Crusader Energy (CKGRQ) 10QSB 2007 Q2 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: June 30, 2007

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______ to _________

Commission file number: 0-49837

WESTSIDE ENERGY CORPORATION

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

Nevada	88-0349241
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3131 Turtle Creek Blvd, Ste 1300, Dallas, TX	75219
(Address of principal executive offices)	(Zip Code)

214/522-8990

(Issuer’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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

The number of shares of common stock, $.01 par value, outstanding as of August 13, 2007: 21,546,526 shares

Transitional Small Business Disclosure Format (check one):   Yes o No x

WESTSIDE ENERGY CORPORATION

PERIOD ENDED JUNE 30, 2007

INDEX

PART I.  FINANCIAL INFORMATION			Page
	ITEM 1.	FINANCIAL STATEMENTS	1
	Financial statements of Westside Energy Corporation (unaudited):
		Consolidated balance sheets as of June 30, 2007 and December 31, 2006	1
		Consolidated statements of operations for the three months and six months ended June 30, 2007 and 2006	2
		Consolidated statements of cash flows for the six months ended June 30, 2007 and 2006	3
		Notes to consolidated financial statements	4
	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS	8
	ITEM 3.	CONTROLS AND PROCEDURES	14
PART II.   OTHER INFORMATION
	ITEM 1.	LEGAL PROCEEDINGS	14
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	15
	ITEM 5.	OTHER INFORMATION	15
	ITEM 6.	EXHIBITS	15
SIGNATURES			15

PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

Westside Energy Corporation
CONSOLIDATED BALANCE SHEETS
(unaudited)
	June 30, 2007			December 31, 2006
ASSETS
Current assets
Cash	$	9,276,867		$	5,003,803
Certificates of deposit and escrow account		27,887			27,887
Marketable securities		-			425,000
Accounts receivable		3,929,021			5,189,504
Derivative asset		-			169,885
Prepaid assets		22,785			122,914
Total current assets		13,256,560			10,938,993
Oil and gas properties, using successful efforts accounting
Proved properties		27,695,015			23,681,084
Unproved properties		7,944,484			10,319,150
Accumulated depreciation,depletion and amortization		(7,966,616	)		(10,851,176	)
Net oil and gas properties		27,672,883			23,149,058
Deferred financing costs, net of accumulated amortization of $40,181and $66,593		288,032			265,907
Property and equipment, net of accumulated depreciation of $118,604 and $92,656		124,374			150,322
TOTAL ASSETS	$	41,341,849		$	34,504,280
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses	$	5,432,524		$	7,171,069
Derivative liability		6,158			-
Short term portion of debt		-			3,997,500
Total current liabilities		5,438,682			11,168,569
Non-current liabilities
Long-term derivative liability		51,014			-
Asset retirement obligation		67,678			153,487
Long term portion of debt - related party, net of discount of $238,579 and $0, respectively		24,761,421			-
Long term portion of debt, net of discount of $0 and $404,325, respectively		-			7,609,057
TOTAL LIABILITIES		30,318,795			18,931,113.00
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 0 shares issued and outstanding		-			-
Common stock, $0.01 par value, 50,000,000 shares authorized, 21,536,526 and 21,461,909 shares issued and outstanding		215,366			214,619
Additional paid-in capital		34,672,173			34,501,241
Other comprehensive income - unrealized gain (loss) on derivative instruments		(57,172	)		169,885
Accumulated deficit		(23,807,313	)		(19,312,578	)
Total stockholders' equity		11,023,054			15,573,167
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	41,341,849		$	34,504,280

See accompanying notes to consolidated financial statements.        

1

Westside Energy Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Revenues
Oil and gas sales	$	1,383,449		$	700,849		$	2,298,676		$	1,053,250
Expenses
Production		715,181			312,307			1,213,196			523,409
Exploration		180,125			(65	)		180,125			-
General and administrative		942,321			1,809,805			1,958,545			3,252,207
Depreciation,depletion, and amortization		1,105,018			758,203			1,946,669			972,431
Total Expenses		2,942,645			2,880,250			5,298,535			4,748,047
Loss from operations		(1,559,196	)		(2,179,401	)		(2,999,859	)		(3,694,797	)
Other Income (Expense)
Interest income		154,342			59,447			184,545			136,301
Interest expense		(623,288	)		(187,850	)		(1,679,421	)		(228,643	)
Total Other Income (Expense)		(468,946	)		(128,403	)		(1,494,876	)		(92,342	)
NET LOSS	$	(2,028,142	)	$	(2,307,804	)	$	(4,494,735	)	$	(3,787,139	)
Other Comprehensive Income (Loss):
Unrealized gain (loss) on derivative instruments		126,349			55,220			(227,057	)		(55,712	)
Total Comprehensive Loss	$	(1,901,793	)	$	(2,252,584	)	$	(4,721,792	)	$	(3,842,851	)
Basic and diluted loss per common share	$	(0.09	)	$	(0.11	)	$	(0.21	)	$	(0.18	)
Weighted average common shares outstanding		21,478,696			20,877,154			21,474,681			20,646,336

See accompanying notes to consolidated financial statements.         

