##### Table of Contents



United States Securities And Exchange Commission
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the transition period from  to
 Commission File No. 001-31900
 AMERICAN OIL & GAS, INC.
  Nevada
    
    88-0451554(State or jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)1050 17th Street, Suite 2400, Denver, CO
    
    80265(Address of principal executive offices)
    
    (Zip Code)
 (303) 991-0173
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o* (*Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



AMERICAN OIL & GAS, INC.
FORM 10-Q
INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets  September 30, 2008 and
December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations  Three and Nine months
Ended September 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows  Nine months Ended
September 30, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    25PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    25Item 6. Exhibits
    
    
    25Signatures
    
    
    26Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I
 
 ITEM 1. FINANCIAL STATEMENTS
 AMERICAN OIL & GAS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2008
    
    
    2007(UNAUDITED)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    5,299,612
    
    
    $
    2,388,219Short-term investments
    
    
    5,684,000
    
    
    
    18,302,900Trade receivables
    
    
    1,765,736
    
    
    
    566,789Prepaid expenses
    
    
    56,347
    
    
    
    149,440Inventory
    
    
    40,904
    
    
    
    40,904Current deferred income tax assets
    
    
    42,406
    
    
    
    347,658Total current assets
    
    
    12,889,005
    
    
    
    21,795,910PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including unevaluated
costs of $38,249,403 at 9/30/08 and $40,937,747 at 12/31/07)
    
    
    50,581,592
    
    
    
    56,987,732Other property and equipment
    
    
    354,082
    
    
    
    338,614Total property and equipment
    
    
    50,935,674
    
    
    
    57,326,346Less-accumulated depreciation, depletion and amortization
    
    
    (5,638,418
    )
    
    
    (3,694,805
    )Net property and equipment
    
    
    45,297,256
    
    
    
    53,631,541OTHER ASSETSGoodwill
    
    
    11,670,468
    
    
    
    11,670,468Other intangible asset, net of accumulated amortization
    
    
    285,000
    
    
    
    420,000Drilling prepayments
    
    
    36,881
    
    
    
    542,876Long-term deferred income tax assets
    
    
    6,745,249
    
    
    
    Other
    
    
    30,385
    
    
    
    30,385$
    76,954,244
    
    
    $
    88,091,180LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESNote payable
    
    $
    2,325,000
    
    
    $
    Accounts payable and accrued liabilities
    
    
    2,797,080
    
    
    
    1,568,806Preferred dividends payable
    
    
    
    
    
    
    261,648Total current liabilities
    
    
    5,122,080
    
    
    
    1,830,454LONG-TERM LIABILITIESAsset retirement obligations
    
    
    391,436
    
    
    
    323,369Deferred income taxes
    
    
    
    
    
    
    1,060,003Total long-term liabilities
    
    
    391,436
    
    
    
    1,383,372COMMITMENTS AND CONTINGENCIES(Note 12)STOCKHOLDERS EQUITYSeries AA preferred stock, $.001 par value; authorized 400,000
shares; issued and outstanding: no shares at 9/30/08 and
138,000 shares at 12/31/07
    
    
    
    
    
    
    138Common stock, $.001 par value, authorized 100,000,000 shares;
issued and outstanding shares: 47,875,899 at 9/30/08 and
46,434,063 at 12/31/07
    
    
    47,876
    
    
    
    46,434Additional paid-in capital
    
    
    91,034,563
    
    
    
    89,426,687Accumulated deficit (Note 13, Subsequent Events)
    
    
    (19,641,711
    )
    
    
    (4,595,905
    )Accumulated other comprehensive income
    
    
    
    
    
    
    71,440,728
    
    
    
    84,877,354$
    76,954,244
    
    
    $
    88,091,180
   3




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AMERICAN OIL & GAS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007REVENUESOil and gas sales
    
    $
    1,159,621
    
    
    $
    780,963
    
    
    $
    2,604,786
    
    
    $
    1,580,553Other revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,0001,159,621
    
    
    
    780,963
    
    
    
    2,604,786
    
    
    
