##### 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, 2010
 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 o
    
    Non-accelerated filer o*
    
    Smaller reporting company þ(*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, 2010 and December
31, 2009
    
    
    3Condensed Consolidated Statements of Operation  Three and Six Months Ended
June 30, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows  Six Months Ended June 30,
2010 and 2009
    
    
    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
    
    
    19Item 4. Controls and Procedures
    
    
    20PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 6. Exhibits
    
    
    21Signatures
    
    
    22Exhibit 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(UNAUDITED)
 June 30,

    
    
    December 31,2010
    
    
    2009ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    50,071,553
    
    
    $
    40,632,284Short-term investment
    
    
    1,750,000
    
    
    
    2,925,000Accounts receivable
    
    
    6,390,679
    
    
    
    564,533Well equipment inventory
    
    
    5,013,031
    
    
    
    1,269,774Prepaid expenses
    
    
    177,771
    
    
    
    149,991Current deferred tax assets
    
    
    76,763
    
    
    
    Total current assets
    
    
    63,479,797
    
    
    
    45,541,582PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including unevaluated costs
of $58,983,403 at 6/30/10 and $35,611,363 at 12/31/09)
    
    
    86,494,596
    
    
    
    44,454,942Other property and equipment
    
    
    430,577
    
    
    
    406,273Total property and equipment
    
    
    86,925,173
    
    
    
    44,861,215Less-accumulated depreciation, depletion and amortization
    
    
    (6,761,144
    )
    
    
    (5,771,547
    )Net property and equipment
    
    
    80,164,029
    
    
    
    39,089,668OTHER ASSETSDrilling prepayments
    
    
    445,718
    
    
    
    Intangible asset, net of accumulated amortization
    
    
    
    
    
    
    60,000Other
    
    
    80,652
    
    
    
    80,652$
    144,170,196
    
    
    $
    84,771,902LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    11,203,559
    
    
    $
    1,032,248Income taxes payable
    
    
    200,000
    
    
    
    Total current liabilities
    
    
    11,403,559
    
    
    
    1,032,248LONG-TERM LIABILITIESAsset retirement obligations
    
    
    151,308
    
    
    
    436,487Deferred income taxes
    
    
    6,444,763
    
    
    
    Total long-term liabilities
    
    
    6,596,071
    
    
    
    436,487COMMITMENTS AND CONTINGENCIES(Note 11)STOCKHOLDERS EQUITYPreferred stock, $.001 par value, authorized 24,100,000 shares; no
outstanding shares at 06/30/10 and 12/31/09
    
    
    
    
    
    
    Common stock, $.001 par value, authorized 100,000,000 shares; issued and
outstanding  60,814,656 shares at 6/30/10, 57,472,399 shares at 12/31/09
    
    
    60,815
    
    
    
    57,472Additional paid-in capital
    
    
    137,364,064
    
    
    
    122,267,594Accumulated deficit
    
    
    (11,316,313
    )
    
    
    (39,096,899
    )Accumulated other comprehensive income
    
    
    62,000
    
    
    
    75,000Total equity
    
    
    126,170,566
    
    
    
    83,303,167$
    144,170,196
    
    
    $
    84,771,902
   3




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AMERICAN OIL & GAS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATION(UNAUDITED)
 Three months ended
    
    
    Six months endedJune 30
    
    
    June 302010
    
    
    2009
    
    
    2010
    
    
    2009REVENUES:Oil and gas sales
    
    $
    2,417,564
    
    
    $
    517,478
    
    
    $
    3,277,535
    
    
    $
    823,152OPERATING EXPENSES:Lease operating
    
    
    623,862
    
    
    
    270,250
    
    
    
    865,271
    
    
    
    569,925General and administrative
    
    
    1,361,273
    
    
    
    1,412,805
    
    
    
    3,364,002
    
    
    
    3,044,351Depletion, depreciation and amortization
    
    
    738,897
    
    
    
    285,172
    
    
    
    1,049,598
    
    
    
    462,315Impairment of oil & gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,100,000Impairment of well equipment inventory
    
    
    173,785
    
    
    
    156,139
    
    
    
    173,785
    
    
    
    156,139Accretion of asset retirement obligation
    
    
    2,895
    
    
    
    10,567
    
    
    
    13,108
    
    
    
    20,2202,900,712
    
    
    
    2,134,933
    
    
    
