The following information should be read in conjunction with the consolidated financial statements and the notes thereto contained elsewhere in this report. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Information in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this 10-K that does not consist of historical facts, are "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 contained elsewhere in this report, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or all of which may be beyond the Company's control. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. The Company disclaims any obligation to update the forward-looking statements in this report. The following discussion should be read together with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, which are included in Item 8 of this Form 10-K, and the Risk Factors information, which are set forth in item 1A of this Form 10-K.

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 3000 Richmond Avenue, Suite 400, Houston, TX 77046. The operations of Bonanza were originally conducted through Plantation Working Interests, LLC ("Plantation"), which was incorporated in the State of Texas on August 17, 2007, to acquire a working interest (22.5% pre-payout, 15% post-payout) in eight oil and gas wells in Gonzales County, TX.

On October 23, 2007, Plantation merged with National Filing Agents, Inc. ("NFLA"), which was the entity that survived the merger, by entering into an Acquisition Agreement and Plan of Merger (the "Acquisition Agreement"), pursuant to which NFLA acquired, through an exchange transaction, all of the issued and outstanding capital stock of privately held Plantation, a 25% interest in a lease on Cadillac Prospect in Mercedes field in Hidalgo County, TX and a 50% interest in a lease on the Point Bar Prospect in the Damon Mound field in Brazoria County, TX and other properties and assets from its members and issued 10,766,676 shares of the Company's Common Stock. In addition, on October 23, 2007, in conjunction with the Acquisition Agreement, the Company entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with Lucas Energy, Inc. to acquire a 25% working interest in the ApClark field located in Borden County, TX through the issuance of 6,300,000 shares of the Company's Common Stock. In conjunction with the transaction, NFLA amended its Articles of Incorporation to change the Company's name to Bonanza Oil & Gas, Inc., forward split its Common Stock on a 2.1 to 1 ratio, and changed its trading symbol on the Over-the-Counter Bulletin Board to "BGOI". All share amounts herein reflect the 2.1:1 forward stock split.

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

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

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 $7,062,652 at December 31, 2008. 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.

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.

Results of Operations

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

We were incorporated on August 17, 2007, and therefore had minimal activity during the year ended December 31, 2007.

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

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

Recurring depreciation, depletion and amortization expense totaled $399,289 for the year ended December 31, 2008, most of which is attributable to depletion on our Apclark field and Plantation field producing properties. In addition, despite higher realized prices during 2008, the low oil and gas prices in effect at the end of the year resulted in a $3,920,764 non-cash write-down of the carrying value of Company's proved oil and gas properties. If oil and gas prices fall below year-end levels, additional write-downs of oil and gas properties may occur. See Note 2 - Summary of Significant Accounting Policies in this Form 10-K
- to our consolidated financial statements.

For the year ended December 31, 2008, general and administrative expenses totaled $1,467,659. These expenses were comprised primarily of non-cash charges resulting from the issuance of 1,475,000 shares of the Company's Common Stock to consultants for services provided ($568,500), payroll and other personnel expenses ($422,668), legal expenses ($171,204) and audit and accounting services ($86,777).

Financing costs, net for the year ended December 21, 2008, totaled $1,224,930. The Company capitalized $208,690 of interest associated with unproved properties during the year. 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 December 31, 2008, we had cash on hand of $3,881 and a working capital deficit of $3,291,526 consisting primarily of $2,099,704 of short-term debt, representing $2,350,000 face value of all of our debt outstanding less $250,296 of unamortized discount and $1,558,408 of accrued exploration and development expenses.

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

Net cash used in operating activities for the year ended December 31, 2008, totaled $1,059,414 and consisted primarily of the net loss of $6,865,407, net of non-cash charges totaling $4,320,052 related to depreciation, depletion and amortization expense, including $3,920,764 of non-cash ceiling limitation required writedown, $568,500 related to the fair value of common shares issued for consulting services and $1,225,143 related to the amortization of deferred financing fees and discount on outstanding debt. The Company also had $307,703 of other working capital changes, primarily consisting of drilling costs advanced.

Net cash used in investing activities for the year ended December 31, 2008, totaled $3,289,555 and consisted primarily of the Company's drilling activity in its Apclark field and the initial payments toward the exercise of the option on the two drilling projects acquired in the merger with Black Pearl Energy, Inc.

Net cash provided by financing activities for the year ended December 31, 2008, totaled $4,198,493 and consisted of the $800,000 in gross proceeds from our January 2008 Secured Promissory Notes, $750,000 from the May 2008 Convertible Note, $500,000 from the August 2008 Unsecured Promissory Notes and $50,000 from the October 2008 Unsecured Promissory Note, in addition to $2,188,493 in net proceeds from the Company's equity offering. The Company incurred $90,000 of cash issue costs related to the issuance of the May 2008 Convertible Note. See Note 4 to the Company's Consolidated Financial Statements for a complete discussion of the note issuances and Note 5 for a complete discussion of the equity issuances.

