UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549









FORM
10-Q





x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
quarterly period ended July 31,
2010





o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
transition period from 
to





Commission
File Number:333-143626







AMERICAN
EAGLE ENERGY INC.


(Exact
name of registrant as specified in its charter)





Nevada
              20-8642477(State or other jurisdiction of incorporation or organization)
              (I.R.S. Employer Identification No.)





27 North 27thStreet, Suite 21G, Billings, MT
              59101(Address of principal executive offices)
              (Zip Code)





(406) 294-9765(Registrant’s
      telephone number, including area
code)




Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.


Yes x No o





Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





(Check
one):





Large
      accelerated filer o
            Accelerated
      filer oNon-accelerated
      filer o
            Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes o No x





Indicate the number of shares
outstanding of each of the issuer’s classes of common equity, as of the latest
practicable date:


55,060,000
shares of common stock issued and outstanding at September 3, 2010.








AMERICAN
EAGLE ENERGY INC.


FORM
10-Q


QUARTERLY
PERIOD ENDED JULY 31, 2010





INDEX





A
      Note About Forward Looking Statements
                    
                    1PART
      I - FINANCIAL INFORMATIONItem
      1 - Interim Financial Statements (Unaudited)
                    
                    F-1Interim
      Balance Sheets – July 31, 2010 (Unaudited) and April 30, 2010
      (Audited)
                    
                    F-3Interim
      Statements of Operations For the Period from Inception through July 31,
      2010 and for Each of the Three-Month Periods Ended July 31, 2010 and 2009
      (Unaudited)
                    
                    F-4Interim
      Statements of Cash Flows for the Period from Inception through July 31,
      2010 and for Each of the Three-Month Periods Ended July 31, 2010 and 2009
      (Unaudited)
                    
                    F-5Notes
      to the Interim Financial Statements (Unaudited)
                    
                    F-7Item
      2 - Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                    
                    2Item
      4 - Controls and Procedures
                    
                    7PART
      II - OTHER INFORMATIONItem
      6 – Exhibits
                    
                    8Signatures
                    
                    10








A
Note About Forward-Looking Statements





This
Quarterly Report on Form 10-Q contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995 that are based
on management’s current expectations. These statements may be identified by
their use of words like “plans,” “expect,” “aim,” “believe,” “projects,”
“anticipate,” “intend,” “estimate,” “will,” “should,” “could” and other
expressions that indicate future events and trends. All statements that address
expectations or projections about the future, including statements about our
business strategy, expenditures, and financial results, are forward-looking
statements. We believe that the expectations reflected in such forward-looking
statements are accurate. However, we cannot assure you that such expectations
will occur.





Actual
results could differ materially from those in the forward looking statements due
to a number of uncertainties including, but not limited to, those discussed in
Management’s Discussion and Analysis of Financial Condition and Results of
Operations. Factors that could cause future results to differ from these
expectations include general economic conditions; further changes in our
business direction or strategy; competitive factors; market uncertainties; and
an inability to attract, develop, or retain consulting or managerial agents or
independent contractors. As a result, the identification and interpretation of
data and other information and their use in developing and selecting assumptions
from and among reasonable alternatives requires the exercise of judgment. To the
extent that the assumed events do not occur, the outcome may vary substantially
from anticipated or projected results, and accordingly, no opinion is expressed
on the achievability of those forward-looking statements. No assurance can be
given that any of the assumptions relating to the forward-looking statements
specified in the following information are accurate, and we assume no obligation
to update any such forward-looking statements. You should not unduly rely on
these forward-looking statements, which speak only as of the date of this
Quarterly Report. Except as required by law, we are not obligated to release
publicly any revisions to these forward-looking statements to reflect events or
circumstances occurring after the date of this report or to reflect the
occurrence of unanticipated events.


1




PART
I. FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS.


American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Interim
Financial Statements
  As
of July 31, 2010 and April 30, 2010
 and
for the Three-Month Periods ended July 31, 2010 and 2009
  F-1
  American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Index
to the Interim Financial Statements (Unaudited)
  As
of July 31, 2010 and April 30, 2010 and
 For
the Period from Inception through July 31, 2010 and for Each of the Three-Month
Periods
 ended
July 31, 2010 and 2009
 
 Financial
      Statements of American Eagle Energy Inc.:Interim
      Balance Sheet as of July 31, 2010 (Unaudited) and Year-End Balance Sheet
      as of April 30, 2010 (Audited)
                      F-3Interim
      Statements of Operations from the Date of Inception through July 31, 2010
      and for Three-Month Periods Ended July 31, 2010 and 2009
      (Unaudited)
                      F-4Interim
      Statements of Cash Flows from the Date of Inception through July 31, 2010
      and for Three-Month Periods Ended July 31, 2010 and 2009
      (Unaudited)
                      F-5Notes
      to the Interim Financial Statements (Unaudited)
                      F-7
  F-2
  American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Interim
Balance Sheets
  As
of July 31, 2010 (Unaudited) and April 30, 2010 (Audited)
 
 As
      of
                  
                  
                  As
      ofJuly
      31, 2010
                  
                  
                  April
      30, 2010(Unaudited)
                  
                  
                  (Audited)Current
      assets:Cash
                  
                  $
                  473,144
                  
                  
                  $
                  825,419Total
      current assets
                  
                  
                  473,144
                  
                  
                  
                  825,419Oil
      and gas properties, subject to amortization (Note 3)
                  
                  
                  900,799
                  
                  
                  
                  -Oil
      and gas properties, not subject to amortization (Note 3)
                  
                  
                  1,097,119
                  
                  
                  
                  1,822,599Total
      oil and gas properties
                  
                  
                  1,997,918
                  
                  
                  
                  1,822,599Marketable
      securities (Note 4)
                  
                  
                  174,323
                  
                  
                  
                  -Total
      assets
                  
                  $
                  2,645,385
                  
                  
                  $
                  2,648,018Current
      liabilities:Accounts
      payable and accrued liabilities
                  
                  $
                  948,835
                  
                  
                  $
                  899,506Due
      to related parties (Note 8)
                  
                  
                  41,876
                  
                  
                  
                  87,281Convertible
      debenture, net of discount of $198,695 and $268,823, respectively (Note
      5)
                  
                  
                  801,305
                  
                  
                  
                  731,177Total
      current liabilities
                  
                  
                  1,792,016
                  
                  
                  
                  1,717,964Commitments
      and contingencies (Note 7)
                  
                  
                  -
                  
                  
                  
                  -Stockholders'
      equity:Common
      stock, $.001 par value, 150,000,000 shares authorized, 55,060,000 shares
      issued and outstanding, respectively
                  
                  
                  55,060
                  
                  
                  
                  55,060Additional
      paid-in capital
                  
                  
                  1,090,451
                  
                  
                  
                  1,090,451Accumulated
      deficit
                  
                  
                  (441,830
                  )
                  
                  
                  (215,457
                  )Unrealized
      gains on marketable securities
                  
                  
                  149,688
                  
                  
                  
                  -Total
      stockholders' equity
                  
                  
                  853,369
                  
                  
                  
                  930,054Total
      liabilities and stockholders' equity
                  
                  $
                  2,645,385
                  
                  
                  $
                  2,648,018
 
 The
accompanying notes are an integral part of the financial
statements.
  F-3
  American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Interim
Statements of Operations (Unaudited)
  For
the Period from Inception through July 31, 2010 and for the Three-Month
Periods
 Ended
July 31, 2010 and 2009
  For the Periodfrom MarchFor the
                    