    5,465,764
    
    
    
    6,352,950GAIN ON SALE OF OIL & GAS PROPERTIES
    
    
    
    
    
    
    
    
    
    
    36,400,000
    
    
    
    INCOME (LOSS) FROM OPERATIONS
    
    
    (483,148
    )
    
    
    (1,617,455
    )
    
    
    34,211,771
    
    
    
    (5,529,798
    )OTHER INCOME (LOSS):Investment income
    
    
    67,020
    
    
    
    17,337
    
    
    
    98,815
    
    
    
    38,317INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (416,128
    )
    
    
    (1,600,118
    )
    
    
    34,310,586
    
    
    
    (5,491,481
    )Income tax provision -current
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    Income tax provision (benefit) -deferred
    
    
    (162,000
    )
    
    
    
    
    
    
    6,330,000
    
    
    
    NET INCOME (LOSS)
    
    
    (254,128
    )
    
    
    (1,600,118
    )
    
    
    27,780,586
    
    
    
    (5,491,481
    )NET INCOME (LOSS) PER SHARE:Basic
    
    $
    0.00
    
    
    $
    (0.03
    )
    
    $
    0.47
    
    
    $
    (0.11
    )Diluted
    
    $
    0.00
    
    
    $
    (0.03
    )
    
    
    0.46
    
    
    $
    (0.11
    )Weighted average common shares outstanding:Basic
    
    
    60,719,700
    
    
    
    48,307,399
    
    
    
    59,160,407
    
    
    
    48,273,382Diluted
    
    
    60,719,700
    
    
    
    48,307,399
    
    
    
    60,391,569
    
    
    
    48,273,382
   4




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AMERICAN OIL & GAS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED
 Six months endedJune 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    27,780,586
    
    
    $
    (5,491,481
    )Adjustments to reconcile net income (loss) to
net cash from operating activities:Gain on sale of oil and gas assets
    
    
    (36,400,000
    )
    
    
    Deferred income taxes
    
    
    6,330,000
    
    
    
    Depletion, depreciation and amortization
    
    
    1,049,598
    
    
    
    462,315Share-based compensation expenses
    
    
    574,413
    
    
    
    598,052Impairment of oil and gas properties
    
    
    
    
    
    
    2,100,000Impairment of well equipment inventory
    
    
    173,785
    
    
    
    156,139Accretion of asset retirement obligations
    
    
    13,108
    
    
    
    20,220Changes in assets and liabilities:Decrease (increase) in receivables
    
    
    (1,164,104
    )
    
    
    352,328Decrease (increase) in prepaid expenses
    
    
    (27,780
    )
    
    
    17,971Decrease (increase) in well equipment inventory
    
    
    (3,917,042
    )
    
    
    (676,696
    )Increase (decrease) in accounts payable and accrued liabilities
    
    
    4,169,836
    
    
    
    (126,256
    )Net cash used in operating activities
    
    
    (1,417,600
    )
    
    
    (2,587,408
    )CASH FLOWS FROM INVESTING ACTIVITIESCash proceeds from sale of oil and gas properties
    
    
    46,181,289
    
    
    
    Cash paid for oil and gas property acquisition, exploration & development
    
    
    (36,771,048
    )
    
    
    (8,470,823
    )Drilling prepayments
    
    
    (445,718
    )
    
    
    Proceeds from redemptions and sales of short-term investments
    
    
    1,200,000
    
    
    
    1,575,000Cash paid for office equipment
    
    
    (24,304
    )
    
    
    (33,118
    )Net cash provided (used) by investing activities
    
    
    10,140,219
    
    
    
    (6,928,941
    )CASH FLOWS FROM FINANCING ACTIVITIESStock option exercises
    
    
    716,650
    
    
    
    Net cash provided by financing activities
    
    
    716,650
    
    
    
    NET INCREASE (DECREASE) IN CASH
    
    
    9,439,269
    
    
    
    (9,516,349
    )CASH, BEGINNING OF PERIODS
    
    
    40,632,284
    
    
    
    23,269,725CASH, END OF PERIODS
    
    $
    50,071,553
    
    
    $
    13,753,376SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATIONCash paid for interest
    
    $
    
    
    
    $
    Cash paid for income taxes
    
    $
    
    
    
    $
    130,000SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIESOil and gas properties acquired for stock
    
    $
    13,804,000
    
    
    $
    Net increase in payables for capital expenditures
    
    $
    6,201,475
    
    
    $
    
   5




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AMERICAN OIL & GAS INC.
 
