##### Table of Contents



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, 2008
 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
    
    88-0451554(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 th
 Title of Each Class:
    
    Name of Each Exchange on Which Registered:Common Stock, $.001 par value per share
    
    NYSE Alternext U.S. (formerly American Stock Exchange)
  o Yes þ No
 o Yes þ No
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ
 June 30, 2008
 March 10, 2009
 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
    
    
    15Item 3: Legal Proceedings
    
    
    20Item 4: Submission of Matters to a Vote of Security Holders
    
    
    20PART IIItem 5: Market for the Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    21Item 6: Selected Consolidated Financial Data
    
    
    22Item 7: Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    24Item 7A: Quantitative and Qualitative Disclosures about Market Risk
    
    
    35Item 8: Financial Statements and Supplementary Data
    
    
    F-1Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    37Item 9A: Controls and Procedures
    
    
    37Item 9B: Other Information
    
    
    40PART 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
    
    
    40Exhibit 21(i)Exhibit 23(i)Exhibit 23(ii)Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
    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 depression, 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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Item 1: Business
  
    
    Approximately 53,000 gross (34,000 net) acres in the Fetter Project area, located in the southern
Powder River Basin, Wyoming,
 
    
    Approximately 128,000 gross (52,000 net) acres in the Krejci Project, located in Niobrara County,
Wyoming,
 
    
    Approximately 87,000 gross (33,000 net) acres in the Goliath Project, located in the Williston Basin,
North Dakota, and
 
    
    Approximately 175,000 gross (112,000 net) acres in the Bigfoot Project, located in the U.S. Rocky
Mountain area.
     
    
    Over $25.6 million in working capital ($0.53/share), including $23.3 million in cash and $5.4 million
in short term investments,
 
    
    No long term debt,
 
    
    Approximately 259,000 net undeveloped acres of oil and gas leases of which only approximately 8,000
acres would expire in 2009, even if we drill no wells in 2009,
 
    
    Improved opportunity for drilling commercially successful wells within the Fetter and Goliath
projects, even at current commodity prices when taking into consideration current and expected further
decreases in service costs, and
 
    
    Plans to drill several shallow gas wells at our new Bigfoot project that could be commercially
successful under existing gas price conditions.
 
    
    Little employee turnover in 2008 and no turnover of officers or key managers,
    Competition
   4




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Proved Reserves
 st st
 At December 31,2008
    
    
    2007
    
    
    2006Proved oil reserves (bbls)
    
    
    75,610
    
    
    
    96,399
    
    
    
    91,850Proved NGL reserves (bbls)
    
    
    11,139
    
    
    
    53,933
    
    
    
    *Proved natural gas reserves (mcf)
    
    
    1,147,074
    
    
    
    1,307,159
    
    
    
    809,847Future net cash flows (before income taxes)
    
    $
    4,675,700
    
    
    $
    13,727,358
    
    
    $
    6,428,667PV-10 Value
    
    $
    2,950,787
    
    
    $
    8,362,799
    
    
    $
    4,692,808
 *
    
    At December 31, 2006, NGL (i.e., natural gas liquids) estimated to be recovered from the produced
natural gas were not significant and not separately estimated.  Reconciliation of Standardized Measure to PV-10 Value
  At December 31,2008
    
    
    2007
    
    
    2006Standardized measure of discounted future net cash flows
    
    $
    2,944,869
    
    
    $
    8,304,799
    
    
    $
    4,598,000Add present value of future income tax discounted at 10%
    
    
    5,918
    
    
    
    58,000
    
    
    
    94,808PV-10 Value
    
    $
    2,950,787
    
    
    $
    8,362,799
    
    
    $
    4,692,808
 Customers
    5




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Environmental Matters
       6




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Employees
  Website and Codes of Ethics
 http://www.americanog.com th
 Glossary of Abbreviations and Terms
  AMI
 Bbl
 Bbl/d
 Bc/d
 Bcf
 Bcfe
 Boe
 Btu or British thermal unit
  7




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Capital Expenditures
 Carried Working Interest
 Completion
 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
  8