2

Westside Energy Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Six months ended June 30,
	2007			2006
Net loss	$	(4,494,735	)	$	(3,787,139	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Stock-based compensation		180,068			514,452
Amortization of discount on note payable		437,607			62,159
Depreciation, depletion and amortization		1,891,934			971,498
Accretion of asset retirement obligation		1,631			933
Amortization of deferred financing cost		306,088			-
Changes in :		-
Accounts receivable					2,276,625
Prepaid assets		1,260,482			(566,994	)
Deferred transactions charges		100,129			20,691
Accounts payable and accrued expenses		(1,544,244	)		(2,027,938	)
NET CASH USED IN OPERATING ACTIVITIES		(1,861,040	)		(2,535,713	)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired on acquistion of EBS		-			955,774
Advances to EBS		-			(3,644,754	)
Proceeds from sale of marketable securities		425,000			550,000
Purchase of Office Equipment		-			(37,688	)
Capital expenditures for oil and gas properties		(6,976,802	)		(8,754,122	)
NET CASH USED IN INVESTING ACTIVITIES		(6,551,802	)		(10,930,790	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock, net		25,000			10,295,205
Proceeds from loan - related party		25,000,000			-
Proceeds from loan - unrelated party		-			5,210,000
Deferred financing cost		(328,213	)		-
Payments on Note		(12,010,881	)		(229,861	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		12,685,906			15,275,344
NET CHANGE IN CASH		4,273,064			1,808,841
CASH BALANCES
Beginning of period		5,003,803			604,411
End of period	$	9,276,867		$	2,413,252
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid	$	278,192		$	183,129
Income taxes paid		-			-
NON CASH DISCLOSURES
Discount on note payable	$	271,861		$	182,000
Change in derivative liability		227,057			55,712
Deferred stock compensation		33,389			837,875
Stock issued for debt		-			20,000
Asset retirement  obligation incurred		4,058			49,952
Revision of asset retirement obligation		91,498			-

See accompanying notes to consolidated financial statements.     

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WESTSIDE ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of Westside Energy Corporation (“Westside”), have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in Westside's latest annual report filed with the SEC on Form 10-KSB.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal year 2006, as reported in Form 10-KSB, have been omitted.

Westside’s consolidated financial statements include the accounts of Westside and its wholly and majority owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation.  Westside’s undivided interests in unincorporated oil and gas exploration and production ventures are proportionately consolidated.

NOTE 2 - CONCENTRATION OF RISK

At June 30, 2007, Westside's cash in financial institutions exceeded the federally insured deposits limit by $9,176,867.

NOTE 3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

On March 17, 2006, Westside entered into swap agreements in order to provide a measure of stability to Westside's cash flows due to volatile oil and gas prices and to manage the exposure to commodity price risk.

SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of each derivative are recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. To make this determination, management formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the item, the nature of the risk being hedged, how the hedging instrument's effectiveness in offsetting the hedged risk will be assessed, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives that are designated as cash-flow hedges to specific cash flows associated with assets and liabilities on the balance sheet or to specific forecasted transactions.

Westside also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting cash flows of hedged items. A derivative that is highly effective and that is designated and qualifies as a cash-flow hedge  has its changes in fair value recorded in other comprehensive income to the extent that the derivative is effective as a hedge. Any other changes determined to be ineffective do not qualify for cash-flow hedge accounting and are reported currently in earnings.

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Westside discontinues cash-flow hedge accounting when it is determined that the derivative is no longer effective in offsetting cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, the derivative is redesignated as a non-hedging instrument because it is unlikely that a forecasted transaction will occur, or management determines that designation of the derivative as a cash-flow hedge instrument is no longer appropriate. In situations in which cash-flow hedge accounting is discontinued, Westside continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings.