 Notes to Condensed Consolidated Financial Statements
(UNAUDITED)
June 30, 2010
 NOTE 1  COMPANY AND BUSINESS
   As further discussed in Note 12 Subsequent Events, Hess Corporation (NYSE: HES) has agreed to
acquire American pursuant to a July 27, 2010 merger agreement approved by the Boards of Directors
of both companies in an all-stock transaction, subject to approval by Americans stockholders.
 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
 INVENTORY
 RECLASSIFICATION 
 ASSET RETIREMENT OBLIGATIONS 
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Beginning asset retirement obligation
    
    $
    117,466
    
    
    $
    440,615
    
    
    $
    436,488
    
    
    $
    430,687Liabilities incurred
    
    
    36,958
    
    
    
    44,555
    
    
    
    51,217
    
    
    
    53,366Liabilities settled
    
    
    
    
    
    
    
    
    
    
    (341,709
    )
    
    
    Revisions in estimated liabilities
    
    
    (6,011
    )
    
    
    (3,623
    )
    
    
    (7,796
    )
    
    
    (12,159
    )Accretion
    
    
    2,895
    
    
    
    10,567
    
    
    
    13,108
    
    
    
    20,220Ending asset retirement obligation
    
    $
    151,308
    
    
    $
    492,114
    
    
    
    151,308
    
    
    $
    492,114Current portion of obligation, end of period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 NET INCOME (LOSS) PER SHARE
  7




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NOTE 3  PROPERTY AND EQUIPMENT
  June 30,
    
    
    December 31,2010
    
    
    2009Oil and gas properties, full cost methodUnevaluated costs, not yet subject to amortization
    
    $
    58,983,403
    
    
    $
    35,611,363Evaluated costs
    
    
    27,511,193
    
    
    
    8,843,57986,494,596
    
    
    
    44,454,942Less accumulated amortization
    
    
    (6,460,016
    )
    
    
    (5,510,016
    )Net carrying value of oil and gas properties
    
    
    80,034,580
    
    
    
    38,944,926Cost of other property and equipment
    
    
    430,577
    
    
    
    406,273Less accumulated depreciation and amortization
    
    
    (301,128
    )
    
    
    (261,531
    )Net property and equipment
    
    $
    80,164,029
    
    
    $
    39,089,668
   Sales of Oil & Gas Properties
   st
  Unevaluated Oil and Gas Properties
   8




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##### Table of Contents



Ceiling Impairment
   Six-month PeriodEnded June 30,2010
    
    
    2009Amortization of costs for evaluated oil and gas properties
    
    $
    950,000
    
    
    $
    334,000Amortization of Intangible Asset
    
    
    39,598
    
    
    
    90,000Depreciation of office equipment, furniture and software
    
    
    60,000
    
    
    
    38,315Total DD&A expense
    
    $
    1,049,598
    
    
    $
    462,315
 NOTE 4  SIGNIFICANT CHANGES IN PROVED RESERVE ESTIMATES
  Oil (bbls)
    
    
    Gas (mcf)Proved reserves at December 31, 2009
    
    
    147,510
    
    
    
    956,550Less proved reserves of properties sold 3/31/10
    
    
    (22,957
    )
    
    
    (392,601
    )Less production for six months ended 6/30/10
    
    
    (46,262
    )
    
    
    (51,284
    )Proved reserve additions, six months ended 6/30/10
    
    
    1,177,297
    
    
    
    2,583,459Net revisions
    
    
    132,599
    
    
    
    70,484Proved reserves at June 30, 2010
    
    
    1,388,187
    
    
    
    3,166,608Percentage net change in proved reserves
    
    
    841
    %
    
    
    231
    %
   NOTE 5  SHORT-TERM INVESTMENTS
   9




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CarryingPar Value
    
    
    ValueAs of December 31, 2009
    
    $
    3,150,000
    
    
    $
    2,925,000Increase in estimated fair value
    
    
    
    
    
    
    25,000As of March 31, 2010
    
    
    3,150,000
    
    
    
    2,950,000Less redemption in May 2010
    
    
    (1,200,000
    )
    
    
    (1,200,000
    )As of June 30, 2010
    
    $
    1,950,000
    
    
    $
    1,750,000
      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.
  10