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Mcf/d
 Mcfe
 MMcf
 MMcfe
 Net Acres
 Net Wells
 NGL
 Operator
 Participant Group
 PV-10 value
 Productive well
 Prospect
 Proved developed reserves
 Proved reserves
 Proved undeveloped reserves (PUD
 Re-entry
 Reserves
 Reservoir
  9




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Royalty
 SEC
 Undeveloped Acreage
 Working Interest
 Title to Properties
  
 Item 1A: Risk Factors
  Risks related to our industry, business and strategy
 We have incurred losses from operations in the past and may do so in the future.
   10




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Oil and natural gas prices are volatile and have substantially declined in recent months. The
recent decline has adversely affected our financial results. Further price declines or even
continuation of current low oil and natural gas prices could significantly affect our future
financial results and impede our growth.
  The current global and US economic and financial crises may have impacts on our business and
financial condition that we currently cannot predict
   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.
   11




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Oil and gas operations are inherently risky.
    We may be unable to find additional reserves.
  We could be adversely impacted by changes in the oil and gas market.
  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.
  12




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New government regulation and environmental risks could increase our costs.
  Our operations and financial condition may be impacted adversely by new taxes and changes to
tax laws.
  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.
   13




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Risks Related to our Common Stock
 Our common stock is thinly traded, so investors may not be able to sell any significant number
of shares of our stock at prevailing market prices.
  We meet normal exchange guidelines for the continuation of trading of our common stock, but
unexpected de-listing may occur.
  1.
    
    the listed company has stockholders equity of less than $6 million or if the Exchange
believes it questionable that the issuer will be able to continue operations or meet its
obligations as they mature;
 2.
    
    the listed company has less than 200,000 shares outstanding (excluding shares held by
insiders and controlling shareholders);
 3.
    
    the listed company has sold its operating assets and ceased to be an operating company
or its shares have no value; and
 4.
    
    the listed company fails to comply with Listing Requirements of the exchange or with
SEC requirements.
 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 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 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.
  14




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Item 1B: Unresolved Staff Comments
  
 Item 2: Properties
 Oil and Natural Gas Assets
  Fetter Project (Powder River Basin, Wyoming)
       15




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Douglas Project Area  West Douglas Project (Powder River Basin, Wyoming)
  Goliath Bakken Project (Williston Basin, North Dakota)
        16




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Krejci Oil Project (Powder River Basin, Wyoming)
    Bigfoot Project (Rocky Mountain Region)
  Oil and Gas Drilling Activities
     17




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Oil and Gas Wells
  Productive Wells as of December 31, 2008Gross (a)
    
    
    Net (b)Location
    
    Oil
    
    
    Gas
    
    
    Total
    
    
    Oil
    
    
    Gas
    
    
    TotalWyoming
    
    
    2
    
    
    
    9
    
    
    
    11
    
    
    
    0.72
    
    
    
    3.41
    
    
    
    4.13North Dakota
    
    
    9
    
    
    
    1
    
    
    
    10
    
    
    
    0.79
    
    
    
    0.10
    
    
    
    0.89Total
    
    
    11
    
    
    
    10
    
    
    
    21
    
    
    
    1.51
    
    
    
    3.51
    
    
    
    5.02
 (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. Oil and Gas Interests
  Developed Acres
    
    
    Undeveloped Acres
    
    
    Total AcresProject
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetFetter (Wyoming)
    
    
    4,520
    
    
    
    1,944
    
    
    
    48,592
    
    
    
    31,995
    
    
    
    53,112
    
    
    
    33,939Krejci (Wyoming)
    
    
    1,280
    
    
    
    576
    
    
    
    126,996
    
    
    
    51,699
    
    
    
    128,276
    
    
    
    52,275Goliath (North Dakota)
    
    
    8,320
    
    
    
    956
    
    
    
    79,155
    
    
    
    31,665
    
    
    
    87,475
    
    
    
    32,621Bigfoot (U.S. Rocky Mtn. area)
    
    
    0
    
    
    
    0
    
    
    
    174,841
    
    
    
    111,912
    
    
    
