##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER 001-31900
 AMERICAN OIL & GAS INC.
  Nevada
(State or other jurisdiction of 
incorporation or organization)
    
    88-0451554
(I.R.S. Employer
Identification Number)
 th
 Title of Each Class:
    
    Name of Each Exchange on Which Registered:Common Stock, $.001 par value per share
    
    NYSE Amex (formerly the American Stock Exchange)
  o Yes þ No
 o Yes þ No
 þ Yes o No
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 o Yes þ No
  DOCUMENTS INCORPORATED BY REFERENCE:




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##### 



AMERICAN OIL & GAS INC.
FORM 10-K
TABLE OF CONTENTS
 PagePART IItem 1: Business
    
    
    4Item 1A: Risk Factors
    
    
    10Item 1B: Unresolved Staff Comments
    
    
    15Item 2: Properties
    
    
    16Item 3: Legal Proceedings
    
    
    22Item 4: [Reserved]
    
    
    23PART IIItem 5: Market for the Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    23Item 6: Selected Consolidated Financial Data
    
    
    25Item 7: Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    27Item 7A: Quantitative and Qualitative Disclosures about Market Risk
    
    
    37Item 8: Financial Statements and Supplementary Data
    
    
    F-1Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    38Item 9A: Controls and Procedures
    
    
    38Item 9B: Other Information
    
    
    39PART IIIItem 10: Directors, Executive Officers and Corporate Governance
    
    
    40Item 11: Executive Compensation
    
    
    40Item 12: Securities Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    40Item 13: Certain Relationships and Related Transactions, and Director Independence
    
    
    40Item 14: Principal Accounting Fees and Services
    
    
    40PART IVItem 15: Exhibits, Financial Statement Schedules
    
    
    41Exhibit 21(i)Exhibit 23.(i)Exhibit 23.(ii)Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2Exhibit 99.1
    2




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PART I
 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
   
    
    our business and growth strategies,
 
    
    our oil and natural gas reserve estimates,
 
    
    our ability to successfully and economically explore for and develop oil and gas
resources,
 
    
    our exploration and development drilling prospects, inventories, projects and
programs,
 
    
    availability and costs of drilling rigs and field services,
 
    
    anticipated trends in our business,
 
    
    our future results of operations,
 
    
    our liquidity and ability to finance our exploration and development activities,
 
    
    market conditions in the oil and gas industry,
 
    
    our ability to make and integrate acquisitions, and
 
    
    the impact of environmental and other governmental regulation.
   
    
    significant unforeseen events that have global or national impact such as (1) major
political disruptions, (2) extended economic downturns, and (3) technological
breakthroughs in producing oil and natural gas or in producing alternative forms of
energy,
 
    
    unanticipated future changes in oil or natural gas prices and
 
    
    other uncertainties inherent in the exploration and production of oil and natural
gas.
    3




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##### Table of Contents



Item 1: Business
     
    
    Approximately 111,000 gross
(76,000 net) acres in our Goliath Project, located in
the Williston Basin, North Dakota and
 
    
    Approximately 213,000 gross (131,000 net) acres in our Bigfoot Project, located in
the U.S. Rocky Mountain area.
        4




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Competition
  Customers
  Major Customers
    
    2009
    
    
    2008
    
    
    2007DCP Midstream LLC
    
    
    38
    %
    
    
    31
    %
    
    
    36
    %Wyoming Refining Company
    
    
    23
    %
    
    
    15
    %
    
    
    13
    %Shell Trading (US) Company
    
    
    10
    %
    
    
    17
    %
    
    
    19
    %Nexen Marketing U.S.A., Inc.
    
    
    
    
    
    
    
    
    
    
    13
    %Total
    
    
    71
    %
    
    
    63
    %
    
    
    81
    %
  Environmental Matters
      5




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6




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Seasonality
  Employees
  Website and Codes of Ethics
 http://www.americanog.com th
 Glossary of Abbreviations and Terms
  Bbl
 Boe
 Btu or British thermal unit
 Capital Expenditures
 Carried Working Interest.
 Completion
  7




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Condensate.
 Developed Acreage
 Development Well
 Drill Spacing Unit.
 Exploitation.
 Exploration
 Exploratory Well
 Field.
 Finding and Development Costs
 Gross Acres.
 Gross Wells
 Lease.
 Lease Net Acres.
 Mcf.
 Mcf/d
 Mcfe
  8




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MMcf
 MMcfe
 Net Acres.
 Net Wells.
 NGL.
 Operator.
 PV-10 value
 Productive well
 Prospect
 Proved developed reserves
 Proved reserves
  Proved undeveloped reserves (PUD
 Re-entry
  9




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Reserves
 Reservoir.
 Royalty
 SEC.
 SEC Definition of Proved Reserves.
 Undeveloped Acreage
 Working Interest
 Title to Properties
  
 Item 1A: Risk Factors
   10




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Risks related to our industry, business and strategy
 We have incurred losses from operations in the past and may do so in the future.
  Oil and natural gas prices are volatile and have substantially fluctuated in the two years
ended December 31, 2009. Price declines or sustained periods of relatively low prices in the Rocky
Mountain region of the United States could significantly affect our future financial results and
impede our growth.
  Our operations are subject to governmental risks that may impact our operations.
  
    
    Climate-Change Legislation. Climate-change legislation establishing a
cap-and-trade plan for green-house gases (GHGs) has been approved by the U.S. House of
Representatives. It is not possible at this time to predict whether or when the U.S. Senate
may act on climate-change legislation.
 
    
    EPA Regulation of GHG emissions. The U.S. Environmental Protection Agency (EPA)
has also taken recent action related to GHGs. Based on recent developments; the EPA now
purports to have a basis to begin regulating emissions of GHGs under existing provisions of
the federal Clean Air Act.
  11




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##### Table of Contents




    
    Tax Legislation. The federal, state and local governments in which we operate
impose taxes on the oil and gas products we sell and for many of our wells, sales and use
taxes on significant portions of our drilling
and operating costs. In the past, there has been a significant amount of discussion by
legislators and presidential administrations concerning a variety of energy tax proposals.
The U.S. Presidents Fiscal Year 2011 Budget Proposal includes provisions that would, if
enacted, make significant changes to United States tax laws. These changes include, but are
not limited to (i) eliminating the immediate deduction for intangible drilling and
development costs and (ii) eliminating the percentage depletion deduction. Many states have
raised state taxes on energy sources, and additional increases may occur. Changes to the
laws could adversely affect our business and our financial results.
 
    
    Federal Regulations regarding Hydraulic Fracturing. The U.S. Congress is
currently considering legislation to amend the federal Safe Drinking Water Act to require
the disclosure of chemicals used by the oil and natural gas industry in the hydraulic
fracturing process. Currently, regulation of hydraulic fracturing is primarily conducted at
the state level through permitting and other compliance requirements. This legislation, if
adopted, could establish an additional level of regulation and permitting at the federal
level.
 
    
    Federal Legislation regarding derivatives. The U.S. Congress is currently
considering derivatives reform legislation focusing on expanding Federal regulation
surrounding the use of financial derivative instruments, including credit default swaps,
commodity derivatives and other over-the-counter derivatives. Among the recommendations
included in the proposals are the requirements for centralized clearing or settling of such
derivatives as well as the expansion of collateral margin requirements for certain
derivative market participants.
 Our development and exploration operations require substantial capital, and we may be unable
to obtain needed capital or financing on satisfactory terms, which could lead to a loss of
properties and a decline in our natural gas and oil reserves.
  Oil and gas operations are inherently risky.
     12




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We may be unable to find additional reserves.
  We could be adversely impacted by changes in the oil and gas market.
  Our leases may expire before we are able to dill.
  We are subject to extensive government regulations.
  
    
    the prevention of waste,
    
    the discharge of materials into the environment,
    
    the conservation of oil and natural gas,
    
    pollution,
    
    permits for drilling operations,
    
    drilling bonds, and
    
    reports concerning operations, spacing of wells, and the unitization and pooling of
properties.
    13




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Shortages of rigs, equipment, supplies and personnel could delay or otherwise adversely affect
our cost of operations or our ability to operate according to our business plans.
  Shortages of transportation services and processing facilities may result in our receiving a
discount in the price we receive for oil and natural gas sales or may adversely affect our ability
to sell our oil and natural gas.
  We could be adversely impacted by customer(s) and industry partners unable to meet their
obligations.
  The current global and US economic and financial recessions may have impacts on our business
and financial condition that we currently cannot predict.
   Risks Related to our Common Stock
 Our common stock has historically been thinly traded, so investors may not be able to sell any
significant number of shares of our stock at prevailing market prices.
   14




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Our stock price and trading volume may be volatile, which could result in losses for our
stockholders.
  
    
    conditions generally affecting the oil and natural gas industry, such as declines in the
prices of oil and gas,
    
    actual or anticipated quarterly variations in our operating results,
    
    changes in expectations as to our future financial performance or changes in financial
estimates, if any,
    
    announcements relating to our business or the business of our competitors,
    
    the success or failure of our operating strategy and
    
    the operating and stock performance of other comparable companies.
  We may issue debt or preferred stock with rights that are preferential to, and could cause a
decrease in the value of, our common stock.
  
    
    the establishment of principal and interest obligations or dividends which must
be paid prior to declaring or paying dividends or other distributions to our common
stockholders,
 
    
    a security interest in some or all of our assets that could be foreclosed upon in
the event of default of a loan agreement or similar instrument,
 
    
    greater or preferential liquidation rights which could negatively affect the
rights of common stockholders and
 
    
    the right to convert the debt or preferred stock at a rate or price which would
have a dilutive effect on the outstanding shares of common stock.
 
 Item 1B: Unresolved Staff Comments
   15




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Item 2: Properties
 Oil and Natural Gas Assets
 Goliath Bakken and Three Forks Project (Williston Basin, North Dakota)
       Bigfoot Project (Rocky Mountain Region)
  Fetter and Krejci Projects (Powder River Basin in Wyoming)
   16




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Oil and Gas Reserves
 Proved Oil and Gas Reserves
  At December 31,(All of our proved reserves are in the United States)
    
    2009
    
    
    2008
    
    
    2007Proved Developed Oil and Gas Reserves:Oil reserves (bbls)
    
    
    64,418
    
    
    
    75,610
    
    
    
    91,106NGL reserves (bbls)
    
    
    
    *
    
    
    11,139
    
    
    
    53,933Natural gas reserves (mcf)
    
    
    645,308
    
    
    
    987,574
    
    
    
    1,277,755Total proved developed (boe, at 6 mcf per barrel)
    
    
    171,969
    
    
    
    251,345
    
    
    
    357,998Proved Undeveloped Oil and Gas Reserves:Oil reserves (bbls)
    
    
    83,092
    
    
    
    
    
    
    
    5,293NGL reserves (bbls)
    
    
    
    *
    
    
    
    
    
    
    Natural gas reserves (mcf)
    
    
    311,242
    
    
    
    159,500
    
    
    
    29,404Total proved undeveloped (boe, at 6 mcf per barrel)
    
    
    134,966
    
    
    
    26,583
    
    
    
    10,194Total Proved Oil and Gas Reserves:Oil reserves (bbls)
    
    
    147,510
    
    
    
    75,610
    
    
    
    96,399NGL reserves (bbls)
    
    
    
    *
    
    
    11,139
    
    
    
    53,933Natural gas reserves (mcf)
    
    
    956,550
    
    
    
    1,147,074
    
    
    
    1,307,159Total proved (boe, at 6 mcf per barrel)
    
    
    306,935
    
    
    
    277,928
    
    
    
    368,192Future net cash flows (before income taxes)
    
    $
    4,552,487
    
    
    $
    4,675,700
    
    
    $
    13,727,358PV-10 Value
    
    $
    2,485,018
    
    
    $
    2,950,787
    
    
    $
    8,362,799
 *
    
    At December 31, 2009, NGL (i.e., natural gas liquids) estimated to be recovered from the produced
natural gas were not separately estimated by Ryder Scott since Ryder Scotts estimates of proved
natural gas reserves at December 31, 2009 are estimated gas volumes expected to be sold prior to
gas processing for extraction of the natural gas liquids. st
  Probable and Possible Reserves
   17




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Internal Controls over Reserve Estimation
 st
    Reconciliation of Standardized Measure to PV-10 Value
  At December 31,2009
    
    
    2008
    
    
    2007Standardized measure of discounted future net cash flows
    
    $
    2,477,866
    
    
    $
    2,944,869
    
    
    $
    8,304,799Add present value of future income tax discounted at 10%
    
    
    7,152
    
    
    
    5,918
    
    
    
    58,000PV-10 Value
    
    $
    2,485,018
    
    
    $
    2,950,787
    
    
    $
    8,362,799
  18




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Oil and Gas Interests
  Approximate Acreage at December 31, 2009, other than the 97,000 net acres
(primarily Fetter and Krejci projects) to be sold in March 2010
 Developed Acres
    