    1,592,553OPERATING EXPENSESLease operating
    
    
    475,382
    
    
    
    213,708
    
    
    
    1,025,987
    
    
    
    466,444General and administrative
    
    
    768,780
    
    
    
    969,845
    
    
    
    3,260,093
    
    
    
    3,271,647Depletion, depreciation and amortization
    
    
    1,241,021
    
    
    
    447,381
    
    
    
    2,078,612
    
    
    
    969,449Impairments
    
    
    18,000,000
    
    
    
    
    
    
    
    18,000,000
    
    
    
    Accretion of asset retirement obligation
    
    
    8,427
    
    
    
    6,537
    
    
    
    24,759
    
    
    
    18,14220,493,610
    
    
    
    1,637,471
    
    
    
    24,389,451
    
    
    
    4,725,682LOSS FROM OPERATIONS
    
    
    (19,333,989
    )
    
    
    (856,508
    )
    
    
    (21,784,665
    )
    
    
    (3,133,129
    )OTHER INCOME (LOSS)Investment income
    
    
    73,329
    
    
    
    368,148
    
    
    
    446,560
    
    
    
    733,718Gain (loss) on sale of securities
    
    
    
    
    
    
    
    
    
    
    (369,172
    )
    
    
    108,059Impairment of short-term investments
    
    
    
    
    
    
    
    
    
    
    (116,000
    )
    
    
    Interest expense
    
    
    (6,000
    )
    
    
    
    
    
    
    (94,647
    )
    
    
    67,329
    
    
    
    368,148
    
    
    
    (133,259
    )
    
    
    841,777LOSS BEFORE INCOME TAXES
    
    
    (19,266,660
    )
    
    
    (488,360
    )
    
    
    (21,917,924
    )
    
    
    (2,291,352
    )Income tax expense-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax expense (reduction) -deferred
    
    
    (6,520,000
    )
    
    
    (220,000
    )
    
    
    (7,500,000
    )
    
    
    (767,000
    )NET LOSS
    
    
    (12,746,660
    )
    
    
    (268,360
    )
    
    
    (14,417,924
    )
    
    
    (1,524,352
    )Less dividends on preferred stock
    
    
    (33,627
    )
    
    
    (149,040
    )
    
    
    (327,882
    )
    
    
    (453,490
    )Less deemed dividends on warrants extension
    
    
    
    
    
    
    
    
    
    
    (300,000
    )
    
    
    NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS
    
    
    (12,780,287
    )
    
    $
    (417,400
    )
    
    $
    (15,045,806
    )
    
    $
    (1,977,842
    )NET LOSS PER COMMON SHARE:Basic and diluted
    
    $
    (.27
    )
    
    $
    (.01
    )
    
    $
    (.32
    )
    
    $
    (.05
    )Weighted average common shares outstanding:Basic and diluted
    
    
    47,525,743
    
    
    
    46,250,379
    
    
    
    46,844,855
    
    
    
    43,734,060
   4




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AMERICAN OIL & GAS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 UNAUDITED
 Nine months endedSeptember 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (14,417,924
    )
    
    $
    (1,524,352
    )Adjustments to reconcile net loss to net cash used by operating activities:Share-based compensation expenses
    
    
    663,013
    
    
    
    879,879Depletion, depreciation and amortization
    
    
    2,078,612
    
    
    
    969,449Accretion of asset retirement obligations
    
    
    24,759
    
    
    
    18,142Loss (gain) on sales of short-term investments
    
    
    369,172
    
    
    
    (108,059
    )Impairment on short-term investments
    
    
    116,000
    
    
    
    Impairment on oil and gas properties
    
    
    18,000,000
    
    
    
    Deferred income taxes
    
    
    (7,500,000
    )
    
    
    (767,000
    )Changes in non-cash current assets and liabilities:Decrease (increase) in receivables relating to operations
    
    
    (598,947
    )
    
    
    (434,075
    )Decrease in advances and prepaid expenses
    
    
    93,093
    
    
    
    202,116Increase (decrease) in accounts payable and accrued liabilities for
operations
    