    174,841
    
    
    
    111,912Other (WY, ND, Montana)
    
    
    1,320
    
    
    
    312
    
    
    
    103,799
    
    
    
    31,698
    
    
    
    105,119
    
    
    
    32,010Total
    
    
    15,440
    
    
    
    3,788
    
    
    
    533,383
    
    
    
    258,969
    
    
    
    548,823
    
    
    
    262,757
  Net Undeveloped AcresYear of
    
    Fee
    
    
    State
    
    
    Federal
    
    
    Total forExpiration
    
    Leases
    
    
    Leases
    
    
    Leases
    
    
    All LeasesWyoming
    
    2009
    
    
    4,894
    
    
    
    360
    
    
    
    1,310
    
    
    
    6,5642010
    
    
    7,896
    
    
    
    1,893
    
    
    
    3,584
    
    
    
    13,3732011
    
    
    10,498
    
    
    
    3,713
    
    
    
    21,089
    
    
    
    35,3002012
    
    
    3,550
    
    
    
    2,174
    
    
    
    4,615
    
    
    
    10,3392013
    
    
    332
    
    
    
    
    
    
    
    3,410
    
    
    
    3,7422014
    
    
    243
    
    
    
    
    
    
    
    6,416
    
    
    
    6,6592015
    
    
    
    
    
    
    
    
    
    
    3,161
    
    
    
    3,1612016
    
    
    
    
    
    
    
    
    
    
    7,943
    
    
    
    7,9432017
    
    
    
    
    
    
    
    
    
    
    2,070
    
    
    
    2,0702018
    
    
    
    
    
    
    
    
    
    
    12,781
    
    
    
    12,781Total Wyoming
    
    
    
    
    27,413
    
    
    
    8,140
    
    
    
    66,379
    
    
    
    101,932North Dakota
    
    2009
    
    
    379
    
    
    
    457
    
    
    
    0
    
    
    
    8362010
    
    
    16,439
    
    
    
    1,687
    
    
    
    0
    
    
    
    18,1262011
    
    
    10,056
    
    
    
    
    
    
    
    
    
    
    
    10,0562012
    
    
    3,022
    
    
    
    
    
    
    
    
    
    
    
    3,022Later
    
    
    52
    
    
    
    
    
    
    
    120
    
    
    
    172Total North Dakota
    
    
    
    
    29,948
    
    
    
    2,144
    
    
    
    120
    
    
    
    32,212Bigfoot Project
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    
    
    
    1,781
    
    
    
    
    
    
    
    1,7812011
    
    
    16,862
    
    
    
    150
    
    
    
    
    
    
    
    17,0122012
    
    
    9,920
    
    
    
    37,417
    
    
    
    
    
    
    
    47,3372013
    
    
    1,749
    
    
    
    21,169
    
    
    
    
    
    
    
    22,9182014
    
    
    19,571
    
    
    
    
    
    
    
    
    
    
    
    19,571Later
    
    
    3,060
    
    
    
    
    
    
    
    233
    
    
    
    3,293Total Bigfoot Project
    
    
    
    
    51,162
    
    
    
    60,517
    
    
    
    233
    
    
    
    111,912Other (Montana)
    
    2009
    
    
    480
    
    
    
    
    
    
    
    
    
    
    
    480Total, all states
    
    
    
    
    109,003
    
    
    
    70,801
    
    
    
    66,732
    
    
    
    246,536Other undeveloped (primarily lease rights held by production)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,433Total undeveloped
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    258,969
  18




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Delay
    
    
    ExtensionRentals
    
    
    Fees
    
    
    Total2009
    
    $
    191,765
    
    
    $
    416,742
    
    
    $
    608,5072010
    
    $
    194,358
    
    
    $
    133,385
    
    
    $
    327,7432011
    
    $
    131,247
    
    
    $
    328,107
    
    
    $
    459,3542012
    
    $
    79,335
    
    
    $
    29,314
    
    
    $
    108,6492013
    
    $
    50,861
    
    
    $
    0
    
    
    $
    50,8612014
    
    $
    39,015
    
    
    $
    15,300
    
    
    $
    54,315Thereafter
    
    $
    70,860
    
    
    $
    0
    
    
    $
    70,860
  19




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Production Volumes, Sales Prices and Production Costs
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Production:Natural gas (MMcf)
    
