012
Upon exercise of the Penalty Warrants (2/09)		125,000	$	1.00	February 28, 2012
Upon exercise of the Penalty Warrants (3/09)		125,000	$	1.00	March 31, 2012
Upon exercise of the Penalty Warrants (4/09)		125,000	$	1.00	April 30, 2012
Upon exercise of the Penalty Warrants (5/09)		125,000	$	1.00	May 31, 2012
Upon exercise of the Penalty Warrants (6/09)		125,000	$	1.00	June 30, 2012
Upon exercise of the Penalty Warrants (7/09)		125,000	$	1.00	July 31, 2012
Upon exercise of the Penalty Warrants (8/09)		125,000	$	1.00	August 31, 2012
Upon exercise of the Penalty Warrants (9/09)		125,000	$	1.00	September 30, 2012

In connection with the October 2008 Notes:
Upon exercise of the October 2008 Warrants		50,000	$	1.00	October 17, 2011
Upon exercise of the Penalty Warrants (11/08)		12,500	$	1.00	November 17, 2011
Upon exercise of the Penalty Warrants (12/08)		12,500	$	1.00	December 17, 2011
Upon exercise of the Penalty Warrants (1/09)		12,500	$	1.00	January 17, 2012
Upon exercise of the Penalty Warrants (2/09)		12,500	$	1.00	February 17, 2012
Upon exercise of the Penalty Warrants (3/09)		12,500	$	1.00	March 17, 2012
Upon exercise of the Penalty Warrants (4/09)		12,500	$	1.00	April 17, 2012
Upon exercise of the Penalty Warrants (5/09)		12,500	$	1.00	May 17, 2012
Upon exercise of the Penalty Warrants (6/09)		12,500	$	1.00	June 17, 2012
Upon exercise of the Penalty Warrants (7/09)		12,500	$	1.00	July 17, 2012
Upon exercise of the Penalty Warrants (8/09)		12,500	$	1.00	August 17, 2012
Upon exercise of the Penalty Warrants (9/09)		12,500	$	1.00	September 17, 2012

In connection with the May 2009 Note:
Upon exercise of the May 2009 Warrants		500,000	$	0.10	May 26, 2012

Total dilutive securities at September 30, 2009		11,004,274

BONANZA OIL AND GAS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009 (unaudited)

The Company’s basic earnings per share (EPS) amounts have been computed based on the weighted-average number of shares of Common Stock outstanding for the period. Diluted EPS reflects the potential dilution, using the treasury stock method, which could occur if the above dilutive securities were exercised. As the Company realized a net loss for each of the three and nine months ended September 30, 2009, and September 30, 2008, no potentially dilutive securities were included in the calculation of diluted earnings per share as their impact would have been anti-dilutive.

4. SUBSEQUENT EVENTS

On November 10, 2009, the Company issued an unsecured promissory note with an accredited investor providing for a loan of $50,000. The promissory note is due on December 31, 2009, and bears interest at 12% per annum.

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

The following information should be read in conjunction with the Company’s consolidated unaudited financial statements and the notes thereto contained elsewhere in this report. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Information in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Form 10-Q that does not consist of historical facts, are "forward-looking statements." Statements accompanied or qualified by, or containing words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements, and as such, are not a guarantee of future performance. The statements involve factors, risks and uncertainties including those discussed in the “Risk Factors” section found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission on April 15, 2009, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or all of which may be beyond the Company's control. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. The Company disclaims any obligation to update the forward-looking statements in this report.

Overview

Bonanza Oil & Gas, Inc. is an independent energy company engaged primarily in the acquisition, development, production and the sale of crude oil, natural gas and natural gas liquids. The Company's production activities are located in the United States of America. The principal executive offices of the Company are located at 3417 Mercer, Suite E, Houston, TX 77027.

The Company has incurred significant losses and had negative cash flow from operations since inception on August 17, 2007, and has an accumulated deficit of $8,576,412 at September 30, 2009. Substantial portions of the losses are attributable to non-cash writedowns of oil and gas properties, with the balance attributable to primarily personnel costs, legal and professional fees, and financing costs. The Company's operating plans require additional funds that may take the form of debt or equity financings. There can be no assurance that any additional funds will be available. The Company's ability to continue as a going concern is in substantial doubt and is dependent upon achieving a profitable level of operations and obtaining additional financing.