When the criteria for cash-flow hedge accounting are not met, realized gains and losses are recorded in other income and expense in the Statements of Operations. Similarly, changes in the fair value of the derivative instruments are recorded as unrealized gains or losses in the Statements of Operations. In contrast, cash settlements for derivative instruments that qualify for hedge accounting are recorded as additions to or reductions of oil and gas revenues while changes in fair value of cash flow hedges are recognized, to the extent the hedge is effective, in other comprehensive income until the hedged item is recognized in earnings.

Based on the above, management has determined that the swaps qualify for cash-flow hedge accounting treatment. For the period ended June 30, 2007, Westside recognized a derivative liability of $57,172 ($6,158 current and $51,014 long term) with the change in fair value reflected in accumulated comprehensive loss.

NOTE 4 – ASSET RETIREMENT OBLIGATION

As Westside develops or purchases oil and gas wells, Westside incurs an obligation to record a liability commensurate with its working interest share of the future abandonment and reclamation costs of each well (“ARO”) and a corresponding increase in the carrying value of each well (“ARC”) on the date the liability is measured and recorded.  Westside accounts for the ARO and the associated ARC in accordance with SFAS 143 “Accounting for Asset Retirement Obligations”.

At April 1, 2007, Westside revised its estimated ARO pursuant to a revision in the timing of expected cash outflows to settle the ARO.  This revaluation resulted in a decrease in the ARO of $91,498 and a decrease in the net book value of the ARC of $64,983.

At June 30, 2007, the net present value of Westside’s ARO was estimated to be $67,678 ($101,769 in 2005) with the undiscounted value being $269,396.  Assumptions used in calculating the net present value and accretion of the ARO are estimated reserve lives and a discount rate of 10%.

December 31, 2006 Balance	$	153,487
Revision of Estimate		(91,498	)
Liabilities Incurred		4,058
Accretion Expense		1,631
June 30, 2007 Balance	$	67,678

NOTE 5 – LONG TERM DEBT – RELATED PARTY

On March 27, 2007, Westside closed a $25 million senior secured loan from four entities managed by Wellington Management Company, LLP to replace the credit facility previously provided by GasRock Capital, LLC.  Two of the lending entities are among the largest institutional holders of the Company’s outstanding shares.

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As a result of this new loan agreement, all previously deferred financing costs and original issue discounts associated with the loan provided by Gas Rock Capital, LLC of $670,232 were recorded in the first quarter of 2007 as a component of interest expense.

The new loan arrangement was provided by four private investment funds managed by Wellington Management Company, LLP, then the largest beneficial holder of our outstanding common stock at June 30, 2007. The new loan arrangement:

· provided $25 million in funds, which were advanced in their entirety upon completion of the new loan arrangement;

· is secured by a first lien on all of the oil and gas properties comprising our Southeast and Southwest Programs;

· grants to the lenders the right to receive a lien in any and all of the proceeds received upon the sale of a property comprising our North Program or any subsequent property acquired with such proceeds;

· bears annual interest at 10.0% (or in the case of default, 12.0%) annually;

· grants to the lenders a three percent (3.0%) overriding royalty interest (proportionately reduced to our working interest) in all oil and gas produced from the properties now comprising our Southeast and Southwest Programs;

· contains limiting operating covenants;

· contains events of default arising from failure to timely repay principal and interest or comply with certain covenants; and

Westside has recorded a discount of $271,861 related to the conveyance of the overriding royalty interest discussed above. As of June 30, 2007, $33,282 of this discount had been amortized as a component of interest expense. Westside incurred fees and other costs directly associated with this loan agreement of $328,213, These fees have been recorded as deferred financing costs. As of June 30, 2007, $40,181 of these deferred financing costs had been amortized as a component of interest expense. Both the discount and deferred financing costs are being amortized over the expected term of the note using the effective interest method.

Westside analyzed these instruments for derivative accounting consideration under SFAS 133 and EITF 00−19 and determined that derivative accounting is not applicable.

NOTE 6 – EQUITY

Westside had the following equity transactions for the six-month period ended June 30, 2007:

· 50,000 warrants were exercised for proceeds of $25,000.

· 37,950 shares of common stock were issued for current and future services to be earned evenly over the next three years.  Westside recognized $180,068 in expense for the amortization of shares issued for future compensation.

· An employee who had previously been issued shares resigned from Westside resulting in the cancellation 13,333 shares previously issued for future services.

NOTE 7 - PURCHASE OF EBS OIL AND GAS PARTNERS PRODUCTION COMPANY, L.P.