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Level 1
    
    
    Level 2
    
    
    Level 3Total
    
    
    inputs
    
    
    inputs
    
    
    inputsAs of December 31, 2009Assets:Short-term
investments available
for sale:Auction Rate
Preferred Shares
(ARPS)
    
    $
    2,925,000
    
    
    $
    
    
    
    $
    
    
    
    $
    2,925,000Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    As of June 30, 2010Assets:Short-term
investments available
for sale:Auction Rate
Preferred Shares
(ARPS)
    
    $
    1,750,000
    
    
    $
    
    
    
    $
    
    
    
    $
    1,750,000Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    NOTE 7  INCOME TAXES
 Accounting for Income
Taxes,
    11




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##### Table of Contents



Accounting for
Uncertainty in Income Taxes
  NOTE 8  EQUITY
 Common Stock
  
    
    On January 26, 2010, we issued to each of our three independent directors 7,519 shares
of common stock pursuant to our 2006 Stock Incentive Plan, with 2,506 shares vesting
immediately and 5,013 shares vesting when the individual is no longer a director.
    
    In February 2010, our Vice-President of Land earned on the third anniversary of his
employment 4,000 shares of our common stock.
    
    A Director exercised his option, buying 12,500 shares of our common stock, at a $2.38
exercise price per share.
    
    Our CFO exercised his option, buying 68,000 shares of our common stock, at an exercise
price of $2.00 per share.
    
    Four non-officer employees exercised options to purchase a total of 121,400 shares of
our common stock, at an exercise price of $2.00 per share.
    
    For the quarter ended March 31, 2010, Additional Paid-In Capital increased by $315,499
for recognition, in accordance with SFAS 123R, of share-based compensation consisting of
(i) $174,762 in share-based compensation related to stock options, (ii) $50,734 related to
accruals for granted stock vesting after grant and (iii) $90,003 relating to stock granted
to directors with limited vesting restrictions.
    
    For the quarter ended June 30, 2010, Additional Paid-In Capital increased by $258,914
for recognition of share-based compensation consisting of (i) $170,780 in share-based
compensation related to stock options, and (ii) $88,134 related to accruals for granted
stock vesting after grant.
    
    During the quarter ended June 30, 2010, three option holders exercised stock options,
buying a total of 213,800 shares at a total exercise cost of $312,850.
    
    Effective March 31, 2010 with the closing of the sale of certain Powder River Basin oil
and gas properties, we increased Additional Paid-In Capital by $13,804,000 in recognition
of the sale fulfilling all obligations of North Finn LLC for its right to receive 2,900,000
restricted shares of our common stock, as discussed further in Note 3. In May 2010, North
Finn LLC formally exercised its option and received the 2,900,000 shares.
 Warrants
    12




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Stock Options
  Other Comprehensive Income
  NOTE 9  EARNINGS PER SHARE
  Three months ended June 30
    
    
    Six months ended June 302010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    (254,128
    )
    
    $
    (1,600,118
    )
    
    $
    27,780,586
    
    
    $
    (5,491,481
    )Adjustments for dilution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) adjusted for dilution
effects
    
    $
    (254,128
    )
    
    $
    (1,600,118
    )
    
    $
    27,780,586
    
    
    $
    (5,491,481
    )Basic Weighted Average Common Shares
    
    
    60,719,700
    
    
    
    48,307,399
    
    
    
    59,160,407
    
    
    
    48,273,382Add dilutive effects of options and warrants
    
    
    
    
    
    
    
    
    
    
    1,231,162
    
    
    
    Diluted Weighted Ave. Shares Outstanding
    
    
    60,719,700
    
    
    
    48,307,399
    
    
    
    60,391,569
    
    
    
    48,273,382Net income (loss) per common share, basic
    
    $
    0.00
    
    
    $
    (0.03
    )
    
    $
    0.47
    
    
    $
    (0.11
    )Net income (loss) per common share, diluted
    
    $
    0.00
    
    
    $
    (0.03
    )
    
    $
    0.46
    
    
    $
    (0.11
    )
 NOTE 10  MATERIAL RELATED PARTY TRANSACTIONS
  NOTE 11 COMMITMENTS AND CONTINGENCIES
    13




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NOTE 12  SUBSEQUENT EVENTS
 Agreement and Plan of Merger
            14