    
    53,945
    
    
    
    (334,475
    )Net cash used by operating activities
    
    
    (1,118,277
    )
    
    
    (1,098,375
    )CASH FLOWS FROM INVESTING ACTIVITIESProceeds from short-term investment redemptions (Note 4)
    
    
    11,450,000
    
    
    
    Sales of other short-term investments
    
    
    683,728
    
    
    
    808,059Proceeds from the sale of oil and gas properties
    
    
    5,329,877
    
    
    
    777,461Cash paid for oil and gas properties
    
    
    (15,800,105
    )
    
    
    (12,093,224
    )Cash paid for office equipment
    
    
    (15,468
    )
    
    
    (26,767
    )Net cash provided (used) by investing activities
    
    
    1,648,032
    
    
    
    (10,534,471
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from short-term borrowing
    
    
    10,925,000
    
    
    
    Repayment of short-term borrowing
    
    
    (8,600,000
    )
    
    
    Gross proceeds from sale of common stock
    
    
    
    
    
    
    28,506,602Cash paid for stock offering and issuance costs
    
    
    
    
    
    
    (1,956,465
    )Proceeds from exercise of common stock warrants and stock options
    
    
    56,638
    
    
    
    368,746Net cash provided by financing activities
    
    
    2,381,638
    
    
    
    26,918,883NET INCREASE IN CASH
    
    
    2,911,393
    
    
    
    15,286,037CASH, BEGINNING OF PERIOD
    
    
    2,388,219
    
    
    
    7,488,474CASH, END OF PERIOD
    
    $
    5,299,612
    
    
    $
    22,774,511SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATIONCash paid for interest expense
    
    $
    94,647
    
    
    $
    Cash paid for income taxes incurred
    
    $
    
    
    
    $
                     SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIESNet increase in payables for capital expenditures
    
    $
    1,174,329
    
    
    $
    Conversion of preferred stock into common stock
    
    $
    600,048
    
    
    $
    6,048,000Share-based compensation expense
    
    $
    663,013
    
    
    $
    879,879Preferred dividends paid in shares of common stock
    
    $
    589,530
    
    
    $
    820,224Drilling prepayments applied to drilling costs
    
    $
    505,995
    
    
    $
    107,226
   5




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AMERICAN OIL & GAS, INC.
 
 Notes to Condensed Consolidated Financial Statements
 (UNAUDITED)
 September 30, 2008
 NOTE 1  COMPANY AND BUSINESS
   NOTE 2  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 Property and Equipment Subsequent Events
  USE OF ESTIMATES
 SIGNIFICANT ACCOUNTING POLICIES
    6




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RECENT ACCOUNTING PRONOUNCEMENTS
 GAS BALANCING
 RECLASSIFICATION 
 NET LOSS PER SHARE
  NOTE 3  PROPERTY AND EQUIPMENT
  Oil and gas properties, full cost methodUnevaluated costs, not subject to amortization
    
    $
    38,249,403Evaluated costs
    
    
    12,332,18950,581,592Office equipment, furniture and software
    
    
    354,08250,935,674Less accumulated depreciation, depletion and amortization
    
    
    (5,638,418
    )Property and equipment
    
    $
    45,297,256
  7




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Form
10-Q. Subsequent Events
  Net Additions
    
    
    
    
    
    
    Net Acres Owned12/31/07
    
    
    (Reductions)
    
    
    9/30/08
    
    
    at 9/30/08Project (State)
    
    
    
    
    
    
    
    
    
    
    (approximate)Sold on October 27, 2008:West Douglas Project, Powder River Basin (WY)
    
    $
    4.2
    
    
    $
    (0.1
    )
    
    $
    4.1
    
    
    
    19,000Douglas Project, Powder River Basin (WY)
    
    
    0.9
    
    
    
    0.0
    
    
    
    0.9
    
    
    
    11,000Fetters western edge, adjoining Douglas acreage (WY)
    
    
    2.3
    
    
    
    0.0
    
    
    
    2.3
    
    
    
    5,000Subtotal
    
    
    7.4
    
    
    