On March 15, 2006, Westside acquired EBS Oil and Gas Partners Production Company, L.P. and EBS Oil and Gas Partners Operating Company, L.P. (collectively "EBS"). The acquired EBS assets consist (in part) of rights in approximately 9,837 gross acres and an approximately one-sixth interest in Tri-County Gathering, a pipeline system serving part of the Barnett Shale area. The interest in the pipeline system was sold in November 2006 for $5,000,000.

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The purchase price for the Equity Interests consisted of an initial purchase price paid at closing (the "Initial Purchase Price") and additional consideration to be paid after closing (the "Additional Consideration"). The Initial Purchase Price was set at $9,804,839, subject to certain adjustments. The adjustments included a reduction in the Initial Purchase Price for all debt owed by EBS, including (a) indebtedness in the approximate amount of $5,850,000 owed by EBS to Westside, and (b) indebtedness in the approximate amount of $1,600,000 owed by EBS to a third party. After making adjustments, Westside paid in cash at the closing approximately $151,000 to the Class B partners of EBS and an EBS payable in the amount of approximately $294,000, and Westside received a credit in the approximate amount of $1,700,000 against the future payment of the Additional Consideration. Funding for the cash paid at the closing and the retirement of the Third Party Loan was provided from Westside's available cash and by GasRock Capital LLC ("GasRock") pursuant to an Advancing Term Credit Agreement (the "Credit Agreement"). The additional consideration was resolved and finalized in 2006.

The following unaudited pro forma information assumes the acquisition of EBS occurred as of January 1, 2006. The pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the period presented.

Six-month period ended June 30, 2006:

	As Reported			Pro- Forma
Revenues	$	1,053,250		$	1,772,071
Net Loss	$	(3,787,139	)	$	(3,826,995	)
Loss Per Share	$	(0.18	)	$	(0.19	)

NOTE 8 – SUBSEQUENT EVENT

Westside adopted the 2007 Equity Incentive Plan for directors, officers, employees and consultants. The plan terminates in 10 years. The maximum number of shares of common stock that may be subject to awards is 2.0 million shares.  Types of awards that may be granted under the plan are stock grants, non-qualified stock options, incentive stock options and stock-based awards.

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ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS

General

Westside Energy Corporation is an independent exploration and production company based in Dallas, Texas.  Our operations are focused in the Barnett Shale in North Central Texas.   As of June 30, 2007, we owned 81,055 gross (67,158 net) acres,in the Barnett Shale., 77,935 gross (66.293 net) of which were undeveloped.  As of June 30, 2007, our average daily net production had increased to 2.7 MMcfe per day.  As of June 30, 2007, our estimated net proved reserves were 8,727 MMcf of natural gas and 152 thousand barrels of oil, and we had working interests in 44 gross (14.8 net) productive wells.

We incorporated under Nevada law in November 1995 as “Eventemp Corporation”, a company with activities related to the automotive industry.  Following several years of business inactivity, we entered the oil and gas industry in February 2004.  In the following month, we changed our name to “Westside Energy Corporation.”

There can be no assurance that we will be successful in our exploration, development, and production activities.  The oil and gas business involves numerous risks, the principal ones of which are described in the section captioned “Risk Factors” in our Annual Report on Form 10-KSB for the year ended December 31, 2006.

Listed below are key Company events that have occurred in 2007 to date:

· We completed our first horizontal Hill County well, the Primula #1H well, in which we own a 50% working interest.  This well tested at a gross initial rate of 2.1 MMCF/D from its 1,600' productive horizontal section.

· We completed our second horizontal well in Hill County, the Ellison Estate #1H, in which we own a 50% working interest.  This well tested at a gross initial rate of 1.9 MMCF/D on a 40/64-inch choke.,

· We completed the Fortenberry #2H horizontal well in Wise County, in which we own a 37.5% working interest. This well tested at a gross initial rate of 982 MCF/D and 82 BO/D on a 33/64-inch choke.

· We completed the Smith #2 vertical well in Cooke County, in which we own a 61.5% working interest.  This well tested at a gross initial rate of 350 BO/D and 360 MCF/D (2.5 MMCFE/D) on a 22/64-inch choke.

· We completed drilling our third well in Hill County, the Primula South #2H, in which we own a 50% working interest.  Completion operations for this well commenced August 7, 2007. The well was successfully fracture stimulated in four stages, and we are currently flowing back completion fluids.

· We commenced drilling our fourth well in Hill County, the Ellison Estate #2H.

