##### 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 June 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*
    
    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  June 30, 2008 and December
31, 2007
    
    
    3Condensed Consolidated Statements of Operations  Three and Six Months Ended
June 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows  Six Months Ended June 30,
2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24Item 6. Exhibits
    
    
    24Signatures
    
    
    25Exhibit 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
 June 30,
    
    
    December 31,2008
    
    
    2007(UNAUDITED)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    6,064,244
    
    
    $
    2,388,219Short-term
investments
    
    
    5,336,000
    
    
    
    18,302,900Trade receivables
    
    
    1,023,637
    
    
    
    566,789Prepaid expenses
    
    
    100,128
    
    
    
    149,440Inventory
    
    
    40,904
    
    
    
    40,904Current deferred income tax assets
    
    
    169,406
    
    
    
    347,658Total current assets
    
    
    12,734,319
    
    
    
    21,795,910PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including unevaluated
costs of $46,577,569 at 6/30/08 and $40,937,747 at 12/31/07)
    
    
    67,909,338
    
    
    
    56,987,732Other property and equipment
    
    
    354,082
    
    
    
    338,614Total property and equipment
    
    
    68,263,420
    
    
    
    57,326,346Less-accumulated depreciation, depletion and amortization
    
    
    (4,442,397
    )
    
    
    (3,694,805
    )Net property and equipment
    
    
    63,821,023
    
    
    
    53,631,541OTHER ASSETSGoodwill
    
    
    11,670,468
    
    
    
    11,670,468Other intangible asset, net of accumulated amortization
    
    
    330,000
    
    
    
    420,000Drilling prepayments
    
    
    
    
    
    
    542,876Long-term deferred income tax assets
    
    
    225,249
    
    
    
    Other
    
    
    30,385
    
    
    
    30,385$
    88,811,444
    
    
    $
    88,091,180LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    4,711,087
    
    
    $
    1,568,806Preferred dividends payable
    
    
    257,823
    
    
    
    261,648Total current liabilities
    
    
    4,968,910
    
    
    
    1,830,454LONG-TERM LIABILITIESAsset retirement obligations
    
    
    337,122
    
    
    
    323,369Deferred income taxes
    
    
    
    
    
    
    1,060,003Total long-term liabilities
    
    
    337,122
    
    
    
    1,383,372COMMITMENTS AND CONTINGENCIES(Note 13)STOCKHOLDERS EQUITYSeries AA preferred stock, $.001 par value; authorized 400,000
shares; issued and outstanding: 126,888 shares at
6/30/08 and 138,000 shares at 12/31/07; redemption value of
$7,109,775 at 6/30/08 and $7,713,648 at 12/31/07
    
    
    127
    
    
    
    138Common stock, $.001 par value, authorized 100,000,000 shares;
issued and outstanding shares: 46,592,085 at 6/30/08 and
46,434,063 at 12/31/07
    
    
    46,592
    
    
    
    46,434Additional paid-in capital
    
    
    90,541,117
    
    
    
    89,426,687Accumulated deficit
    
    
    (6,861,424
    )
    
    
    (4,595,905
    )Accumulated
other comprehensive income (loss) (Note 6)
    
    
    (221,000
    )
    
    
    83,505,412
    
    
    
    84,877,354$
    88,811,444
    
    
    $
    88,091,180
   3




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##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three months ended
    
    
    Six months endedJune 30
    
    
    June 302008
    
    
    2007
    
    
    2008
    
    
    2007REVENUESOil and gas sales
    
    $
    937,361
    
    
    $
    404,090
    
    
    $
    1,445,165
    
    
    $
    799,590Other revenues
    
    
    
    
    
    
    12,000
    
    
    
    
    
    
    
    12,000937,361
    
    
    
    416,090
    
    
    
    1,445,165
    
    
    
    811,590OPERATING EXPENSESLease operating
    
    
    295,830
    
    
    
    149,587
    
    
    
    550,605
    
    
    
    252,736General and administrative
    
    
    1,101,105
    
    
    
    1,168,960
    
    
    
    2,491,313
    
    
    