    (0.1
    )
    
    
    7.3
    
    
    
    35,000Core portion of Fetter Project, Powder River
Basin (WY)
    
    $
    12.1
    
    
    $
    2.0
    
    
    $
    14.1
    
    
    
    30,500Goliath Project, Williston Basin (ND)
    
    
    7.0
    
    
    
    0.7
    
    
    
    7.7
    
    
    
    31,500Krejci Oil Project, Powder River Basin (WY)
    
    
    9.2
    
    
    
    (6.3
    )
    
    
    2.9
    
    
    
    49,000Colorado project sold in September 2008
    
    
    1.7
    
    
    
    (1.7
    )
    
    
    
    
    
    
    Bigfoot project
    
    
    0.8
    
    
    
    2.1
    
    
    
    2.9
    
    
    
    100,000Other projects
    
    
    2.7
    
    
    
    0.6
    
    
    
    3.3
    
    
    
    34,000Total unevaluated costs
    
    $
    40.9
    
    
    $
    (2.7
    )
    
    $
    38.2
    
    
    
    280,000Evaluated Costs, net of accumulated DD&A
    
    $
    12.4
    
    
    $
    (5.5
    )
    
    $
    6.9
   Impairment at September 30, 2008
  Subsequent Events.
  8




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##### Table of Contents



Nine-month PeriodEnded September 30,2008
    
    
    2007Amortization of costs for evaluated oil and gas properties
    
    $
    1,887,000
    
    
    $
    786,818Amortization of Other Intangible Asset
    
    
    135,000
    
    
    
    135,000Depreciation of office equipment, furniture and software
    
    
    56,612
    
    
    
    47,631Total DD&A expense
    
    $
    2,078,612
    
    
    $
    969,449
  NOTE 4  SHORT-TERM INVESTMENTS
  September 30,
    
    
    December 31,2008
    
    
    2007Auction-rate preferred shares at fair value
    
    $
    5,684,000
    
    
    $
    17,325,000PetroHunter stock at fair value
(sold prior to September 30, 2008)
    
    
    
    
    
    
    977,900Total, short-term investments
    
    $
    5,684,000
    
    
    $
    18,302,900
  Auction-Rate Preferred Shares
      9




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PetroHunter Common Stock
  NOTE 5  FAIR VALUE MEASUREMENTS
   
    
    Level 1  Quoted prices in active markets for identical assets or liabilities
    
    Level 2  Quoted prices in active markets for similar assets and liabilities, quoted
prices for identical or similar instruments in markets that are not active or in
markets in which little information is released publicly, and model-derived valuations
whose inputs are observable or whose significant value drivers are observable
    
    Level 3  Significant inputs to the valuation model which are unobservable.
  Total at
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3September 30, 2008
    
    
    inputs
    
    
    inputs
    
    
    inputsFinancial Assets:Short-term investments available for sale:Auction Rate Preferred Shares (See Note
4)
    
    $
    5,684,000
    
    
    $
    
    
    
    $
    
    
    
    $
    5,684,000Financial Liabilities:Note payable, fully repaid on 11/4/2008
(See Note 8)
    
    $
    2,325,000
    
    
    $
    
    
    
    $
    
    
    
    $
    2,325,000
    10




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
    
    The remaining ARPS are in five other taxable closed-end mutual funds, also paying
dividends approximating 150% of LIBOR.
    
    The five funds have publicly stated that they are evaluating various ways to allow their
ARPS holders to liquidate their investments at par value.
    
    As taxable closed-end mutual funds, they could request the SEC for an order similar to
the October 23, 2008 order for the Eaton Vance taxable closed-end mutual funds, but have
not yet done so to our knowledge.
    
    Various state and federal officials have publicly stated in September a desire to help
ARPS holders liquidate their investments at par value, such as by having the brokers buy
the ARPS at par value, but so far we know of no officials who are seeking to have our
broker buy back ARPS at par value.
    