· We entered into a new $25 million loan arrangement to replace our then existing credit facility provided by GasRock Capital LLC.  The new loan arrangement was provided by four private investment funds managed by Wellington Management Company, LLP, then the largest beneficial holder of our outstanding common stock.  For more information about this loan arrangement, see Note 5 above and "Liquidity and Capital Resources" below.

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Report. In addition to historical information, the discussion in this Report contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated by these forward-looking statements due to factors including, but not limited to, those factors set forth elsewhere in this Report and in the section captioned "RISK FACTORS" in our Annual Report on Form 10-KSB for the year ended December 31, 2006.

Material Subsequent Events

2007 Equity Incentive Plan

On July 9, 2007, Westside’s Board of Directors approved the submission of Westside’s 2007 Equity Incentive Plan (the “Plan”) to the stockholders for their approval.  The Plan received stockholder approval on August 13, 2007.

Results of Operations

Quarter Ended June 30, 2007 Compared to the Quarter Ended June 30, 2006

Revenues. Revenues from sales of oil and natural gas were $1,383,449  in the second quarter of 2007 as compared to $700,849 in the second quarter of 2006.  This increase in revenues reflects the impact of higher sales volumes for both oil and natural gas and higher sales prices for natural gas.  Oil sales volumes increased from an average of 28 to 71 barrels per day, and average oil sales prices decreased from $61.04 to $60.39 per barrel.  Natural gas sales increased from an average of .9 million cubic feet per day (MMCF/D) to 1.8 MMCF/D while average natural gas sales prices increased from $5.55 to $6.13 per MCF.

Expenses. Operating expenses increased to $2,942,645 in the second quarter of 2007 from $2,880,250 in the second quarter of 2006.  This change comprises increases in production, exploration, and depreciation, depletion, and amortization expense, partially offset by a reduction in general and administrative expense.

· Production Expense.  The increase in production expense to $715,181 for the three months ended June 30, 2007 from $312,307 for the three months ended June 30, 2006 is a function of increased production operations activities associated with an increase in producing wells and the resulting substantial increase in sales volumes which also resulted in higher oil and natural gas severance and production taxes.

· Exploration Expense.  The increase in exploration expense to $180,125 for the three months ended June 30, 2007 from ($65) for the three months ended June 30, 2006 reflects the purchase of additional three dimensional seismic data.

· General and Administrative Expense.  The decrease in general and administrative expense to $942,321 for the three months ended June 30, 2007 from $1,809,805 for the three months ended June 30, 2006 primarily reflects reduced stock compensation expense and the closing of Westside’s Houston office in November 2006.

· Depreciation, depletion, and amortization expense.  The increase in depreciation, depletion and amortization expense to $1,105,018 for the three months ended June 30, 2007 from $758,203 for the three months ended June 30, 2006 reflects the substantial increase in volumes of oil and natural gas produced and the effect of increased capital investment in oil and gas properties depreciated on a units of production basis.

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Operating Loss. As a result of the above described revenues and expenses, we incurred an operating loss of $1,559,196 in the second quarter of 2007 as compared to an operating loss of $2,179,401 in the second quarter of 2006.

Other Income (Expense).  Other income and expense items in the second quarter of 2007 include $154,342 in interest income and $623,288 in interest expense.  The second quarter of 2006 results included $59,447 in interest income and $187,850 in interest expense. Interest expense increased in 2007 as a result of higher debt balances from the Wellington credit facility in March 2007.

Net Loss.  We incurred a net loss of $2,028,142, or $.09 per share, for the quarter ended June 30, 2007 as compared to a net loss of $2,307,804, or $0.11 per share, for the quarter ended June 30, 2006.

Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006

Financial results for the six-month period ended June 30, 2007 are not directly comparable to financial results for the six-month period ended June 30, 2006.  The completion of the EBS acquisition near the end of the first quarter of 2006 did not greatly affect the financial results for that quarter, but did greatly affected the financial results for subsequent quarters, including the first and second quarters of 2007.

Revenues. Revenues from sales of oil and natural gas were $2,298,676  in the first six months of 2007 as compared to $1,053,250 in the first six months of 2006.  This increase in revenues reflects the impact of higher sales volumes and prices for both oil and natural gas.  Oil sales volumes increased from an average of 27 to 57 barrels per day, and average oil sales prices increased from $60.52 to $60.61 per barrel.  Natural gas sales volumes increased from an average of  .7 million cubic feet per day (MMCF/D) to 1.5  MMCF/D while average natural gas sales prices increased from $5.57 to $6.25 per MCF.