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    WELL NAME
    
    LOCATION
    
    STATUSTong Trust 1-20H
WI=25.3%  NRI=20.2%
    
    Sec. 20  T157N-R96W
Williams County, ND
    
    Commenced Production
March 2010. Workover
operations are underway
to repair damaged
production tubing and
install a rod-pump.Ron Viall 1-25H 
WI=94%  NRI=75.2%
    
    Sec. 25  T156N-R98W
Williams County, ND
    
    Commenced production
May 2010. Initial
Production rate (IP
rate) of 2,844 BOE.
Average daily rate for
initial 30 days of
production of 987 BOE.
Total cumulative
production at August
11, 2010 of 56,062 BOE
(41,079 bbls of oil and
90 mmcf of natural
gas).Summerfield 15-15H 
WI=35%  NRI=28.4%
    
    Sec. 15  T147N-R96W
Dunn County, ND
    
    Commenced production
May 2010. IP rate of
2,799 BOE. Average
daily rate for initial
30 days of production
of 1,046 BOE. Total
cumulative production
at August 11, 2010 of
60,568 BOE (51,347 bbls
of oil and 56 mmcf of
natural gas).Bergstrom 15-23H
WI=95%  NRI=76%
    
    Sec. 23  T156N-R98W
Williams County, ND
    
    36-stage hydraulic
fracture stimulation
completion operation
recently completed.
The Bergstrom well
produced 3,049 BOE (2,395
Bbls of oil and 3.9 mmcf
of natural gas) during
an early 24 hour
flow-back period.Johnson 15-35H
WI=81%  NRI=64.8%
    
    Sec. 35  T156N-R98W
Williams County, ND
    
    35-stage hydraulic
fracture stimulation
completion operation
underway.Hickel 15-35H 
WI=61.5%  NRI=49.2%
    
    Sec. 35  T157N-R97W 
Williams County, ND
    
    Drilling operations
concluded on July 27,
2010. Completion
assembly installed to
facilitate a 35-stage
hydraulic fracture
stimulation completion.
No date has been set
to commence completion
operations, as
completion crews are
presently unavailable.
  15




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##### Table of Contents



WELL NAME
    
    LOCATION
    
    STATUSHodenfield 15-33H
WI=51.4%  NRI=41.1%
    
    Sec. 33  T157N-R97W
Williams County, ND
    
    Drilling operations
concluded on August 5,
2010. Completion
assembly installed to
facilitate a 35-stage
hydraulic fracture
stimulation completion.
No date has been set
to commence completion
operations, as
completion crews are
presently unavailable.Hodenfield 15-7H
WI=46%  NRI=36.8%
    
    Sec. 7  T157N-R97W
Williams County, ND
    
    Ensign drilling rig 88
has been rigged down after installing the
completion assembly
that is expected to
facilitate a 35-stage
completion assembly.
No date has been set to
commence completion
operations, as
completion crews are
unavailable.Bergstrom 2-27H
WI=72.9%  NRI=58.3%
    
    Sec. 27  T156N-R98W
Williams County, ND
    
    Ensign drilling rig 24
commenced drilling on August 15, 2010.Olson 15-36H 
WI=68.2%  NRI=54.5%
    
    Sec. 36  T157N-R98W
Williams County, ND
    
    Nabors drilling rig 486
commenced drilling on
August 12, 2010.Hodenfield 15-23H 
WI=37.7%  NRI=30.2%
    
    Sec. 23  T157N-R98W
Williams County, ND
    
    Building of access road
and drilling location
is underway in
preparation for Ensign
Rig 88 to move in and
commence drilling
within the next ten
days.Reid
3-3H
WI=35.6%  NRI=28.5%
    
    Sec. 3  T157N-R97W 
Williams County, ND
    
    Unit drilling rig 234
will be brought in
under a long term
contract to drill this
well, followed by other
wells. Drilling
operations are expected
to commence in
late-August
 Results of Operations
  The Quarter Ended June 30, 2010 Compared with the Quarter Ended June 30, 2009
   16




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##### Table of Contents



Three months endedJune 30,2010
    
    
    2009Oil sold (barrels)
    
    
    38,442
    
    
    
    5,401Average oil price
    
    $
    62.12
    
    
    $
    44.88Oil revenue
    
    $
    2,387,980
    
    
    $
    242,383Gas sold (mcf)
    
    
    5,794
    
    
    