    
    Undeveloped Acres
    
    
    Total AcresProject
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetGoliath
(North Dakota)*
    
    
    3,000
    
    
    
    1,000
    
    
    
    106,000
    
    
    
    73,000
    
    
    
    109,000
    
    
    
    74,000Bigfoot (U.S. Rocky
Mountain area)**
    
    
    
    
    
    
    
    
    
    
    213,000
    
    
    
    131,000
    
    
    
    213,000
    
    
    
    131,000Other (WY, ND)
    
    
    2,000
    
    
    
    600
    
    
    
    21,000
    
    
    
    12,000
    
    
    
    23,000
    
    
    
    12,600Total
    
    
    5,000
    
    
    
    1,600
    
    
    
    340,000
    
    
    
    216,000
    
    
    
    345,000
    
    
    
    217,600
  Net Undeveloped Acres not held by productionYear of
    
    
    Fee
    
    
    State
    
    
    Federal
    
    
    Total forExpiration
    
    
    Leases
    
    
    Leases
    
    
    Leases
    
    
    All LeasesGoliath
(North Dakota)*
    
    
    2010
    
    
    
    17,555
    
    
    
    2,243
    
    
    
    
    
    
    
    19,7982011
    
    
    
    16,215
    
    
    
    
    
    
    
    
    
    
    
    16,2152012
    
    
    
    173
    
    
    
    
    
    
    
    
    
    
    
    1732013
    
    
    
    2,499
    
    
    
    
    
    
    
    
    
    
    
    2,499Later
    
    
    
    32,578
    
    
    
    1,728
    
    
    
    172
    
    
    
    34,478Total Goliath
    
    
    
    
    
    
    69,020
    
    
    
    3,971
    
    
    
    172
    
    
    
    73,163BigFoot**
    
    
    2010
    
    
    
    235
    
    
    
    1,959
    
    
    
    
    
    
    
    2,1942011
    
    
    
    3,276
    
    
    
    
    
    
    
    
    
    
    
    3,2762012
    
    
    
    9,659
    
    
    
    37,918
    
    
    
    
    
    
    
    47,5772013
    
    
    
    2,015
    
    
    
    21,169
    
    
    
    
    
    
    
    23,184Later
    
    
    
    53,049
    
    
    
    240
    
    
    
    1,644
    
    
    
    54,933Total BigFoot
    
    
    
    
    
    
    68,234
    
    
    
    61,286
    
    
    
    1,644
    
    
    
    131,164Other (WY & ND)
    
    After 2013
    
    
    
    113
    
    
    
    
    
    
    
    11,456
    
    
    
    11,569Total of the above
    
    
    
    
    
    
    137,367
    
    
    
    65,257
    
    
    
    13,272
    
    
    
    215,896Other undeveloped and rounding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104Total undeveloped
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    216,000
  
   19




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Delay
    
    
    ExtensionRentals
    
    
    Fees
    
    
    Total2010
    
    $
    121,513
    
    
    $
    6,560,031
    
    
    $
    6,681,5442011
    
    $
    74,464
    
    
    $
    588,553
    
    
    $
    663,0172012
    
    $
    32,827
    
    
    $
    284,307
    
    
    $
    317,1342013
    
    $
    10,565
    
    
    $
    29,557
    
    
    $
    40,1222014
    
    $
    10,325
    
    
    $
    
    
    
    $
    10,3252015
    
    $
    10,325
    
    
    $
    68,222
    
    
    $
    78,5472016
    
    $
    5,085
    
    
    $
    
    
    
    $
    5,085Thereafter
    
    $
    1,043
    
    
    $
    
    
    
    $
    1,043
 Production Sales Volumes, Sales Prices and Production Costs
   Year Ended December 31,For the Company in Total
    
    2009
    
    
    2008
    
    
    2007Our Share of Produced Volumes Sold:Natural gas (MMcf)
    
    
    222.6
    
    
    
    173.1
    
    
    
    139.6Oil (Bbls)
    
    
    20,026
    
    
    
    19,221
    
    
    
    17,267Total equivalents barrels (boe, 6 mcf = 1 boe)
    
    
    57,120
    
    
    
    48,076
    
    
    
    40,532Average Sales Price Per Unit:Natural gas (per Mcf)
    
    $
    3.72
    
    
    $
    7.06
    
    
    $
    6.09Oil (per Bbl)
    
    $
    52.75
    
    
    $
    86.96
    
    
    $
    64.11Weighted average (per Boe)
    
    $
    33.00
    
    
    $
    60.21
    
    
    $
    48.27Lease Operating Expenses (per Boe):Production and ad valorem taxes per BOE
    
    $
    3.82
    
    
    $
    6.60
    
    
    $
    5.50Other lease operating expenses per BOE
    
    $
    15.20
    
    
    $
    20.00
    
    
    $
    10.44Total lease operating expenses per BOE
    
    $
    19.02
    
    
    $
    26.60
    
    
    $
    15.94
  20




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Year Ended December 31,For the Fetter Field
    
    2009
    
    
    2008
    
    
    2007Our Share of Produced Volumes Sold:Natural gas (MMcf)
    
    
    195.0
    
    
    
    131.8
    
    
    
    109.2Oil (Bbls)
    
    
    8,084
    
    
    
    4,996
    
    
    
    5,317Total equivalents barrels (boe, 6 mcf = 1 boe)
    
    
    40,576
    
    
    
    26,969
    
    
    
    23,521Average Sales Price Per Unit:Natural gas (per Mcf)
    
    $
    3.63
    
    
    $
    6.51
    
    
    $
    6.28Oil (per Bbl)
    
    $
    51.62
    
    
    $
    80.90
    
    
    $
    64.87Weighted average (per Boe)
    
    $
    27.70
    
    
    $
    46.80
    
    
    $
    43.80Lease Operating Expenses (per Boe):Production and ad valorem taxes per BOE
    
    $
    3.37
    
    
    $
    5.49
    
    
    $
    5.09Other lease operating expenses per BOE
    
    $
    12.16
    
    
    $
    12.62
    
    
    $
    5.27Total lease operating expenses per BOE
    
    $
    15.53
    
    
    $
    18.11
    
    
    $
    10.36
 For the Bear Creek field
 Oil and Gas Drilling Activities
      21




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Oil and Gas Wells
  Productive Wells as of December 31, 2009Gross (a)
    
    
    Net (b)Location
    
    Oil
    
    
    Gas
    
    
    Total
    
    
    Oil
    
    
    Gas
    
    
    TotalWyoming*
    
    
    7
    
    
    
    9
    
    
    
    16
    
    
    
    2.07
    
    
    
    4.39
    
    
    
    6.46North Dakota
    
    
    10
    
    
    
    2
    
    
    
    12
    
    
    
    0.83
    
    
    
    0.23
    
    
    
    1.06Total
    
    
    17
    
    
    
    11
    
    
    
    28
    
    
    
    2.90
    
    
    
    4.62
    
    
    
    7.52* WY wells to be
sold in March 2010
    
    
    7
    
    
    
    7
    
    
    
    14
    
    
    
    2.07
    
    
    
    3.44
    
    
    
    5.51
 (a)
    
    The number of gross wells is the total number of wells in which a working interest is owned.(b)
    
    The number of net wells is the sum of fractional working interests we own in gross wells
expressed as whole numbers and fractions thereof. Delivery Commitments
  Office Facilities
 th
 Annual RentalYear
    
    Amount2010
    
    $
    340,7902011
    
    $
    347,0202012
    
    $
    353,2512013
    
    $
    148,270Thereafter
    
    $
    
 
 Item 3: Legal Proceedings
    22




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Item 4: [Reserved]
 
 PART II
 
 Item 5:
    Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
 Market Information
  Common Stock PriceHigh
    
    
    Low2008Quarter ended March 31, 2008
    
    $
    5.95
    
    
    $
    3.00Quarter ended June 30, 2008
    
    $
    5.00
    
    
    $
    2.75Quarter ended September 30, 2008
    
    $
    3.98
    
    
    $
    2.00Quarter ended December 31, 2008
    
    $
    2.81
    
    
    $
    0.622009Quarter ended March 31, 2009
    
    $
    1.15
    
    
    $
    0.50Quarter ended June 30, 2009
    
    $
    1.59
    
    
    $
    0.65Quarter ended September 30, 2009
    
    $
    2.05
    
    
    $
    0.79Quarter ended December 31, 2009
    
    $
    4.50
    
    
    $
    1.81
  Holders
  Dividend Policy
  Issuer Purchases of Equity Securities
   23




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Performance Graph
  
 S&P Small CapAEZ
    
    
    600 Energy
    
    
    S&P 50012/31/2004
    
    $
    100.00
    
    
    $
    100.00
    
    
    $
    100.0012/31/2005
    
    $
    147.27
    
    
    $
    152.17
    
    
    $
    104.8512/31/2006
    
    $
    236.73
    
    
    $
    179.00
    
    
    $
    120.9712/31/2007
    
    $
    210.91
    
    
    $
    220.90
    
    
    $
    127.2912/31/2008
    
    $
    29.09
    
    
    $
    119.23
    
    
    $
    82.6312/31/2009
    
    $
    152.73
    
    
    $
    195.43
    
    
    $
    102.14
  24




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##### Table of Contents



Item 6: Selected Consolidated Financial Data
  Year Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(in thousands, except per share data)Statement of Operations Data:Production Revenues
    
    $
    1,885
    
    
    $
    2,895
    
    
    $
    1,957
    
    
    $
    2,257
    
    
    $
    4,691Service fee and other revenues
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    1,530
    
    
    
    Operating expenses:Lease operating expenses
    
    
    1,086
    
    
    
    1,279
    
    
    
    646
    
    
    
    291
    
    
    
    246General and administrative
    
    
    5,271
    
    
    
    4,372
    
    
    
    4,308
    
    
    
    4,009
    
    
    
    2,032Depreciation, depletion and amortization
    
    
    971
    
    
    
    1,466
    
    
    
    1,267
    
    
    
    1,153
    
    
    
    1,532Accretion of asset retirement obligation
    
    
    40
    
    
    
    33
    
    
    
    24
    
    
    
    11
    
    
    
    6Property impairments
    
    
    4,500
    
    
    
    24,310
    
    
    
    
    
    
    
    4,360
    
    
    
    Inventory impairments
    
    
    566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Goodwill impairment
    
    
    
    
    
    
    11,670
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    12,434
    
    
    
    43,130
    
    
    
    6,245
    
    
    
    9,824
    
    
    
    3,816Gain on sales of oil and gas properties
    
    
    
    
    
    
    16,500
    
    
    
    
    
    
    
    7,159
    
    
    
    Operating income (loss)
    
    
    (10,549
    )
    
    
    (23,735
    )
    
    
    (4,276
    )
    
    
    1,122
    
    
    
    875Other income (expense)Investment income
    
    
    58
    
    
    
    511
    
    
    
    1,021
    
    
    
    393
    
    
    
    204Loss on sale of securities
    
    
    
    
    
    
    (369
    )
    
    
    (15
    )
    
    
    
    
    
    
    Impairment of securities investment
    
    
    
    
    
    
    (300
    )
    
    
    (952
    )
    
    
    
    
    
    
    Interest expense
    
    
    
    
    
    
    (107
    )
    
    
    (6
    )
    
    
    
    
    
    
    Total other income (expense)
    
    
    58
    
    
    
    (265
    )
    
    
    48
    
    
    
    393
    
    
    
    204Income (loss) before income taxes
    
    
    (10,491
    )
    
    
    (24,000
    )
    
    
    (4,228
    )
    
    
    1,515
    
    
    
    1,079Income tax benefit (provision)
    
    
    150
    
    
    
    468
    
    
    
    1,485
    
    
    
    (304
    )
    
    
    (46
    )Net Income (loss)
    
    
    (10,341
    )
    
    
    (23,532
    )
    
    
    (2,743
    )
    
    
    1,211
    
    
    
    1,033Dividends on preferred stock
    
    
    
    
    
    
    (328
    )
    
    
    (603
    )
    
    
    (1,080
    )
    
    
    (479
    )Deemed dividends on warrant extensions
    
    
    
    
    
    
    (300
    )
    
    
    (450
    )
    
    
    
    
    
    
    Net Income (loss) attributable to common
stockholders
    
    $
    (10,341
    )
    
    $
    (24,160
    )
    
    $
    (3,796
    )
    
    $
    131
    
    
    $
    554Income (loss) per common share:Basic
    
    $
    (0.21
    )
    
    $
    (0.51
    )
    
    $
    (0.09
    )
    
    $
    0.00
    
    
    $
    0.02Diluted
    
    $
    (0.21
    )
    
    $
    (0.51
    )
    
    $
    (0.09
    )
    