                    
                    For the
                    
                    
                    14, 2007Three-Month
                    
                    
                    Three-Month
                    
                    
                    (Inception)Period Ended
                    
                    
                    Period Ended
                    
                    
                    throughJuly31,2010
                    
                    
                    July31,2009
                    
                    
                    July31,2010Revenues
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Operating
      expensesExploration
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    7,880General
      and administrative expenses
                    
                    
                    44,716
                    
                    
                    
                    4,968
                    
                    
                    
                    89,359Impairment
      of mineral properties
                    
                    
                    5,936
                    
                    
                    
                    -
                    
                    
                    
                    14,586Professional
      fees
                    
                    
                    85,594
                    
                    
                    
                    3,500
                    
                    
                    
                    224,856Total
      operating expenses
                    
                    
                    136,246
                    
                    
                    
                    8,468
                    
                    
                    
                    336,681Net
      loss from operations
                    
                    
                    (136,246
                    )
                    
                    
                    (8,468
                    )
                    
                    
                    (336,181
                    )Interest
      expense (Note 5)
                    
                    
                    20,000
                    
                    
                    
                    -
                    
                    
                    
                    23,333Amortization
      of debt discount (Note 5)
                    
                    
                    70,128
                    
                    
                    
                    -
                    
                    
                    
                    81,816Net
      loss
                    
                    $
                    (226,374
                    )
                    
                    $
                    (8,468
                    )
                    
                    $
                    (441,830
                    )Net
      loss per common share (Note 8):Basic
      and diluted
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.00
                    )Weighted
      average number of shares outstanding:Basic
      and diluted
                    
                    
                    55,060,000
                    
                    
                    
                    60,000,000
 
 The
accompanying notes are an integral part of the financial
statements.
  F-4
  American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Interim
Statements of Cash Flows (Unaudited)
  For
the Period from Inception through July 31, 2010 and for the Three-Month
Periods
 Ended
July 31, 2010 and 2009
  For the Periodfrom MarchFor the
                    
                    
                    For the
                    
                    
                    14, 2007Three-Month
                    
                    
                    Three-Month
                    
                    
                    (Inception)Period Ended
                    
                    
                    Period ended
                    
                    
                    throughJuly31,2010
                    
                    
                    July31,2009
                    
                    
                    July31,2010Cash
      flows used for operating activities:Net
      loss
                    
                    $
                    (226,374
                    )
                    
                    $
                    (8,468
                    )
                    
                    $
                    (441,830
                    )Adjustment
      for items not involving cash:Impairment
      of mineral properties
                    
                    
                    5,937
                    
                    
                    
                    -
                    
                    
                    
                    14,587Amortization
      of debt discount
                    
                    
                    70,128
                    
                    
                    
                    -
                    
                    
                    
                    81,816Changes
      in non-cash working capital items:Increase
      in accounts payable and accrued liabilities
                    
                    
                    24,747
                    
                    
                    
                    1,513
                    
                    
                    
                    53,566Increase
      in amounts due to related  parties
                    
                    
                    (45,405
                    )
                    
                    
                    -
                    
                    
                    
                    41,876Net
      cash used for operating activities
                    
                    
                    (170,967
                    )
                    
                    
                    (6,955
                    )
                    
                    
                    ( 249,985
                    )Cash
      flows used for investing activities:Acquisition
      of mineral rights
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (8,650
                    )Investment
      in marketable securities
                    
                    
                    (24,635
                    )
                    
                    
                    -
                    
                    
                    
                    (24,635
                    )Acquisition
      of oil and gas properties
                    
                    
                    (300,736
                    )
                    
                    
                    -
                    
                    
                    
                    (1,252,649
                    )Sale
      of oil and gas properties
                    
                    
                    144,063
                    
                    
                    
                    -
                    
                    
                    
                    144,063Net
      cash used for investing activities
                    
                    
                    (181,308
                    )
                    
                    
                    -
                    
                    
                    
                    (1,141,871
                    )Cash
      flows provided by financing activities:Private
      placement - $0.001 per share
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    15,000Private
      placement - $0.003 per share
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    45,000Private
      placement - $0.01 per share
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    10,000Private
      placement - $0.75 per share
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    795,000Issuance
      of convertible debentures
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,000,000Net
      cash provided by financing activities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,865,000Net
      increase (decrease) in cash
                    
                    
                    (352,275
                    )
                    
                    
                    (6,955
                    )
                    
                    
                    473,144Cash
      at beginning of period
                    
                    
                    825,419
                    
                    
                    
                    7,156
                    
                    
                    
                    -Cash
      at end of period
                    
                    $
                    473,144
                    
                    
                    $
                    201
                    
                    
                    $
                    473,144
 
 The
accompanying notes are an integral part of the financial
statements.
  F-5
  American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Interim
Statements of Cash Flows (Unaudited)
  For
the Period from Inception through July 31, 2010 and for the Three-Month
Periods
 Ended
July 31, 2010 and 2009
 
 Supplemental
Disclosure of Cash Flow Information
 
 For the Periodfrom MarchFor the
                    
                    
                    For the
                    
                    
                    14, 2007Three-Month
                    
                    
                    Three-Month
                    
                    
                    (Inception)Period Ended
                    
                    
                    Period Ended
                    
                    
                    throughJuly31,2010
                    
                    
                    July31,2009
                    
                    
                    July31,2010Cash
      paid during the period for:Interest
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Income
      taxes
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
 
 The
accompanying notes are an integral part of the financial
statements.
  F-6
 
 American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Notes
to the Interim Financial Statements (Unaudited)
  1.
              Description of
      Business
  American
Eagle Energy Inc. (the "Company") was incorporated in the state of Nevada in
March 2007 under the name Yellow Hill Energy Inc.  The Company
completed its prospectus offering of 30,000,000 shares of its common stock on
July 18, 2007 at a price of $0.0015 per share.  On October 5, 2009,
the Yellow Hill Energy merged with its wholly owned subsidiary, American Eagle
Energy Inc., which was formed for the sole purpose of changing the
name.  On October 14, 2009, the Company’s board of directors
authorized a forward split of the Company’s common stock at a ratio of 2:1,
resulting in an increase in the number of shares then authorized from 75,000,000
to 150,000,000 and an increase in the number of shares then outstanding from
30,000,000 to 60,000,000.
  The
Company was initially formed to serve as a vehicle for pursuing and acquiring
existing businesses and, as a result, operated as a “shell” company from the
date of inception through September 2009.  In October 2009, the
Company shifted its focus from business acquisition activities to engaging in
the acquisition, exploration and development of oil and gas
properties.  As of July 31, 2010, the Company had acquired working
interests in oil and gas prospects located in North Dakota, Texas and
southeastern Saskatchewan, Canada.
  Because
the Company has yet to recognize any revenues from operations, the Company is
currently considered to be an exploration stage entity and is subject to the
reporting requirements of the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification section 915 (“ASC 915”).  ASC 915
requires certain disclosures regarding the Company’s operations as well as the
presentation of statements of operations and cash flows for the period from the
date of inception through the end of the most current reporting
period.
  2.
              Summary of Significant
      Accounting Policies
  Basis
of Presentation
  These
financial statements are presented in United States dollars and have been
prepared in accordance with accounting principles generally accepted in the
United States.
  The
Company has evaluated subsequent events through the date that the financial
statements were issued and included in the Company’s Quarterly Report on Form
10-Q for the three-month period ended July 31, 2010.
  Going
Concern
  The
Company's financial statements are prepared using generally accepted accounting
principles in the United States of America applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. The Company has not yet established an ongoing source
of revenues sufficient to cover its operating costs and allow it to continue as
a going concern. The ability of the Company to continue as a going concern is
dependent on the Company obtaining adequate capital to fund operating losses
until it becomes profitable. If the Company is unable to obtain adequate
capital, it could be forced to cease operations.
  F-7
 
