##### 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 March 31, 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. 1-31900
 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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 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  March 31, 2008 and December 31, 2007
    
    
    3Condensed Consolidated Statements of Income  Three Months Ended March 31,
2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows  Three Months Ended March 31, 2008
and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures about Market Risks
    
    
    21Item 4. Controls and Procedures
    
    
    21PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    22Item 6. Exhibits
    
    
    22Signatures
    
    
    23Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I
 
 ITEM 1. FINANCIAL STATEMENTS
 AMERICAN OIL & GAS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2008
    
    
    2007(UNAUDITED)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    8,841,519
    
    
    $
    2,388,219Short-term investment
    
    
    17,407,500
    
    
    
    18,302,900Trade receivables
    
    
    609,537
    
    
    
    566,789Prepaid expenses
    
    
    118,051
    
    
    
    149,440Inventory
    
    
    40,904
    
    
    
    40,904Current deferred tax assets
    
    
    40,658
    
    
    
    347,658Total current assets
    
    
    27,058,169
    
    
    
    21,795,910PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including unevaluated costs
of $44,785,507 at 3/31/08 and $40,937,747 at 12/31/07)
    
    
    61,122,529
    
    
    
    56,987,732Other property and equipment
    
    
    345,028
    
    
    
    338,614Total property and equipment
    
    
    61,467,557
    
    
    
    57,326,346Less-accumulated depreciation, depletion and amortization
    
    
    (4,003,309
    )
    
    
    (3,694,805
    )Net property and equipment
    
    
    57,464,248
    
    
    
    53,631,541OTHER ASSETSGoodwill
    
    
    11,670,468
    
    
    
    11,670,468Other intangible asset, net of accumulated amortization
    
    
    375,000
    
    
    
    420,000Drilling prepayments
    
    
    333,103
    
    
    
    542,876Other
    
    
    30,385
    
    
    
    30,385$
    96,931,373
    
    
    $
    88,091,180LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESNotes payable, short-term
    
    $
    8,600,000
    
    
    $
    Accounts payable and accrued liabilities
    
    
    3,562,123
    
    
    
    1,568,806Preferred dividends payable
    
    
    112,608
    
    
    
    261,648Total current liabilities
    
    
    12,274,731
    
    
    
    1,830,454LONG-TERM LIABILITIESAsset retirement obligations
    
    
    329,771
    
    
    
    323,369Deferred income taxes
    
    
    262,003
    
    
    
    1,060,003Total long-term liabilities
    
    
    591,774
    
    
    
    1,383,372COMMITMENTS AND CONTINGENCIES(Note 12)STOCKHOLDERS EQUITYSeries AA preferred stock, $.001 par value; authorized 400,000 shares; issued
and outstanding - 138,000 shares at 3/31/08 and 12/31/07; redemption
value of $7,564,608 at 3/31/08 and $7,713,648 at 12/31/07
    
    
    138
    
    
    
    138Common stock, $.001 par value, authorized 100,000,000 shares; issued and
outstanding - 46,492,077 shares at 3/31/08 and 46,434,063 shares at 12/31/07
    
    
    46,492
    
    
    
    46,434Additional paid-in capital
    
    
    89,991,568
    
    
    
    89,426,687Accumulated deficit
    
    
    (5,916,330
    )
    
    
    (4,595,905
    )Accumulated other comprehensive income (loss)
    
    
    (57,000
    )
    
    
    84,064,868
    
    
    
    84,877,354$
    96,931,373
    
    
    $
    88,091,180
   3




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AMERICAN OIL & GAS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (UNAUDITED)
 Three months endedMarch 31,2008
    
    
    2007REVENUESOil and gas sales
    
    $
    507,804
    
    
    $
    395,500OPERATING EXPENSESLease operating
    
    
    254,775
    
    
    
    103,149General and administrative
    
    
    1,390,208
    
    
    
    1,132,842Depletion, depreciation and amortization
    
    
    353,504
    
    
    