    82,023Average gas price
    
    $
    5.11
    
    
    $
    3.35Gas revenue
    
    $
    29,584
    
    
    $
    275,095Total oil and gas revenues
    
    $
    2,417,564
    
    
    $
    517,478Less lease operating expenses
    
    
    (623,862
    )
    
    
    (270,250
    )Less oil & gas amortization expense
    
    
    (704,000
    )
    
    
    (221,000
    )Less accretion of asset retirement obligation
    
    
    (2,895
    )
    
    
    (10,567
    )Less impairment of well equipment inventory
    
    
    (173,785
    )
    
    
    (156,139
    )Plus gain on sale of oil and gas properties
    
    
    
    
    
    
    Income (loss) from oil & gas operations
    
    
    913,022
    
    
    
    (140,478
    )Less depreciation of office facilities
    
    
    (19,897
    )
    
    
    (19,172
    )Less amortization of other intangible asset
    
    
    (15,000
    )
    
    
    (45,000
    )Less general and administrative expenses
    
    
    (1,361,273
    )
    
    
    (1,412,805
    )Income (loss) from operations
    
    $
    (483,148
    )
    
    $
    (1,617,455
    )Total barrels of oil equivalent (boe) sold
    
    
    39,408
    
    
    
    19,072Revenue per boe sold
    
    $
    61.35
    
    
    $
    27.13Lease operating expense per boe sold
    
    $
    15.83
    
    
    $
    14.17Amortization expense per boe sold
    
    $
    17.86
    
    
    $
    11.59
  The Six-month Period ended June 30, 2010 Compared with the Six-month Period ended June 30,
2009
   17




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##### Table of Contents



Six months ended June 30,2010
    
    
    2009Oil sold (barrels)
    
    
    46,262
    
    
    
    9,179Average oil price
    
    $
    63.64
    
    
    $
    40.33Oil revenue
    
    $
    2,944,322
    
    
    $
    370,192Gas sold (mcf)
    
    
    51,284
    
    
    
    133,437Average gas price
    
    $
    6.50
    
    
    $
    3.39Gas revenue
    
    $
    333,213
    
    
    $
    452,960Total oil and gas revenues
    
    $
    3,277,535
    
    
    $
    823,152Less lease operating expenses
    
    
    (865,271
    )
    
    
    (569,925
    )Less oil & gas amortization expense
    
    
    (950,000
    )
    
    
    (334,000
    )Less accretion of asset retirement obligation
    
    
    (13,108
    )
    
    
    (20,220
    )Less impairment of materials & supplies inventory
    
    
    (173,785
    )
    
    
    (156,139
    )Less impairment of oil and gas assets
    
    
    
    
    
    
    (2,100,000
    )Plus gain on sale of oil and gas properties
    
    
    36,400,000
    
    
    
    Producing revenues less direct expenses
    
    
    37,675,371
    
    
    
    (2,357,132
    )Less depreciation of office facilities
    
    
    (39,598
    )
    
    
    (38,315
    )Less amortization of other intangible asset
    
    
    (60,000
    )
    
    
    (90,000
    )Less general and administrative expenses
    
    
    (3,364,002
    )
    
    
    (3,044,351
    )Income (loss) from operations
    
    
    34,211,771
    
    
    $
    (5,529,798
    )Total barrels of oil equivalent (boe) sold
    
    
    54,809
    
    
    
    31,419Revenue per boe sold
    
    $
    59.80
    
    
    $
    26.20Lease operating expense per boe sold
    
    $
    15.79
    
    
    $
    18.14Amortization expense per boe sold
    
    $
    17.33
    
    
    $
    10.63
  Liquidity and Capital Resources
   In connection with the
proposed Merger with Hess, Hess committed (subject to the terms and conditions
of a customary commitment letter) to provide us with a secured short term
revolving credit facility of $30 million to help finance our planned
exploration and production activities and other working capital needs prior to
closing of the Merger.   18




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##### Table of Contents



Net Cash Provided (Used) By Operating Activities
 Net Cash Provided (Used) In Investing Activities
 Net Cash Provided By Financing Activities
 
 Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 Commodity Price Risk
     19




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##### Table of Contents



Operating Cost Risk
   Interest Rate Risk
  
 Item 4.
    
    CONTROLS AND PROCEDURES
     20




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##### Table of Contents






PART II
OTHER INFORMATION





Item 1.
    
