##### 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, 2009
 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
 o 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




---



##### 



AMERICAN OIL & GAS, INC.
FORM 10-Q
INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets  September 30, 2009 and
December 31, 2008
    
    
    3Condensed Consolidated Statements of Income  Three and Nine Months Ended
September 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows  Nine Months Ended
September 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risks
    
    
    21Item 4. Controls and Procedures
    
    
    21PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    22Item 6. Exhibits
    
    
    22Signatures
    
    
    22Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




---



##### Table of Contents



PART I
 
 Item 1.
    
    FINANCIAL STATEMENTS
 AMERICAN OIL & GAS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2009
    
    
    2008(UNAUDITED)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    12,997,776
    
    
    $
    23,269,725Short-term investment
    
    
    2,925,000
    
    
    
    5,450,000Accounts receivable
    
    
    544,565
    
    
    
    1,186,749Materials and supplies inventory
    
    
    1,347,296
    
    
    
    1,236,591Prepaid expenses
    
    
    46,280
    
    
    
    133,360Total current assets
    
    
    17,860,917
    
    
    
    31,276,425PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including unevaluated costs
of $34,694,565 at 9/30/09 and $31,837,965 at 12/31/08)
    
    
    43,334,656
    
    
    
    40,456,632Other property and equipment
    
    
    402,818
    
    
    
    366,354Total property and equipment
    
    
    43,737,474
    
    
    
    40,822,986Less-accumulated depreciation, depletion and amortization
    
    
    (5,584,310
    )
    
    
    (4,980,578
    )Net property and equipment
    
    
    38,153,164
    
    
    
    35,842,408OTHER ASSETSDeferred income tax assets (net of valuation allowance, Note 7)
    
    
    
    
    
    
    Intangible asset, net of accumulated amortization
    
    
    105,000
    
    
    
    240,000Other
    
    
    80,485
    
    
    
    30,385$
    56,199,566
    
    
    $
    67,389,218LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    1,213,744
    
    
    $
    4,286,618Income taxes payable
    
    
    
    
    
    
    104,000Total current liabilities
    
    
    1,213,744
    
    
    
    4,390,618LONG-TERM LIABILITIESAsset retirement obligations
    
    
    411,832
    
    
    
    430,686COMMITMENTS AND CONTINGENCIES(Note 10)STOCKHOLDERS EQUITYCommon stock, $.001 par value, authorized 100,000,000 shares; issued and
outstanding: 48,307,399 shares at 9/30/09 and 47,875,899 shares at 12/31/08
    
    
    48,307
    
    
    
    47,876Additional paid-in capital
    
    
    92,098,256
    
    
    
    91,275,557Accumulated deficit
    
    
    (37,647,573
    )
    
    
    (28,755,519
    )Accumulated other comprehensive income
    
    
    75,000
    
    
    
    54,573,990
    
    
    
    62,567,914$
    56,199,566
    
    
    $
    67,389,218
   3




---



##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
 (UNAUDITED)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008REVENUES:Oil and gas sales
    
    $
    462,553
    
    
    $
    1,159,621
    
    
    $
    1,285,705
    
    
    $
    2,604,786OPERATING EXPENSES:Lease operating
    
    
    278,429
    
    
    
    475,382
    
    
    
    848,354
    
    
    
    1,025,987General and administrative
    
    
    1,198,188
    
    
    
    768,780
    
    
    
    4,242,539
    
    
    
    3,260,093Depletion, depreciation and amortization
    
    
    276,417
    
    
    
    401,021
    
    
    
    738,732
    
    
    
    1,238,612Impairment of oil & gas properties
    
    
    1,850,000
    
    
    
    18,840,000
    
    
    
    3,950,000
    
    
    
    18,840,000Impairment of materials and supplies inventory
    
    
    409,852
    
    
    
    
    
    
    
    565,991
    
    
    
    Accretion of asset retirement obligation
    
    
    9,837
    
    
    
    8,427
    
    
    
    30,057
    
    
    
    24,7594,022,723
    
    
    
    20,493,610
    
    
    
    10,375,673
    
    
    
    24,389,451LOSS FROM OPERATIONS
    
    
    (3,560,170
    )
    
    
    (19,333,989
    )
    
    
    (9,089,968
    )
    
    
    (21,784,665
    )OTHER INCOME (LOSS):Investment income
    
    
    9,632
    
    
    