    284,329Accretion of asset retirement obligation
    
    
    8,085
    
    
    
    5,4852,006,572
    
    
    
    1,525,805LOSS FROM OPERATIONS
    
    
    (1,498,768
    )
    
    
    (1,130,305
    )OTHER INCOMEGain (loss) on sale of securities
    
    
    (330,804
    )
    
    
    Investment income
    
    
    223,711
    
    
    
    67,356Interest expense
    
    
    (23,524
    )
    
    
    (130,617
    )
    
    
    67,356LOSS BEFORE INCOME TAXES
    
    
    (1,629,385
    )
    
    
    (1,062,949
    )Income tax expense (reduction) -deferred
    
    
    (458,000
    )
    
    
    (353,000
    )NET LOSS
    
    
    (1,171,385
    )
    
    
    (709,949
    )Less dividends on preferred stock
    
    
    (149,040
    )
    
    
    (155,410
    )NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS
    
    $
    (1,320,425
    )
    
    $
    (865,359
    )NET LOSS PER COMMON SHARE:Basic and
diluted
    
    $
    (.03
    )
    
    $
    (.02
    )Weighted
average common shares outstanding, basic and diluted
    
    
    46,478,491
    
    
    
    39,908,426
   4




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AMERICAN
OIL & GAS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED
 Three months endedMarch 31,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (1,171,385
    )
    
    $
    (709,949
    )Adjustments to reconcile net loss to
net cash provided by operating activities:Share-based compensation expenses
    
    
    266,859
    
    
    
    328,014Depletion, depreciation and amortization
    
    
    353,504
    
    
    
    284,329Accretion of asset retirement obligations
    
    
    8,085
    
    
    
    5,485Realized loss on sale of short-term investments
    
    
    330,804
    
    
    
    Deferred income taxes
    
    
    (458,000
    )
    
    
    (353,000
    )Changes in assets and liabilities:Decrease (increase) in receivables
    
    
    (42,748
    )
    
    
    (41,568
    )Decrease in prepaid expenses
    
    
    31,389
    
    
    
    25,222Increase (decrease) in accounts payable and accrued liabilities for operations
    
    
    91,790
    
    
    
    (167,966
    )Net cash used in operating activities
    
    
    (589,702
    )
    
    
    (629,433
    )CASH FLOWS FROM INVESTING ACTIVITIESCash paid for oil and gas properties
    
    
    (2,025,180
    )
    
    
    (3,041,466
    )Proceeds from the sale of oil and gas properties
    
    
    
    
    
    
    311,980Proceeds from sale of short-term investments
    
    
    474,596
    
    
    
    Cash paid for office equipment
    
    
    (6,414
    )
    
    
    Cost adjustment on prior improvements of office lease
    
    
    
    
    
    
    1,267Net cash (used) provided by investing activities
    
    
    (1,556,998
    )
    
    
    (2,728,219
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from short-term borrowing
    
    
    8,600,000
    
    
    
    Net cash provided by financing activities
    
    
    8,600,000
    
    
    
    NET INCREASE (DECREASE) IN CASH
    
    
    6,453,300
    
    
    
    (3,357,652
    )CASH, BEGINNING OF PERIODS
    
    
    2,388,219
    
    
    
    7,488,474CASH, END OF PERIODS
    
    $
    8,841,519
    
    
    $
    4,130,822SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATIONCash paid for interest
    
    $
    
    
    
    $
    Cash paid for income taxes incurred
    
    $
    
    
    
    $
    SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING
ACTIVITIESConversion of preferred stock into common stock
    
    $
    
    
    
    $
    6,048,000Preferred dividends paid in shares of common stock
    
    $

    298,080
    
    
    $
    522,144Share-based compensation expenses
    
    $

    266,859
    
    
    $
    328,014Net increase
in payables for capital expenditures
    
    $
    1,901,527
    
    
    $
    Drilling prepayments applied to drilling costs
    
    $
    209,773
    
    
    $
    215,103
   5




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AMERICAN OIL & GAS, INC.
 