Expenses. Operating expenses increased to $5,298,535 in the first six months of 2007 from $4,748,047 in the first six months of 2006.  This change comprises increases in production, exploration, and depreciation, depletion, and amortization expense, partially offset by a reduction in general and administrative expense.

· Production Expense.  The increase in production expense to $1,213,196 for the six months ended June 30, 2007 from $523,409 for the three months ended June 30, 2006 is a function of increased production operations activities associated with an increase in producing wells and the resulting substantial increase in sales volumes which also resulted in higher oil and natural gas severance and production taxes.

· Exploration Expense.  The increase in exploration expense to $180,125 for the six months ended June 30, 2007 (2006 - $0) reflects the purchase of additional three dimensional seismic data.

· General and Administrative Expense.  The decrease in general and administrative expense to $1,958,545 for the three months ended June 30, 2007 from $3,252,207 for the six months ended June 30, 2006 primarily reflects reduced stock compensation expense and the closing of Westside’s Houston office in November 2006.

· Depreciation, depletion, and amortization expense.  The increase in depreciation, depletion and amortization expense to $1,946,669 for the six months ended June 30, 2007 from $972,431 for the six months ended June 30, 2006 reflects the substantial increase in volumes of oil and natural gas produced and the effect of increased capital investment in oil and gas properties depreciated on a units of production basis.

Operating Loss. As a result of the above described revenues and expenses, we incurred an operating loss of $2,999,859 in the first six months of 2007 as compared to an operating loss of $3,694,797 in the first six months of 2006.

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Other Income (Expense).  Other income and expense items in the first six months of 2007 include $184,545 in interest income and $1,679,421 in interest expense.  The first six months of 2006 results included $136,301 in interest income and $228,643 in interest expense. Interest expense increased in 2007 as a result of higher debt balances, the retirement of deferred financing costs associated with the Gas Rock credit facility and the addition of the Wellington credit facility

Net Loss.  We incurred a net loss of $4,494,735, or $.21 per share, for the six months ended June 30, 2007 as compared to a net loss of $3,787,139, or $0.18 per share, for the six months ended June 30, 2006.

Liquidity and Capital Resources

Cash,  Cash Equivalents, and Marketable Securities. As of June 30, 2007, we had cash, cash equivalents and marketable securities of approximately $9.3 million, representing an increase of $3.8 million from December 31, 2006.

Hedging. Under our senior secured credit facility, we were required to hedge a substantial portion of our reserves. In March 2006, we entered into swap contracts covering approximately 75% of our projected production through March 2008 from our proved developed producing reserves estimated as of December 31, 2005 based on a report prepared by LaRoche Petroleum Consultants, Ltd., a third-party engineering firm. The prices stated in the swap contracts were $8.05 per MMBtu for natural gas and $66.15 per barrel for oil. In the first quarter of 2007, we added additional hedge positions, extending from February 2007 to December 2008. The prices stated in these swap contracts were $7.45 per MMBtu of natural gas and $55.50 per barrel of oil.

Senior Secured Financing. In March 2006, we entered into a $45 million senior secured revolving credit facility with GasRock Capital LLC (“GasRock”). In connection with our acquisition of EBS Oil and Gas Partners Production Company L.P. and its affiliated operations company, we borrowed approximately $5.3 million under the GasRock credit facility for payments at closing, approximately $1.6 million to discharge certain of the acquired companies' indebtedness, and amounts for reimbursement of costs related to previous drilling and future development drilling. Subsequently, we borrowed an additional amount of approximately $10 million under the GasRock credit facility. During March 2007, we entered into a new loan arrangement to replace the GasRock facility, which was paid off and terminated. The new loan arrangement was provided by four private investment funds managed by Wellington Management Company, LLP, then the largest beneficial holder of our outstanding common stock. The new loan arrangement:

· provided $25 million in funds, which were advanced in their entirety upon completion of the new loan arrangement;

· is secured by a first lien on all of the oil and gas properties comprising our Southeast and Southwest Programs;

· grants to the lenders the right to receive a lien in any and all of the proceeds received upon the sale of a property comprising our North Program or any subsequent property acquired with such proceeds;

· bears annual interest at 10.0% (or in the case of default, 12.0%) annually;

· grants to the lenders a three percent (3.0%) overriding royalty interest (proportionately reduced to our working interest) in all oil and gas produced from the properties now comprising our Southeast and Southwest Programs;

· contains limiting operating covenants;

· contains events of default arising from failure to timely repay principal and interest or comply with certain covenants; and

· requires the repayment of the outstanding balance of the loan in March 2009.