    2,301,802Depletion, depreciation and amortization
    
    
    484,087
    
    
    
    237,739
    
    
    
    837,591
    
    
    
    522,068Accretion of asset retirement obligation
    
    
    8,247
    
    
    
    6,120
    
    
    
    16,332
    
    
    
    11,6051,889,269
    
    
    
    1,562,406
    
    
    
    3,895,841
    
    
    
    3,088,211LOSS FROM OPERATIONS
    
    
    (951,908
    )
    
    
    (1,146,316
    )
    
    
    (2,450,676
    )
    
    
    (2,276,621
    )OTHER INCOME (LOSS)Investment income
    
    
    149,520
    
    
    
    298,214
    
    
    
    373,231
    
    
    
    365,570Gain (loss) on sale of securities
    
    
    (38,368
    )
    
    
    108,059
    
    
    
    (369,172
    )
    
    
    108,059Impairment of short-term investments
    
    
    (116,000
    )
    
    
    
    
    
    
    (116,000
    )
    
    
    Interest expense
    
    
    (65,123
    )
    
    
    
    
    
    
    (88,647
    )
    
    
    (69,971
    )
    
    
    406,273
    
    
    
    (200,588
    )
    
    
    473,629LOSS BEFORE INCOME TAXES
    
    
    (1,021,879
    )
    
    
    (740,043
    )
    
    
    (2,651,264
    )
    
    
    (1,802,992
    )Income tax expense-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax expense (reduction) -deferred
    
    
    (522,000
    )
    
    
    (194,000
    )
    
    
    (980,000
    )
    
    
    (547,000
    )NET LOSS
    
    
    (499,879
    )
    
    
    (546,043
    )
    
    
    (1,671,264
    )
    
    
    (1,255,992
    )Less dividends on preferred stock
    
    
    (145,215
    )
    
    
    (149,040
    )
    
    
    (294,255
    )
    
    
    (304,450
    )Less deemed dividends on warrants extension
    
    
    (300,000
    )
    
    
    
    
    
    
    (300,000
    )
    
    
    NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS
    
    
    (945,094
    )
    
    $
    (695,083
    )
    
    $
    (2,265,519
    )
    
    $
    (1,560,442
    )NET LOSS PER COMMON SHARE:Basic and diluted
    
    $
    (.02
    )
    
    $
    (.02
    )
    
    $
    (.05
    )
    
    $
    (.04
    )Weighted average common shares outstanding:Basic and diluted
    
    
    46,522,849
    
    
    
    44,973,682
    
    
    
    46,500,670
    
    
    
    42,455,047
   4




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##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 UNAUDITED
 Six months ended June 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (1,671,264
    )
    
    $
    (1,255,992
    )Adjustments to reconcile net loss to net cash used by operating activities:Share-based compensation expenses
    
    
    516,498
    
    
    
    607,244Depletion, depreciation and amortization
    
    
    837,591
    
    
    
    522,068Accretion of asset retirement obligations
    
    
    16,332
    
    
    
    11,605Loss on sales of short-term investments
    
    
    369,172
    
    
    
    (108,059
    )Impairment on short-term investments
    
    
    116,000
    
    
    
    Deferred income taxes
    
    
    (980,000
    )
    
    
    (547,000
    )Changes in non-cash current assets and liabilities:Decrease (increase) in receivables relating to operations
    
    
    (242,730
    )
    
    
    (61,077
    )Decrease in advances and prepaid expenses
    
    
    49,312
    
    
    
    158,629Increase (decrease) in accounts payable and accrued liabilities for
operations
    
    
    46,033
    
    
    
    (240,361
    )Net cash used by operating activities
    
    
    (943,056
    )
    
    
    (912,943
    )CASH FLOWS FROM INVESTING ACTIVITIESProceeds from redeemed auction rate securities (Note 6)
    
    
    11,450,000
    
    
    
    Sales of other short-term investments
    
    
    683,728
    
    
    
    808,059Proceeds from the sale of oil and gas properties
    
    
    
    
    
    
    777,461Cash paid for oil and gas properties
    
    
    (7,499,179
    )
    