    
    173.1
    
    
    
    139.6
    
    
    
    48.2Oil (Bbls)
    
    
    19,221
    
    
    
    17,267
    
    
    
    34,578Total equivalents (Bbls)
    
    
    48,076
    
    
    
    40,532
    
    
    
    42,603Average Sales Price Per Unit:Natural gas (per Mcf)
    
    $
    7.06
    
    
    $
    6.09
    
    
    $
    7.53Oil (per Bbl)
    
    $
    86.96
    
    
    $
    64.11
    
    
    $
    54.79Weighted average (per Boe)
    
    $
    60.21
    
    
    $
    48.27
    
    
    $
    52.97Expenses (per Boe):
    
    $
    26.60
    
    
    $
    15.94
    
    
    $
    6.83
 Office Facilities
 th
 Year
    
    Annual Rental
 Amount2009
    
    $
    260,8372010
    
    $
    340,7902011
    
    $
    347,0202012
    
    $
    353,2512013
    
    $
    148,270Thereafter
    
    $
    
 
 Item 3: Legal Proceedings
  
 Item 4: Submission of Matters to a Vote of Security Holders
   20




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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
    
    
    Low2007Quarter ended March 31, 2007
    
    $
    6.33
    
    
    $
    5.19Quarter ended June 30, 2007
    
    $
    6.78
    
    
    $
    4.30Quarter ended September 30, 2007
    
    $
    6.84
    
    
    $
    5.39Quarter ended December 31, 2007
    
    $
    7.70
    
    
    $
    5.552008Quarter 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
    
    
    $
    0.62
  Holders
  Dividend Policy
  Issuer Purchases of Equity Securities
   21




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Performance Graph
  
 S&P Small CapAEZ
    
    
    600 Energy
    
    
    S&P 50012/31/2003
    
    $
    100.00
    
    
    $
    100.00
    
    
    $
    100.0012/31/2004
    
    $
    392.86
    
    
    $
    152.71
    
    
    $
    110.7412/31/2005
    
    $
    578.57
    
    
    $
    232.38
    
    
    $
    116.0512/31/2006
    
    $
    930.00
    
    
    $
    273.34
    
    
    $
    133.6512/31/2007
    
    $
    828.57
    
    
    $
    337.33
    
    
    $
    140.5712/31/2008
    
    $
    114.29
    
    
    $
    182.07
    
    
    $
    91.95
 
 Item 6: Selected Consolidated Financial Data
   22




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##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(in thousands, except per share data)Statement of Operations Data:Production Revenues
    
    $
    2,895
    
    
    $
    1,957
    
    
    $
    2,257
    
    
    $
    4,691
    
    
    $
    746Service fee and other revenues
    
    
    
    
    
    
    12
    
    
    
    1,530
    
    
    
    
    
    
    
    Operating expenses:Lease operating expenses
    
    
    1,279
    
    
    
    646
    
    
    
    291
    
    
    
    246
    
    
    
    80General and administrative
    
    
    4,372
    
    
    
    4,308
    
    
    
    4,009
    
    
    
    2,032
    
    
    
    945Depreciation, depletion and amortization
    
    
    1,466
    
    
    
    1,267
    
    
    
    1,153
    
    
    
    1,532
    
    
    
    188Accretion of asset retirement obligation
    
    
    33
    
    
    
    24
    
    
    
    11
    
    
    
    6
    
    
    
    5Property impairments
    
    
    24,310
    
    
    
    
    
    
    
    4,360
    
    
    
    
    
    
    
    Goodwill impairment
    
    
    11,670
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    43,130
    
    
    
    6,245
    
    
    
    9,824
    
    
    
    3,816
    
    
    
    1,218Gain on sales of oil and gas properties
    
    
    16,500
    
    
    
    
    
    
    
    7,159
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    (23,735
    )
    