We have undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing, if available, (b) increasing our current production (c) continuing development drilling on our proved, undeveloped properties and (d) controlling overhead and expenses.

Results of Operations

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
REVENUES:
Crude oil sales	$	59,506		$	83,031		$	192,323		$	112,497
		59,506			83,031			192,323			112,497
OPERATING EXPENSES:
Depreciation, depletion and amortization		22,976			21,011			96,251			25,942
Lease operating expenses		43,668			7,138			113,372			25,911
Severance and other taxes		2,578			3,759			8,416			5,185
General and administrative		160,124			295,618			988,849			1,249,638
Financing costs, net		69,416			810,475			499,195			1,038,711
		298,762			1,138,001			1,706,083			2,345,387

OPERATING LOSS		(239,256	)		(1,054,970	)		(1,513,760	)		(2,232,890	)

Three months ended September 30, 2009 compared to the three months ended September 30, 2008

During the three months ended September 30, 2009 and 2008, the Company realized gross revenue from its first two development wells drilled in the exploitation of the Apclark field in the second half of 2008. During the three months ended September 30, 2008, the Company’s also had production from three of its eight wells in the Plantation field, while no such production was realized during the three months ended September 30, 2009. During the three months ended September 30, 2009 and 2008, the Company had total sales, net to its interest, of 869 and 766 barrels of crude oil, respectively, and realized average prices of $68.44 and $108.40, respectively. During the same periods, lease operating expenses, including severance and other taxes and transportation costs, totaled $53.19 and $14.22 per barrel, respectively, resulting in netbacks to the Company of $15.25 and $94.18 per barrel, respectively.

Depreciation, depletion and amortization expense totaled $22,976 and $21,011 for the three months ended September 30, 2009 and 2008, respectively, most of which is attributable to depletion on our Apclark field and Plantation field producing properties.

For the three months ended September 30, 2009 and 2008, general and administrative expenses totaled $160,124 and $295,618, respectively. For 2009, these expenses were comprised primarily of payroll and other personnel expenses ($108,000), audit and accounting services ($10,000), legal services ($18,000) and rent expense ($26,057). For 2008, these expenses were comprised primarily of payroll and other personnel expenses ($111,683) and legal expenses ($74,500).

Financing costs, net for the three months ended September 30, 2009 and 2008, totaled $69,416 and $810,475, respectively. The Company capitalized $130,724 of interest associated with unproved properties during the three months ended September 30, 2009. No interest was capitalized during the three months ended September 30, 2008. The balance of financing costs recognized was primarily attributable to the amortization of deferred financing fees and discounts associated with the outstanding debt.

Nine months ended September 30, 2009 compared to the nine months ended September 30, 2008

During the nine months ended September 30, 2009 and 2008, the Company realized gross revenue from its first two development wells drilled in the exploitation of the Apclark field in the second half of 2008. During the nine months ended September 30, 2008, the Company also realized production from three of its eight wells in the Plantation field, while in 2009 the Company only realized such production during the first three months of the year. During the nine months ended September 30, 2009 and 2008, the Company had total sales, net to its interest, of 3,716 and 1,055 barrels of crude oil, respectively, and realized average prices of $51.75 and $106.63, respectively. During the same periods, lease operating expenses, including severance and other taxes and transportation costs, totaled $32.61 and $29.47 per barrel, respectively, resulting in netbacks to the Company of $19.14 and $77.16 per barrel, respectively.

Depreciation, depletion and amortization expense totaled $96,251 and $25,942 for the nine months ended September 30, 2009 and 2008, respectively, most of which is attributable to depletion on our Apclark field and Plantation field producing properties.