    
    (5,024,262
    )Cash paid for office equipment
    
    
    (15,468
    )
    
    
    (3,931
    )Net cash provided (used) by investing activities
    
    
    4,619,081
    
    
    
    (3,442,673
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from short-term borrowing
    
    
    8,600,000
    
    
    
    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
    
    
    
    
    
    
    368,746Net cash provided by financing activities
    
    
    
    
    
    
    26,918,883NET INCREASE IN CASH
    
    
    3,676,025
    
    
    
    22,563,267CASH, BEGINNING OF PERIOD
    
    
    2,388,219
    
    
    
    7,488,474CASH, END OF PERIOD
    
    $
    6,064,244
    
    
    $
    30,051,741SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATIONCash paid for interest expense
    
    $
    88,647
    
    
    $
    Cash paid for income taxes incurred
    
    $
    
    
    
    $
    SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIESNet increase in payables for capital expenditures
    
    $
    3,096,248
    
    
    $
    Conversion of preferred stock into common stock
    
    $
    600,048
    
    
    $
    6,048,000Share-based compensation expense
    
    $
    516,498
    
    
    $
    607,244Preferred dividends paid in shares of common stock
    
    $
    298,080
    
    
    $
    522,144Drilling prepayments applied to drilling costs
    
    $
    542,876
    
    
    $
    218,704
   5




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##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 Notes to Condensed Consolidated Financial Statements
 (UNAUDITED)
 June 30, 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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##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS
  GAS BALANCING
 RECLASSIFICATION 
 NET LOSS PER SHARE
  NOTE 3  SIGNIFICANT CHANGES IN PROVED RESERVE ESTIMATES
  Oil (bbls)
    
    
    NGL (bbls)
    
    
    Gas (mcf)Proved reserves at December 31, 2007
    
    
    96,399
    
    
    
    53,933
    
    
    
    1,307,159Proved reserve revisions
    
    
    (13,510
    )
    
    
    (19,624
    )
    
    
    (340,781
    )Less 2008 year-to-date production
    
    
    (7,894
    )
    
    
    (2,352
    )
    
    
    (63,928
    )Proved reserve additions
    
    
    219,250
    
    
    
    65,044
    
    
    
    1,137,656Proved reserves at June 30, 2008
    
    
    294,245
    
    
    
    97,001
    
    
    
    2,040,106Percentage net change in proved
reserves
    
    
    205
    %
    
    
    80
    %
    
    
    56
    %
  7




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##### Table of Contents



NOTE 4  PROPERTY AND EQUIPMENT
  Oil and gas properties, full cost methodUnevaluated costs, not subject to amortization
    
    $
    46,577,569Evaluated costs
    
    
    21,331,76967,909,338Office equipment, furniture and software
    
    
    354,08268,263,420Less accumulated depreciation, depletion and amortization
    
    
    (4,442,397
    )Property and equipment
    
    $
    63,821,023
   Capitalized Costs (in millions)Project (State)
    
    12/31/07
    
    
    Net Additions
    
    
    6/30/08Fetter Project, Powder River Basin (WY)
    
    $
    14.4
    
    
    $
    4.8
    
    
    $
    19.2West Douglas Project, Powder River Basin (WY)
    
    
    4.2
    
    
    
    0.2
    
    
    
    4.4Douglas Project, Powder River Basin (WY)
    
    
    0.9
    
    
    
    0.0
    
    
    
    0.9Krejci Oil Project, Powder River Basin (WY)
    
    
    9.2
    
    
    
    (1.1
    )
    
    
    8.1Goliath Project, Williston Basin (ND)
    
    
    7.0
    
    
    
    0.0
    
    
    
    7.0Other projects
    
    
    5.2
    
    
    
    1.9
    
    
    
    7.1Total unevaluated costs
    
    $
    40.9
    
    
    $
    5.8
    
    
    $
    46.7Evaluated Costs, net of accumulated DD&A
    
    $
    12.4
    
    
    $
    4.6
    
    
    $
    17.0
  8




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##### Table of Contents



Six-month PeriodEnded June 30,2008
    
    
    2007Amortization of costs for evaluated oil and gas properties
    
    $
    710,000
    
    
    $
    400,818Amortization of Other Intangible Asset
    
    
    90,000
    
    
    