 American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Notes
to the Interim Financial Statements (Unaudited)
  In order
to continue as a going concern, the Company will need, among other things,
additional capital resources. Management’s plan is to obtain such resources for
the Company by obtaining capital from management and significant stockholders
sufficient to meet its minimal operating expenses and seeking equity and/or debt
financing. However management cannot provide any assurances that the Company
will be successful in accomplishing any of its plans.
  The
ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plans described in the preceding
paragraph and eventually secure other sources of financing and attain profitable
operations. The accompanying financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
  Concentration
of Credit Risk
  At July
31, 2010, the Company had $234,839 on deposit that exceeded United States (FDIC)
federally insurance limit of $250,000 per bank. The Company believes this credit
risk is mitigated by the financial strength of the financial
institution.
  Use
of Estimates and Assumptions
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the use of estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent obligations in the financial
statements and accompanying notes. The Company’s most significant assumptions
are the estimates used in the determination of the deferred income tax asset
valuation allowance, the valuation of oil and gas reserves to which the Company
owns mineral rights and the valuation of the Company’s common shares that were
issued for obligations. The estimation process requires assumptions to be made
about future events and conditions, and as such, is inherently subjective and
uncertain. Actual results could differ materially from these
estimates.
  Oil
and Gas Properties
  The
Company follows the full cost method of accounting for its investments in oil
and gas properties. Under the full cost method, all costs associated with the
exploration of properties are capitalized into appropriate cost centers within
the full cost pool.  Internal costs that are capitalized are limited
to those costs that can be directly identified with acquisition, exploration,
and development activities undertaken and do not include any costs related to
production, general corporate overhead, or similar activities.  Cost
centers are established on a country-by-country basis.
  Capitalized
costs within the cost centers are amortized on the unit-of-production basis
using proved oil and gas reserves.The
cost of investments in unproved properties and major development projects are
excluded from capitalized costs to be amortizeduntil it is determined whether or not proved
reserves can be assigned to the properties.Until such a determination is made, the
properties are assessed annually to ascertain whether impairment has
occurred.The costs of drilling
exploratory dry holes are included in the amortization base immediately upon
determination that the well is dry.
  F-8
 
 American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Notes
to the Interim Financial Statements (Unaudited)
  As of the
end of each reporting period, the capitalized costs of each cost center are
subject to a ceiling test, in which the costs shall not exceed the cost center
ceiling.  The cost center ceiling is equal to i) the present value of estimated future net
revenues computed by applying current prices of oil and gas reserves (with
consideration of price changes only to the extent provided by contractual
arrangements) to estimated future production of proved oil and gas reserves as
of the date of the latest balance sheet presented, less estimated future
expenditures (based on current costs) to be incurred in developing and producing
the proved reserves computed using a discount factor of ten percent and assuming
continuation of existing economic conditions;  plus ii) the cost of properties not
being amortized; plus iii) the lower of cost
or estimated fair value of unproven properties included in the costs being
amortized; lessiv) income tax effects
related to differences between the book and tax basis of the properties.If unamortized costs capitalized within
a cost center, less related deferred income taxes, exceed the cost center
ceiling, the excess is charged to expense and separately disclosed during the
period in which the excess occurs.
  Long-Lived
Assets
  In
accordance with FASB ASC 360-10-40, the carrying value of intangible assets and
other long-lived assets is reviewed on a regular basis for the existence of
facts or circumstances that may suggest impairment.  The Company
recognizes impairment when the sum of the expected undiscounted future cash
flows is less than the carrying amount of the asset.  Impairment
losses, if any, are measured as the excess of the carrying amount of the asset
over its estimated fair value.
  Fair
Value of Financial Instruments
  By
definition, investments in debt and equity securities are financial
instruments.  Fair value is defined as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. Valuation
techniques used to measure fair value must maximize the use of observable inputs
and minimize the use of unobservable inputs.
  The
Company utilizes the market approach to measure fair value for its financial
assets and liabilities. The market approach uses prices and other relevant
information generated by market transactions involving identical or comparable
assets or liabilities. Accounting Standards describes a fair value hierarchy
based on three levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure fair value
which are the following:
  Level
1:  Quoted prices (unadjusted) in active markets that are accessible
at the measurement date for assets or liabilities. The fair value hierarchy
gives the highest priority to Level 1 inputs.
  F-9
  American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Notes
to the Interim Financial Statements (Unaudited)
  Level
2:  Observable prices that are based on inputs not quoted on active
markets, but corroborated by market data.
  Level
3:  Unobservable inputs are used when little or no market data is
available. The fair value hierarchy gives the lowest priority to Level 3
inputs.
  In
determining fair value, the Company utilizes valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs to the
extent possible as well as the consideration of counterparty credit risk in its
assessment of fair value.
  The
carrying values of our cash, cash equivalents and marketable securities, carried
at fair value as of July 31, 2010, are classified in the table below in one of
the three categories described above:
  Fair
      Value Measurements at July 31, 2010:
                    
                    Level1
                    
                    
                    Level2
                    
                    
                    Level3
                    
                    
                    TotalCash
      & equivalents
                    
                    $
                    473,144
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    473,144Marketable
      securities
                    
                    
                    174,323
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    174,323$
                    647,467
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    647,467
  Convertible
Debt
  In
accordance with ASC 470-20-05, the Company has allocated a portion of the
proceeds received from the issuance of convertible debentures to additional paid
in capital to recognize the value of the common stock warrants issued in
connection with the convertible debentures.  The amount charged to
additional paid in capital has been offset by a charge to debt
discount.  Debt discounts are amortized using the straight-line method
over the life of the corresponding debt instrument.
  Fair
Value of Financial Instruments
  The
Company has determined the estimated fair value of its financial instruments
using available market information and appropriate valuation methodologies. Due
to their short-term maturity, the fair value of financial instruments classified
as current assets and current liabilities approximates their carrying
values.
  Basic
and Diluted Loss Per Share
  Basic
loss per common share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted loss per common share is computed in the same way as basic
loss per common share except that the denominator is increased to include the
number of additional common shares that would be outstanding if all potential
common shares had been issued and if the additional common shares were dilutive.
Diluted loss per common share for the three-month periods ended July 31, 2010
and 2009 and for the period from inception through July 31, 2010 is computed in
the same way as basic loss per common share, as the inclusion of additional
common shares that would be outstanding if all potential common shares had been
issued would be anti-dilutive.  See Note 8 for the calculation of
basic and diluted weighted average common shares outstanding for the three-month
periods ended July 31, 2010 and 2009.
  F-10
 