    LEGAL PROCEEDINGS


PLAINTIFF
    
    DEFENDANTS
    
    COURT
    
    FILEDBuckman, Richard
    
    American Oil & Gas,
Inc., Patrick D.
OBrien, Andrew P.
Calerich, Jon R.
Whitney, Nick
DeMare, Scott Hobbs
and Hess
Corporation
    
    1ST
Judicial District
Court for Nevada,
Carson City
    
    7/29/2010Luvara, Joseph V.
    
    American Oil & Gas,
Inc., Patrick D.
OBrien, Andrew P.
Calerich, Jon R.
Whitney, Nick
DeMare, Scott Hobbs
and Hess
Corporation
    
    1ST
Judicial District
Court for Nevada,
Carson City
    
    7/29/2010Thurston, James
    
    Patrick D. OBrien,
Andrew P. Calerich,
Nick DeMare, C.
Scott Hobbs, Jon R.
Whitney, American
Oil & Gas, Inc.,
Hess Corporation
and Hess Investment
Corp.
    
    District Court,
Denver County,
Colorado
    
    7/30/2010Veigel, Jeffrey
    
    American Oil & Gas,
Inc., Patrick D.
OBrien, Andrew P.
Calerich, Jon R.
Whitney, Nick
DeMare, C. Scott
Hobbs and Hess
Corporation
    
    District Court,
Denver County,
Colorado
    
    7/30/2010Finkel, Morton
    
    American Oil & Gas,
Inc., Patrick D.
OBrien, Andrew P.
Calerich, Jon R.
Whitney, Nick
DeMare, C. Scott
Hobbs, Hess
Corporation and
Hess Investment
Corp.
    
    U.S. District
Court,District of
Colorado
    
    7/30/2010Cobb, Edgar
    
    American Oil & Gas,
Inc., Patrick D.
OBrien, Andrew P.
Calerich, Jon R.
Whitney, Nick
DeMare, Scott Hobbs
and Hess
Corporation
    
    U.S. District
Court,District of
Colorado
    
    8/02/2010Veigel, Jeffrey
    
    American Oil & Gas,
Inc., Patrick D.
OBrien, Andrew P.
Calerich, Jon R.
Whitney, Nick
DeMare, C. Scott
Hobbs and Hess
Corporation
    
    U.S. District
Court,District of
Colorado
    
    8/3/2010Feinman, Jeffrey P.
    
    American Oil & Gas,
Inc., Patrick D.
OBrien, Andrew P.
Calerich, Jon R.
Whitney, Nick
DeMare, C. Scott
Hobbs, Hess
Corporation and
Hess Investment
Corp.
    
    U.S. District
Court,District of
Colorado
    
    8/3/2010Speight, David
    
    Patrick D. OBrien,
Andrew P. Calerich,
Joseph B. Feiten,
Nick DeMare, Jon R.
Whitney, C. Scott
Hobbs, American Oil
& Gas, Inc., Hess
Corporation and
Hess Investment
Corp.
    
    1ST
Judicial District
Court for Nevada,
Carson City
    
    8/5/2010Kane, Ronald J.
    
    American Oil & Gas,
Inc., Patrick D.
OBrien, Andrew P.
Calerich, Jon R.
Whitney, C. Scott
Hobbs, Nick DeMare,
Hess Corp. and Hess
Investment
    
    District Court,
Clark County,
Nevada
    
    8/6/2010Smitherman, Roger
    
    Patrick D. OBrien,
Andrew P. Calerich,
Nick DeMare, C.
Scott Hobbs, Jon R.
Whitney, American
Oil & Gas, Inc.,
Hess Corporation
and Hess Investment
Corp.
    
    2nd
Judicial District
Court for Nevada,
Washoe County
    
    8/10/2010
   
 
 Item 6.
    
    EXHIBITS
 Exhibit No.
    
    Description10(i)
    
    Agreement and Plan of Merger dated as of July 27, 2010 among
Hess Corporation, Hess Investment Corp. and American Oil & Gas
Inc. (Incorporated by reference from the Companys Current
Report on Form 8-K, filed on July 29, 2010)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
  21




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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 16, 2010/s/ Joseph B. Feiten
    
    Chief Financial Officer
    
    August 16, 2010Joseph B. Feiten
    
    (principal financial officer and principal accounting officer)
  22