For the nine months ended September 30, 2009 and 2008, general and administrative expenses totaled $988,849 and $1,249,638, respectively. For 2009, these expenses were comprised primarily of payroll and other personnel expenses ($268,955), stock based compensation ($327,920), audit and accounting services ($90,500), legal services ($54,000) and rent expense ($65,804). For 2008, these expenses were comprised primarily of payroll and other personnel expenses ($293,673), financial consulting ($516,000), legal expenses ($153,204) and audit and accounting services ($52,685).

Financing costs, net for the nine months ended September 30, 2009 and 2008, totaled $499,195 and $1,038,711, respectively. The Company capitalized $342,154 of interest associated with unproved properties during the nine months ended September 30, 2009. No interest was capitalized during the nine months ended September 30, 2008. The balance of financing costs recognized was primarily attributable to the amortization of deferred financing fees and discounts associated with the outstanding debt.

Liquidity and Capital Resources

At September 30, 2009, we had a working capital deficit of $5,193,255 consisting of $2,660,000 of short-term debt, $1,584,894 of accrued exploration and development expenses and $949,064 of accounts payable and accrued expenses.

We have raised net proceeds of $6,157,593 in various debt and equity financings since our inception (August 17, 2007), and have used the majority of the net proceeds to successfully begin the exploitation of our interest in the Apclark field with the completion of the first two wells to be drilled, the acquisition of our interest in the Plantation field, initial payments toward the exercise of the option on the two drilling projects acquired in the merger with Black Pearl Energy, Inc., as well as for general and administrative expenses and working capital purposes.

Net cash used in operating activities for the nine months ended September 30, 2009, totaled $143,585 and consisted primarily of the net loss of $1,513,760, net of non-cash charges of $499,195 related to the amortization of deferred financing fees and discount on outstanding debt, $327,920 related to stock-based compensation, $96,251 related to depreciation, depletion and amortization expense and $15,897 related to the fair value of our common shares issued for consulting services. The Company also had $430,912 of other working capital changes. Net cash used in operating activities for the nine months ended September 30, 2008, totaled $1,228,715 and consisted primarily of the net loss of $2,232,890, net of non-cash charges of $568,500 related to the fair value of our common share issued for consulting services, $894,353 related to the amortization of deferred financing fees and discount on outstanding debt and $25,942 related to depreciation, depletion and amortization expense. The Company also had $484,620 of other working capital changes.

Net cash used in investing activities for the nine months ended September 30, 2009, totaled $105,642 and consisted of payment of amounts due related to the Company’s activity in its Apclark field. Net cash used in investing activities for the nine months ended September 30, 2008, totaled $3,078,211 and consisted primarily of payments made toward the drilling activity in the Apclark field.

Net cash provided by financing activities for the nine months ended September 30, 2009, totaled $245,555 and consisted primarily of the issuance by the Company of the February 2009 Note, the May 2009 Note, the July 2009 Note and the September 2009 Note, net of issuance costs, and the partial repayment of the December 2007 Note and the complete repayment of the February 2009 Note. Net cash provided by financing activities for the nine months ended September 30, 2008, totaled $4,163,499 from the issuance of our January 2008 Secured Promissory Notes, May 2008 Convertible Note and August 2008 Notes, net of issuance costs, and the proceeds from the Company’s equity issuances.

At September 30, 2009, the Company was in default with respect to the repayment obligation upon maturity on December 17, 2008, with respect to its December 2007 Secured Promissory Note. Pursuant to the terms of the December 2007 Secured Promissory Note, the interest rate on all amounts outstanding increased to 24% per annum, effective December 17, 2008. On February 6, 2009, the Company made a partial payment of $125,000 toward satisfaction of this obligation. As of June 10, 2009, the Company has not remitted the balance of amount due and on June 30, 2009, the lender filed suit against the Company seeking repayment of the principal balance outstanding plus all accrued interest, along with their attorney fees and court costs.

At September 30, 2009, the Company was in default with respect to the repayment obligation upon maturity on January 31, 2009, with respect to its January 2008 Secured Promissory Notes. Pursuant to the terms of the January 2008 Secured Promissory Notes, the interest rate on all amounts outstanding increased to 24% per annum, effective January 31, 2009. In addition, as the January 2008 Secured Promissory Notes was not repaid prior to July 31, 2009, the Company was obligated to issue, and did issue in August 2009, an additional 150,000 shares of its Common Stock as an additional interest payment. As of September 30, 2009, the Company has not cured its default; however the lenders have not, as of September 30, 2009, taken any further action with respect to the default.