 American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Notes
to the Interim Financial Statements (Unaudited)
  Income
Taxes
  The
Company follows the liability method of accounting for income taxes. Under this
method, deferred income tax assets and liabilities are recognized for the future
tax benefits and consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax balances. Deferred income tax assets and liabilities are measured
using enacted or substantially enacted tax rates expected to apply to the
taxable income in the years in which those differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
date of enactment or substantive enactment.
  Stock-Based
Compensation
  The
Company has not adopted a stock option plan nor has it granted any stock
options.  Accordingly, the Company has not recognized any stock-based
compensation to date.
  New
Accounting Pronouncements
  In
June 2009, the FASB issued SFAS No. 168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles - a replacement of FASB Statement No. 162,” and also issued
Accounting Standards No. 2009-01, “Generally Accepted Accounting Principles”
(ASC Topic 105-10), which establishes the FASB Accounting Standards
Codification (the “Codification” or “ASC”) as the official single source of
authoritative U.S. generally accepted accounting principles (“GAAP”). All
guidance contained in the Codification carries an equal level of
authority.  The Codification also includes all relevant SEC guidance
organized using the same topical structure in separate sections within the
Codification.  The Codification is not intended to change GAAP, but it
will change the way GAAP is organized and presented.  The Codification
is effective for financial statements issued for interim and annual periods
ending after September 15, 2009.  Except for the disclosure
requirements, the adoption of this statement did not have an impact on the
determination or reporting of the Company’s financial statements.  The
Codification does not change current US GAAP, but is intended to simplify user
access to all authoritative US GAAP by providing all the authoritative
literature related to a particular topic in one place. All existing accounting
standard documents will be superseded and all other accounting literature not
included in the Codification will be considered non-authoritative. As it relates
to the Company, the Codification was effective July 1, 2009 and will
require future references to authoritative US GAAP to coincide with the
appropriate section of the Codification. Accordingly, this standard will not
have an impact on the Company’s results of operations or financial
condition.
  F-11
 
 American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Notes
to the Interim Financial Statements (Unaudited)
  Under ASC
855-10, as under previous practice, an entity must record the effects of
subsequent events that provide evidence about conditions that existed at the
balance sheet date and must disclose but not record the effects of subsequent
events which provide evidence about conditions that did not exist at the balance
sheet date. This standard added an additional required disclosure relative to
the date through which subsequent events have been evaluated and whether that is
the date on which the financial statements were issued. As it relates to the
Company, this standard was effective beginning April 1, 2009. The
additional disclosures required by this standard are included in Note
3.
  Management
has reviewed all other newly issued accounting pronouncements and determined
that none of the new pronouncements has, or is expected to have, a material
effect on the Company’s financial statements as of, and for the three-month
periods ended, July 31, 2010 and 2009.
  3.
              Oil and Gas
      Properties
  The
Company has entered into participation agreements in four exploratory oil and
gas properties. Unproven exploratory prospects are excluded from its respective
amortizable cost pool until such a time when proven reserves are
identified.  Each prospect’s costs are transferred into the
amortization base on an ongoing (well-by-well or property-by-property) basis as
the prospect is evaluated and proved reserves are established or impairment is
determined.
  In
December 2009 and January 2010, the Company incurred $10,995 of brokerage costs
related to potential lease acquisitions, in Divide County, North Dakota (the
“Musta Prospect”).  As of July 31, 2010, the Company has yet to enter
into any oil and gas leases within the Musta Prospect.  The Company’s
management is currently evaluating its opportunities within the Musta
Prospect.
  In
January 2010, the Company entered into two assignment agreements with
Murrayfield Limited, a United Kingdom company, pursuant to which the Company
paid $150,000 in cash to acquire a 15% working interest in a contemplated well
located in Wilkinson County, Mississippi (the “Mississippi Prospect”) and
$137,500 in cash to acquire a 12.5% working interest in an oil and gas lease
located in Willacy County, Texas (the “Texas Prospect”). In June 2010, the
Company resold its interest in the Mississippi Prospect to the original seller.
Net proceeds from the sale totaled $144,063, which represent the original
purchase price of $150,000, less preliminary drilling costs incurred to date of
$5,937.
  Beginning
in February 2010, the Company has acquired oil and gas leases on approximately
6,300 net acres in Divide County, North Dakota (the “Spyglass
Prospect”).  The aggregate cost of acquiring the Spyglass Prospect
leases incurred to date totaled $1,741,216, of which $566,912 is accrued, but
unpaid, as of July 31, 2010.
  F-12
 
 American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Notes
to the Interim Financial Statements (Unaudited)
  In June
2010, the Company sold 50% of its working interest in the Spyglass Prospect to
Eternal Energy Corp. (“Eternal”) in exchange for a 50% working interest in
approximately 4,320 net acres located in Southeastern Saskatchewan (the “Hardy
Property”).  As a result, the Company reclassified half of the
then-cost-basis of its Spyglass Prospect to the newly acquired Hardy
Property.  The Company and Eternal have agreed that Eternal would
oversee all future exploration and operational activities associated with their
shared acreage.  The Company is obligated to pay 50% of the cost of
any exploration or development costs incurred.  As of July 31, 2010,
the allocated cost basis of the Company’s investment in the Hardy Property was
$900,799.
  In June
and July 2010, the Company acquired oil and gas leases on approximately 178
acres located in Richland County, Montana (The "Sidney North Prospect") at an
aggregate cost of $48,760.
  As of
July 31, 2010, all of the Company's investments in oil and gas properties are
divided into two cost pools; one pool that is subject to amortization because
drilling activities have commenced and one pool that is not subject to
amortization because no proven reserves have been identified related to these
properties.  The two cost pools are further split into cost centers
based on the geographical location of the properties included in the
pools.
  As of
July 31, 2010 and April 30, 2010, the Company's cost centers are as
follows:
 
 July31,2010
                    
                    
                    April30,2010Amortizable
                    
                    
                    Non-Amortizable
                    
                    
                    Amortizable
                    
                    
                    Non-AmortizableUnited
      States
                    
                    $
                    -
                    
                    
                    $
                    1,097,119
                    
                    
                    $
                    -
                    
                    
                    $
                    1,822,599Canada
                    
                    
                    900,799
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    900,799
                    
                    
                    $
                    1,097,119
                    
                    
                    $
                    -
                    
                    
                    $
                    1,822,599
  4.
              Marketable
      Securities
  In June
2010, the Company purchased 500,000 shares of common stock in Covenant Resources
Inc. (“Covenant”), a Canadian resources company, at a purchase price of $0.05
per share. Attached to each share of common stock purchased is a warrant to
purchase an additional share of Covenant’s common stock at a purchase price of
$0.05 per share. The warrants have a two-year life and expire on June 23, 2012.
Total consideration paid to acquire the common shares and warrants was $24,635
($25,000 $CDN). The Company is restricted from selling the Covenant shares or
exercising the associated warrants until October 2010. Management considers the
investment in Covenant as “available for sale” but has no intention of
liquidating the investments during the twelve-month period. Accordingly, the
marketable securities have been classified as non-current assets.
  The
Covenant shares and warrants have an estimated aggregate fair market value of
$174,323 as of July 31, 2010.  The Company has reported unrealized
gains associated with the Covenant shares and warrants totaling $149,688 during
the three-month period ended July 31, 2010.  The unrealized gains
represent the only components of other comprehensive income as of July 31,
2010.
  F-13
 
 American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Notes
to the Interim Financial Statements (Unaudited)
  The
assumptions used in the Black-Scholes option pricing model for valuing the
warrants at July 31, 2010 were as follows:
  Risk-free
      interest rate
                    