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We continually evaluate our capital needs and compare them to our capital resources. Our budgeted project expenditures for 2007 are approximately $15.0 million and are to be used primarily for drilling and development of our properties. We expect to fund these expenditures from available cash and revenue generated during 2007 and, if necessary, from additional financings. The level of project expenditures is largely discretionary and the amount of funds devoted to any activity may increase or decrease depending on available opportunities, commodity prices, cash flows, development results and other considerations.

We believe that our available cash and access to additional financial resources will be sufficient to enable us to pursue our business plans for the next 12 months.

Critical Accounting Policies and Estimates

Our discussion of our financial condition and results of operations is based on the information reported in our financial statements. The preparation of our financial statements requires us to make assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities as of the date of our financial statements. We base our assumptions and estimates on historical experience and other sources that we believe to be reasonable at the time. Actual results may vary from our estimates due to changes in circumstances, weather, politics, global economics, mechanical problems, general business conditions and other factors. Our significant accounting policies are detailed in the footnotes to our financial statements included in this Quarterly Report. We have outlined below certain of these policies that have particular importance to the reporting of our financial condition and results of operations and that require the application of significant judgment by our management.

Key Definitions - Proved Oil and Natural Gas Reserves

Proved reserves, as defined by the SEC, are the estimated quantities of crude oil, condensate, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty are recoverable in future years from known reservoirs under existing economic and operating conditions. Valuations include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. Prices do not include the effect of derivative instruments, if any, entered into by us.

Proved developed reserves are those reserves expected to be recovered through existing equipment and operating methods. Additional oil and gas volumes expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery are included as proved developed reserves only after testing of a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.

Proved undeveloped reserves are those reserves that are expected to be recovered from new wells on non-drilled acreage, or from existing wells where a relatively major expenditure is required for re-completion. Reserves on non-drilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other non-drilled units are claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation.

Estimation of Reserves

Volumes of reserves are estimates that, by their nature, are subject to revision. The estimates are made using all available geological and reservoir data as well as production performance data. There are numerous uncertainties in estimating crude oil and natural gas reserve quantities, projecting future production rates and projecting the timing of future development expenditures. Natural gas and oil reserve engineering must be recognized as a subjective process of estimating underground accumulations of natural gas and oil that cannot be measured in an exact way. Estimates of independent engineers that we use may differ from those of other engineers. The accuracy of any reserve estimate is a function of the quantity and quality of available data and of engineering and geological interpretation and judgment. Accordingly, future estimates are subject to change as additional information becomes available.

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Revenue Recognition

We record natural gas and oil revenues using the entitlement method of accounting for production, in which any excess amount received by us above our share of production is treated as a liability. If we receive less than our share of production, the underproduction is recorded as an asset. We did not have an imbalance position relative to volumes or values at June 30, 2007.

Successful Efforts Accounting

We utilize the successful efforts method to account for our natural gas and oil operations. Under this method, all costs associated with natural gas and oil lease acquisitions, successful exploratory wells and all development wells are capitalized and amortized on a unit-of-production basis over the remaining life of proved developed reserves and proved reserves on a lease basis. Unproved leasehold costs are capitalized pending the results of exploration efforts. Exploration costs, including geological and geophysical expenses, exploratory dry holes and delay rentals, are expensed when incurred.

Impairment of Properties

We review our proved properties for potential impairment at the lease level when management determines that events or circumstances indicate that the recorded carrying value of any of the properties may not be recoverable. Such events include a projection of future natural gas and oil reserves that will be produced from a lease, the timing of this future production, future costs to produce the natural gas and oil, and future inflation levels. If the carrying amount of an asset exceeds the sum of the undiscounted estimated future net cash flows, we recognize impairment expense equal to the difference between the carrying value and the fair market value of the asset, which is estimated to be the expected present value of future net cash flows from proved reserves, without the application of any estimate of risk. We cannot predict the amount of impairment charges that may be recorded in the future. Unproved leasehold costs are reviewed periodically and a loss is recognized to the extent, if any, that the cost of a property has been impaired.