As of September 30, 2009, the Company had not made the quarterly interest payment due on March 31, 2009, June 30, 2009, or September 30, 2009, with respect to the May 2008 Convertible Note. Pursuant to the terms of the May 2008 Convertible Note, the interest rate on the past due quarterly interest payment increased to 15% per annum, effective March 31, 2009. The Company had 90 days to make the scheduled quarterly interest payment before an Event of Default should occur. At September 30, 2009, the Company was in default with respect to the March 31, 2009 quarterly interest payment in addition to being in default with respect to the repayment obligation upon maturity on May 14, 2009. Pursuant to the terms of the May 2008 Convertible Note, the interest rate on all amounts outstanding increased to 15% per annum. As of September 30, 2009, the Company had not cured the default; however the lender has not yet taken any further action with respect to the default.

As of September 30, 2009, the Company had not repaid any of the amounts due under the August 2008 Unsecured Promissory Notes or the October 2008 Unsecured Promissory Note. Pursuant to the terms of the August 2008 Unsecured Promissory Notes and the October 2008 Unsecured Promissory Note agreements, the Company is required to issue to the holders of the August 2008 Unsecured Promissory Notes and the October 2008 Unsecured Promissory Note, a total of 137,500 warrants to purchase shares of the Company’s Common Stock every 30 days that amounts remain outstanding under the August 2008 Unsecured Promissory Notes and the October 2008 Unsecured Promissory Note.

As of September 30, 2009, the Company had not repaid the May 2009 Note, which matured on August 24, 2009. In the event that the May 2009 Note was not repaid by August 24, 2009, the interest rate increased to 18% per annum and the lender, at its option, can convert all outstanding amounts in shares of the Company’s Common Stock at a conversion price of $0.10 per share.

As of November 20, 2009, the Company had not repaid the July 2009 Note, which matured on October 13, 2009.

Capital Expenditures and 2009 Outlook

We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our brief history and historical operating losses, our operations have not been a source of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding.

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

Contractual Obligations

We are subject to various financial obligations and commitments in the normal course of operations. These contractual obligations represent future cash payments that we are required to make and relate primarily to notes payable and accounts payable, all of which are due currently and which are reflected on the Company’s Unaudited Consolidated Balance Sheet at September 30, 2009, found in Item 1 in this Form 10-Q. The Company does have an operating lease obligation with annual payments totaling $67,180 in 2009, $103,790 in 2010, $108,321 in 2011 and $36,610 in 2012. The Company is in default of several of these obligations, as disclosed herein, is working toward an amicable resolution and expects to fund these contractual obligations with additional financing, either in the form of equity or debt issuances, for which there is no assurance that any additional financings will be available to us on satisfactory terms and conditions, if at all.

Off-balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

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

Oil and Gas Properties

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

Under this method, all costs, including internal costs directly related to acquisition, exploration and development activities are capitalizable as oil and gas property costs. Properties not subject to amortization consist of exploration and development costs which are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become proved or their values become impaired. Bonanza assesses the realizability of unproved properties, if any, on at least an annual basis or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed based on management's intention with regard to future exploration and development of individually significant properties and the ability of Bonanza to obtain funds to finance such exploration and development. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized.

The provision for depreciation and depletion of oil and gas properties is computed on the unit-of-production method. Under this method, we compute the provision by multiplying the total unamortized costs of oil and gas properties including future development, site restoration, and dismantlement abandonment costs, but excluding costs of unproved properties by an overall rate determined by dividing the physical units of oil and gas produced during the period by the total estimated units of proved oil and gas reserves. This calculation is done on a country-by-country basis. As of September 30, 2009, all of our oil production operations are conducted in the United States of America. The cost of unevaluated properties not being amortized, to the extent there is such a cost, is assessed quarterly to determine whether the value has been impaired below the capitalized cost. The cost of any impaired property is transferred to the balance of oil and gas properties being depleted. The costs associated with unevaluated properties relate to projects which were undergoing exploration or development activities or in which we intend to commence such activities in the future. We will begin to amortize these costs when proved reserves are established or impairment is determined.