    90,000Depreciation of office equipment, furniture and software
    
    
    37,591
    
    
    
    31,250Total DD&A expense
    
    $
    837,591
    
    
    $
    522,068
 NOTE 5  ASSET RETIREMENT OBLIGATIONS
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Beginning asset retirement obligation
    
    $
    329,771
    
    
    $
    281,944
    
    
    $
    323,369
    
    
    $
    235,268Liabilities incurred
    
    
    27,072
    
    
    
    16,140
    
    
    
    31,514
    
    
    
    61,148Liabilities settled
    
    
    
    
    
    
    (22,898
    )
    
    
    
    
    
    
    (22,898
    )Revisions in estimated liabilities
    
    
    (27,968
    )
    
    
    (5,295
    )
    
    
    (34,093
    )
    
    
    (9,112
    )Accretion
    
    
    8,247
    
    
    
    6,120
    
    
    
    16,332
    
    
    
    11,605Ending asset retirement obligation
    
    $
    337,122
    
    
    $
    276,011
    
    
    $
    337,122
    
    
    $
    276,011Current portion of obligation, end
of period
    
    $
    
    
    
    $
    43,556
    
    
    $
    
    
    
    $
    43,556
 NOTE 6  SHORT-TERM INVESTMENTS
  June 30,
    
    
    December 31,2008
    
    
    2007Auction-rate preferred shares at fair value
    
    $
    5,336,000
    
    
    $
    17,325,000PetroHunter stock at fair value
(sold prior to June 30, 2008)
    
    
    
    
    
    
    977,900Total, short-term investments
    
    $
    5,336,000
    
    
    $
    18,302,900
   9




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##### Table of Contents



Auction-Rate Preferred Shares
     
    
    We own $2,325,000 of ARPS in three funds that have board approval and substantially all
debt financing in place to redeem 100% of remaining ARPS if and when the SEC approves their
July 24, 2008, request for a two-year temporary waiver of the existing law that limits fund
debt to no more than one-third of the funds total asset value (whereas the law allows a
funds ARPS book value to be one-half of fund asset value).
 
    
    We own $400,000 of ARPS in a fund that plans to redeem 100% of its ARPS if and when the
SEC approves the funds July 25, 2008, formal request to allow the fund to borrow the
needed monies from a bank affiliated with the funds management company. The funds ARPS
book value is less than one-third of total asset value.
 
    
    We own $1,125,000 of ARPS in a fund whose ARPS value is close to one-third of total
asset value, whereby the fund could use debt to redeem $925,000 of the ARPS we own without
having to request permission from the SEC.
 
    
    We own $1,950,000 of ARPS in three funds that had previously redeemed 50% of their ARPS
and are seeking to redeem the remainder of their ARPS, but have not to our knowledge
requested SEC permission to use debt in excess of 25% of fund asset value.
   10




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##### Table of Contents



PetroHunter Common Stock
  NOTE 7  NOTE PAYABLE
  NOTE 8  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 3June 30, 2008
    
    
    inputs
    
    
    inputs
    
    
    inputsFinancial Assets:Short-term investments available for sale:Auction Rate Preferred Shares (see Note
6)
    
    $
    5,336,000
    
    
    $
    
    
    
    $
    5,336,000
    
    
    $
    Financial Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
   11




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##### Table of Contents



NOTE 9  GOODWILL AND OTHER INTANGIBLE ASSET
   NOTE 10  INCOME TAXES
 Accounting for Income
Taxes,
   Accounting for
Uncertainty in Income Taxes
  12




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##### Table of Contents



NOTE 11  EQUITY
 Common Stock
  
    
    For the three-month period 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.
 
    
    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 11.
 