Stock-Based Compensation

Compensation expense has been recorded for common stock grants based on the fair value of the common stock on the measurement date. Statement of Financial Accounting Standards No. 123 (R), "Share-Based Payments," or "SFAS No. 123 (R)," establishes standards for accounting for transactions in which an entity exchanges its equity instruments for goods and services. SFAS No. 123 (R) focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123 (R) requires that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are performed. SFAS No. 123 (R) was effective for us as of the beginning of 2006 and has had no impact on our financial statements, because the only equity compensation that we have previously made is in the form of grants of common stock, which are recorded at fair value.

Forward-Looking Statements

Statements in the preceding discussion relating to future plans, projections, events, or conditions are forward-looking statements.  Actual results, including production growth and capital spending, could differ materially due to changes in long-term oil or gas prices or other changes in market conditions affecting the oil and gas industry; political events or disturbances; severe weather events; reservoir performance; changes in OPEC quotas; timely completion of development projects; changes in technical or operating conditions; and other factors including those discussed herein and in the section captioned "RISK FACTORS" in our Annual Report on Form 10-KSB for the year ended December 31, 2006.

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ITEM 3.  CONTROLS AND PROCEDURES

We conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our 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")). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the fiscal quarter covered by this Quarterly Report on Form 10-QSB were effective at a reasonable assurance level to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Our internal controls over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act) have improved significantly during the last two and one-half years. The improvements include the expansion of the Board of Director's on March 31, 2005 to include three independent directors, each of whom was appointed a member of the Audit Committee, and the addition to staff of a Chief Financial Officer/Principal Accounting Officer, who initially also served as our Controller.  Systems improvements include the installation of a more robust accounting system specifically designed to meet the needs of an oil and gas company. The Audit Committee members were actively involved in reviews of the financial statements for each of the quarters since March 2005. The Chairman of the Audit Committee met with our independent auditors in May 2005, and the independent auditors met with the full Audit Committee on March 28, 2006 and March 29, 2007. The addition of a Chief Financial Officer has allowed us to enhance controls over the authorization, recording, processing and reporting of transactions. Additional accounting staff, including an operational controller, joined us as a result of the EBS transaction, enhancing our ability to segregate duties and improve our internal controls.

During the quarter ended June 30, 2007, our internal controls over financial reporting were further enhanced with the addition to the accounting staff of a member designated as our Corporate Controller, a CPA with an extensive background in the oil and gas industry and in financial systems, controls and reporting.

Management does not expect that our disclosure controls and procedures will prevent or detect all errors or fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, but not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

We are not now a party to any legal proceeding requiring disclosure in accordance with the rules of the U.S. Securities and Exchange Commission.  In the future, we may become involved in various legal proceedings from time to time, either as a plaintiff or as a defendant, and either in or outside the normal course of business.  We are not now in a position to determine when (if ever) such a legal proceeding may arise. If we ever become involved in such a legal proceeding, our financial condition, operations, or cash flows could be materially and adversely affected, depending on the facts and circumstances relating to such proceeding.

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ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the second quarter of 2007, a stockholder of ours exercised warrants issued during the second quarter of 2004 to purchase 40,000 shares of our common stock at a per-share price of $.50. The issuance of the common stock is claimed to be exempt pursuant to Rule 506 of Regulation D under the Securities Act of 1933 (the "Act"). No advertising or general solicitation was employed in offering these securities. The offering and sale were made only to an accredited investor, and subsequent transfers were restricted in accordance with the requirements of the Act.

ITEM 5. OTHER INFORMATION.

On August 13, 2007, the Company’s stockholders at their 2007 annual meeting undertook the following actions:

(a)           Re-elected the following persons as the Company's five directors: Craig S. Glick, Douglas G. Manner, John T. Raymond, Keith D. Spickelmier, and Herbert C. Williamson; and 

(b)           Approved the Company's 2007 Equity Incentive Plan; and 

(c)           Approved the appointment of Malone & Bailey, PC as the Company's independent public accountants for fiscal 2007.

ITEM 6.  EXHIBITS

(a)           The following exhibits are filed with this Quarterly Report or are incorporated herein by reference:

Exhibit

Number   Description

1	23.01	Consent of LaRoche Petroleum Consultants, Ltd.
2	31.01	Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
3	31.02	Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
4	32.01	Certification Pursuant to 18 U.S.C. Section 1350, as pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
5	32.02	Certification Pursuant to 18 U.S.C. Section 1350, as pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with the requirements of the Exchange Act, the Small Business Issuer has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

WESTSIDE ENERGY CORPORATION
(Small Business Issuer)
By:	/s/Douglas G. Manner
	Douglas G. Manner,
	Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ Sean J. Austin
	Sean J. Austin,
	Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

August 15, 2007

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