                    
                    0.55
                    %Expected
      volatility of common stock
                    
                    
                    442
                    %Dividend
      yield
                    
                    $
                    0.00Expected
      life of options
                    
                    1.9
      yearsWeighted
      average fair market value of warrants
                    
                    $
                    0.18
  5.
              Convertible
      Debenture
  On April
15, 2010, the Company entered into a Securities Purchase Agreement, pursuant to
which the Company sold a $1 million Secured, Convertible Debenture to a
third-party investor.  The Debenture bears interest at a rate of 8%
per annum.  Interest expense of $20,000 was incurred during the
three-month period ended July 31, 2010.  Accrued interest payable as
of July 31, 2010 totaled $23,333.  The Debenture is due April 15, 2011
and, accordingly, is presented as a current liability on the Company’s July 31
2010 and April 30, 2010 balance sheets.  Interest is payable on a
quarterly basis, either in cash or through the issuance of additional shares of
the Company’s common stock at an initial conversion price of $0.75 per share, or
a combination thereof.  The Debenture is secured by substantially all
of the Company’s existing assets.
  At any
time, or from time to time, the holder of the Debenture may elect to convert all
or a portion of the Debenture into shares of the Company’s common stock at an
initial conversion price of $0.75 per share. The initial conversion price is
subject to reduction in the event that the Company subsequently sells, or grants
any option to purchase, shares of the Company’s common stock at an effective
price that is less than the initial conversion price. The initial conversion
price is also subject to reduction in the event that the Company pays dividends,
declares a stock split or engages into a merger transaction.  Because
the initial trading value of the Company’s stock on the date the Debentures were
issued was less than the initial conversion price, the Debentures are not deemed
to contain a beneficial conversion feature.  Because the initial
conversion price is less than the trading value of the Company’s stock as of
year-end, the amount by which the Debenture’s “if converted value” exceeded its
principal amount was $200,000 as of July 31, 2010.
  The
Debenture may not be converted if, immediately after, the conversion would
result in the holder of the Debenture possessing a beneficial ownership interest
in excess of 4.99% of the Company’s then-outstanding common
shares.  Upon providing 60 days prior written notice, the holder of
the Debenture may increase or decrease such ownership limit, but in no instance
can the ownership limit exceed 9.99% of the Company’s outstanding
shares.
  F-14
 
 American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Notes
to the Interim Financial Statements (Unaudited)
  Attached
to the convertible debentures are 625,000 warrants to purchase shares of the
Company’s common stock at an initial exercise price of $0.80 per share (Note 6).
A portion of the net proceeds from the issuance of the Debenture has been
allocated to the warrants and recorded as an increase to additional paid in
capital. Accordingly, the Company recorded a debt discount in the amount of
$280,511. The debt discount is being amortized using the straight line method
over the life of the Debenture. The Company recognized amortization expense
associated with the debt discount of $70,128 for the three-month period ended
July 31, 2010. The amount of the unamortized debt discount was $198,695 and
$268,823 as of July 31, 2010 and April 30, 2010, respectively.
  The
Company has reserved 1,333,333 shares of its common stock in the event that the
Debenture is converted and an additional 625,000 shares of its common stock in
the event that the Warrants are exercised.
  6.
              Equity
      Transactions
  The
Company was originally incorporated with 75,000.000 shares authorized with a par
value of $0.001 per share.
  Forward
Stock Split
  On
October 14, 2009, the Company’s board of directors approved a forward split of
the Company’s common stock on a 1 old share for 2 new shares
basis.  As a result, the Company’s authorized capital increased from
75,000,000 shares of common stock to 150,000,000 shares of common
stock.  Par value remained unchanged.  As a result of the
split, the number of outstanding shares of common stock issued and outstanding
increased from 30,000,000 shares of common stock to 60,000,000
shares.
  Unless
otherwise noted, all references in the financial statements to numbers of shares
of common stock and weighted average number of common shares outstanding have
been restated to reflect the October 14, 2009 forward stock split.
  Cancellation
of Shares
  In
December 2009, 16,000,000 common shares that were previously issued to two of
the Company’s founders’ were returned to the Company and cancelled.
  Private
Placements
  In
January 2010, the Company issued an aggregate of 10,000,000 restricted shares of
our common stock at a price of $0.001 to four individuals in a private
transaction.  Proceeds received from the sale of the stock totaled
$10,000.
  Also in
January 2010, the Company issued 1,060,000 restricted shares of the Company’s
common stock at a price of $0.75 per share in a private
transaction.  Proceeds received from the sale of the stock totaled
$795,000.
  F-15
 
 American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Notes
to the Interim Financial Statements (Unaudited)
  Issuance
of Warrants
  In
connection with the sale of the Convertible Debenture (Note 5), the Company also
granted to the purchaser of the Debenture a warrant to purchase up to 625,000
shares of the Company’s common stock at an initial exercise price of $0.80 per
share.  The warrant expires on April 15, 2012.
  The
initial purchase exercise price is subject to reduction in the event that the
Company subsequently sells, or grants any option to purchase, shares of the
Company’s common stock at an effective price that is less than the initial
conversion price. The initial conversion price is also subject to reduction in
the event that the Company pays dividends, declares a stock split or engages
into a merger transaction.
  A summary
of warrant activity for the year ended April 30, 2010 and the three-month
period ended July 31, 2010 is presented below:
  WeightedWeighted
                    
                    
                    AverageAverage
                    
                    
                    RemainingNumber of
                    
                    
                    Exercise
                    
                    
                    ContractWarrants
                    
                    
                    Price
                    
                    
                    TermOutstanding
      at April 30, 2009
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Issued
                    
                    
                    625,000
                    
                    
                    $
                    0.80
                    
                    
                    2.0
      yearsExercised
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Expired
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Forfeited
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      at April 30, 2010
                    
                    
                    625,000
                    
                    
                    $
                    0.80
                    
                    
                    1.96
      yearsIssued
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Expired
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Forfeited
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      at July 31, 2010
                    
                    
                    625,000
                    
                    
                    $
                    0.80
                    
                    
                    1.71 yearsExercisable
      at July 31, 2010
                    
                    
                    625,000
                    
                    
                    $
                    0.80
                    
                    
                    1.71 years
  The
assumptions used in the Black-Scholes option pricing model for the warrants
granted during the year ended April 30, 2010 were as follows:
  Risk-free
      interest rate
                      
                      
                      1.04
                      %Estimated
      volatility of common stock
                      
                      
                      250
                      %Dividend
      yield
                      
                      $
                      0.00Expected
      life of warrants
                      
                      2
      yearsWeighted
      average fair market value of warrants issued
                      
                      $
                      0.62
  F-16
  American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Notes
to the Interim Financial Statements (Unaudited)
  Shares
Reserved for Future Issuance
  As of
July 31, 2010, the Company has reserved 1,958,333 shares for future issuance
upon the conversion of the Debenture and the exercise of the outstanding
warrants.
  7.
              Commitments and
      Contingencies
  Financial
Results, Liquidity and Management's Plan
  The
Company has incurred net losses for the three-month period ended July 31, 2010
and for the period from inception through July 31, 2010.  These
factors raise substantial doubt about the Company's ability to continue as a
going concern.  Accordingly, the Company’s management is developing
and implementing plans to sustain the Company’s cash flow from operating
activities and/or acquire additional capital funding.
  No
assurances can be given that the Company will obtain sufficient working capital,
either through the sale of oil and gas properties, the issuance of common stock
or by leveraging the Company's current assets, or that the implementation of its
business plan will generate sufficient revenues in the future to sustain ongoing
operations. The financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going
concern.
  8.
              Loss Per
      Share
  The
following is a reconciliation of the number of shares used in the calculation of
basic loss per share and diluted loss per share for the three-month
periods ended July 31, 2010 and 2009:
  For The
                    