In accordance with ASC Topic 410-10, “Asset Retirement and Environmental Obligations,” we report a liability for any legal retirement obligations on our oil and gas properties. The asset retirement obligations represent the estimated present value of the amounts expected to be incurred to plug, abandon, and remediate the producing properties at the end of their productive lives, in accordance with state laws, as well as the estimated costs associated with the reclamation of the property surrounding. The Company determines the asset retirement obligations by calculating the present value of estimated cash flows related to the liability. The asset retirement obligations are recorded as a liability at the estimated present value as of the asset's inception, with an offsetting increase to producing properties. Periodic accretion of the discount related to the estimated liability is recorded as an expense in the statement of operations. The estimated liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells, and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligations. Revisions to the asset retirement obligations are recorded with an offsetting change to producing properties, resulting in prospective changes to depletion and depreciation expense and accretion of the discount. Because of the subjectivity of assumptions and the relatively long lives of most of the wells, the costs to ultimately retire the Company's wells may vary significantly from prior estimates. As of September 30, 2009, the Company’s Asset Retirement Obligation was not significant.

Reserve Estimates

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

Despite the inherent imprecision in these engineering estimates, our reserves are used throughout our financial statements. For example, since we use the units-of-production method to amortize our oil and gas properties, the quantity of reserves could significantly impact our DD&A expense. Our oil and gas properties are also subject to a “ceiling” limitation based in part on the quantity of our proved reserves.

Revenue Recognition

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

Income Taxes

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

The Company’s estimates are based on the information available to it at the time that it prepares the income tax provision. The Company generally files its annual income tax returns several months after its fiscal year-end. Income tax returns are subject to audit by federal, state, and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws.

At Inception (August 17, 2007), the Company adopted ASC Topic 740-10, “Income Taxes”, which is intended to clarify the accounting for income taxes prescribing a minimum recognition threshold for a tax provision before being recognized in the consolidated financial statements. ASC Topic 740-10 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result, the Company has concluded that it does not have any unrecognized tax benefits or any additional tax liabilities after applying ASC Topic 740-10. The adoption of ASC Topic 740-10 therefore had no impact on the Company’s consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

Since we are a company that qualifies as a “smaller reporting company,” as defined under Rule 12b-2, we are not required to provide the information required by this Item 3.

Item 4. Controls and Procedures

Since we are a company that qualifies as a “smaller reporting company,” as defined under Rule 12b-2, we are not required to provide the information required by this Item 4.

Item 4T. Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended the "Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2009, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2009, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company may become a party to litigation or other legal proceedings that it considers to be a part of the ordinary course of its business. The Company is not involved currently in legal proceedings that could reasonably be expected to have a material adverse affect on its business, prospects, financial condition or results of operations. The Company may become involved in material legal proceedings in the future.

Item 1A. Risk Factors.

Since we are a company that qualifies as a “smaller reporting company,” as defined under Rule 12b-2, we are not required to provide the information required by this Item 1A. Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission on April 15, 2009, for a discussion of the Company’s Risk Factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Default upon Senior Securities

As of September 30, 2009, the Company had not made the quarterly interest payment due on March 31, 2009, June 30, 2009, or September 30, 2009, with respect to the May 2008 Convertible Note. Pursuant to the terms of the May 2008 Convertible Note, the interest rate on the past due quarterly interest payment increased to 15% per annum, effective March 31, 2009. The Company had 90 days to make the scheduled quarterly interest payment before an Event of Default should occur. At September 30, 2009, the Company was in default with respect to the March 31, 2009 quarterly interest payment in addition to being in default with respect to the repayment obligation upon maturity on May 14, 2009. Pursuant to the terms of the May 2008 Convertible Note, the interest rate on all amounts outstanding increased to 15% per annum. As of September 30, 2009, the Company had not cured the default; however the lender has not yet taken any further action with respect to the default.