    The ARPS could be sold in a secondary market, named SecondMarket (a division of Green
Drake, Inc. and formerly the Restricted Securities Trading Network or RSTN) at
approximately 90% of par value during the third quarter of 2008. We expect, but cannot
assure, that before September 30, 2009, roughly half of the $3,475,000 will be redeemed at
par value and the rest sold (at discounts of 10% or less of par value) and not necessarily
sold through SecondMarket.
 NOTE 6  GOODWILL AND OTHER INTANGIBLE ASSET
    11




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NOTE 7  INCOME TAXES
 Accounting for Income
Taxes,
    Accounting for
Uncertainty in Income Taxes
  NOTE 8  NOTE PAYABLE
   12




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NOTE 9  ASSET RETIREMENT OBLIGATIONS
 nine-month
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Beginning asset retirement obligation
    
    $
    337,122
    
    
    $
    276,011
    
    
    $
    323,369
    
    
    $
    235,268Liabilities incurred
    
    
    2,141
    
    
    
    70,822
    
    
    
    33,655
    
    
    
    131,970Liabilities settled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,898
    )Revisions in estimated liabilities
    
    
    43,746
    
    
    
    (48,236
    )
    
    
    9,653
    
    
    
    (57,348
    )Accretion
    
    
    8,427
    
    
    
    6,537
    
    
    
    24,759
    
    
    
    18,142Ending asset retirement obligation
    
    $
    391,436
    
    
    $
    305,134
    
    
    $
    391,436
    
    
    $
    305,134Current portion of obligation, end
of period
    
    $
    
    
    
    $
    32,396
    
    
    $
    
    
    
    $
    32,396
 NOTE 10  EQUITY
 Common Stock
  
    
    In conjunction with our Series AA Convertible Preferred Stock, we are required to pay an
8% dividend on a semi-annual basis. We can make the dividend payments in cash or
equivalent shares of our common stock, at our discretion. Effective July 22, 2008, we paid
a semi-annual dividend payment of $291,450 by issuing 76,972 common shares, which shares
were valued at $3.7864 per share in accordance with methodology prescribed in the
Certificate of Designation of Rights, Preferences and Privileges of Series AA Preferred
Stock.
    
    On July 22, 2008, all outstanding Series AA Convertible Preferred Stock (126,888 shares)
were converted into 1,141,992 shares of common stock as required under the terms of the
preferred stock.
    
    For the three-month period ended September 30, 2008, Additional Paid-In Capital
increased by $146,516 for recognition, in accordance with SFAS 123R, of share-based
compensation consisting of $111,476 in share-based compensation related to stock options
and $35,040 primarily related to accruals for granted stock not yet vested.
    
    In September, warrants issued in 2003 were exercised for 64,850 shares of common stock
at an average exercise price of $0.87.
  
    
    In conjunction with our Series AA Convertible Preferred Stock, we are required to pay an
8% dividend on a semi-annual basis. We can make the dividend payments in cash or
equivalent shares of our common stock, at our discretion. Effective January 22, 2008, we
paid a semi-annual dividend payment of $298,080 by issuing 54,014 common shares, which
 shares were valued at $5.5186 per share in accordance with methodology prescribed in the
Certificate of Designation of Rights, Preferences and Privileges of Series AA Preferred
Stock.
    
    In February 2008, we paid 4,000 shares of restricted common stock to our Vice-President
of Land as required under his employment contract of February 2007.
  13




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##### Table of Contents




    
    For the quarter ended March 31, 2008, Additional Paid-In Capital increased by $266,859
for recognition, in accordance with SFAS 123R, of share-based compensation consisting of
$199,819 in share-based compensation related to stock options and $67,040 related to
accruals for granted stock not yet vested.
    
    For the quarter ended June 30, 2008, Additional Paid-In Capital increased by $249,638
for recognition, in accordance with SFAS 123R, of share-based compensation consisting of
$218,038 in share-based compensation related to stock options and $31,600 primarily related
to accruals for granted stock not yet vested.
    
    Holders of 11,112 shares of our Series AA Convertible Preferred Stock converted those
 shares into 100,008 shares of our common stock.
    