    $
    0.00
    
    
    $
    0.02Weighted average number of common shares
outstanding:Basic
    
    
    48,516
    
    
    
    47,104
    
    
    
    44,384
    
    
    
    37,429
    
    
    
    34,148Diluted
    
    
    48,516
    
    
    
    47,104
    
    
    
    44,384
    
    
    
    38,142
    
    
    
    34,956
  25




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##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(in thousands, except per share data)Selected Cash Flow and Other Financial Data:Net income (loss)
    
    $
    (10,341
    )
    
    $
    (23,532
    )
    
    $
    (2,743
    )
    
    $
    1,211
    
    
    $
    1,033Less: gains on sales of oil and gas properties
    
    
    
    
    
    
    (16,500
    )
    
    
    
    
    
    
    (7,159
    )
    
    
    Add back: Property impairments
    
    
    4,500
    
    
    
    24,310
    
    
    
    
    
    
    
    4,360
    
    
    
    Add back: Goodwill impairment
    
    
    
    
    
    
    11,670
    
    
    
    
    
    
    
    
    
    
    
    Depreciation, depletion and amortization
    
    
    971
    
    
    
    1,466
    
    
    
    1,267
    
    
    
    1,153
    
    
    
    1,532Net loss on sales of securities
    
    
    
    
    
    
    369
    
    
    
    15
    
    
    
    
    
    
    
    Other non-cash items
    
    
    1,075
    
    
    
    525
    
    
    
    582
    
    
    
    308
    
    
    
    466Changes in current assets and liabilities
    
    
    67
    
    
    
    722
    
    
    
    (292
    )
    
    
    1,496
    
    
    
    (1,163
    )Net cash provided (used) by operating
activities
    
    $
    (3,728
    )
    
    $
    (2,414
    )
    
    $
    (1,171
    )
    
    $
    1,369
    
    
    $
    1,868Cash provided (used) by:Proceeds from sale of stock
    
    $
    31,500
    
    
    $
    
    
    
    $
    28,507
    
    
    $
    
    
    
    $
    13,500Purchases of short-term investments
    
    $
    
    
    
    $
    
    
    
    $
    (28,750
    )
    
    $
    
    
    
    $
    Sales/redemptions, short-term investments
    
    $
    2,600
    
    
    $
    12,184
    
    
    $
    12,361
    
    
    $
    
    
    
    $
    Capital expenditures
    
    $
    (12,188
    )
    
    $
    (20,640
    )
    
    $
    (16,214
    )
    
    $
    (16,152
    )
    
    $
    (14,147
    )Sales of oil and gas properties
    
    $
    712
    
    
    $
    31,695
    
    
    $
    777
    
    
    $
    16,067
    
    
    $
    Short-term loans
    
    $
    
    
    
    $
    10,925
    
    
    $
    
    
    
    $
    
    
    
    $
    Repayment of short-term loans
    
    $
    
    
    
    $
    (10,925
    )
    
    $
    
    
    
    $
    
    
    
    $
    Balance Sheet Data:Cash and cash equivalents
    
    $
    40,632
    
    
    $
    23,270
    
    
    $
    2,388
    
    
    $
    7,488
    
    
    $
    6,023Other current assets
    
    
    4,910
    
    
    
    8,007
    
    
    
    19,408
    
    
    
    10,013
    
    
    
    1,679Oil and natural gas properties, net of
accumulated depreciation, depletion,
amortization and impairment
    
    
    38,945
    
    
    
    35,660
    
    
    
    53,402
    
    
    
    38,869
    
    
    
    24,921Other property and equipment, net of
depreciation
    
    
    145
    
    
    
    182
    
    
    
    230
    
    
    
    252
    
    
    
    58Other assets
    
    
    140
    
    
    
    270
    
    
    
    12,663
    
    
    
    12,514
    
    
    
    13,094Total assets
    
    $
    84,772
    
    
    $
    67,389
    
    
    $
    88,091
    
    
    $
    69,136
    
    
    $
    45,775Current liabilities
    
    $
    1,032
    
    
    $
    4,390
    
    
    $
    1,831
    
    
    $
    4,656
    
    
    $
    1,434Long term liabilities
    
    
    437
    
    
    
    431
    
    
    
    1,383
    
    
    
    2,392
    
    
    
    2,010Stockholders equity
    
    
    83,303
    
    
    
    62,568
    
    
    
    84,877
    
    
    
    62,088
    
    
    
    42,331Total liabilities and stockholders equity
    
    $
    84,772
    
    
    $
    67,389
    
    
    $
    88,091
    
    
    $
    69,136
    
    
    $
    45,775
  26




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##### Table of Contents



Item 7: Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
  Overview
       Results of Operations
 Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
   27




---



##### Table of Contents



Oil and Gas Operations
   Year Ended December 31,2009
    
    
    2008Oil sold (barrels)
    
    
    20,026
    
    
    
    19,221Average oil price
    
    $
    52.75
    
    
    $
    86.96Oil revenue
    
    $
    1,056,466
    
    
    $
    1,671,451Gas sold (mcf)
    
    
    222,561
    
    
    
    173,129Average gas price
    
    $
    3.72
    
    
    $
    7.06Gas revenue
    
    $
    828,670
    
    
    $
    1,223,138Total oil and gas revenues
    
    $
    1,885,136
    
    
    $
    2,894,589Less lease operating expenses
    
    
    (1,086,539
    )
    
    
    (1,278,668
    )Less oil & gas amortization expense
    
    
    (714,000
    )
    
    
    (1,210,000
    )Less accretion of asset retirement obligations
    
    
    (39,873
    )
    
    
    (32,936
    )Less impairments of oil and gas properties
    
    
    (4,500,000
    )
    
    
    (24,310,000
    )Less impairments of materials and supplies
inventories
    
    
    (565,991
    )
    
    
    Plus gain on sale of oil and gas properties
    
    
    
    
    
    
    16,500,000Income (loss) from oil and gas operations
    
    
    (5,021,267
    )
    
    
    (7,437,015
    )Less general and administrative expenses
    
    
    (5,270,873
    )
    
    
    (4,372,202
    )Less intangible asset amortization
    
    
    (180,000
    )
    
    
    (180,000
    )Less depreciation of office facilities
    
    
    (76,968
    )
    
    
    (75,772
    )Less impairment of goodwill
    
    
    
    
    
    
    (11,670,468
    )Income (loss) from operations
    
    $
    (10,549,108
    )
    
    $
    (23,735,457
    )Total barrels of oil equivalent (boe) sold
    
    
    57,120
    
    
    
    48,076Oil and gas revenue per boe sold
    
    $
    33.00
    
    
    $
    60.21Lease operating expense per boe sold
    
    $
    19.02
    
    
    $
    26.60Amortization expense per boe sold
    
    $
    12.50
    
    
    $
    25.17
 Impairments of Oil and Gas Properties
    28




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##### Table of Contents



Impairments of Materials and Supplies Inventories
  General and Administrative Expenses
  Other Income (Loss)
  2009
    
    
    2008Investment income from auction rate preferred shares and cash sweeps
    
    $
    57,763
    
    
    $
    511,599Recognized impairment of auction rate preferred shares
    
    
    
    
    
    
    (300,000
    )Interest expense, due to illiquidity in 2008 of auction rate preferred shares
    
    
    
    
    
    
    (107,047
    )Net income of auction rate preferred shares and cash sweeps
    
    
    57,763
    
    
    
    104,552Losses on unregistered PetroHunter common stock sold in 2008
    
    
    
    
    
    
    (369,172
    )Total other income (loss)
    
    $
    57,763
    
    
    $
    (264,620
    )
 Income Taxes
  Dividends
  Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
   29




---



##### Table of Contents



Oil and Gas Operations
  Year Ended December 31,2008
    
    
    2007Oil sold (barrels)
    
    
    19,221
    
    
    
    17,267Average oil price
    
    $
    86.96
    
    
    $
    64.11Oil revenue
    
    $
    1,671,451
    
    
    $
    1,107,054Gas sold (mcf)
    
    
    173,129
    
    
    
    139,590Average gas price
    
    $
    7.06
    
    
    $
    6.09Gas revenue
    
    $
    1,223,138
    
    
    $
    849,454Total oil and gas revenues
    
    $
    2,894,589
    
    
    $
    1,956,508Less lease operating expenses
    
    
    (1,278,668
    )
    
    
    (646,000
    )Less oil & gas amortization expense
    
    
    (1,210,000
    )
    
    
    (1,021,817
    )Less accretion of asset retirement obligations
    
    
    (32,936
    )
    
    
    (23,767
    )Less impairments of oil and gas properties
    
    
    (24,310,000
    )
    
    
    Plus gain on sale of oil and gas properties
    
    
    16,500,000
    
    
    
    Income (loss) from oil and gas operations
    
    
    (7,437,015
    )
    
    
    264,924Less general and administrative expenses
    
    
    (4,372,202
    )
    
    
    (4,307,997
    )Less intangible asset amortization
    
    
    (180,000
    )
    
    
    (180,000
    )Less depreciation of office facilities
    
    
    (75,772
    )
    
    
    (65,225
    )Less impairment of goodwill
    
    
    (11,670,468
    )
    
    
    Add service fee revenue and other revenues
    
    
    
    
    
    
    12,000Income (loss) from operations
    
    $
    (23,735,457
    )
    
    $
    (4,276,298
    )Total barrels of oil equivalent (boe) sold
    
    
    48,076
    
    
    
    40,532Oil and gas revenue per boe sold
    
    $
    60.21
    
    
    $
    48.27Lease operating expense per boe sold
    
    $
    26.60
    
    
    $
    15.94Amortization expense per boe sold
    
    $
    25.17
    
    
    $
    25.21
 Impairments of Oil and Gas Properties
  Gain on Sales in 2008 of Oil and Gas Properties
   30




---



##### Table of Contents



Impairment of goodwill
 Intangibles  Goodwill and Others,
 Other Income (Loss)
  2008
    
    
    2007Investment income from auction rate preferred shares and cash sweeps
    
    $
    511,599
    
    
    $
    1,020,712Impairment of auction rate preferred shares
    
    
    (300,000
    )
    
    
    Interest expense, due to illiquidity in 2008 of auction rate preferred shares
    
    
    (107,047
    )
    
    
    Net income of auction rate preferred shares and cash sweeps
    
    
    104,552
    
    
    
    1,020,712Losses on unregistered PetroHunter common stock sold in 2007 and 2008
    
    
    (369,172
    )
    
    
    (966,618
    )Other interest expense
    
    
    
    
    
    
    (6,162
    )Total other income (loss)
    
    $
    (264,620
    )
    
    $
    47,932
  Income Taxes
  Dividends
   31




---



##### Table of Contents



Liquidity and Capital Resources
       Net Cash Used By Operating Activities
   32




---



##### Table of Contents



Net Cash Used In Investing Activities
     Net Cash Provided By Financing Activities
     33




---



##### Table of Contents



Contractual Obligations as of December 31, 2009
  Payment due by periodTotal
    
    
    2010
    
    
    2011-2013
    
    
    After 2013Lease of office space
    
    $
    1,189,331
    
    
    $
    340,790
    
    
    $
    848,541
    
    
    $
    Asset retirement obligations
    
    
    
    (a)
    
    
    
    (a)
    
    
    
    (a)
    
    
    
    (a)Long-term Debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,189,331
    
    
    $
    340,790
    
    
    $
    848,541
    
    
    $
    
 (a)
    
    The asset retirement obligations liability of $436,487 at December 31, 2009 is a discounted
present value of estimated future retirement obligations, excluding cost reductions for the
salvaging of equipment when wells are retired. The estimated asset retirement obligations, net of
associated estimated equipment salvage value, in total and by future periods is zero. Excluding
the properties to be sold in March 2010, our estimated total asset retirement obligations at
December 31, 2009, without reduction for equipment salvage value, is approximately $186,890 at
current prices. The estimated timing of the $186,890 in payments is $0 in 2010, $80,683 in the
three year period 2011 through 2013 and $106,207 after 2016. In many cases, timing will change as
factors (such as future changes in oil and gas prices) change the economic lives of our wells. FASB Codification Discussion
 The FASB Accounting Standards
Codification  and the Hierarchy of Generally Accepted Accounting Principle, Generally Accepted Accounting Principles.
 Critical Accounting Policies and Estimates
   34




---



##### Table of Contents



Full Cost Accounting Method
    Estimates of Proved Oil and Gas Reserves
  Estimates of Fair Values of Unevaluated and Evaluated Properties
   35




---



##### Table of Contents



Income Taxes
  Recently Issued Accounting Pronouncements
 FASB Codification The FASB Accounting Standards Codification  and the Hierarchy of
Generally Accepted Accounting Principle, Generally Accepted
Accounting Principles.
 Oil and Gas Reserve Information. Oil and Gas Producing Activities
  ASC Update 2010-06
   36




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##### Table of Contents



Fair Value Disclosures of Financial Instruments Financial Instruments
 
 Item 7A: Quantitative and Qualitative Disclosures about Market Risk
 Commodity Price Risk
   Operating Cost Risk
   Interest Rate Risk
   37




---



##### Table of Contents



Item 8: Financial Statements and Supplementary Data
 AMERICAN OIL & GAS INC.
INDEX TO FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2009 and 2008
    
    
    F-3Consolidated Statements of Operations for years ended
December 31, 2009, 2008 and 2007
    
    
    F-4Consolidated Statements of Cash Flows for years ended
December 31, 2009, 2008 and 2007
    
    
    F-5Consolidated Statements of Stockholders Equity and
Comprehensive Income for years ended December 31, 2009, 2008
and 2007
    
    
    F-6Notes to Consolidated Financial Statements
    
    F-7 to F-30
  F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Managements Annual Report on Internal Control Over Financial Reporting,
 /s/ HEIN & ASSOCIATES LLP
 
  F-2




---



##### Table of Contents



AMERICAN OIL & GAS INC.
 