    73,329
    
    
    
    47,949
    
    
    
    446,560Gain (loss) on sale of securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (369,172
    )Impairment of short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116,000
    )Interest expense
    
    
    
    
    
    
    (6,000
    )
    
    
    
    
    
    
    (94,647
    )9,632
    
    
    
    67,329
    
    
    
    47,949
    
    
    
    (133,259
    )LOSS BEFORE INCOME TAXES
    
    
    (3,550,538
    )
    
    
    (19,266,660
    )
    
    
    (9,042,019
    )
    
    
    (21,917,924
    )Income tax expense (reduction) -current
    
    
    (149,965
    )
    
    
    
    
    
    
    (149,965
    )
    
    
    Income tax expense (reduction) -deferred
    
    
    
    
    
    
    (6,520,000
    )
    
    
    
    
    
    
    (7,500,000
    )NET LOSS
    
    
    (3,400,573
    )
    
    
    (12,746,660
    )
    
    
    (8,892,054
    )
    
    
    (14,417,924
    )Less dividends on preferred stock
    
    
    
    
    
    
    (33,627
    )
    
    
    
    
    
    
    (327,882
    )Less deemed dividends on warrants extension
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300,000
    )NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
    
    $
    (3,400,573
    )
    
    $
    (12,780,287
    )
    
    $
    (8,892,054
    )
    
    $
    (15,045,806
    )NET LOSS PER COMMON SHARE:Basic and diluted
    
    $
    (0.07
    )
    
    $
    (.27
    )
    
    $
    (0.18
    )
    
    $
    (.32
    )Weighted average common shares outstanding:Basic and diluted
    
    
    48,307,399
    
    
    
    47,525,743
    
    
    
    48,284,846
    
    
    
    46,844,855
   4




---



##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 UNAUDITED
 Nine months endedSeptember 30,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (8,892,054
    )
    
    $
    (14,417,924
    )Adjustments to reconcile net loss to net cash provided by operating activities:Impairment of oil and gas properties
    
    
    3,950,000
    
    
    
    18,840,000Share-based compensation expenses
    
    
    823,130
    
    
    
    663,013Depletion, depreciation and amortization
    
    
    738,732
    
    
    
    1,238,612Impairment of materials and supplies inventory
    
    
    565,991
    
    
    
    Accretion of asset retirement obligations
    
    
    30,057
    
    
    
    24,759Realized loss on sale of short-term investments
    
    
    
    
    
    
    369,172Impairment on short-term investments
    
    
    
    
    
    
    116,000Deferred income taxes
    
    
    
    
    
    
    (7,500,000
    )Changes in assets and liabilities:Decrease (increase) in receivables
    
    
    271,629
    
    
    
    (598,947
    )Decrease (increase) in prepaid expenses
    
    
    87,080
    
    
    
    93,093Decrease (increase) in inventory
    
    
    (676,696
    )
    
    
    Increase (decrease) in accounts payable and accrued liabilities
    
    
    45,057
    
    
    
    53,945Net cash provided (used) by operating activities
    
    
    (3,057,074
    )
    
    
    (1,118,277
    )CASH FLOWS FROM INVESTING ACTIVITIESCash paid for oil and gas properties
    
    
    (9,728,311
    )
    
    
    (15,800,105
    )Proceeds from the sale of oil and gas properties
    
    
    
    
    
    
    5,329,877Proceeds from redemptions of auction-rate preferred shares
    
    
    2,600,000
    
    
    
    11,450,000Proceeds from sales of short-term investments
    
    
    
    
    
    
    683,728Cash paid for office equipment
    
    
    (36,464
    )
    
    
    (15,468
    )Cash paid for other long-term assets
    
    
    (50,100
    )
    
    
    Net cash provided (used) by investing activities
    
    
    (7,214,875
    )
    
    
    1,648,032CASH FLOWS FROM FINANCING ACTIVITIESProceeds from short-term borrowing
    
    
    
    
    
    
    10,925,000Repayment of short-term borrowings
    
    
    
    
    
    
    (8,600,000
    )Proceeds from exercise of common stock warrants and stock options
    
    
    
    
    
    
    56,638Net cash provided by financing activities
    
    
    
    
    
    
    2,381,638NET INCREASE (DECREASE) IN CASH
    
    
    (10,271,949
    )
    