At December 31, 2008, the Company was in default with respect to the repayment obligation upon maturity on December 17, 2008, with respect to its December 2007 Secured Promissory Note. Pursuant to the terms of the December 2007 Secured Promissory Note, the interest rate on all amounts outstanding increased to 24% per annum, effective December 17, 2008. On February 6, 2009, the Company made a partial payment of $125,000 toward satisfaction of this obligation. As of April 15, 2009, the Company has not remitted the balance of amount due; however the lender has not, as of April 15, 2009, taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lender, there can be no assurances that the lender will continue to delay the enforcement of its remedies under the December 2007 Secured Promissory Note. See Note 4 to the Company's Consolidated Financial Statements for a complete discussion of the December 2007 Secured Promissory Note.

At April 15, 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, if the January 2008 Secured Promissory Notes are not repaid prior to July 31, 2009, the Company is obligated to issue an additional 150,000 shares of its Common Stock as an additional interest payment. As of April 15, 2009, the Company has not cured its default; however the lenders have not, as of April 15, 2009, taken any further action with respect to the default. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lenders, there can be no assurances that the lenders will continue to delay the enforcement of their remedies under the January 2008 Secured Promissory Notes. See Note 4 to the Company's Consolidated Financial Statements for a complete discussion of the January 2008 Secured Promissory Notes.

As of April 15, 2009, the Company had not made quarterly interest payment due on March 31, 2009, with respect to its May 2008 Convertible Note. Pursuant to the terms of the May 2008 Convertible Note, the interest rate on the past due quarterly interest payment increased to 15% per annum, effective March 31, 2009. The Company has 90 days to make the scheduled quarterly interest payment before an Event of Default should occur. Although the Company is actively seeking additional financing to remedy this default, and is in constant communication with the lender, there can be no assurances that the Company will make the scheduled quarterly interest payment within 90 days of March 31, 2008, and if not, that the lender will delay the enforcement of its remedies under the May 2008 Convertible Note. See Note 4 to the Company's Consolidated Financial Statements for a complete discussion of the May 2008 Convertible Note.

As of April 15, 2009, the Company had not repaid any of the amounts due under the August 2008 Unsecured Promissory Notes or the October 2008 Unsecured Promissory Note. Pursuant to the terms of the August 2008 Unsecured Promissory Notes and the October 2008 Unsecured Promissory Note agreements, the Company is required to issue to the holders of the August 2008 Unsecured Promissory Notes and the October 2008 Unsecured Promissory Note, a total of 137,500 warrants to purchase shares of the Company's Common Stock every 30 days that amounts remain outstanding under the August 2008 Unsecured Promissory Notes and the October 2008 Unsecured Promissory Note. See Note 4 to the Company's Consolidated Financial Statements for a complete discussion of the August 2008 Unsecured Promissory Notes and the October 2008 Unsecured Promissory Note.

Capital Expenditures 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 Consolidated Balance Sheet at December 31, 2008, found in Item 15 in this Form 10-K. The Company does have an operating lease obligation with annual payments totaling $67,180 in 2009, $103,790 in 2010, $108,321 in 2011 and $36,610 in 2012. The Company expects to fund these contractual obligations with additional financing, either in the form of equity or 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 December 31, 2008, all of our oil production operations are conducted in the United States of America. The cost of unevaluated properties not being amortized, to the extent there is such a cost, is assessed quarterly to determine whether the value has been impaired below the capitalized cost. The cost of any impaired property is transferred to the balance of oil and gas properties being depleted. The costs associated with unevaluated properties relate to projects which were undergoing exploration or development activities or in which we intend to commence such activities in the future. We will begin to amortize these costs when proved reserves are established or impairment is determined.

In accordance with SFAS No. 143, "Accounting for Asset Retirement Obligations," we report a liability for any legal retirement obligations on our oil and gas properties. The asset retirement obligations represent the estimated present value of the amounts expected to be incurred to plug, abandon, and remediate the producing properties at the end of their productive lives, in accordance with state laws, as well as the estimated costs associated with the reclamation of the property surrounding. The Company determines the asset retirement obligations by calculating the present value of estimated cash flows related to the liability. The asset retirement obligations are recorded as a liability at the estimated present value as of the asset's inception, with an offsetting increase to producing properties. Periodic accretion of the discount related to the estimated liability is recorded as an expense in the statement of operations. The estimated liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells, and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligations. Revisions to the asset retirement obligations are recorded with an offsetting change to producing properties, resulting in prospective changes to depletion and depreciation expense and accretion of the discount. Because of the subjectivity of assumptions and the relatively long lives of most of the wells, the costs to ultimately retire the Company's wells may vary significantly from prior estimates. As of December 31, 2008, the Company's Asset Retirement Obligation was not significant.

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 . . .