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2009 AND 2008
 2009
    
    
    2008ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    40,632,284
    
    
    $
    23,269,725Short-term investments
    
    
    2,925,000
    
    
    
    5,450,000Accounts receivable
    
    
    564,533
    
    
    
    1,186,749Materials and supplies inventory
    
    
    1,269,774
    
    
    
    1,236,591Prepaid expenses
    
    
    149,991
    
    
    
    133,360Current deferred tax assets (net of valuation allowance, Note 6)
    
    
    
    
    
    
    Total current assets
    
    
    45,541,582
    
    
    
    31,276,425PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including unevaluated
costs of $35,611,363 at 12/31/09 and $31,837,965 at 12/31/08)
    
    
    44,454,942
    
    
    
    40,456,632Other property and equipment
    
    
    406,273
    
    
    
    366,354Total property and equipment
    
    
    44,861,215
    
    
    
    40,822,986Less accumulated depreciation, depletion and amortization
    
    
    (5,771,547
    )
    
    
    (4,980,578
    )Net property and equipment
    
    
    39,089,668
    
    
    
    35,842,408OTHER LONG-TERM ASSETSDeferred income tax assets (net of valuation allowance, Note 6)
    
    
    
    
    
    
    Intangible asset (net of accumulated amortization, Note 2)
    
    
    60,000
    
    
    
    240,000Other assets
    
    
    80,652
    
    
    
    30,385$
    84,771,902
    
    
    $
    67,389,218LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    1,032,248
    
    
    $
    4,286,618Income taxes payable
    
    
    
    
    
    
    104,000Total current liabilities
    
    
    1,032,248
    
    
    
    4,390,618LONG-TERM LIABILITIESAsset retirement obligations
    
    
    436,487
    
    
    
    430,686Deferred income taxes
    
    
    
    
    
    
    Total long-term liabilities
    
    
    436,487
    
    
    
    430,686COMMITMENTS AND CONTINGENCIES(Note 13)STOCKHOLDERS EQUITYPreferred stock, $.001 par value, authorized 24,100,000
shares; no outstanding shares at 12/31/09 and 12/31/08
    
    
    
    
    
    
    Common stock, $.001 par value, authorized 100,000,000 shares;
issued and outstanding shares: 57,472,399 at 12/31/09 and
47,875,899 at 12/31/08
    
    
    57,472
    
    
    
    47,876Additional paid-in capital
    
    
    122,267,594
    
    
    
    91,275,557Accumulated deficit
    
    
    (39,096,899
    )
    
    
    (28,755,519
    )Accumulated other comprehensive income
    
    
    75,000
    
    
    
    Total equity
    
    
    83,303,167
    
    
    
    62,567,914$
    84,771,902
    
    
    $
    67,389,218
   F-3




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##### Table of Contents



AMERICAN OIL & GAS INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
 2009
    
    
    2008
    
    
    2007REVENUESOil and gas sales
    
    $
    1,885,136
    
    
    $
    2,894,589
    
    
    $
    1,956,508Other revenues
    
    
    
    
    
    
    
    
    
    
    12,000Total revenues
    
    
    1,885,136
    
    
    
    2,894,589
    
    
    
    1,968,508OPERATING EXPENSESLease operating expenses
    
    
    1,086,539
    
    
    
    1,278,668
    
    
    
    646,000General and administrative
    
    
    5,270,873
    
    
    
    4,372,202
    
    
    
    4,307,997Depletion, depreciation and amortization
    
    
    970,968
    
    
    
    1,465,772
    
    
    
    1,267,042Accretion of asset retirement obligations
    
    
    39,873
    
    
    
    32,936
    
    
    
    23,767Impairments of oil and gas properties
    
    
    4,500,000
    
    
    
    24,310,000
    
    
    
    Impairments of materials and supplies inventory
    
    
    565,991
    
    
    
    
    
    
    
    Impairment of goodwill
    
    
    
    
    
    
    11,670,468
    
    
    
    Total operating expenses
    
    
    12,434,244
    
    
    
    43,130,046
    
    
    
    6,244,806GAIN ON SALE OF OIL & GAS PROPERTIES
    
    
    
    
    
    
    16,500,000
    
    
    
    LOSS FROM OPERATIONS
    
    
    (10,549,108
    )
    
    
    (23,735,457
    )
    
    
    (4,276,298
    )OTHER INCOME (LOSS)Investment income
    
    
    57,763
    
    
    
    511,599
    
    
    
    1,020,712Impairment of securities investment
    
    
    
    
    
    
    (300,000
    )
    
    
    (952,100
    )Loss on sale of securities
    
    
    
    
    
    
    (369,172
    )
    
    
    (14,518
    )Interest expense
    
    
    
    
    
    
    (107,047
    )
    
    
    (6,162
    )Total other income (loss)
    
    
    57,763
    
    
    
    (264,620
    )
    
    
    47,932LOSS BEFORE INCOME TAXES
    
    
    (10,491,345
    )
    
    
    (24,000,077
    )
    
    
    (4,228,366
    )Income tax expense  current
    
    
    (149,965
    )
    
    
    244,000
    
    
    
    Income tax expense (benefit)  deferred
    
    
    
    
    
    
    (712,345
    )
    
    
    (1,484,984
    )Income tax provision (benefit)
    
    
    (149,965
    )
    
    
    (468,345
    )
    
    
    (1,484,984
    )NET LOSS
    
    
    (10,341,380
    )
    
    
    (23,531,732
    )
    
    
    (2,743,382
    )Less dividends on preferred stock
    
    
    
    
    
    
    (327,882
    )
    
    
    (602,530
    )Less deemed dividends on warrant
extensions
    
    
    
    
    
    
    (300,000
    )
    
    
    (450,000
    )NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
    
    $
    (10,341,380
    )
    
    $
    (24,159,614
    )
    
    $
    (3,795,912
    )NET LOSS PER COMMON SHARE:Basic
    
    $
    (0.21
    )
    
    $
    (0.51
    )
    
    $
    (0.09
    )Diluted
    
    $
    (0.21
    )
    
    $
    (0.51
    )
    
    $
    (0.09
    )Weighted average common shares outstanding:Basic
    
    
    48,516,065
    
    
    
    47,104,025
    
    
    
    44,383,861Diluted
    
    
    48,516,065
    
    
    
    47,104,025
    
    
    
    44,383,861
   F-4




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##### Table of Contents



AMERICAN OIL & GAS INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
 2009
    
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (10,341,380
    )
    
    $
    (23,531,732
    )
    
    $
    (2,743,382
    )Adjustments to reconcile net loss to net cash provided
(used) by operating activities:Impairments of oil and gas properties
    
    
    4,500,000
    
    
    
    24,310,000
    
    
    
    Share-based compensation
    
    
    1,036,149
    
    
    
    904,006
    
    
    
    1,091,677Depletion, depreciation and amortization
    
    
    970,968
    
    
    
    1,465,772
    
    
    
    1,267,042Impairments of materials and supplies inventory
    
    
    565,991
    
    
    
    
    
    
    
    Accretion of asset retirement obligations
    
    
    39,873
    
    
    
    32,936
    
    
    
    23,767Gain on sales of oil and gas properties
    
    
    
    
    
    
    (16,500,000
    )
    
    
    Impairment of goodwill
    
    
    
    
    
    
    11,670,468
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    (712,345
    )
    
    
    (1,484,984
    )Unrealized loss on investment in securities
    
    
    
    
    
    
    300,000
    
    
    
    952,100Net loss on sales of securities
    
    
    
    
    
    
    369,172
    
    
    
    14,518Related changes in current assets and current liabilities:Decrease (increase) in accounts receivable
    
    
    259,359
    
    
    
    (164,227
    )
    
    
    (230,601
    )Decrease (increase) in material and supplies inventory
    
    
    (676,696
    )
    
    
    (739,253
    )
    
    
    Decrease (increase) in advances and prepaid expenses
    
    
    (16,631
    )
    
    
    16,080
    
    
    
    252,847Increase (decrease) in accounts payable and accrued
liabilities
    
    
    (65,418
    )
    
    
    164,991
    
    
    
    (314,090
    )Net cash used by operating activities
    
    
    (3,727,785
    )
    
    
    (2,414,132
    )
    
    
    (1,171,106
    )CASH FLOWS FROM INVESTING ACTIVITIESCash proceeds from sales of oil and gas properties
    
    
    712,500
    
    
    
    31,695,279
    
    
    
    777,461Cash paid for oil and gas properties
    
    
    (12,097,454
    )
    
    
    (20,612,267
    )
    
    
    (15,841,067
    )Cash paid for office equipment and software
    
    
    (39,919
    )
    
    
    (27,740
    )
    
    
    (43,129
    )Cash paid for drilling prepayments and other long-term
assets
    
    
    (50,267
    )
    
    
    
    
    
    
    (330,203
    )Cash purchases of short-term investments in securities
    
    
    
    
    
    
    
    
    
    
    (28,750,000
    )Cash proceeds from sale of short-term investments
    
    
    
    
    
    
    683,728
    
    
    
    12,360,482Cash proceeds from redemption of short-term investments
    
    
    2,600,000
    
    
    
    11,500,000
    
    
    
    Net cash provided (used) by investing activities
    
    
    (8,875,140
    )
    
    
    23,239,000
    
    
    
    (31,826,456
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from sale of common stock
    
    
    31,500,000
    
    
    
    
    
    
    
    28,506,602Cash paid for stock offering and issuance costs
    
    
    (1,864,516
    )
    
    
    
    
    
    
    (1,956,465
    )Proceeds from employee stock option exercise
    
    
    330,000
    
    
    
    
    
    
    
    642,145Proceeds from warrant exercise
    
    
    
    
    
    
    56,638
    
    
    
    705,025Proceeds from short-term borrowings
    
    
    
    
    
    
    10,925,900
    
    
    
    Repayment of short-term borrowings
    
    
    
    
    
    
    (10,925,900
    )
    
    
    Net cash provided by financing activities
    
    
    29,965,484
    
    
    
    56,638
    
    
    
    27,897,307NET INCREASE (DECREASE) IN CASH
    
    
    17,362,559
    
    
    
    20,881,506
    
    
    
    (5,100,255
    )CASH, BEGINNING OF YEAR
    
    
    23,269,725
    
    
    
    2,388,219
    
    
    
    7,488,474CASH, END OF YEAR
    
    $
    40,632,284
    
    
    $
    23,269,725
    
    
    $
    2,388,219
   F-5




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##### Table of Contents



AMERICAN OIL & GAS INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
 FOR YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
 Additional
    
    
    Comprehensive IncomePreferred
    
    
    Stock
    
    
    Common
    
    
    Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Accumulated
    
    
    TotalShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Other Income
    
    
    EquityDecember 31, 2006 Balances
    
    
    250,000
    
    
    $
    250
    
    
    
    38,927,114
    
    
    $
    38,927
    
    
    $
    59,174,874
    
    
    $
    (799,993
    )
    
    $
    3,673,615
    
    
    $
    62,087,673Conversion of preferred to common
    
    
    (112,000
    )
    
    
    (112
    )
    
    
    1,008,000
    
    
    
    1,008
    
    
    
    (896
    )
    
    
    
    
    
    
    
    
    
    
    Accrued dividends, Series AA Pref.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (602,530
    )
    
    
    
    
    
    
    (602,530
    )Series AA preferred stock dividends
paid in common stock
    
    
    
    
    
    
    
    
    
    
    131,155
    
    
    
    131
    
    
    
    820,093
    
    
    
    
    
    
    
    
    
    
    
    820,224Sale of stock at $4.75/share for cash
    
    
    
    
    
    
    
    
    
    
    6,001,390
    
    
    
    6,001
    
    
    
    28,500,601
    
    
    
    
    
    
    
    
    
    
    