    
    2,911,393CASH, BEGINNING OF PERIODS
    
    
    23,269,725
    
    
    
    2,388,219CASH, END OF PERIODS
    
    $
    12,997,776
    
    
    $
    5,299,612SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATIONCash paid for interest
    
    $
    
    
    
    $
    94,647Cash paid for income taxes
    
    $
    130,000
    
    
    $
    SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIESShare-based compensation expenses
    
    $
    823,130
    
    
    $
    663,013Exchange of oil and gas properties
    
    $
    420,000
    
    
    $
    Net increase in payables for capital expenditures
    
    $
    
    
    
    $
    1,174,329Drilling prepayments applied to drilling costs
    
    $
    
    
    
    $
    505,995Preferred dividends paid in shares of common stock
    
    $
    
    
    
    $
    589,530Conversion of preferred stock into common stock
    
    $
    
    
    
    $
    600,048
   5




---



##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 Notes to Condensed Consolidated Financial Statements
 (UNAUDITED)
 June 30, 2009
 NOTE 1  COMPANY AND BUSINESS
   NOTE 2  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
   USE OF ESTIMATES
 SIGNIFICANT ACCOUNTING POLICIES FASB Accounting Standards Codification,  Subsequent Events
    6




---



##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS FASB Codification The FASB Accounting Standards
Codification  and the Hierarchy of Generally Accepted Accounting Principle, Generally Accepted Accounting Principles.
 Reporting of Oil and Gas Reserve Information “Oil and Gas Producing Activities”
    SUBSEQUENT EVENTS
   7




---



##### Table of Contents



GAS BALANCING
 INVENTORY
 DISCRETIONARY COMPENSATION The Company accrues for annual year-end bonuses traditionally paid to employees who
are not officers. The Company does not accrue for discretionary bonuses to officers because the Company retains
significant discretion in the payment of such bonuses. Although upon Board approval the Company paid $50,000 bonuses
to each of its seven officers in January 2009 as disclosed in Item 11 of our Form 10-K/A for the year ended December
31, 2008, the Company retains significant discretion and ability to pay little or no future bonuses to officers with
regards to officer performance or employment in 2009. Consequently, no liability exists at September 30, 2009 with
respect to future officer bonuses, and no future officer bonuses have been accrued as of September 30, 2009. RECLASSIFICATION 
 NET INCOME (LOSS) PER SHARE
  NOTE 3  PROPERTY AND EQUIPMENT
  Oil and gas properties, full cost methodUnevaluated costs, not subject to amortization
    
    $
    34,694,565Evaluated costs
    
    
    8,640,09143,334,656Less accumulated depreciation , depletion and amortization
    
    
    (5,342,017
    )Net carrying value of oil and gas properties
    
    
    37,992,639Office equipment, furniture and software (net of $242,293
accumulated depreciation and amortization)
    
    
    160,525Property and equipment
    
    $
    38,153,164
  8




---



##### Table of Contents



Capitalized Costs (in millions)Project (State)
    
    12/31/08
    
    
    Net Change
    
    
    9/30/09Fetter Project, Powder River Basin (WY)
    
    $
    14.7
    
    
    $
    0.3
    
    
    $
    15.0Goliath Project, Williston Basin (ND)
    
    
    7.7
    
    
    
    1.5
    
    
    
    9.2Bigfoot
    
    
    3.3
    
    
    
    1.7
    
    
    
    5.0Krejci Oil Project, Powder River Basin (WY)
    
    
    2.7
    
    
    
    (0.3
    )
    
    
    2.4Other unevaluated costs
    
    
    3.5
    
    
    
    (0.4
    )
    
    
    3.1Total unevaluated costs
    
    
    31.9
    
    
    
    2.8
    
    
    
    34.7Evaluated costs, net of accumulated DD&A
    
    
    3.8
    
    
    
    (0.5
    )
    
    
    3.3Total, oil and gas properties
    
    $
    35.7
    
    
    $
    2.3
    
    
    $
    38.0
    Acquisitions and an Exchange of Working Interests in North Dakota
  th
   9




---



##### Table of Contents



Amortization
  Nine-month PeriodEnded September 30,2009
    
    
    2008Amortization of costs for evaluated oil and gas properties
    
    $
    546,000
    
    
    $
    1,047,000Amortization of Intangible Asset
    
    
    135,000
    
    
    