    
    (4,276
    )
    
    
    1,122
    
    
    
    875
    
    
    
    (472
    )Other income (expense)Investment income
    
    
    511
    
    
    
    1,021
    
    
    
    393
    
    
    
    204
    
    
    
    34Gain (loss) on sale of securities
    
    
    (369
    )
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    Impairment of securities investment
    
    
    (300
    )
    
    
    (952
    )
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    (107
    )
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    Total other income (expense)
    
    
    (265
    )
    
    
    48
    
    
    
    393
    
    
    
    204
    
    
    
    34Income (loss) before income taxes
    
    
    (24,000
    )
    
    
    (4,228
    )
    
    
    1,515
    
    
    
    1,079
    
    
    
    (438
    )Income tax benefit (provision)
    
    
    468
    
    
    
    1,485
    
    
    
    (304
    )
    
    
    (46
    )
    
    
    Net Income (loss)
    
    
    (23,532
    )
    
    
    (2,743
    )
    
    
    1,211
    
    
    
    1,033
    
    
    
    (438
    )Dividends on preferred stock
    
    
    (328
    )
    
    
    (603
    )
    
    
    (1,080
    )
    
    
    (479
    )
    
    
    (62
    )Deemed dividends on warrant extensions
    
    
    (300
    )
    
    
    (450
    )
    
    
    
    
    
    
    
    
    
    
    Net Income (loss) attributable to common
stockholders
    
    $
    (24,160
    )
    
    $
    (3,796
    )
    
    $
    131
    
    
    $
    554
    
    
    $
    (500
    )Income (loss) per common share:Basic
    
    $
    (0.51
    )
    
    $
    (0.09
    )
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    (0.02
    )Diluted
    
    $
    (0.51
    )
    
    $
    (0.09
    )
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    (0.02
    )Weighted average number of common shares
outstanding:Basic
    
    
    47,104
    
    
    
    44,384
    
    
    
    37,429
    
    
    
    34,148
    
    
    
    25,211Diluted
    
    
    47,104
    
    
    
    44,384
    
    
    
    38,142
    
    
    
    34,956
    
    
    
    25,211Selected Cash Flow and Other Financial Data:Net income (loss)
    
    $
    (23,532
    )
    
    $
    (2,743
    )
    
    $
    1,211
    
    
    $
    1,033
    
    
    $
    (438
    )Less: gains on sales of oil and gas properties
    
    
    (16,500
    )
    
    
    
    
    
    
    (7,159
    )
    
    
    
    
    
    
    Add back: Property impairments
    
    
    24,310
    
    
    
    
    
    
    
    4,360
    
    
    
    
    
    
    
    Add back: Goodwill impairment
    
    
    11,670
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation, depletion and amortization
    
    
    1,466
    
    
    
    1,267
    
    
    
    1,153
    
    
    
    1,532
    
    
    
    188Net loss on sales of securities
    
    
    369
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    Other non-cash items
    
    
    525
    
    
    
    582
    
    
    
    308
    
    
    
    466
    
    
    
    411Changes in current assets and liabilities
    
    
    58
    
    
    
    (292
    )
    
    
    1,496
    
    
    
    (1,163
    )
    
    
    (567
    )Net cash provided (used) by operating
activities
    
    $
    (1,634
    )
    
    $
    (1,171
    )
    
    $
    1,369
    
    
    $
    1,868
    
    
    $
    (406
    )Cash provided (used) by:Proceeds from sale of stock
    
    $
    
    
    
    $
    28,507
    
    
    $
    
    
    
    $
    13,500
    
    
    $
    6,025Purchases of short-term investments
    
    $
    
    
    
    $
    (28,750
    )
    
    $
    
    
    
    $
    
    
    
    $
    Sales/redemptions, short-term investments
    
    $
    12,184
    
    
    $
    12,361
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital expenditures
    
    $
    (21,420
    )
    
    $
    (16,214
    )
    
    $
    (16,152
    )
    
    $
    (14,147
    )
    