                    
                    For theThree-Month
                    
                    
                    Three-MonthPeriod Ended
                    
                    
                    Period EndedJuly31,2010
                    
                    
                    July31,2009Net
      loss
                    
                    $
                    (226,374
                    )
                    
                    $
                    (8,468
                    )Basic
      weighted average number of common shares outstanding
                    
                    
                    55,060,000
                    
                    
                    
                    60,000,000Diluted
      common shares outstanding
                    
                    
                    55,060,000
                    
                    
                    
                    60,000,000Net
      loss per share, basic and diluted
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.00
                    )
  F-17
 
 American
Eagle Energy Inc.
 (An
Exploration Stage Company)
  Notes
to the Interim Financial Statements (Unaudited)
  The
following securities were not included in the computation of diluted net loss
per share as their effect would have been anti-dilutive:
  For The
                    
                    
                    For theThree-Month
                    
                    
                    Three-MonthPeriod Ended
                    
                    
                    Period EndedJuly31,2010
                    
                    
                    July31,2009Convertible
      Debentures
                    
                    
                    1,333,333
                    
                    
                    
                    -Warrants
                    
                    
                    625,000
                    
                    
                    
                    -
  9.
              Related Party
      Transactions
  For the
period May 1 through December 14, 2009, the Company rented office space from an
entity owned and controlled by the then President and Director of the
Company.  Total rents paid to the related entity totaled $0 and $4,539
for the three-month periods ended July 31, 2010 and 2009,
respectively.
  In August
2009, the Company obtained a $14,975 unsecured loan from its then President and
Director.   The loan bears no interest and has no specific term
of repayment.  The loan is still outstanding as of July 31,
2010.
  In
January 2010, the Company engaged Synergy Resources LLC (“Synergy”) to provide
geological and engineering consulting services. The Company’s current President
and Director is also a member of Synergy’s management team.  Fees
incurred or accrued related to the services provided by Synergy during the
three-month period ended July 31, 2010 totaled $35,000.
  The
Company has entered into joint ventures with Eternal Energy Corp. (“Eternal”)
pursuant to which each entity owns 50% working interests in the Hardy Property
and Spyglass Prospect.  As of July 31, 2010 and April 30, 2010, the
Company owes Eternal Energy $155,643 and $0, respectively, related to its 50%
working interest in drilling costs associated with the Hardy
Property.  In addition, Eternal owes the Company $128,743 and $0,
respectively, related to Eternal’s portion of unpaid lease bonuses and brokerage
costs associated with the Spyglass Prospect.  These amounts have been
netted for financial reporting purposes.
  10.
              Subsequent
      Events
  No events
or transactions have occurred subsequent to July 31, 2010 that would have a
material effect on the Company’s balance sheet as of July 31, 2010, or on its
statements of operations, stockholders’ equity and cash flows for the
three-month period then ended.
  F-18


ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.


THE
FOLLOWING PRESENTATION OF OUR MANAGEMENT’S DISCUSSION AND ANALYSIS SHOULD BE
READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND OTHER FINANCIAL
INFORMATION INCLUDED ELSEWHERE IN THIS REPORT.
  A
Note About Forward-Looking Statements
  This
Quarterly Report on Form 10-Q contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995 that are based
on current management's expectations. These statements may be identified by
their use of words like “plans,” “expect,” “aim,” “believe,” “projects,”
“anticipate,” “intend,” “estimate,” “will,” “should,” “could” and other
expressions that indicate future events and trends. All statements that address
expectations or projections about the future, including statements about our
business strategy, expenditures, and financial results are forward-looking
statements. We believe that the expectations reflected in such forward-looking
statements are accurate. However, we cannot assure you that such expectations
will occur.
  Actual
results could differ materially from those in the forward looking statements due
to a number of uncertainties including, but not limited to, those discussed in
this section. Factors that could cause future results to differ from these
expectations include general economic conditions, further changes in our
business direction or strategy, competitive factors, oil and gas exploration
uncertainties, and an inability to attract, develop, or retain technical,
consulting or managerial agents or independent contractors. As a result, the
identification and interpretation of data and other information and their use in
developing and selecting assumptions from and among reasonable alternatives
requires the exercise of judgment. To the extent that the assumed events do not
occur, the outcome may vary substantially from anticipated or projected results,
and accordingly, no opinion is expressed on the achievability of those
forward-looking statements. No assurance can be given that any of the
assumptions relating to the forward-looking statements specified in the
following information are accurate, and we assume no obligation to update any
such forward-looking statements. You should not unduly rely on these
forward-looking statements, which speak only as of the date of this Quarterly
Report, except as required by law; we are not obligated to release publicly any
revisions to these forward-looking statements to reflect events or circumstances
occurring after the date of this report or to reflect the occurrence of
unanticipated events.
  Industry
Overview
  The petroleum industry is highly
competitive and subject to significant volatility due to numerous market
forces.  Crude oil and natural gas prices are affected by market
fundamentals such as weather, inventory levels, competing fuel prices, overall
demand, and the availability of supply.
  2
  Worldwide oil prices reached historical
highs during the last half of 2008, before tumbling amid worldwide economic
crisis.  Oil prices stabilized during 2009 and remained stable through
the early part of 2010.  Future economic instability could impact
demand, caused by a consumer shift to alternative fuel sources and/or supply,
driven largely by concerns regarding the economic viability of extracting
natural resources, thus affecting crude oil prices.
 
 Oil prices have significantly affected
profitability and returns for upstream producers.  Oil prices cannot
be predicted with any certainty.  During the past ten years, the
industry has experienced wide fluctuations in prices.  While local
supply/demand fundamentals are a decisive factor affecting domestic natural gas
prices over the long term, day-to-day prices may be more volatile in the futures
markets, such as on the NYMEX and other exchanges, making it difficult to
forecast prices with any degree of confidence.
 
 Company
Overview
 
 The
address of our principal executive office is 27 North 27th Street,
Suite 21G, Billings, MT 59101.  Our telephone number is
406-294-9765.
 
 Our
common stock is quoted on the OTC Bulletin Board under the symbol
“AMZG”.
 
 Our
Company was incorporated in the State of Nevada under the name “Yellow Hill
Energy Inc.” on March 14, 2007 and is engaged in the acquisition, exploration
and development of natural resource properties of merit.  On October
5, 2009, we filed documents with the Nevada Secretary of State to affect a
change of our name from “Yellow Hill Energy Inc.” to “American Eagle Energy
Inc.” by way of a merger with our wholly owned subsidiary, American Eagle Energy
Inc., which was formed solely to facilitate the name change.
 
 On June
18, 2010, we formed a wholly owned subsidiary named AEE Canada Inc. for the
purpose of conducting operations and holding title to certain assets located
within Canada.
 
 We have
not been involved in any bankruptcy, receivership or similar proceedings, nor
have we been a party to any material reclassifications, merger, consolidation or
purchase or sale of a significant amount of assets not in the ordinary course of
our business.
 