    135,000Depreciation of office equipment, furniture and software
    
    
    57,732
    
    
    
    56,612Total DD&A expense
    
    $
    738,732
    
    
    $
    1,238,612
  Impairment
  NOTE
4  ASSET RETIREMENT OBLIGATIONS
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning asset retirement obligation
    
    $
    492,115
    
    
    $
    337,122
    
    
    
    430,686
    
    
    $
    323,369Liabilities incurred
    
    
    142
    
    
    
    2,141
    
    
    
    53,509
    
    
    
    33,655Liabilities settled
    
    
    (79,432
    )
    
    
    
    
    
    
    (79,432
    )
    
    
    Revisions in estimated liabilities
    
    
    (10,830
    )
    
    
    43,746
    
    
    
    (22,988
    )
    
    
    9,653Accretion
    
    
    9,837
    
    
    
    8,427
    
    
    
    30,057
    
    
    
    24,759Ending asset retirement obligation
    
    
    411,832
    
    
    $
    391,436
    
    
    
    411,832
    
    
    $
    391,436Current portion of obligation, end of period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 NOTE 5  SHORT-TERM INVESTMENTS
   10




---



##### Table of Contents



Par Values ($ thousands)
    
    
    Fair Values ($ thousands)Calamos
    
    
    Other
    
    
    All
    
    
    Calamos
    
    
    Other
    
    
    AllFunds
    
    
    Funds
    
    
    Funds
    
    
    Funds
    
    
    Funds
    
    
    FundsBalance at March 1, 2008
    
    
    11,250
    
    
    
    6,000
    
    
    
    17,250
    
    
    
    11,250
    
    
    
    6,000
    
    
    
    17,250Less redemptions by 12/31/08
    
    
    (8,925
    )
    
    
    (2,575
    )
    
    
    (11,500
    )
    
    
    (8,925
    )
    
    
    (2,575
    )
    
    
    (11,500
    )Other-than-temporary loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300
    )
    
    
    (300
    )Balance at December 31, 2008
    
    
    2,325
    
    
    
    3,425
    
    
    
    5,750
    
    
    
    2,325
    
    
    
    3,125
    
    
    
    5,450Less redemptions by 3/31/09
    
    
    
    
    
    
    (200
    )
    
    
    (200
    )
    
    
    
    
    
    
    (200
    )
    
    
    (200
    )Temporary loss at 3/31/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250
    )
    
    
    
    
    
    
    (250
    )Balance at March 31, 2009
    
    
    2,325
    
    
    
    3,225
    
    
    
    5,550
    
    
    
    2,075
    
    
    
    2,925
    
    
    
    5,000Less redemptions by 6/30/09
    
    
    (1,300
    )
    
    
    (75
    )
    
    
    (1,375
    )
    
    
    (1,300
    )
    
    
    (75
    )
    
    
    (1,375
    )Fair value increases by 6/30/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    75
    
    
    
    325Balance at June 30, 2009
    
    
    1,025
    
    
    
    3,150
    
    
    
    4,175
    
    
    
    1,025
    
    
    
    2,925
    
    
    
    3,950Less July 2009 redemptions
    
    
    (325
    )
    
    
    
    
    
    
    (325
    )
    
    
    (325
    )
    
    
    
    
    
    
    (325
    )Less August 2009 redemptions
    
    
    (700
    )
    
    
    
    
    
    
    (700
    )
    
    
    (700
    )
    
    
    
    
    
    
    (700
    )Change in fair value at 9/30/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at September 30, 2009
    
    
    
    
    
    
    3,150
    
    
    
    3,150
    
    
    
    
    
    
    
    2,925
    
    
    
    2,925
    11




---



##### Table of Contents



NOTE 6  FAIR VALUE MEASUREMENTS
 Fair Value Measurements and Disclosures
  
    
    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 atSeptember 30,
    
    
    Level 1
    
    
    Level 2
    
    
    Level 32009
    
    
    inputs
    
    
    inputs
    
    
    inputsFinancial Assets:Short-term investments available for sale:Auction Rate Preferred Shares (ARPS)
    
    $
    2,925,000
    
    
    $
    
    
    
    $
    
    
    
    $
    2,925,000Financial Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
      12




---



##### Table of Contents



NOTE 7  INCOME TAXES
 Income Taxes,
     NOTE 8  EQUITY
 Common Stock
  
    
    On January 14, 2009, our Board of Directors granted an aggregate of 427,500 shares of
common stock pursuant to the 2006 Stock Incentive Plan to certain employees, officers and
directors of the Company. Of the 427,500 shares, 10,000 shares to each of the three
outside directors vested at date of grant, and 20,000 shares to each of the three outside
directors vest when the individual is no longer a director of the Company. The other
337,500 shares were to three officers and one other employee and vest upon the earlier of
January 14, 2014 or a change in control of the Company.
 