 Notes to Condensed Consolidated Financial Statements
 (UNAUDITED)
 March 31, 2008
 NOTE 1  COMPANY AND BUSINESS
   NOTE 2  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
   USE OF ESTIMATES
 SIGNIFICANT ACCOUNTING POLICIES
    6




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RECENT ACCOUNTING PRONOUNCEMENTS
  GAS BALANCING
 RECLASSIFICATION 
  Three-month PeriodEnded March 31,2008
    
    
    2007Asset retirement obligation, beginning of
period
    
    $
    323,369
    
    
    $
    235,268Liabilities incurred
    
    
    4,442
    
    
    
    35,824Liabilities settled
    
    
    
    
    
    
    Accretion
    
    
    8,085
    
    
    
    5,485Revisions in estimated liabilities
    
    
    (6,125
    )
    
    
    (3,815
    )Asset retirement obligation, end of period
    
    $
    329,771
    
    
    $
    272,762Current portion of obligation, end of period
    
    $
    
    
    
    $
    65,680
 NET
LOSS PER SHARE
   7




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NOTE 3  PROPERTY AND EQUIPMENT
  Oil and gas properties, full cost methodUnevaluated costs, not subject to amortization or ceiling test
    
    $
    44,785,507Evaluated costs
    
    
    16,337,02261,122,529Office equipment, furniture and software
    
    
    345,02861,467,557Less accumulated depreciation, depletion and amortization
    
    
    (4,003,309
    )Property and equipment
    
    $
    57,464,248
   Three-month PeriodEnded March 31,2008
    
    
    2007Amortization of costs for evaluated oil and gas properties
    
    $
    290,000
    
    
    $
    223,818Amortization of Other Intangible Asset
    
    
    45,000
    
    
    
    45,000Depreciation of office equipment, furniture and software
    
    
    18,504
    
    
    
    15,511Total DD&A expense
    
    $
    353,504
    
    
    $
    284,329
 NOTE 4  SHORT-TERM INVESTMENTS
  March 31,
    
    
    December 31,2008
    
    
    2007Auction-rate
preferred shares at par value,
which closely approximates estimated
 fair
value
    
    $
    17,250,000
    
    
    $
    17,325,000Unregistered PetroHunter stock at fair value
    
    
    157,500
    
    
    
    977,900Total, short-term investments
    
    $
    17,407,500
    
    
    $
    18,302,900
   8




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Auction-Rate Preferred Shares
  Issuers announced redemptions in May 2008 of ARPS we hold
    
    $
    7,500,000Issuers announced redemptions by June 30, 2008 of ARPS we
hold
    
    
    750,000Minimum additional redemptions we expect in June
    
    
    4,350,000Subtotal, announced and expected redemptions in May and
June 2008
    
    
    12,600,000Additional redemptions we expect by September 30, 2008
    
    
    4,650,000Total, short-term investments
    
    $
    17,250,000
   
    
    The redemption rate could be increased to 100% if SEC regulations were amended to
have close-end funds asset coverage ratio for debt (now 300%) reduced to the 200%
ratio required for preferred shares. The Investment Companies Institute recently
requested of the SEC such a reduction for the next three years.
    
    Nuveen, the largest U.S. manager of funds with ARPS, announced March 12 a new form
of variable rate preferred stock, with a put feature (a variable rate demand preferred
or VRDP) to allow such stock to be owned by money market funds and as an alternative to
funds use of debt to redeem ARPS. An April 23rd Bloomberg article states
that an associate director of the SECs investment management division said that the
SEC would probably issue a no-action letter sooner rather than later approving such a
VRDP.
    