 On
October 9, 2008, Scott Lindsay resigned as our President, Chief Financial
Officer and Director and Sean Mitchell resigned as our Secretary, Treasurer and
Director.  As a result, on October 9, 2008, Jay Jhaveri was appointed
by us to serve in these roles.  On December 14, 2009, Mr. Jhaveri
resigned and was replaced by Richard Findley.  Mr. Findley currently
serves as our President, Chief Financial Officer, Secretary, Treasurer and
Director.  In performing his duties, Mr. Findley currently devotes
approximately 10 hours per week, for which he receives no monetary or
stock-based compensation.
 
 On June
7, 2010, we hired Tom Lantz to server as our Vice President of
Operations.  Mr. Lantz is currently our only paid
employee.
  3
  Current
Business
 
 We are a
development stage company engaged in the exploration and production of oil and
gas properties.
 
 On
October 14, 2009, our board of directors approved a forward split of our
Company’s stock on a one old for two new basis, such that our authorized capital
increased from 75,000,000 shares with a par value of $0.001 to 150,000,000
shares with the same par value.  As a result, our issued and
outstanding shares of common stock increased from 30,000,000 shares to
60,000,000 shares.  The effective date of the forward split was
October 26, 2009.
 
 On
January 13, 2010, we issued 10,000,000 shares of our common stock at par value
to a group of four individuals.  Gross proceeds received from the
issuance totaled $10,000.  The shares are restricted from trading for
periods ranging from six-months to one year from the date of issuance and are
subject to certain performance standards.
 
 On
January 14, 2010, we issued 1,060,000 shares of our common stock at a price of
$0.75 per share in a private transaction.  Gross proceeds from the
issuance totaled $795,000.  The shares are restricted from trading for
a period of 1 year from the date of issuance.
 
 On
January 15, 2010, we entered into an assignment agreement with Murrayfield
Limited (“Murrayfield”), a United Kingdom company, pursuant to which we acquired
a 15% working interest in an anticipated oil and gas well in Wilkinson County,
Mississippi for $150,000 in cash.
 
 On
January 21, 2010, we entered into a second assignment agreement with
Murrayfield, pursuant to which we acquired a 12.5% working interest in an oil
and gas lease covering 908 net acres located in Willacy County, Texas for
$137,500 in cash.
 
 In
February 2010, the Company began acquiring oil and gas leases in Divide County,
North Dakota (the “Spyglass Prospect”), a region known for its Bakken and Three
Forks zone oil production.
 
 On April
15, 2010, we entered into a Securities Purchase Agreement whereby we sold a
one-year 8% Convertible Debenture with an initial principal amount of
$1,000,000, convertible at $0.75 per share, and a two-year warrant for the
purchase of 625,000 shares of our common stock, exercisable at $0.80 per share,
to an otherwise unaffiliated third-party investor.
  On June
16, 2010, we resold our interest in the Mississippi Prospect to the original
seller and received net proceeds of $144,063, which represented the original
purchase price of $150,000, less preliminary drilling costs incurred to date of
$5,937.
 
 On June
18, 2010, we sold 50% of our working interest in the Spyglass Prospect and
purchased a 50% working interest in approximately 4,320 net acres located in
southeastern Saskatchewan, Canada (the “Hardy Property”) from Eternal Energy
Corp. (“Eternal”).  The Hardy Property contains an existing oil well
which has been shut-in since due to mechanical issues.  Concurrently,
we entered into an agreement with Eternal, whereby Eternal will oversee the
development and operational activities for both the Spyglass Prospect and the
Hardy Property.
  4
 
 As of
July 31, 2010, we own a 50% working interest in oil and gas leases covering
approximately 6,960 net acres within the Spyglass Prospect at an aggregate cost
of $896,262.  In addition, we own a 50% working interest in one well
and approximately 4,320 net acres within the Hardy Property at an aggregate cost
of $900,799.
 
 Results
of Operations for the Three-Month Periods Ended July 31, 2010 vs. July 31,
2009
  We are an
exploration stage company and have generated no revenues.  Prior to
January 2010, our operations consisted solely of administrative activities
required to maintain our corporate existence.  In January 2010, we
began acquiring oil and gas properties for the purpose of exploration and
development.
 
 Our net
losses for the three-month periods ended July 31, 2010 and 2009 were $226,374
and $8,468, respectively.  The increase in our net loss from 2009 to
2010 is due to the transition from administrative activities required to
maintain our corporate existence to those of pursuing our general business
purpose, that of oil exploration and development.  A discussion of the
major cost components related to our operations is provided below.
 
 General
and administrative expenses increased from $4,968 to $44,716 for the three-month
periods ended July 31, 2009 and 2010, respectively.  The increase
consists primarily of additional payroll costs associated with the hiring of our
new Vice President of Engineering in June 2010, totaling $23,718, as well as
travel related expenses totaling $13,777.
 
 In
January 2010, we engaged Synergy Resources LLC to provide geological and
geophysical consulting services to us related to the Spyglass
Prospect.  The cost of these services totaled $35,000 for the
three-month period ending July 31, 2010.  In addition, we incurred
legal fees totaling $28,575 during the current quarter relating to general
corporate matters and accounting fees totaling $13,125 related to the audit of
our year-end financial statements.  As a result of these transactions,
professional fees increased from $3,500 for the three-month period year ended
July 31, 2009 to $85,594 for the three-month period ended July 31,
2010.
 
 On April
15, 2010, we borrowed $1,000,000 through the sale of an 8% Secured, Convertible
Debenture.  Interest expense related to the Debenture totaled $20,000
for the three-month period ending July 31, 2010.  Attached to the
Debenture is a common stock purchase warrant for the purchase of up to 625,000
shares of our common stock at an initial exercise price of $0.80 per
share.  A portion of the net proceeds from the issuance of the
Debenture was allocated to the warrants and recorded as an increase to
additional paid in capital, resulting in a “debt discount”.  We
recognized $70,128 of expense during the three-month period ended July 31, 2010
related to the amortization of the discount on the Debenture.  The
debt discount is being amortized over the life of the
Debenture.
  5
  Liquidity
and Capital Resources
  In order
to address our working capital needs, on April 15, 2010, we executed a
Securities Purchase Agreement, pursuant to which we sold a $1,000,000 Secured,
Convertible Debenture to a third-party investor.  The Debenture is due
April 15, 2011, and bears interest at a rate of 8% per
annum.  Interest is payable on a quarterly basis, either in cash or
through the issuance of additional shares of our common stock or a combination
thereof at the initial conversion price of $0.75 per share.  The
Debenture is secured by all of our assets.
  In
connection with the sale of the Debenture, we also granted the purchaser a
Common Stock Purchase Warrant for the purchase of up to 625,000 shares of our
common stock.  The Warrant expires April 15, 2012, and may be
exercised at any time prior to expiration at an initial exercise price of $0.80
per share.  Additional details regarding the sale of the Debenture can
be found in our Current Report on Form 8-K, filed April 15,
2010.  Proceeds from the sale of the Debenture have been used to fund
general corporate purposes, as well as to further our leasing efforts in various
resource opportunities.
  Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations, and otherwise operate on an ongoing
basis.  At July 31, 2010, we had cash totaling $473,144 and current
liabilities totaling $1,792,016, resulting in a working capital deficit of
$1,318,872.
  Because
we do not currently have sufficient working capital to satisfy our obligations,
it will be necessary for us to seek additional funding, either through the
capital markets, some form of debt financing or through the sale of certain
assets.  We own interests in oil and gas properties valued at
$1,997,918 as of July 31, 2010, the partial or complete liquidation of which
would most likely generate proceeds in excess of our working capital
deficit.  Our management team is currently evaluating the available
funding options and developing an ongoing funding strategy for meeting our
future working capital needs.
  Going
Concern
  Our
independent registered public accounting firm’s report on our financial
statements as of April 30, 2010 included a “going concern” explanatory paragraph
that describes substantial doubt about our ability to continue as a going
concern.  Management’s plans in regard to the factors prompting the
explanatory paragraph are discussed in Note 2 to the financial
statements.
 