    28,506,602Cash paid for stock offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,956,465
    )
    
    
    
    
    
    
    
    
    
    
    (1,956,465
    )Exercise of employee stock options
    
    
    
    
    
    
    
    
    
    
    134,300
    
    
    
    134
    
    
    
    642,011
    
    
    
    
    
    
    
    
    
    
    
    642,145Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    117,504
    
    
    
    118
    
    
    
    704,907
    
    
    
    
    
    
    
    
    
    
    
    705,025Deemed dividends on warrant extensions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450,000
    
    
    
    (450,000
    )
    
    
    
    
    
    
    Share-based compensation:Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    914,301
    
    
    
    
    
    
    
    
    
    
    
    914,301Deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    109,600
    
    
    
    110
    
    
    
    (110
    )
    
    
    
    
    
    
    
    
    
    
    Accrued stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    148,176
    
    
    
    
    
    
    
    
    
    
    
    148,176Common stock granted & issued
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    5
    
    
    
    29,195
    
    
    
    
    
    
    
    
    
    
    
    29,200Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,743,382
    )Decline in unrealized gain on
short- term investment, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,673,615
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,416,997
    )December 31, 2007 Balances
    
    
    138,000
    
    
    $
    138
    
    
    
    46,434,063
    
    
    $
    46,434
    
    
    $
    89,426,687
    
    
    $
    (4,595,905
    )
    
    $
    
    
    
    $
    84,877,354Conversion of preferred to common
    
    
    (138,000
    )
    
    
    (138
    )
    
    
    1,242,000
    
    
    
    1,242
    
    
    
    (1,104
    )
    
    
    
    
    
    
    
    
    
    
    Accrued dividends, Series AA Pref.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (327,882
    )
    
    
    
    
    
    
    (327,882
    )Series AA preferred stock dividends
paid in common stock
    
    
    
    
    
    
    
    
    
    
    130,986
    
    
    
    131
    
    
    
    589,399
    
    
    
    
    
    
    
    
    
    
    
    589,530Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    64,850
    
    
    
    65
    
    
    
    56,573
    
    
    
    
    
    
    
    
    
    
    
    56,638Deemed dividends on warrant extensions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000
    
    
    
    (300,000
    )
    
    
    
    
    
    
    Share-based compensation:Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    735,286
    
    
    
    
    
    
    
    
    
    
    
    735,286Accrued stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    151,000
    
    
    
    
    
    
    
    
    
    
    
    151,000Common stock granted and issued
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    4
    
    
    
    17,716
    
    
    
    
    
    
    
    
    
    
    
    17,720Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,531,732
    )
    
    
    
    
    
    
    (23,531,732
    )December 31, 2008 Balances
    
    
    
    
    
    $
    
    
    
    
    47,875,899
    
    
    $
    47,876
    
    
    $
    91,275,557
    
    
    $
    (28,755,519
    )
    
    $
    
    
    
    $
    62,567,914Sale of stock at $3.50/share for cash
    
    
    
    
    
    
    
    
    
    
    9,000,000
    
    
    
    9,000
    
    
    
    31,491,000
    
    
    
    
    
    
    
    
    
    
    
    31,500,000Cash paid for stock offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,864,516
    )
    
    
    
    
    
    
    
    
    
    
    (1,864,516
    )Exercise of employee stock options
    
    
    
    
    
    
    
    
    
    
    165,000
    
    
    
    165
    
    
    
    329,835
    
    
    
    
    
    
    
    
    
    
    
    330,000Share-based compensation:Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    747,516
    
    
    
    
    
    
    
    
    
    
    
    747,516Accrued stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202,933
    
    
    
    
    
    
    
    
    
    
    
    202,933Common stock granted and issued
    
    
    
    
    
    
    
    
    
    
    431,500
    
    
    
    431
    
    
    
    83,269
    
    
    
    
    
    
    
    
    
    
    
    83,700Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,341,380
    )Increase in unrealized gain on
short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,266,380
    )December 31, 2009 Balances
    
    
    
    
    
    $
    
    
    
    
    57,472,399
    
    
    $
    57,472
    
    
    $
    122,267,594
    
    
    $
    (39,096,899
    )
    
    $
    75,000
    
    
    $
    83,303,167
   F-6




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##### Table of Contents



AMERICAN OIL & GAS INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 as of December 31, 2009 and 2008 and for the years ended December 31, 2009, 2008 and 2007
 NOTE 1  ORGANIZATION AND BASIS OF PRESENTATION
 ORGANIZATION
      BASIS OF PRESENTATION
 FASB Accounting Standards Codification,  Subsequent Events
  
    
    estimates of proven (i.e., reasonably certain) oil and gas reserve quantities, which
affect the calculations of amortization and impairment of capitalized costs of oil and
gas properties;
 
    
    estimates of the fair value of oil and gas properties we own, particularly
properties that we have not yet explored, or fully explored, by drilling and completing
wells;
 
    
    estimates of the fair value of stock options at date of grant;
 
    
    estimates as to the future realization of deferred income tax assets; and
  F-7




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##### Table of Contents




    
    the assumption required by GAAP that proved reserves and generally proved reserve
value for measuring capitalized cost impairment be based (for each proved property) on
simple averages of the preceding twelve months historical oil and gas prices on the
first day of each month.
    NOTE 2  SIGNIFICANT ACCOUNTING POLICIES
 CASH AND CASH EQUIVALENTS 
 FAIR VALUE 
 SHORT-TERM INVESTMENTS 
 ACCOUNTS RECEIVABLE AND CREDIT POLICIES 
  ASSET RETIREMENT OBLIGATIONS 
  F-8




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##### Table of Contents



2009
    
    
    2008Asset retirement obligation beginning of year
    
    $
    430,686
    
    
    $
    323,369Liabilities incurred
    
    
    58,534
    
    
    
    101,638Liabilities settled
    
    
    (79,432
    )
    
    
    (51,996
    )Accretion
    
    
    39,873
    
    
    
    32,936Revisions in estimated liabilities
    
    
    (13,174
    )
    
    
    24,739Asset retirement obligation end of year
    
    $
    436,487
    
    
    $
    430,686Current portion of obligation end of year
    
    $
    
    
    
    $
    
 OIL AND GAS PROPERTIES 
  th ths
   F-9




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##### Table of Contents



OTHER PROPERTY AND EQUIPMENT 
 IMPAIRMENT  Property, Plant and Equipment  Subsequent Measurement,
 BUSINESS COMBINATIONS AND GOODWILL Business Combinations
 Intangibles  Goodwill and Other
 INTANGIBLE ASSETS
 INCOME TAXES Income
Taxes
 REVENUE RECOGNITION AND GAS BALANCING
  F-10




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##### Table of Contents



Major Customers:
 Major Customers
    
    2009
    
    
    2008
    
    
    2007DCP Midstream LLC
    
    
    38
    %
    
    
    31
    %
    
    
    36
    %Wyoming Refining Company
    
    
    23
    %
    
    
    15
    %
    
    
    13
    %Shell Trading (US) Company
    
    
    10
    %
    
    
    17
    %
    
    
    19
    %Nexen Marketing U.S.A., Inc.
    
    
    
    
    
    
    
    
    
    
    13
    %Total
    
    
    71
    %
    
    
    63
    %
    
    
    81
    %
  NET INCOME (LOSS) PER SHARE
 CONCENTRATION OF CREDIT RISK 
 SHARE-BASED COMPENSATION  Share-Based Payment Compensation  Stock Compensation Equity Based Payments to Non-Employees
 OFF BALANCE SHEET ARRANGEMENTS 
 PRINCIPLES OF CONSOLIDATION 
 SEGMENT REPORTING  Segment Reporting
 RECLASSIFICATION 
 SUBSEQUENT EVENTS  
  F-11




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##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS
 FASB Codification The FASB Accounting Standards Codification  and the Hierarchy of
Generally Accepted Accounting Principle, Generally Accepted
Accounting Principles.
 Oil and Gas Reserve Information. Oil and Gas Producing Activities
  ASC Update 2010-06
   Fair Value Disclosures of Financial Instruments Financial Instruments
  F-12




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##### Table of Contents



NOTE 3  PROPERTY AND EQUIPMENT
  2009
    
    
    2008Oil and gas properties, full cost methodUnevaluated costs, not yet subject to amortization
    
    $
    35,611,363
    
    
    $
    31,837,965Evaluated costs
    
    
    8,843,579
    
    
    
    8,618,66744,454,942
    
    
    
    40,456,632Less accumulated amortization
    
    
    (5,510,016
    )
    
    
    (4,796,016
    )Net carrying value of oil and gas properties
    
    
    38,944,926
    
    
    
    35,660,616Cost of other property and equipment
    
    
    406,273
    
    
    
    366,354Less accumulated depreciation and amortization
    
    
    (261,531
    )
    
    
    (184,562
    )Net property and equipment
    
    $
    39,089,668
    
    
    $
    35,842,408
  Unevaluated Oil and Gas Properties
   Capitalized Costs
    
    
    Approximate Acres 12/31/09(in millions)
    
    
    (Unaudited)Net
    
    
    
    
    
    
    
    
    
    
    Lease
    
    
    OurProject (State)
    
    12/31/08
    
    
    Change
    
    
    12/31/09
    
    
    Gross
    
    
    Net*
    
    
    Net*Properties to be sold by March 31, 2010:Fetter Project, Powder River Basin (WY)
    
    $
    14.7
    
    
    $
    0.3
    
    
    $
    15.0Krejci Oil Project, Powder River Basin (WY)
    
    
    2.4
    
    
    
    0.1
    
    
    
    2.5Other, Powder River Basin (WY)
    
    
    1.2
    
    
    
    0.0
    
    
    
    1.2Total, unevaluated properties to be sold
    
    
    18.3
    
    
    
    0.4
    
    
    
    18.7
    
    
    
    
    
    
    
    
    
    
    
    97,000Goliath Project, Williston Basin (ND)
    
    
    7.7
    
    
    
    2.5
    
    
    
    10.2
    
    
    
    106,000
    
    
    
    79,000
    
    
    
    73,000Bigfoot Project
    
    
    3.3
    
    
    
    1.7
    
    
    
    5.0
    
    
    
    213,000
    
    
    
    188,000
    
    
    
    131,000Other unevaluated costs and acreage
    
    
    2.5
    
    
    
    (0.8
    )
    
    
    1.7
    
    
    
    21,000
    
    
    
    20,000
    
    
    
    12,000Total unevaluated costs and net acres
    
    $
    31.8
    
    
    
    3.8
    
    
    $
    35.6
    
    
    
    
    
    
    
    
    
    
    
    313,000
 *
    
    Lease net acres represent the proportion of gross surface acreage for which we and our working
interest partners have leased the underlying mineral rights for exploration and production. Our
net acres amount is the product of the lease net acres times our average effective working
interest percentage.  F-13




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##### Table of Contents




    
    Substantially all costs are for property acquisitions;
 
    
    The $18.7 million for properties to be sold in late March 2010 will be reclassified
within the full cost pool consistent with gain determination and recognition at the time
of sale;
 
    
    We anticipate that substantially all of the $10.2 million in unevaluated costs at
Goliath will be moved into the amortization base over 2010 and 2011, as wells are
drilled;
 
    
    We anticipate that the $5 million in unevaluated costs at Bigfoot will remain
substantially unevaluated in 2010, with future reclassification to evaluated dependent
on future drilling and development activities; and
 
    
    We anticipate the $1.7 million in other unevaluated costs will be substantially
reclassified to the amortization base over the two-year period ending December 31, 2011.
  th th
  Net Costs
    
    
    Costs of Properties BeingYear Incurred
    
    Incurred
    
    
    Sold
    
    
    RetainedYear ended December 31, 2009
    
    $
    6,222,972
    
    
    $
    664,934
    
    
    $
    5,558,038Year ended December 31, 2008
    
    
    5,547,971
    
    
    
    2,036,087
    
    
    
    3,511,884Year ended December 31, 2007
    
    
    3,469,209
    
    
    
    1,805,688
    
    
    
    1,663,521Year ended December 31, 2006
    
    
    12,230,777
    
    
    
    11,948,320
    
    
    
    282,457Year ended December 31, 2005
    
    
    7,810,852
    
    
    
    1,886,209
    
    
    
    5,924,643Prior to 2005
    
    
    329,582
    
    
    
    329,582
    
    
    
    Total costs as of December 31, 2009
    
    $
    35,611,363
    
    
    $
    18,670,820
    
    
    $
    16,940,543
 Sales of Oil & Gas Properties
    F-14




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##### Table of Contents



Property Acquisition, Exploration and Development Costs
  2009
    
    
    2008
    
    
    2007Property acquisition costs, unproved properties
    
    $
    5,183,876
    
    
    $
    6,275,102
    
    
    $
    4,395,467Property acquisition costs, proved properties
    
    
    400,000
    
    
    
    
    