    
    Holders of 11,112 shares of our Series AA Convertible Preferred Stock converted those
 shares into 100,008 shares of our 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
   13




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##### Table of Contents



Warrants
  Common
    
    
    Exercise
    
    
    ExpirationIssue Date
    
    Shares
    
    
    Price
    
    
    DateApril 16, 2008
    
    
    50,000
    
    
    $
    7.00
    
    
    April 16, 2013July 22, 2005
    
    
    835,626
    
    
    $
    6.00
    
    
    June 30, 2009September 15, 2003
    
    
    20,000
    
    
    $
    1.15
    
    
    September 15, 2008July 23, 2003 to
September 24,
2003
    
    
    44,850
    
    
    $
    0.75
    
    
    September 24, 2008950,476
    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 six months ended June 30, 2008
    
    
    510,000
    
    
    $
    3.44Less options forfeited in the six months ended June 30, 2008
    
    
    (9,000
    )
    
    $
    3.37Less options exercised in the six months ended June 30, 2008
    
    
    Options outstanding  June 30, 2008 (1,666,250 exercisable)
    
    
    3,016,000
    
    
    $
    3.94
  June 30, 2008
    
    
    June 30, 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
    
    
    
    1.64
    
    
    
    403,000
    
    
    
    403,000$
    2.38
    
    
    
    2.50
    
    
    
    100,000
    
    
    
    100,000$
    2.48
    
    
    
    2.53
    
    
    
    80,000
    
    
    
    80,000$
    3.34
    
    
    
    6.80
    
    
    
    21,000
    
    
    
    $
    3.37
    
    
    
    6.80
    
    
    
    465,000
    
    
    
    $
    3.66
    
    
    
    4.31
    
    
    
    750,000
    
    
    
    500,000$
    4.30
    
    
    
    4.42
    
    
    
    9,000
    
    
    
    6,000$
    4.57
    
    
    
    4.59
    
    
    
    9,000
    
    
    
    6,000$
    4.66
    
    
    
    3.84
    
    
    
    20,000
    
    
    
    20,000$
    4.95
    
    
    
    8.00
    
    
    
    250,000
    
    
    
    130,000$
    4.98
    
    
    
    5.31
    
    
    
    200,000
    
    
    
    90,000$
    5.15
    
    
    
    5.92
    
    
    
    30,000
    
    
    
    10,000$
    5.80
    
    
    
    4.62
    
    
    
    75,000
    
    
    
    35,000$
    5.84
    
    
    
    6.91
    
    
    
    400,000
    
    
    
    140,000$
    6.03
    
    
    
    4.63
    
    
    
    195,000
    
    
    
    146,250$
    6.70
    
    
    
    6.05
    
    
    
    9,000
    
    
    
    3,016,000
    
    
    
    1,666,250Weighted Ave. remaining contractual life
    
    
    
    
    
    
    
    
    
    5.0 years
    
    
    4.1 yearsAggregate intrinsic value, June 30, 2008
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    568,512
 Other Comprehensive Income
  NOTE 12  MATERIAL RELATED PARTY TRANSACTIONS
  NOTE 13 COMMITMENTS AND CONTINGENCIES
  North Finn Option
     16




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    Overview
   17




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##### Table of Contents



Douglas Project Area  Fetter Project (Powder River Basin, Wyoming)
       Douglas Project Area  West Douglas Project (Powder River Basin, Wyoming)
   18




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##### Table of Contents



Krejci Oil Project (Powder River Basin, Wyoming)
    Goliath Bakken Project (Williston Basin, North Dakota)
     19




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##### Table of Contents



Results of Operations
  The Quarter Ended June 30, 2008 Compared with the Quarter Ended June 30, 2007
   Three months endedJune 30,2008
    
    
    2007Oil sold (barrels)
    
    
    4,866
    
    
    
    4,501Average oil price
    
    $
    114.91
    
    
    $
    59.40Oil revenue
    
    $
    559,135
    
    
    $
    267,365Gas sold (mcf)
    
    
    34,712
    
    
    
    23,695Average gas price
    
    $
    10.90
    
    
    $
    5.77Gas revenue
    
    $
    378,226
    
    
    $
    136,725Total oil and gas revenues
    
    $
    937,361
    
    
    $
    404,090Less lease operating expenses
    
    
    (295,830
    )
    