    Additional Paid-In Capital also increased by $300,000 and Accumulated Deficit increased
by $300,000 for recognition of a deemed dividend at fair value for the extension of certain
warrants as discussed further in this Note 10.
 Preferred Stock
  Warrants
  Common
    
    
    Exercise
    
    
    ExpirationIssue Date
    
    Shares
    
    
    Price
    
    
    DateApril 16, 2008
    
    
    50,000
    
    
    $
    7.00
    
    
    April 16, 2013July 22, 2005
    
    
    835,626
    
    
    $
    6.00
    
    
    September 30, 2009885,626
  Stock Options
   Commitments and
Contingencies
  14




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##### Table of Contents



WeightedAverageNumber of
    
    
    ExerciseShares
    
    
    PriceOptions outstanding  December 31, 2007 (1,359,500 exercisable)
    
    
    2,515,000
    
    
    $
    4.04Options granted in the nine months ended September 30, 2008
    
    
    625,000
    
    
    $
    3.41Less options forfeited in the nine months ended September 30, 2008
    
    
    (28,250
    )
    
    $
    5.03Less options expired in the nine months ended September 30, 2008
    
    
    (20,000
    )
    
    $
    4.66Less options exercised in the nine months ended September 30, 2008
    
    
    Options outstanding  September 30, 2008 (1,743,000 exercisable)
    
    
    3,091,750
    
    
    $
    3.90
  2008
    
    
    2007Modified
    
    
    ModifiedModel
    
    Binomial
    
    
    BinomialOption life (in years)
    
    
    4
    
    
    
    4 to 5Annual volatility over option life
    
    
    45%
    
    
    
    35%Annual volatility for black-out periods
    
    
    0%
    
    
    
    0%Risk-free interest rate
    
    
    2.3%
    
    
    4.7% to 5.1%Pre-vesting forfeiture rate
    
    
    12%
    
    
    
    0%Dividend yield
    
    
    0%
    
    
    
    0%Intrinsic Value /share that urges exercise
    
    
    $2.00
    
    
    
    $2.00 to $2.16
    15




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##### Table of Contents



Exercise
    
    
    
    Remainingprice
    
    
    
    contractual
    
    Number of sharesper share
    
    
    
    life (years)
    
    Outstanding
    
    Exercisable$
    1.25
    
    
    
    
    
    1.4
    
    
    
    403,000
    
    
    
    403,000$
    2.38
    
    
    
    
    
    2.2
    
    
    
    100,000
    
    
    
    100,000$
    2.48
    
    
    
    
    
    2.3
    
    
    
    80,000
    
    
    
    80,000$
    3.27
    
    
    
    
    
    6.8
    
    
    
    15,000
    
    
    
    $
    3.29
    
    
    
    
    
    4.8
    
    
    
    100,000
    
    
    
    12,500$
    3.34
    
    
    
    
    
    6.8
    
    
    
    21,000
    
    
    
    $
    3.37
    
    
    
    
    
    6.8
    
    
    
    465,000
    
    
    
    $
    3.66
    
    
    
    
    
    4.3
    
    
    
    750,000
    
    
    
    500,000$
    4.30
    
    
    
    
    
    4.2
    
    
    
    9,000
    
    
    
    6,000$
    4.57
    
    
    
    
    
    0.2
    
    
    
    6,000
    
    
    
    6,000$
    4.95
    
    
    
    
    
    7.8
    
    
    
    250,000
    
    
    
    130,000$
    4.98
    
    
    
    
    
    5.1
    
    
    
    200,000
    
    
    
    130,000$
    5.15
    
    
    
    
    
    5.7
    
    
    
    30,000
    
    
    
    10,000$
    5.80
    
    
    
    
    
    4.4
    
    
    
    75,000
    
    
    
    60,000$
    5.84
    
    
    
    
    
    6.7
    
    
    
    400,000
    
    
    
    140,000$
    6.03
    
    
    
    
    
    3.2
    
    
    
    178,750
    
    
    
    162,500$
    6.70
    
    
    
    
    
    5.8
    
    
    
    9,000
    
    
    
    3,0003,091,750
    
    
    