As of November 20, 2009, the Company had not repaid the July 2009 Note, which matured on October 13, 2009.

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

None

Item 5. Other Information

None

Item 6. Exhibits

Exhibit No.	Description
2.2	Acquisition Agreement and Plan of Merger between National Filing Agents, Inc. and Plantation Working Interests, LLC dated October 23, 2007 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 24, 2007)
3.1	Articles of Incorporation of Bonanza Oil and Gas, Inc. (incorporated by reference to Exhibit 3.1 to the Bonanza Oil and Gas, Inc. Form SB-2 filed December 18, 2006)
3.2	Articles of Merger (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 11, 2008)
3.3	Bylaws of Bonanza Oil and Gas, Inc. (incorporated by reference to Exhibit 3.2 to the Bonanza Oil and Gas, Inc. Form SB-2 filed December 18, 2006)
4.1	Securities Purchase Agreement (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 21, 2007)
4.2	14% Senior Asset Backed Secured Promissory Note dated December 17, 2007 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 21, 2007)
4.3	Securities Purchase Agreement dated May 14, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 19, 2008)
4.4	8% Convertible Note issued May 14, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 19, 2008)
4.5	Series A Common Stock Purchase Warrants issued May 14, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 19, 2008)
4.6	Series B Common Stock Purchase Warrants issued May 14, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 19, 2008)
4.7	Form of Securities Purchase Agreement (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 7, 2008)
4.8	Form of Series A June 2008 Common Stock Purchase Warrants issued June 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 7, 2008)
4.9	Form of Series B June 2008 Common Stock Purchase Warrants issued June 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 7, 2008)
4.10	Form of Securities Purchase Agreement dated August 28, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 3, 2008)
4.11	Form of 12% Promissory Note dated August 28, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 3, 2008)
4.12	Amendment No. 1 to the Form of Securities Purchase Agreement dated August 28, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 10, 2008)
4.13	Form of Common Stock Purchase Warrant (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 10, 2008)
4.14	Bridge Loan Letter Agreement dated February 2, 2009, (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 31, 2009)
4.15	14% Promissory Note issued February 2, 2009, (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 31, 2009)
4.16	16% Promissory Note issued May 26, 2009, (incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on August 14, 2009)
4.17	Bridge Loan Letter Agreement dated July 8, 2009, (incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on September 21, 2009)
4.18	Bridge Loan Letter Agreement dated September 18, 2009, (incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on September 21, 2009)
10.1	Asset Purchase Agreement between National Filing Agents, Inc. and Lucas Energy, Inc. dated October 23, 2007 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on October 24, 2007)
10.2	Agreement and Plan of Merger between Bonanza Oil & Gas, Inc., Borland Good North, Inc., Black Pearl Energy, Inc. and the shareholders holding a majority of the issued and outstanding shares of Black Pearl Energy, Inc. dated July 18, 2008 (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on July 18, 2008)
10.3	Executive Employment Agreement between G. Wade Stubblefield and Bonanza Oil and Gas, Inc. (incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 31, 2009)
10.4	Executive Employment Agreement between William Wiseman and Bonanza Oil and Gas, Inc., (incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on September 21, 2009)
10.5	Executive Employment Agreement between Robert L. Teague and Bonanza Oil and Gas, Inc., (incorporated by reference to the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on September 21, 2009)
14.1	Code of Ethics and Business Conduct for Officers, Directors and Employees of Bonanza Oil & Gas, Inc. (incorporated by reference to the Amendment No. 1 to the Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on April 29, 2009)
31.1*	Certification of Principal Executive Officer
31.2*	Certification of Principal Financial Officer
32.1*	Certification of Principal Executive Officer and Principal Financial Officer

*Filed herewith

SIGNATURES

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

		BONANZA OIL AND GAS, INC. (Registrant)


Date: November 20, 2009	By:	/s/ William Wiseman
		William Wiseman
		President and Chief Executive Officer Principal Financial Officer


Date: November 20, 2009	By:	/s/ Robert Teague
		Robert Teague Principal Financial Officer

BONANZA OIL & GAS, INC. 10-Q