    
    On January 14, 2009, our Board reduced the exercise price from $7.00 per share to $3.50
per share for a warrant issued in April 2008, expiring April 16, 2013, to acquire 50,000
shares of our common stock. The estimated fair value of reducing the exercise price was
$2,000. The exercise price reduction was recognized as $2,000 in share-based compensation
of contractor services, increasing Additional Paid-In Capital by $2,000.
  13




---



##### Table of Contents




    
    In February 2009, we issued 4,000 shares of common stock to our Vice-President of Land
as required under his employment contract of February 2007.
 
    
    For the quarter ended March 31, 2009, Additional Paid-In Capital increased by $395,442
for recognition, in accordance with ASC Topic 718, of share-based compensation consisting
of (i) $259,008 in share-based compensation related to stock options, (ii) $50,734 related
to accruals for granted stock vesting after grant, (iii) $83,700 for the January 14, 2009
granting and immediate vesting of 90,000 shares of common stock and (iv) $2,000 for the
aforementioned change in warrant terms.
 
    
    For the quarter ended June 30, 2009, Additional Paid-In Capital increased by $202,610
for recognition, in accordance with ASC Topic 718, of share-based compensation consisting
of (i) $151,877 in share-based compensation related to stock options and (ii) $50,733
related to accruals for granted stock vesting after grant.
 
    
    For the quarter ended September 30, 2009, Additional Paid-In Capital increased by
$225,078 for recognition, in accordance with ASC Topic 718, of share-based compensation
consisting of (i) $174,345 in share-based compensation related to stock options and (ii)
$50,733 related to accruals for granted stock vesting after grant.
 Warrants
  Stock Options
  
    
    we granted in July to a new employee stock options for 15,000 shares, exercisable at
$2.00 per share and vesting over three years, with an estimated fair value of $0.40 per
share considering both the Black-Scholes valuation method and a modified binomial valuation
model;
 
    
    stock options for 15,000 shares were forfeited by an employee upon termination in March
2009;
 
    
    no stock options were exercised; and
 
    
    there were vestings of options for 294,033 shares at exercise prices ranging from $2.00
to $3.66 per share and averaging $2.78 per share.
   Other Comprehensive Loss
  NOTE 9  SIGNIFICANT CHANGES IN RESERVE INFORMATION
   14




---



##### Table of Contents



NOTE
10  COMMITMENTS AND CONTINGENCIES
  North Finn Option
    
 Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     15




---



##### Table of Contents



Overview
  Fetter Project (Powder River Basin, Wyoming)
     Goliath Bakken and Three Forks Project (Williston Basin, North Dakota)
    16




---



##### Table of Contents



Krejci Oil Project (Powder River Basin, Wyoming)
   Bigfoot Project (Rocky Mountain Region)
  Results of Operations
  The Quarter Ended September 30, 2009 Compared with the Quarter Ended September 30, 2008
   17




---



##### Table of Contents



Three months endedSeptember 30,2009
    
    
    2008Oil sold (barrels)
    
    
    4,877
    
    
    
    5,609Average oil price
    
    $
    59.17
    
    
    $
    108.83Oil revenue
    
    $
    288,567
    
    
    $
    610,437Gas sold (mcf)
    
    
    49,949
    
    
    
    53,783Average gas price
    
    $
    3.48
    
    
    $
    10.21Gas revenue
    
    $
    173,986
    
    
    $
    549,184Total oil and gas revenues
    
    $
    462,553
    
    
    $
    1,159,621Less lease operating expenses
    
    
    (278,429
    )
    
    
    (475,382
    )Less oil & gas amortization expense
    
    
    (212,001
    )
    
    
    (337,000
    )Less impairment of oil and gas properties
    
    
    (1,850,000
    )
    