    1,743,000Weighted Ave. remaining
contractual life

    
    4.7 years
    
    
    3.8 yearsAggregate intrinsic
value, September 30, 2008

    
    $
    
    
    
    $
    
 Subsequent Event
     16




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##### Table of Contents



Exercise
    
    
    
    Remainingprice
    
    
    
    contractual
    
    Number of sharesper share
    
    
    
    life (years)
    
    Outstanding
    
    Exercisable$
    1.25
    
    
    
    
    
    1.4
    
    
    
    403,000
    
    
    
    403,000$
    2.00
    
    
    
    
    
    7.6
    
    
    
    1,798,000
    
    
    
    $
    2.38
    
    
    
    
    
    2.2
    
    
    
    100,000
    
    
    
    100,000$
    3.29
    
    
    
    
    
    4.8
    
    
    
    100,000
    
    
    
    12,500$
    3.34
    
    
    
    
    
    6.8
    
    
    
    6,000
    
    
    
    $
    3.66
    
    
    
    
    
    4.3
    
    
    
    500,000
    
    
    
    333,333$
    4.57
    
    
    
    
    
    0.2
    
    
    
    6,000
    
    
    
    6,000$
    6.03
    
    
    
    
    
    3.2
    
    
    
    178,750
    
    
    
    162,5003,091,750
    
    
    
    1,017,333Weighted Ave. remaining
contractual life

    
    5.9 years
    
    
    2.7 yearsAggregate intrinsic
value, September 30, 2008

    
    $
    
    
    
    $
    343,170
 NOTE 11  MATERIAL RELATED PARTY TRANSACTIONS
  NOTE 12 COMMITMENTS AND CONTINGENCIES
  North Finn Option
    17




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##### Table of Contents



NOTE 13  SUBSEQUENT EVENTS
 Sale of Certain Wyoming Unproved Properties
   Property and Equipment Income Taxes
 Stock Option Exchange
 Equity
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     18




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##### Table of Contents



Overview
  Fetter Project (Powder River Basin, Wyoming)
     19




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##### Table of Contents



Douglas Project Area  West Douglas Project (Powder River Basin, Wyoming)
  Goliath Bakken Project (Williston Basin, North Dakota)
       20




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##### Table of Contents



Krejci Oil Project (Powder River Basin, Wyoming)
   Bigfoot Project
  Results of Operations
  The Quarter Ended September 30, 2008 Compared with the Quarter Ended September 30, 2007
    21




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##### Table of Contents



Three months endedSeptember 30,2008
    
    
    2007Oil sold (barrels)
    
    
    5,609
    
    
    
    7,222Average oil price
    
    $
    108.83
    
    
    $
    67.18Oil revenue
    
    $
    610,437
    
    
    $
    485,185Gas sold (mcf)
    
    
    53,783
    
    
    
    51,345Average gas price
    
    $
    10.21
    
    
    $
    5.76Gas revenue
    
    $
    549,184
    
    
    $
    295,778Total oil and gas revenues
    
    $
    1,159,621
    
    
    $
    780,963Less lease operating expenses
    
    
    (475,382
    )
    
    
    (213,708
    )Less oil & gas amortization expense
    
    
    (1,177,000
    )
    
    
    (386,000
    )Less impairment
    
    
    (18,000,000
    )
    
    
    Less accretion of asset retirement obligation
    
    
    (8,427
    )
    
    
    (6,537
    )Producing revenues less direct expenses
    
    
    (18,501,188
    )
    
    
    174,718Less depreciation of office facilities
    
    
    (19,021
    )
    
    
    (16,381
    )Less amortization of other intangible asset
    
    
    (45,000
    )
    
    
    (45,000
    )Less general and administrative expenses
    
    
    (768,780
    )
    
    
    (969,845
    )Add other revenue
    
    
    
    
    
    
    Loss from operations
    
    $
    (19,333,989
    )
    
    $
    (856,508
    )Total barrels of oil equivalent (boe) sold
    
    
    14,573
    
    
    