 Off-Balance
Sheet Arrangements
  We have no off-balance sheet
arrangements.
  6





ITEM 4T. CONTROLS AND PROCEDURES.





The
Company, under the supervision and with the participation of its management,
including the Chief Executive Officer, evaluated the effectiveness of the design
and operation of the Company’s "disclosure controls and procedures" (as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as
of the end of the period covered by this report.  Based on that
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that the Company’s disclosure controls and procedures were effective
as of July 31, 2010.  There has been no change in the Company’s
internal control over financial reporting during the quarter ended July 31,
2010, that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial
reporting.


7


Part
II - OTHER INFORMATION





ITEM
6. EXHIBITS.





Exhibit
            
            Description of Exhibit3.1
            
            Articles
      of Incorporation, as filed with the Secretary of State of the State of
      Nevada, effective March 14, 2007 (incorporated by reference to Exhibit 3.1
      of the Company’s Registration Statement on Form SB-2, filed June 8,
      2007).3.2
            
            Bylaws
      (incorporated by reference to Exhibit 3.2 of the Company’s Registration
      Statement on Form SB-2, filed June 8, 2007).3.3
            
            Articles
      of Merger, as filed with the Secretary of State of the State of Nevada,
      effective October 5, 2009 (incorporated by reference to Exhibit 3.01 of
      the Company’s Current Report on Form 8-K, filed October 5,
      2009).3.4
            
            Certificate
      of Change, as filed with the Secretary of State of the State of Nevada,
      effective October 15, 2009 (incorporated by reference to Exhibit 3.01 of
      the Company’s Current Report on Form 8-K, filed October 14,
      2009).10.1
            
            Form
      of Private Placement Subscription Agreement for an aggregate amount of
      10,000,000 shares, dated December 21, 2009 (Incorporated by reference to
      Exhibit 10.1 of the Company’s Annual Report on Form 10-K filed August 12,
      2010).10.2
            
            Escrow
      Agreement among American Eagle Energy Inc, Golden Vista Energy, LLC,
      Thomas G. Lantz, Steven Swanson and Baker & Hostetler, LLP dated
      December 21, 2009 (Incorporated by reference to Exhibit 10.2 of the
      Company’s Annual Report on Form 10-K filed August 12,
    2010).10.3
            
            Assignment
      Agreement between the Company and Murrayfield Limited, effective January
      15, 2010 (Incorporated by reference to Exhibit 10.1 of the Company’s
      Current Report on Form 8-K, filed January 20, 2010).10.4
            
            Assignment
      Agreement between the Company and Murrayfield Limited, effective January
      21, 2010 (Incorporated by reference to Exhibit 10.1 of the Company’s
      Current Report on Form 8-K, filed January 22, 2010).10.5
            
            Termination
      Agreement (of the US Pebble Acquisition Agreement) among Eternal Energy
      Corp., Fairway Exploration LLC, Prospector Oil, Inc., Pebble Petroleum
      Inc., and Rover Resources Inc., dated April 29, 2010 (Incorporated by
      reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K,
      filed May 19, 2010).10.6
            
            Termination
      Agreement (of the Canadian Pebble Acquisition Agreement) among Eternal
      Energy Corp., Fairway Exploration LLC, Prospector Oil, Inc., and Pebble
      Petroleum Inc., dated April 29, 2010 (Incorporated by reference to Exhibit
      10.5 of the Company’s Current Report on Form 8-K, filed May 19,
      2010).10.7
            
            Termination
      Agreement (of the US Prospect Acquisition Agreement) among Eternal Energy
      Corp., Fairway Exploration LLC, Prospector Oil, Inc., Pebble Petroleum
      Inc., Rover Resources Inc., Steven Swanson, Richard L. Findley, Thomas G.
      Lantz, and Ryland Oil Corporation, dated May 11, 2010 (Incorporated by
      reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K,
      filed May 19, 2010).10.8
            
            Termination
      Agreement (of the Canadian Prospect Acquisition Agreement) among Eternal
      Energy Corp., Fairway Exploration LLC, Prospector Oil, Inc., Pebble
      Petroleum Inc., Steven Swanson, Richard L. Findley, Thomas G. Lantz, and
      Ryland Oil Corporation, dated May 11, 2010 (Incorporated by reference to
      Exhibit 10.7 of the Company’s Current Report on Form 8-K, filed May 19,
      2010).10.9
            
            Securities
      Purchase Agreement between the Company and Cat Brokerage AG, dated April
      15, 2010 (Incorporated by reference to Exhibit 10.9 of the Company’s
      Annual Report on Form 10-K filed August 12, 2010).10.10
            
            Debenture
      of American Eagle Energy Corp. in favor of Cat Brokerage AG, Dated April
      15, 2010 (Incorporated by reference to Exhibit 10.10 of the Company’s
      Annual Report on Form 10-K filed August 12, 2010).10.11
            
            Security
      Agreement between the Company and Cat Brokerage AG, dated April 15, 2010
      (Incorporated by reference to Exhibit 10.11 of the Company’s Annual Report
      on Form 10-K filed August 12, 2010).10.12
            
            Common
      Stock Purchase Warrant agreement between the Company and Cat Brokerage AG,
      dated April 15, 2010 (Incorporated by reference to Exhibit 10.12 of the
      Company’s Annual Report on Form 10-K filed August 12,
    2010).10.13
            
            Registration
      Rights Agreement between the Company and Cat Brokerage AG, dated April 15,
      2010 (Incorporated by reference to Exhibit 10.13 of the Company’s Annual
      Report on Form 10-K filed August 12,
2010).


8





10.14
            
            Assignment
      Settlement Agreement between the Company and Lexaria Corp., dated June 16,
      2010 (Incorporated by reference to Exhibit 10.14 of the Company’s Annual
      Report on Form 10-K filed August 12, 2010).10.15
            
            Letter
      Agreement between the Company and Eternal Energy Corp., dated June 18,
      2010 (Incorporated by reference to Exhibit 10.15 of the Company’s Annual
      Report on Form 10-K filed August 12, 2010).10.16
            
            Form
      of Private Placement Subscription Agreement between American Eagle Energy
      Inc. and Finter Bank Zurich, dated December 16, 2009 (Incorporated by
      reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K
      filed August 12, 2010).31.1*
            
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act32.1*
            
            Certification
      pursuant to Section 906 of the Sarbanes-Oxley
  Act







*
            Filed
      herewith.


**
            Portions
      omitted pursuant to a request for confidential
  treatment.


9


SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.





AMERICAN
      EAGLE ENERGY INC.(Registrant)September
      3, 2010
            /s/ Richard FindleyRichard
      FindleyPresident,
      Secretary, Treasurer and Director
              (Chief
      Executive Officer, Chief Financial Officer and
              Chief
      Accounting Officer)




10