    If need be, closed-end funds could redeem remaining ARPS by selling assets but that
option would likely reduce the return to the funds common shareholders.
   PetroHunter Common Stock
   9




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NOTE 5  NOTE PAYABLE
  NOTE 6  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, 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 atMarch 31,
    
    
    Level 1
    
    
    Level 2
    
    
    Level 32008
    
    
    inputs
    
    
    inputs
    
    
    inputsFinancial Assets:Short-term investments
available for sale:Auction Rate Preferred Shares
    
    $
    17,250,000
    
    
    $
    
    
    
    $
    17,250,000
    
    
    $
    PetroHunter common stock
    
    
    157,500
    
    
    
    157,500
    
    
    
    
    
    
    
    $
    17,407,500
    
    
    $
    157,500
    
    
    $
    17,250,000
    
    
    $
    Financial Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  10




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th th th
 NOTE 7  GOODWILL AND OTHER INTANGIBLE ASSET
   NOTE 8  INCOME TAXES
 Accounting for Income
Taxes,
   11




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Accounting for
Uncertainty in Income Taxes
  NOTE 9  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 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.
    
    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.
 Preferred Stock
    12




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Warrants
  Common
    
    
    Exercise
    
    
    ExpirationIssue Date
    
    Shares
    
    
    Price
    
    
    DateJuly 22, 2005
    
    
    554,376
    
    
    $
    6.00
    
    
    June 30, 2008July 22, 2005
    
    
    281,250
    
    
    $
    6.00
    
    
    July 21, 2008September 15, 2003
    
    
    20,000
    
    
    $
    1.15
    
    
    September 15, 2008July 23, 2003 to
September 24,
2003
    
    
    54,850
    
    
    $
    0.75
    
    
    July 24, 2008 to September 24, 2008910,476
  Stock Options
   Commitments and
Contingencies
  WeightedAverageNumber of
    
    
    ExerciseShares
    
    
    PriceOptions outstanding  December 31, 2007 (1,359,500
exercisable)
    
    
    2,515,000
    
    
    $
    4.04Options granted in the quarter ended March 31, 2008
    
    
    15,000
    
    
    $
    5.80Less options forfeited in the quarter
    
    
    Less options exercised in the quarter
    
    
    Options outstanding  March 31, 2008 (1,426,875 exercisable)
    
    
    2,530,000
    
    
    $
    4.05
  13




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March 31, 2008
    
    
    March 31, 2007Modified
    
    
    ModifiedModel
    
    Binomial
    
    
    BinomialOption life (in years)
    
    
    4
    
    
    
    4 to 5Annual volatility over option life
    
    
    30
    %
    
    
    35
    %Annual volatility for black-out periods
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    3.1
    %
    
    
    4.7
    %Pre-vesting forfeiture rate
    
    
    0
    %
    
    
    0
    %Dividend yield
    
    
    0
    %
    
    
    0
    %Intrinsic Value/share that urges exercise
    
    $
    2.00
    
    
    $
    2.00
     14




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Exercise
    
    
    Remainingprice
    
    
    contractual
    
    
    Number of sharesper share
    
    
    life (years)
    
    
    Outstanding
    
    
    Exercisable$
    1.25
    
    
    
    1.89
    
    
    
    403,000
    
    
    
    403,000$
    2.38
    
    
    
    2.75
    
    
    
    100,000
    
    
    
    100,000$
    2.48
    
    
    
    2.78
    
    
    
    80,000
    
    
    
    80,000$
    3.66
    
    
    
    4.56
    
    
    
    750,000
    
    
    
    375,000$
    4.30
    
    
    
    4.67
    
    
    
    9,000
    
    
    
    6,000$
    4.57
    
    
    
    4.84
    
    
    
    9,000
    
    
    
    6,000$
    4.66
    
    
    
    4.09
    
    
    
    20,000
    
    
    
    $
    4.95
    
    
    
    8.25
    
    
    
    250,000
    
    
    
    90,000$
    4.98
    
    
    
    5.56
    
    
    
    200,000
    
    
    
    90,000$
    5.15
    
    
    
    6.17
    
    
    