    15,780Revenue per boe sold
    
    $
    79.57
    
    
    $
    49.49Lease operating expense per boe sold
    
    $
    32.62
    
    
    $
    13.54Amortization expense per boe sold
    
    $
    80.77
    
    
    $
    24.46
  The Nine-month Period ended September 30, 2008 Compared with the Nine-month Period ended
September 30, 2007
   22




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##### Table of Contents



Nine months ended September 30,2008
    
    
    2007Oil sold (barrels)
    
    
    13,503
    
    
    
    16,057Average oil price
    
    $
    104.97
    
    
    $
    60.74Oil revenue
    
    $
    1,417,403
    
    
    $
    975,279Gas sold (mcf)
    
    
    117,711
    
    
    
    102,060Average gas price
    
    $
    10.09
    
    
    $
    5.93Gas revenue
    
    $
    1,187,383
    
    
    $
    605,274Total oil and gas revenues
    
    $
    2,604,786
    
    
    $
    1,580,553Less lease operating expenses
    
    
    (1,025,987
    )
    
    
    (466,444
    )Less oil & gas amortization expense
    
    
    (1,887,000
    )
    
    
    (786,818
    )Less impairment
    
    
    (18,000,000
    )
    
    
    Less accretion of asset retirement obligation
    
    
    (24,759
    )
    
    
    (18,142
    )Producing revenues less direct expenses
    
    
    (18,332,960
    )
    
    
    309,149Less depreciation of office facilities
    
    
    (56,612
    )
    
    
    (47,631
    )Less amortization of other intangible asset
    
    
    (135,000
    )
    
    
    (135,000
    )Less general and administrative expenses
    
    
    (3,260,093
    )
    
    
    (3,271,647
    )Add other revenue
    
    
    
    
    
    
    12,000Income (loss) from operations
    
    
    (21,784,665
    )
    
    
    (3,133,129
    )Total barrels of oil equivalent (boe) sold
    
    
    33,122
    
    
    
    33,067Revenue per boe sold
    
    $
    78.64
    
    
    $
    47.80Lease operating expense per boe sold
    
    $
    30.98
    
    
    $
    14.11Amortization expense per boe sold
    
    $
    56.97
    
    
    $
    23.79
   Liquidity and Capital Resources
    23




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##### Table of Contents



Net Cash Used By Operating Activities
 Net Cash Provided (Used) By Investing Activities
 Net Cash Provided By Financing Activities
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 Commodity Price Risk
  Operating Cost Risk
  Interest Rate Risk
   24




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##### Table of Contents



Item 4. CONTROLS AND PROCEDURES
    
 PART II.
OTHER INFORMATION
 
 Item 1A . RISK FACTORS
  
 Item 6. EXHIBITS
 Exhibit No.
    
    Description10.1
    
    Letter agreement dated August 22, 2008 for the property sale closed October 27, 2008 (incorporated by reference to Exhibit 10.1 to the Amendment No. 1 to Form 8-K/A filed with the Securities and Exchange Commission on October 28, 2008).31.1
    
    302 Certification of Chief Executive Officer31.2
    
    302 Certification of Chief Financial Officer32.1
    
    906 Certification of Chief Executive Officer32.2
    
    906 Certification of Chief Financial Officer
  25




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##### Table of Contents



SIGNATURES
  Signatures
    
    Title
    
    Date/s/ Patrick D. OBrien

Patrick D. OBrien
    
    Chief Executive Officer and Chairman of
The Board of Directors
    
    November 7, 2008/s/ Joseph B. Feiten
    
    Chief Financial Officer
    
    November 7, 2008Joseph B. Feiten
  26




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Letter agreement dated August 22, 2008 for the property sale closed October 27, 2008 (incorporated by reference to Exhibit 10.1 to the Amendment No. 1 to Form 8-K/A filed with the Securities and Exchange Commission on October 28, 2008).31.1
    
    302 Certification of Chief Executive Officer31.2
    
    302 Certification of Chief Financial Officer32.1
    
    906 Certification of Chief Executive Officer32.2
    
    906 Certification of Chief Financial Officer
  27