    
    
    Exploration costs
    
    
    1,856,611
    
    
    
    13,563,077
    
    
    
    11,364,497Development costs
    
    
    1,804,395
    
    
    
    3,042,469
    
    
    
    Asset retirement costs
    
    
    58,534
    
    
    
    74,381
    
    
    
    73,516$
    9,303,416
    
    
    $
    22,955,029
    
    
    $
    15,833,480
  Impairment of Oil and Gas Properties
   Amortization Rate
   2009
    
    
    2008
    
    
    2007Amortization of costs for evaluated oil and gas properties
    
    $
    714,000
    
    
    $
    1,210,000
    
    
    $
    1,021,817Depreciation of office equipment, furniture and software
    
    
    76,968
    
    
    
    75,772
    
    
    
    65,225Amortization of Other Intangible Asset
    
    
    180,000
    
    
    
    180,000
    
    
    
    180,000Total DD&A expense
    
    $
    970,968
    
    
    $
    1,465,772
    
    
    $
    1,267,042
  F-15




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##### Table of Contents



NOTE 4  SHORT-TERM INVESTMENTS
      Par Values ($ thousands)
    
    
    Fair Values ($ thousands)Calamos
    
    
    Other
    
    
    All
    
    
    Calamos
    
    
    Other
    
    
    AllFunds
    
    
    Funds
    
    
    Funds
    
    
    Funds
    
    
    Funds
    
    
    FundsBalance at December 31, 2007
    
    
    11,275
    
    
    
    6,050
    
    
    
    17,325
    
    
    
    11,275
    
    
    
    6,050
    
    
    
    17,325Less sales
prior to 2/16/2008
    
    
    (25
    )
    
    
    (50
    )
    
    
    (75
    )
    
    
    (25
    )
    
    
    (50
    )
    
    
    (75
    )Less redemptions by 12/31/08
    
    
    (8,925
    )
    
    
    (2,575
    )
    
    
    (11,500
    )
    
    
    (8,925
    )
    
    
    (2,575
    )
    
    
    (11,500
    )Other-than-temporary loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300
    )
    
    
    (300
    )Balance at December 31, 2008
    
    
    2,325
    
    
    
    3,425
    
    
    
    5,750
    
    
    
    2,325
    
    
    
    3,125
    
    
    
    5,450Less redemptions by 3/31/09
    
    
    
    
    
    
    (200
    )
    
    
    (200
    )
    
    
    
    
    
    
    (200
    )
    
    
    (200
    )Temporary loss at 3/31/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250
    )
    
    
    
    
    
    
    (250
    )Balance at March 31, 2009
    
    
    2,325
    
    
    
    3,225
    
    
    
    5,550
    
    
    
    2,075
    
    
    
    2,925
    
    
    
    5,000Less redemptions by 6/30/09
    
    
    (1,300
    )
    
    
    (75
    )
    
    
    (1,375
    )
    
    
    (1,300
    )
    
    
    (75
    )
    
    
    (1,375
    )Fair value increases by 6/30/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    75
    
    
    
    325Balance at June 30, 2009
    
    
    1,025
    
    
    
    3,150
    
    
    
    4,175
    
    
    
    1,025
    
    
    
    2,925
    
    
    
    3,950Less July 2009 redemptions
    
    
    (325
    )
    
    
    
    
    
    
    (325
    )
    
    
    (325
    )
    
    
    
    
    
    
    (325
    )Less August 2009 redemptions
    
    
    (700
    )
    
    
    
    
    
    
    (700
    )
    
    
    (700
    )
    
    
    
    
    
    
    (700
    )Change in fair value at 12/31/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2009
    
    
    
    
    
    
    3,150
    
    
    
    3,150
    
    
    
    
    
    
    
    2,925
    
    
    
    2,925
  F-16




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##### Table of Contents



NOTE 5  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.
  Level 1
    
    
    Level 2
    
    
    Level 3Total
    
    
    inputs
    
    
    inputs
    
    
    inputsAs of December 31, 2008Assets:Short-term
investments available
for sale:Auction Rate
Preferred Shares
(ARPS)
    
    $
    5,450,000
    
    
    $
    
    
    
    $
    
    
    
    $
    5,450,000Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    As of December 31, 2009Assets:Short-term
investments available
for sale:Auction Rate
Preferred Shares
(ARPS)
    
    $
    2,925,000
    
    
    $
    
    
    
    $
    
    
    
    $
    2,925,000Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
     F-17




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##### Table of Contents




    
    Recognition that the ARPS are relatively illiquid compared to 7-day and 28-day
commercial paper and similar debt instruments. ARPS cannot be sold in the secondary
market at par value absent an announced plan to redeem the ARPS in the very near
future.
 
    
    As of December 31, 2009, there are no announced plans to redeem ARPS we hold.
 
    
    On December 15, 2009, the SEC granted the PHT fund the right to redeem its ARPS
using debt if the funds trustees should deem redemption to be in the best interest of
the fund, its ARPS holders and its common shareholders. The PHT fund has not
announced plans for redemption, but the Calamos closed-end taxable funds redeemed all
of their ARPS within eight months of receiving a similar SEC grant in early 2009
allowing the use of debt to redeem all ARPS. We own $400,000 par value of PHT ARPS.
 
    
    Recognition that the ARPS we own pay dividends every 7 or 28 days at variable
short-term rates that are a small premium above 7 or 30-day LIBOR or commercial paper
rates.
 
    
    Assumption that on average the ARPS will be redeemed at 95% to 100% of par value in
two to four years because of various factors and expectations, most notably the
following:
 
    
    Current short-term interest rates are unusually low whereby
(a) LIBOR and commercial paper interest rates a few years from now are likely
to be greater than current rates and (b) the ARPS rates will be 125% to 150%
of the LIBOR and commercial paper rates, which may compel funds to redeem
their ARPS with debt, put-able ARPS and/or common stock.
 
    
    At December 31, 2009, we own ARPS in five closed-end taxable
mutual funds. In two to four years, it seems likely that the vast majority of
the ARPS issued by each of the five mutual funds will be owned by four to
seven large financial institutions, who will likely have the desire and
influence to compel directly (or indirectly, such as through support for
changes in federal law and regulations regarding ARPS) that each fund redeem
all ARPS at 95% to 100% of par value. Each of the five mutual funds paid
seven to nine financial institutions (among a group of 15 institutions) to be
Auction Dealers (aka Re-marketing Agents) in the ARPS auctions. At
December 31, 2009, some 40% to 60% of ARPS for each of the five mutual funds
were owned collectively by four of those Auction Dealers: (1) Merrill Lynch
(now a subsidiary of Bank of America), (2) Citigroup (3) UBS and (4) Morgan
Stanley. Their substantial ownership of the ARPS came from their purchases so
far of all ARPS at par value from many of their ARPS customers in settlement
with FINRA or government agencies. Seven others (including Wells Fargo) of
the fifteen Auction Dealers have entered into similar settlements with FINRA,
state agencies or the SEC. Of the other four, one (Lehman Brothers) is
dissolved and two (Oppenheimer and Jefferies & Co.) are contesting State and
FINRA allegations, respectively, of wrongdoings as ARPS brokers. Oppenheimer
and Jefferies were Auction Dealers in each of the five mutual funds.
 
    
    Calculations under various cases and assumptions of (a) future interest rates, (b)
timing of redemptions and (c) illiquidity of ARPS, whereby the cases indicated a range
of ARPS fair values at December 31, 2009 of 90% to 96% of par value, where fair value
(by definition) is without regard to transaction costs (such as brokerage fees) in
selling the ARPS in a secondary market.
 NOTE 6  INCOME TAXES
 Income Taxes,
  F-18




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##### Table of Contents



2009
    
    
    2008
    
    
    2007Current taxes
    
    $
    (149,965
    )
    
    $
    244,000
    
    
    $
    Deferred tax benefit
    
    
    (2,369,550
    )
    
    
    (5,464,653
    )
    
    
    (1,484,984
    )Valuation allowance
    
    
    2,369,550
    
    
    
    4,752,308
    
    
    
    Income tax expense (reduction)
    
    $
    (149,965
    )
    
    $
    (468,345
    )
    
    $
    (1,484,984
    )Loss before income taxes
    
    $
    (10,491,345
    )
    
    $
    (24,000,077
    )
    
    $
    (4,228,366
    )Effective income tax rate
    
    
    1.4
    %
    
    
    2.0
    %
    
    
    35.1
    %
  2009
    
    
    2008
    
    
    2007Federal statutory income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes
    
    
    2.0
    %
    
    
    1.6
    %
    
    
    1.5
    %Permanent differences:Goodwill impairment
    
    
    
    
    
    
    (17.8
    %)
    
    
    Compensation using qualified stock options
    
    
    (0.6
    %)
    
    
    (0.5
    %)
    
    
    (3.3
    %)Excess percentage depletion
    
    
    (4.6
    %)
    
    
    2.0
    %
    
    
    1.5
    %Other
    
    
    (0.7
    %)
    
    
    
    
    
    
    Change in valuation allowance
    
    
    (22.6
    %)
    
    
    (19.8
    %)
    
    
    Change in average state tax rate
    
    
    (0.4
    %)
    
    
    
    
    
    
    0.3
    %Other
    
    
    (6.7
    %)
    
    
    1.5
    %
    
    
    0.1
    %Effective income tax rate
    
    
    1.4
    %
    
    
    2.0
    %
    
    
    35.1
    %
      F-19




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##### Table of Contents



2009
    
    
    2008
    
    
    2007Current deferred tax assets:For unrealized loss on short-term investments
    
    $
    83,287
    
    
    $
    109,749
    
    
    $
    347,658For unrealized loss on materials & supplies inventory
    
    
    209,510
    
    
    
    
    
    
    
    Less asset valuation allowance
    
    
    (292,797
    )
    
    
    (109,749
    )
    
    
    Current deferred tax assets
    
    $
    
    
    
    $
    
    
    
    $
    347,658Long-term deferred tax assets (liabilities):Deferred tax assets:Federal and state net operating loss carryovers
    
    $
    7,243,324
    
    
    $
    171,696
    
    
    $
    5,731,713Oil & gas property costs tax basis in excess of basis for
financial reporting
    
    
    165,754
    
    
    
    4,073,868
    
    
    
    Oil and gas property amortization
    
    
    
    
    
    
    51,373
    
    
    
    454,771Compensation using non-qualified stock options and stock
grants
    
    
    610,115
    
    
    
    364,887
    
    
    
    341,452Alternative Minimum Tax Credit Carryforward
    
    
    94,035
    
    
    
    
    
    
    
    8,113,228
    
    
    
    4,661,824
    
    
    
    6,527,936Less: valuation allowance
    
    
    (6,829,062
    )
    
    
    (4,642,559
    )
    
    
    Long-term deferred tax assets
    
    $
    1,284,166
    
    
    $
    19,265
    
    
    $
    6,527,936Deferred tax liabilities:Oil and gas property amortization
    
    $
    (1,265,654
    )
    
    $
    
    
    
    $
    Oil and gas property costs carrying value for financial
reporting in excess of tax basis
    
    
    
    
    
    
    
    
    
    
    (7,572,033
    )Other
    
    
    (18,512
    )
    
    
    (19,265
    )
    
    
    (15,906
    )Total long-term deferred tax liabilities
    
    
    (1,284,166
    )
    
    
    (19,265
    )
    
    
    (7,587,939
    )Long-term deferred tax assets
    
    
    1,284,166
    
    
    
    19,265
    
    
    
    6,527,936Net long-term deferred tax assets (liabilities)
    
    $
    
    
    
    $
    
    
    
    $
    (1,060,003
    )
    F-20




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##### Table of Contents



NOTE 7  SUPPLEMENTAL INFORMATION TO THE STATEMENTS OF CASH FLOWS
 2009
    
    
    2008
    
    
    2007Supplemental Schedule of Cash Flow InformationCash paid for interest expense
    
    $
    
    
    
    $
    107,047
    
    
    $
    6,162Cash paid for income taxes
    
    $
    130,000
    
    
    $
    140,000
    
    
    $
    Cash refunded on income taxes
    
    $
    175,965
    
    
    $
    
    
    
    $
    Supplemental Disclosures of Non-Cash ActivitiesShare-based compensation expense
    
    $
    1,036,149
    
    
    $
    904,006
    
    
    $
    1,091,677Exchange of oil and gas properties
    
    $
    420,000
    
    
    $
    
    
    
    $
    Materials & supplies inventory used in wells
    
    $
    77,522
    
    
    $
    
    
    
    $
    Net increase in payables for capital expenditures
    
    $
    
    
    
    $
    2,200,387
    
    
    $
    134,807Conversion of preferred stock into common stock
    
    $
    
    
    
    $
    7,452,000
    
    
    $
    6,048,000Preferred stock dividends paid in common stock
    
    $
    
    
    