    30,000
    
    
    
    $
    5.80
    
    
    
    4.87
    
    
    
    75,000
    
    
    
    35,000$
    5.84
    
    
    
    7.16
    
    
    
    400,000
    
    
    
    120,000$
    6.03
    
    
    
    4.88
    
    
    
    195,000
    
    
    
    121,875$
    6.70
    
    
    
    6.30
    
    
    
    9,000
    
    
    
    2,530,000
    
    
    
    1,426,875Weighted Ave.
remaining
contractual life
    
    
    
    
    
    
    
    
    
    4.9 years
    
    
    4.1 yearsAggregate intrinsic
value, March 31,
2008
    
    
    
    
    
    
    
    
    
    $
    (1,980,230
    )
    
    $
    (326,526
    )
 Other Comprehensive Income
  NOTE 10  MATERIAL RELATED PARTY TRANSACTIONS
  NOTE 11  SUBSEQUENT EVENTS
  NOTE 12 COMMITMENTS AND CONTINGENCIES
  North Finn Option
     15




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ITEM 2.

    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     Overview
   16




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Douglas Project Area  Fetter Project (Powder River Basin, Wyoming)
       17




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##### Table of Contents



Douglas Project Area  West Douglas Project (Powder River Basin, Wyoming)
   Krejci Oil Project (Powder River Basin, Wyoming)
   Goliath Project (Williston Basin, North Dakota)
    18




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##### Table of Contents



Results of Operations
  The Quarter Ended March 31, 2008 Compared with the Quarter Ended March 31, 2007
   Three months endedMarch 31,2008
    
    
    2007Oil sold (barrels)
    
    
    3,028
    
    
    
    4,334Average oil price
    
    $
    81.84
    
    
    $
    51.39Oil revenue
    
    $
    247,831
    
    
    $
    222,729Gas sold (mcf)
    
    
    29,216
    
    
    
    27,020Average gas price
    
    $
    8.90
    
    
    $
    6.39Gas revenue
    
    $
    259,973
    
    
    $
    172,771Total oil and gas revenues
    
    $
    507,804
    
    
    $
    395,500Less lease operating expenses
    
    
    (254,775
    )
    
    
    (103,149
    )Less oil & gas amortization expense
    
    
    (290,000
    )
    
    
    (223,818
    )Less accretion of asset retirement obligation
    
    
    (8,085
    )
    
    
    (5,485
    )Producing revenues less direct expenses
    
    
    (45,056
    )
    
    
    63,048Less depreciation of office facilities
    
    
    (18,504
    )
    
    
    (15,511
    )Less amortization of other intangible asset
    
    
    (45,000
    )
    
    
    (45,000
    )Less general and administrative expenses
    
    
    (1,390,208
    )
    
    
    (1,132,842
    )Income (loss) from operations
    
    $
    (1,498,768
    )
    
    $
    (1,130,305
    )Total barrels of oil equivalent (boe) sold
    
    
    7,897
    
    
    
    8,837Lease operating expense per boe sold
    
    $
    32.26
    
    
    $
    11.67Amortization expense per boe sold
    
    $
    36.72
    
    
    $
    25.33
  19




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Liquidity and Capital Resources
    Net Cash Used By Operating Activities
 Net Cash Used In Investing Activities
  20




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Net Cash Provided By Financing Activities
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 Commodity Price Risk
  Operating Cost Risk
  Interest Rate Risk
  
 Item 4. CONTROLS AND PROCEDURES
    21




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PART II
OTHER INFORMATION
 
 Item 1A. RISK FACTORS
  
 Item 6. EXHIBITS
 Exhibit No.
    
    Description31.1
    
    
    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
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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
    
    May 9, 2008/s/ Joseph B. Feiten
    
    Chief Financial Officer
    
    May 9, 2008Joseph B. Feiten
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##### Table of Contents



EXHIBIT
INDEX
 Exhibit No.
    
    Description31.1
    
    
    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
  24