    
    (18,840,000
    )Less accretion of asset retirement obligation
    
    
    (9,837
    )
    
    
    (8,427
    )Less impairment of materials & supplies inventory
    
    
    (409,852
    )
    
    
    Producing revenues less direct expenses
    
    
    (2,297,566
    )
    
    
    (18,501,188
    )Less depreciation of office facilities
    
    
    (19,416
    )
    
    
    (19,021
    )Less amortization of other intangible asset
    
    
    (45,000
    )
    
    
    (45,000
    )Less general and administrative expenses
    
    
    (1,198,188
    )
    
    
    (768,780
    )Loss from operations
    
    $
    (3,560,170
    )
    
    $
    (19,333,989
    )Total barrels of oil equivalent (boe) sold
    
    
    13,202
    
    
    
    14,573Revenue per boe sold
    
    $
    35.04
    
    
    $
    79.57Lease operating expense per boe sold
    
    $
    21.09
    
    
    $
    32.62Amortization expense per boe sold
    
    $
    16.06
    
    
    $
    23.13
   The Nine-month Period ended September 30, 2009 Compared with the Nine-month Period ended
September 30, 2008
   18




---



##### Table of Contents



Nine months ended
 September 30,2009
    
    
    2008Oil sold (barrels)
    
    
    14,056
    
    
    
    13,503Average oil price
    
    $
    46.87
    
    
    $
    104.97Oil revenue
    
    $
    658,759
    
    
    $
    1,417,403Gas sold (mcf)
    
    
    183,386
    
    
    
    117,711Average gas price
    
    $
    3.42
    
    
    $
    10.09Gas revenue
    
    $
    626,946
    
    
    $
    1,187,383Total oil and gas revenues
    
    $
    1,285,705
    
    
    $
    2,604,786Less lease operating expenses
    
    
    (848,354
    )
    
    
    (1,025,987
    )Less oil & gas amortization expense
    
    
    (546,000
    )
    
    
    (1,047,000
    )Less impairment of oil and gas assets
    
    
    (3,950,000
    )
    
    
    (18,840,000
    )Less accretion of asset retirement obligation
    
    
    (30,057
    )
    
    
    (24,759
    )Less impairment of materials & supplies inventory
    
    
    (565,991
    )
    
    
    Producing revenues less direct expenses
    
    
    (4,654,697
    )
    
    
    (18,332,960
    )Less depreciation of office facilities
    
    
    (57,732
    )
    
    
    (56,612
    )Less amortization of other intangible asset
    
    
    (135,000
    )
    
    
    (135,000
    )Less general and administrative expenses
    
    
    (4,242,539
    )
    
    
    (3,260,093
    )Loss from operations
    
    $
    (9,089,968
    )
    
    
    (21,784,665
    )Total barrels of oil equivalent (boe) sold
    
    
    44,620
    
    
    
    33,122Revenue per boe sold
    
    $
    28.81
    
    
    $
    78.64Lease operating expense per boe sold
    
    $
    19.01
    
    
    $
    30.98Amortization expense per boe sold
    
    $
    12.24
    
    
    $
    31.61
     19




---



##### Table of Contents



Liquidity and Capital Resources
    Net Cash Used By Operating Activities
 Net Cash Used In Investing Activities
 Net Cash Provided By Financing Activities
 FASB Codification Discussion
  FASB Accounting Standards
Codification, 
  20




---



##### 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
     21




---



##### Table of Contents



PART II
OTHER INFORMATION
 
 Item 1.
    
    LEGAL PROCEEDINGS
  
 Item 1A.
    
    RISK FACTORS
  
 Item 6.
    
    EXHIBITS
 Exhibit No.
    
    Description3(iv)
    
    Bylaws of the Company (as revised on June 12, 2009).
(Incorporated by reference from the Companys Current Report
on Form 8-K, filed on June 18, 2009.)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
 
 SIGNATURES
  Signatures
    
    Title
    
    Date/s/ Patrick D. OBrien

Patrick D. OBrien
    
    Chief Executive Officer and Chairman of The Board of Directors
(principal executive officer)
    
    November 6, 2009/s/ Joseph B. Feiten

Joseph B. Feiten
    
    Chief Financial Officer
(principal financial officer and principal accounting officer)
    
    November 6, 2009
  22