    
    (149,587
    )Less oil & gas amortization expense
    
    
    (420,000
    )
    
    
    (177,000
    )Less accretion of asset retirement obligation
    
    
    (8,247
    )
    
    
    (6,120
    )Producing revenues less direct expenses
    
    
    213,284
    
    
    
    71,383Less depreciation of office facilities
    
    
    (19,087
    )
    
    
    (15,739
    )Less amortization of other intangible asset
    
    
    (45,000
    )
    
    
    (45,000
    )Less general and administrative expenses
    
    
    (1,101,105
    )
    
    
    (1,168,960
    )Add other revenue
    
    
    
    
    
    
    12,000Loss from operations
    
    $
    (951,908
    )
    
    $
    (1,146,316
    )Total barrels of oil equivalent (boe) sold
    
    
    10,651
    
    
    
    8,450Lease operating expense per boe sold
    
    $
    27.77
    
    
    $
    17.70Amortization expense per boe sold
    
    $
    39.43
    
    
    $
    20.95
  20




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##### Table of Contents



The Six-month Period ended June 30, 2008 Compared with the Six-month Period ended June 30,
2007
   Six months ended June 30,2008
    
    
    2007Oil sold (barrels)
    
    
    7,894
    
    
    
    8,835Average oil price
    
    $
    102.23
    
    
    $
    55.47Oil revenue
    
    $
    806,966
    
    
    $
    490,094Gas sold (mcf)
    
    
    63,928
    
    
    
    50,715Average gas price
    
    $
    9.98
    
    
    $
    6.10Gas revenue
    
    $
    638,199
    
    
    $
    309,496Total oil and gas revenues
    
    $
    1,445,165
    
    
    $
    799,590Less lease operating expenses
    
    
    (550,605
    )
    
    
    (252,736
    )Less oil & gas amortization expense
    
    
    (710,000
    )
    
    
    (400,818
    )Less accretion of asset retirement obligation
    
    
    (16,332
    )
    
    
    (11,605
    )Producing revenues less direct expenses
    
    
    168,228
    
    
    
    134,431Less depreciation of office facilities
    
    
    (37,591
    )
    
    
    (31,250
    )Less amortization of other intangible asset
    
    
    (90,000
    )
    
    
    (90,000
    )Less general and administrative expenses
    
    
    (2,491,313
    )
    
    
    (2,301,802
    )Add other revenue
    
    
    
    
    
    
    12,000Income (loss) from operations
    
    
    (2,450,676
    )
    
    
    (2,276,621
    )Total barrels of oil equivalent (boe) sold
    
    
    18,549
    
    
    
    17,287Lease operating expense per boe sold
    
    $
    29.68
    
    
    $
    14.62Amortization expense per boe sold
    
    $
    38.28
    
    
    $
    23.19
  21




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Liquidity and Capital Resources
    Net Cash Used By Operating Activities
 Net Cash Provided (Used) By Investing Activities
 Net Cash Provided By Financing Activities
  22




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##### Table of Contents



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 Commodity Price Risk
  Operating Cost Risk
  Interest Rate Risk
  
 Item 4. CONTROLS AND PROCEDURES
     23




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##### Table of Contents



PART II.
OTHER INFORMATION
 
 Item 1A . RISK FACTORS
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Shares VotedNominee
    
    For
    
    
    Against
    
    
    AbstainPatrick D. OBrien
    
    
    23,316,424
    
    
    
    402,408
    
    
    
    49,642Andrew P. Calerich
    
    
    22,850,708
    
    
    
    865,138
    
    
    
    52,628M.S. (Moni) Minhas
    
    
    23,525,203
    
    
    
    191,443
    
    
    
    51,828Nick DeMare
    
    
    20,788,137
    
    
    
    2,928,659
    
    
    
    51,678Jon R. Whitney
    
    
    23,073,528
    
    
    
    642,968
    
    
    
    51,978
   
 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
  24




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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
    
    August 8, 2008/s/ Joseph B. Feiten

Joseph B. Feiten
    
    Chief Financial Officer
    
    August 8, 2008
  25




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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
  26