    $
    589,530
    
    
    $
    820,224Net drilling prepayments applied to incurred drilling costs
    
    $
    
    
    
    $
    542,876
    
    
    $
    Oil and gas interests exchanged for PetroHunter common
stock
    
    $
    
    
    
    $
    
    
    
    $
    270,000
 NOTE 8  STOCKHOLDERS EQUITY
 Preferred Stock
   Common Stock
  Warrants
  Common
    
    
    Exercise
    
    
    ExpirationOutstanding as of
    
    Issue Date
    
    Shares
    
    
    Price
    
    
    DateDecember 31, 2009
    
    April 16, 2008
    
    
    50,000
    
    
    $
    3.50
    
    
    April 16, 2013December 31, 2008
    
    April 16, 2008
    
    
    50,000
    
    
    $
    7.00
    
    
    April 16, 2013December 31, 2008
    
    July 22, 2005
    
    
    835,626
    
    
    $
    6.00
    
    
    September 30, 2009December 31, 2008
    
    
    
    
    885,626
    
    
    $
   F-21




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##### Table of Contents



Stock Options
   Commitments and Contingencies
  Number of
    
    
    Weighted Avg.Shares
    
    
    Exercise PriceOptions outstanding  December 31, 2006 (985,498 exercisable)
    
    
    2,186,000
    
    
    $
    3.60Options granted during 2007
    
    
    699,000
    
    
    $
    5.89Less options forfeited during 2007
    
    
    (235,700
    )
    
    $
    5.03Less options exercised during 2007
    
    
    (134,300
    )
    
    $
    4.78Options outstanding  December 31, 2007 (1,359,500 exercisable)
    
    
    2,515,000
    
    
    $
    4.04Options granted during 2008, excluding 11/5/08 option exchanges
    
    
    640,000
    
    
    $
    3.38Less options forfeited during 2008
    
    
    (43,250
    )
    
    $
    3.98Less options expiring during 2008
    
    
    (74,750
    )
    
    $
    5.55Options terminated in 11/5/2008 option exchanges
    
    
    (1,768,000
    )
    
    $
    4.49Options granted in 11/5/2008 option exchanges
    
    
    1,768,000
    
    
    $
    2.00Options outstanding  December 31, 2008 (991,333 exercisable)
    
    
    3,037,000
    
    
    $
    2.42Options granted during 2009
    
    
    15,000
    
    
    $
    2.00Less options forfeited during 2009
    
    
    (15,000
    )
    
    $
    2.00Less options exercised during 2009
    
    
    (165,000
    )
    
    $
    2.00Options outstanding  December 31, 2009 (1,498,866 exercisable)
    
    
    2,872,000
    
    
    $
    2.44
   F-22




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##### Table of Contents



Exercise
    
    Remainingprice
    
    contractual
    
    
    Number of sharesper share
    
    life (years)
    
    
    Outstanding
    
    
    Exercisable$1.25
    
    
    4.5
    
    
    
    403,000
    
    
    
    403,000$2.00
    
    
    6.4
    
    
    
    1,603,000
    
    
    
    342,200$2.38
    
    
    1.0
    
    
    
    100,000
    
    
    
    100,000$3.29
    
    
    3.6
    
    
    
    100,000
    
    
    
    75,000$3.34
    
    
    5.3
    
    
    
    6,000
    
    
    
    2,000$3.37
    
    
    4.3
    
    
    
    30,000
    
    
    
    30,000$3.66
    
    
    2.8
    
    
    
    500,000
    
    
    
    416,666$6.03
    
    
    3.1
    
    
    
    130,000
    
    
    
    130,0002,872,000
    
    
    
    1,498,866Weighted average exercise price per share
    
    
    
    
    
    $
    2.44
    
    
    $
    2.73Weighted ave. remaining contractual life
    
    
    
    
    
    5.0 years
    
    
    4.1 yearsAggregate intrinsic value, December 31, 2009
    
    
    
    
    
    $
    5,050,610
    
    
    $
    2,205,660
   2009
    
    2008
    
    2007Primary Model (Both Black-Scholes and modified binomial were used each year.)
    
    Modified Binomial
    
    Modified Binomial
    
    Modified BinomialExpected option life (in years)
    
    4
    
    4 to 5
    
    4 to 5Expected annual volatility over option life
    
    60%
    
    45%
    
    35%Risk-free interest rate
    
    2.1%
    
    2.3% to 2.5%
    
    4.7% to 5.1%Pre-vesting forfeiture rate
    
    10%
    
    10% to 12%
    
    0%Dividend yield
    
    0%
    
    0%
    
    0%Intrinsic Value /share that urges exercise
    
    Not key factor
    
    $2.00
    
    $2.00 to $2.16
  F-23




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##### Table of Contents



Share-Based Compensation Expense
  2009
    
    
    2008
    
    
    2007Share-based compensation expense:For stock option grants
    
    $
    747,516
    
    
    $
    735,286
    
    
    $
    914,300For stock granted but in escrow or unvested
    
    
    202,933
    
    
    
    168,720
    
    
    
    148,177For stock granted with immediate vesting
    
    
    83,700
    
    
    
    
    
    
    
    29,200For warrant re-pricing
    
    
    2,000
    
    
    
    
    
    
    
    Total
    
    $
    1,036,149
    
    
    $
    904,006
    
    
    $
    1,091,677Total share-based compensation for income tax
returns
    
    $
    353,853
    
    
    $
    17,720
    
    
    $
    771,424
  
    
    On February 12, 2007, we granted and issued 5,000 shares of common stock to our new Vice
President of Land. The shares were valued at $29,200 reflecting the $5.84 per share closing
price of the stock at the date of grant. We also granted him 20,000 additional shares that
vest 4,000 shares per year on February 12, 2008 through 2012. At December 31, 2009, 12,000
shares were not vested and not issued.
 
    
    On June 15, 2007, we granted and issued in escrow 100,000 shares of common stock for our
new Vice President of Exploration. The shares vest after five years of employment or upon a
change of control of the Company. The shares were valued at $584,000 reflecting the $5.84
per share closing price of the stock at the date of grant.
 
    
    On January 14, 2009, we granted and issued an aggregate of 427,500 shares of restricted
common stock pursuant to the 2006 Stock Incentive Plan to certain employees, officers and
directors of the Company. Of the 427,500 shares granted, 90,000 vested at grant and the
other 337,500 shares vest upon the earlier of January 14, 2014 or a change in control of the
Company.
    F-24




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##### Table of Contents



NOTE 9  EARNINGS PER SHARE
  2009
    
    
    2008
    
    
    2007Net loss to common stockholders
    
    $
    (10,341,380
    )
    
    $
    (24,159,614
    )
    
    $
    (3,795,912
    )Adjustments for dilution
    
    
    
    
    
    
    
    
    
    
    Net loss adjusted for effects of dilution
    
    $
    (10,341,380
    )
    
    $
    (24,159,614
    )
    
    $
    (3,795,912
    )Basic Weighted Ave. Common Shares
    
    
    48,516,065
    
    
    
    47,104,025
    
    
    
    44,383,861Add dilutive effects of options and warrants
    
    
    
    
    
    
    
    
    
    
    Add dilutive effects of convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    Diluted Weighted Ave. Common Shares Outstanding
    
    
    48,516,065
    
    
    
    47,104,025
    
    
    
    44,383,861Net loss per common share  basic
    
    $
    (0.21
    )
    
    $
    (0.51
    )
    
    $
    (0.09
    )Net loss per common share  diluted
    
    $
    (0.21
    )
    
    $
    (0.51
    )
    
    $
    (0.09
    )
 NOTE 10  EMPLOYEE BENEFIT PLANS
  NOTE 11  RELATED PARTY TRANSACTIONS
  NOTE 12  SUBSEQUENT EVENTS
  NOTE 13  COMMITMENTS AND CONTINGENCIES
  North Finn Option
   F-25




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##### Table of Contents



Office Lease
 th
 Annual RentalYear
    
    Amount2010
    
    $
    340,7902011
    
    $
    347,0202012
    
    $
    353,2512013
    
    $
    148,270Thereafter
    
    $
    
 Delay Rentals and Lease Extension Fees
   Delay
    
    
    ExtensionRentals
    
    
    Fees
    
    
    Total2010
    
    $
    121,513
    
    
    $
    6,560,031
    
    
    $
    6,681,5442011
    
    $
    74,464
    
    
    $
    588,553
    
    
    $
    663,0172012
    
    $
    32,827
    
    
    $
    284,307
    
    
    $
    317,1342013
    
    $
    10,565
    
    
    $
    29,557
    
    
    $
    40,1222014
    
    $
    10,325
    
    
    $
    
    
    
    $
    10,3252015
    
    $
    10,325
    
    
    $
    68,222
    
    
    $
    78,5472016
    
    $
    5,085
    
    
    $
    
    
    
    $
    5,085Thereafter
    
    $
    1,043
    
    
    $
    
    
    
    $
    1,043
   F-26




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##### Table of Contents



NOTE 14  INFORMATION REGARDING PROVED OIL AND GAS RESERVES (UNAUDITED)
    st
   Proved Reserves (Developed and Undeveloped) for the Year Ended December 31, 2009Oil (BBLS)
    
    
    NGL (BBLS)
    
    
    Gas (MCF)Beginning of year
    
    
    75,610
    
    
    
    11,139
    
    
    
    1,147,074Revision to disclose gas reserves pre NGL extraction*
    
    
    
    
    
    
    (11,139
    )
    
    
    66,834Other revisions of previous reserve estimates
    
    
    1,812
    
    
    
    
    
    
    
    (194,763
    )Extensions and discoveries
    
    
    85,455
    
    
    
    
    
    
    
    172,721Purchases of minerals in place
    
    
    13,651
    
    
    
    
    
    
    
    36,822Sales of minerals in place
    
    
    (8,992
    )
    
    
    
    
    
    
    (49,577
    )Production
    
    
    (20,026
    )
    
    
    
    
    
    
    (222,561
    )End of year
    
    
    147,510
    
    
    
    
    
    
    
    956,550Proved developed reserves at end of year
    
    
    64,418
    
    
    
    
    
    
    
    645,308
  F-27




---



##### Table of Contents



*
    
    At December 31, 2009, NGL (i.e., natural gas liquids) estimated to be recovered from the
produced natural gas were not separately estimated by Ryder Scott since Ryder Scotts estimates of
proved natural gas reserves at December 31, 2009 are the gas volumes prior to gas processing for
extraction of the natural gas liquids. The table shows a revision to reclassify NGL barrels as a
component of gas reserve volumes prior to processing the gas to extract NGL.   Proved Reserves (Developed and Undeveloped) for the Year Ended December 31, 2008Oil (BBLS)
    
    
    NGL (BBLS)
    
    
    Gas (MCF)Beginning of year
    
    
    96,399
    
    
    
    53,933
    
    
    
    1,307,159Revisions of previous reserve estimates
    
    
    (48,242
    )
    
    
    (43,832
    )
    
    
    (580,707
    )Extensions and discoveries
    
    
    46,674
    
    
    
    7,221
    
    
    
    556,652Purchases of minerals in place
    
    
    
    
    
    
    
    
    
    
    Sales of minerals in place
    
    
    
    
    
    
    
    
    
    
    Production
    
    
    (19,221
    )
    
    
    (6,183
    )
    
    
    (136,030
    )End of year
    
    
    75,610
    
    
    
    11,139
    
    
    
    1,147,074Proved developed reserves at end of year
    
    
    75,610
    
    
    
    11,139
    
    
    
    987,574
  Proved Reserves (Developed and Undeveloped) for the Year Ended December 31, 2007Oil (BBLS)
    
    
    NGL (BBLS)
    
    
    Gas (MCF)Beginning of year
    
    
    91,850
    
    
    
    
    
    
    
    809,847Revisions of previous reserve estimates
    
    
    (32,906
    )
    
    
    23,937
    
    
    
    28,388Extensions and discoveries
    
    
    54,722
    
    
    
    30,307
    
    
    
    608,514Purchases of minerals in place
    
    
    
    
    
    
    
    
    
    
    Sales of minerals in place
    
    
    
    
    
    
    
    
    
    
    Production
    
    
    (17,267
    )
    
    
    (311
    )
    
    
    (139,590
    )End of year
    
    
    96,399
    
    
    
    53,933
    
    
    
    1,307,159Proved
developed reserves at beginning of year
    
    
    86,361
    
    
    
    
    
    
    
    713,236Proved developed reserves at end of year
    
    
    91,106
    
    
    
    53,933
    
    
    
    1,277,755
   F-28




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##### Table of Contents



STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
  As of December 31,2009
    
    
    2008
    
    
    2007Future cash inflows
    
    $
    10,967,941
    
    
    $
    8,102,093
    
    
    $
    19,840,019Future costs:Production
    
    
    (4,559,855
    )
    
    
    (3,156,973
    )
    
    
    (5,792,739
    )Development
    
    
    (1,855,599
    )
    
    
    (269,420
    )
    
    
    (319,922
    )Future income tax expense
    
    
    (21,448
    )
    
    
    (19,953
    )
    
    
    (101,000
    )Future net cash flows
    
    
    4,531,039
    
    
    
    4,655,747
    
    
    
    13,626,35810% discount factor
    
    
    (2,053,173
    )
    
    
    (1,710,878
    )
    
    
    (5,321,559
    )Standardized measure of
discounted future net cash
flows relating to proved
reserves
    
    $
    2,477,866
    
    
    $
    2,944,869
    
    
    $
    8,304,799
  2009
    
    
    2008
    
    
    2007Beginning balance
    
    $
    2,944,869
    
    
    $
    8,304,799
    
    
    $
    4,598,000Sales and transfers of oil and gas produced
    
    
    (1,098,597
    )
    
    
    (1,615,291
    )
    
    
    (1,310,508
    )Net changes in prices and production costs
    
    
    (358,252
    )
    
    
    (2,970,196
    )
    
    
    1,228,973Sales of minerals in place
    
    
    (263,742
    )
    
    
    
    
    
    
    Extensions and discoveries
    
    
    644,552
    
    
    
    2,055,573
    
    
    
    4,549,423Purchases of property with proved reserves
    
    
    298,143
    
    
    
    
    
    
    
    Development costs incurred during the year
    
    
    104,063
    
    
    
    57,000
    
    
    
    716,000Changes in estimated future development
costs
    
    
    16,401
    
    
    
    130,663
    
    
    
    Revisions in previous quantity estimates
    
    
    (60,433
    )
    
    
    (3,754,276
    )
    
    
    (1,917,123
    )Accretion of discount
    
    
    252,096
    
    
    
    684,515
    
    
    
    409,034Change in income taxes
    
    
    (1,234
    )
    
    
    52,082
    
    
    
    31,000Change in other
    
    
    
    
    
    
    
    
    
    
    Ending balance
    
    $
    2,477,866
    
    
    $
    2,944,869
    
    
    $
    8,304,799
 Extractive Industries  Oil and Gas, Notes to Financial Statements
  F-29




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##### Table of Contents



Standardized Measure Changes in 2009
   Standardized Measure Changes in 2008
    Standardized Measure Changes in 2007.
 NOTE 15  SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
 2009
    
    First
    
    
    Second
    
    
    Third
    
    
    FourthRevenues
    
    $
    305,674
    
    
    $
    517,478
    
    
    $
    462,553
    
    
    $
    599,431Loss from operations
    
    $
    (3,910,343
    )
    
    $
    (1,617,455
    )
    
    $
    (3,560,170
    )
    
    $
    (1,461,140
    )Net loss
    
    $
    (3,891,363
    )
    
    $
    (1,600,118
    )
    
    $
    (3,400,573
    )
    
    $
    (1,449,326
    )Earnings per common share:Basic
    
    $
    (0.08
    )
    
    $
    (0.03
    )
    
    $
    (0.07
    )
    
    $
    (0.03
    )Diluted
    
    $
    (0.08
    )
    
    $
    (0.03
    )
    
    $
    (0.07
    )
    
    $
    (0.03
    )
 2008
    
    First
    
    
    Second
    
    
    Third
    
    
    FourthRevenues
    
    $
    507,804
    
    
    $
    937,361
    
    
    $
    1,159,621
    
    
    $
    289,803Loss from operations
    
    $
    (1,498,768
    )
    
    $
    (951,908
    )
    
    $
    (19,333,989
    )
    
    $
    (1,950,792
    )Net loss
    
    $
    (1,320,425
    )
    
    $
    (945,094
    )
    
    $
    (12,780,287
    )
    
    $
    (9,113,808
    )Earnings per common share:Basic
    
    $
    (0.03
    )
    
    $
    (0.02
    )
    
    $
    (0.27
    )
    
    $
    (0.19
    )Diluted
    
    $
    (0.03
    )
    
    $
    (0.02
    )
    
    $
    (0.27
    )
    
    $
    (0.19
    )
   F-30




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##### Table of Contents



Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A: Controls and Procedures
 Disclosure Controls and Procedures
   Managements Annual Report on Internal Control over Financial Reporting
  
    
    establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934),
and
 
    
    assessing the effectiveness of internal control over financial reporting.
  
    
    pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our assets,
 
    
    provide reasonable assurance that transactions are recorded as to permit preparation
of financial statements in accordance with generally accepted accounting principles,
and that our receipts and expenditures are being made only in accordance with
authorization of our management and board of directors, and
  38




---



##### Table of Contents




    
    provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material
effect on our financial statements.
  Internal
Control  Integrated Framework.
   Changes in Internal Control over Financial Reporting
   
 Item 9B: Other Information
   39




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##### Table of Contents



PART III
 
 Item 10: Directors, Executive Officers and Corporate Governance
 
  
 Item 11: Executive Compensation
  
 Item 12:
    
    Securities Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
 Equity Compensation Plan Information
  Weighted Average
    
    
    Number of SecuritiesNumber of Securities To
    
    
    Exercise Price of
    
    
    Remaining AvailableBe Issued Upon Exercise
    
    
    Outstanding
    
    
    for Future Issuanceof Outstanding Options,
    
    
    Options, Warrants
    
    
    Under EquityPlan Category
    
    Warrants and Rights
    
    
    and Rights
    
    
    Compensation PlansEquity compensation
plans approved by
security holders
    
    
    2,922,000
    
    
    $
    2.46
    
    
    
    1,724,590Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,922,000
    
    
    $
    2.46
    
    
    
    1,724,590
   
 Item 13: Certain Relationships and Related Transactions, and Director Independence
  
 Item 14: Principal Accountant Fees and Services
   40




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##### Table of Contents



PART IV
 
 Item 15: Exhibits, Financial Statement Schedules
  PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2009 and 2008
    
    
    F-3Consolidated Statements of Operations for years ended
December 31, 2009, 2008 and 2007
    
    
    F-4Consolidated Statements of Cash Flows for years ended
December 31, 2009, 2008 and 2007
    
    
    F-5Consolidated Statements of Stockholders Equity and
Comprehensive Income for years ended December 31, 2009, 2008
and 2007
    
    
    F-6Notes to Consolidated Financial Statements
    
    F-7 to F-30
   Exhibit No.
    
    Description2(i)
    
    
    Agreement and Plan of Merger with Tower Colombia Corporation
dated effective April 21, 2005. (Incorporated by reference
from the Companys Post-Effective Amendment No. 1 to Form
SB-2, filed on April 27, 2005.)3(i)
    
    
    Articles of Incorporation of the Company, as amended.
(Incorporated by reference to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2007.)3(ii)
    
    
    Certificate of Designation of Series A Preferred Stock.
(Incorporated by reference from the Companys Amendment No. 2
to Form SB-2, filed on January 31, 2005.)3(iii)
    
    
    Certificate of Designation of Series AA 8% Preferred Stock.
(Incorporated by reference from the Companys Amendment No. 1
to Form S-3, filed on March 6, 2006.)3(iv)
    

    
    Bylaws of the Company (as revised on December 20, 2007).
(Incorporated by reference from the Companys Current Report
on Form 8-K, filed on December 21, 2007.)3(v)
    
    
    Amended and Restated Bylaws (adopted June 12, 2009)
(Incorporated by reference from the Companys Current Report
on Form 8-K, filed on June 18, 2009)10(i)
    *
    
    2004 Stock Option Plan. (Incorporated by reference from the
Companys Definitive Proxy Statement, filed on June 16, 2004)10(ii)
    
    
    January 17, 2003 Purchase and Sale Agreement by and between
the Company, Tower Colombia Corporation and North Finn, LLC.
(Incorporated by reference from the Companys Form 8-K, filed
on February 3, 2003.)
  41




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##### Table of Contents



Exhibit No.
    
    Description10(iii)
    
    
    January 17, 2003 Participation Agreement by and between the
Company, Tower, North Finn, and the principals of Tower and
North Finn. (Incorporated by reference from the Companys Form
10-KSB for the calendar ending December 31, 2002, filed on
March 31, 2003.)10(iv)
    
    
    Model Form Operating Agreement dated February 18, 2003.
(Incorporated by reference from the Companys Form 10-KSB/A,
filed on November 18, 2003.)10(v)
    *
    
    Employment Agreement between the Company and Andrew P.
Calerich dated effective April 21, 2005. (Incorporated by
reference from the Companys Post-Effective Amendment No. 1 to
Form SB-2, filed on April 27, 2005.)10(vi)
    *
    
    Employment Agreement between the Company and Patrick D.
OBrien dated effective April 21, 2005. (Incorporated by
reference from the Companys Post-Effective Amendment No. 1 to
Form SB-2, filed on April 27, 2005.)10(vii)
    *
    
    Employment Agreement between the Company and Bobby G. Solomon dated effective April 21,
2005. (Incorporated by reference from the Companys Post-Effective Amendment No. 1 to Form
SB-2, filed on April 27, 2005.)10(viii)
    *
    
    Employment Agreement between the Company and Kendell V. Tholstrom dated effective April 21,
2005. (Incorporated by reference from the Companys Post-Effective Amendment No. 1 to
Form SB-2, filed on April 27, 2005.)10(ix)
    
    
    Participation Agreement between the Company and North Finn LLC dated January 5, 2006.
(Incorporated by reference from the Companys Form 10-KSB for the fiscal year ended
December 31, 2005.)10(x)
    *
    
    Employment Agreement between the Company and Joseph B. Feiten. (Incorporated by reference
from the Companys Current Report on Form 8-K filed on August 31, 2006.)10(xi)
    *
    
    Stock Option Agreement between the Company and Joseph B. Feiten. (Incorporated by reference
from the Companys Current Report on Form 8-K filed on August 31, 2006.)10(xii)
    
    
    Purchase and Sale Agreement, dated September 1, 2006, between SunStone Oil & Gas, LLC and
the Company. (Incorporated by reference from the Companys Current Report on Form 8-K filed
on September 6, 2006.)10(xiii)
    
    
    Participation Agreement dated January 17, 2007 among the Company, Red Technology Alliance
LLC and North Finn LLC. (Incorporated by reference from the Companys Current Report on
Form 8-K filed on January 23, 2007.)10(xiv)
    *
    
    Amended and Restated 2006 Stock Incentive Plan. (Incorporated by reference to the Companys
Definitive Proxy Statement, as amended, filed on July 26, 2006.)10(xv)
    *
    
    Form of Stock Option Agreement for awards under 2006 Stock Incentive Plan. (Incorporated by
reference to the Companys Current Report on Form 8-K filed on April 5, 2007.)10(xvi)
    *
    
    Employment Agreement dated June 15, 2007 by and between the Company and Peter Loeffler.
(Incorporated by reference to the Companys Current Report on Form 8-K filed on June 19,
2007.)
  42




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##### Table of Contents



Exhibit No.
    
    Description10(xvii)
    

    
    Participation Agreement dated June 25, 2007 by and among Red Technology Alliance, LLC, the
Company and North Finn, LLC. (Incorporated by reference to the Companys Current Report on
Form 8-K filed on July 3, 2007.)10(xviii)
    

    
    Letter Agreement dated August 22, 2008. (Incorporated by reference to the Companys Current
Report on Form 8-K filed on October 28, 2008.)21(i)
    
    
    Subsidiary List23(i)
    
    
    Consent of Independent Petroleum Engineers and Geologists23(ii)
    
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 200231.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 200232.1
    
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 200232.2
    
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 200299.1
    
    
    Ryder Scott Letter on its estimation of our proved oil and gas reserves at December 31, 2009
 *
    
    Management contracts or compensatory plans or arrangements  43




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##### Table of Contents



SIGNATURES
 th
 American Oil & Gas Inc./s/ Andrew P. CalerichAndrew P. CalerichPresident/s/ Joseph B. FeitenJoseph B. FeitenChief Financial Officer
(principal financial officer and
principal accounting officer)  Signature
    
    Title
    
    Date/s/ Patrick D. OBrien

Patrick D. OBrien
    
    Chief Executive Officer and Chairman (principal
executive officer)
    
    March 15, 2010/s/ Andrew P. Calerich

Andrew P. Calerich
    
    President and Director
    
    March 15, 2010/s/ Joseph B. Feiten

Joseph B. Feiten
    
    Chief Financial Officer 
(principal
financial officer and 
principal accounting officer)
    
    March 15, 2010/s/ Nick DeMare

Nick DeMare
    
    Director
    
    March 15, 2010/s/ C. Scott Hobbs

Scott Hobbs
    
    Director
    
    March 15, 2010/s/ Jon R. Whitney

Jon R. Whitney
    
    Director
    
    March 15, 2010
  44