    $
    (2,895
    )Sales of oil and gas properties
    
    $
    31,695
    
    
    $
    777
    
    
    $
    16,067
    
    
    $
    
    
    
    $
    1,582Short-term loans
    
    $
    10,925
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Repayment of short-term loans
    
    $
    (10,925
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Balance Sheet Data:Cash and cash equivalents
    
    $
    23,270
    
    
    $
    2,388
    
    
    $
    7,488
    
    
    $
    6,023
    
    
    $
    5,252Other current assets
    
    
    6,770
    
    
    
    19,408
    
    
    
    10,013
    
    
    
    1,679
    
    
    
    313Oil and natural gas properties, net of
accumulated depreciation, depletion,
amortization and impairment
    
    
    35,660
    
    
    
    53,402
    
    
    
    38,869
    
    
    
    24,921
    
    
    
    3,481Other property and equipment, net of
depreciation
    
    
    182
    
    
    
    230
    
    
    
    252
    
    
    
    58
    
    
    
    6Other assets
    
    
    1,507
    
    
    
    12,663
    
    
    
    12,514
    
    
    
    13,094
    
    
    
    Total assets
    
    $
    67,389
    
    
    $
    88,091
    
    
    $
    69,136
    
    
    $
    45,775
    
    
    $
    9,052Current liabilities
    
    $
    4,390
    
    
    $
    1,831
    
    
    $
    4,656
    
    
    $
    1,434
    
    
    $
    127Long term liabilities
    
    
    431
    
    
    
    1,383
    
    
    
    2,392
    
    
    
    2,010
    
    
    
    41Stockholders equity
    
    
    62,568
    
    
    
    84,877
    
    
    
    62,088
    
    
    
    42,331
    
    
    
    8,884Total liabilities and stockholders equity
    
    $
    67,389
    
    
    $
    88,091
    
    
    $
    69,136
    
    
    $
    45,775
    
    
    $
    9,052
  23




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##### Table of Contents



Item 7: Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
  Overview
     24




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##### Table of Contents



Approximate
    
    
    Expected netExpected
    
    
    working
    
    
    capitalProject
    
    2009 wells
    
    
    interest
    
    
    required(in millions)Fetter project  Converse County, WY
    
    
    3 to 6
    
    
    
    70
    %
    
    $
    5 to 10Goliath project  Williams County, ND
    
    
    0 to 2
    
    
    
    40
    %
    
    $
    0 to 3Bigfoot project
    
    
    5 to 50
    
    
    
    75
    %
    
    $
    1 to 6Total drilling activity
    
    
    8 to 58
    
    
    
    
    
    
    $
    6 to 19
   Impact of Current Economic Conditions
 
  We begin 2009 with:  
    
    Over $25.6 million in working capital ($0.53/share), including $23.3 million in cash and $5.4 million
in short term investments,  
    
    No long term debt,  
    
    Approximately 259,000 net undeveloped acres of oil and gas leases of which only approximately 8,000
acres would expire in 2009, even if we drill no wells in 2009,  
    
    Improved opportunity for drilling commercially successful wells within the Fetter and Goliath
projects, even at current commodity prices when taking into consideration current and expected further
decreases in service costs, and  
    
    Plans to drill several shallow gas wells at our new Bigfoot project that could be commercially
successful under existing gas price conditions.  
    
    Little employee turnover in 2008 and no turnover of officers or key managers, In light of the low oil and gas prices currently and the uncertainties of price recovery and financial market
recovery, we expect in 2009, to maintain a substantial portion of our cash in U.S. Treasuries and similar low risk,
liquid investments, and we are planning to spend approximately $15 million in 2009 for base case capital projects and
operating expenses, as discussed further in the Liquidity and Capital Resources section on pages 30 to 32.  25




---



##### Table of Contents



Results of Operations
 Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
  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 discount
    
    
    (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
   26




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##### Table of Contents



Impairment of goodwill
 Goodwill and Other Intangible Assets,
 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
   27




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##### Table of Contents



Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
  Oil and Gas Operations
  Year Ended December 31,2007
    
    
    2006Oil sold (barrels)
    
    
    17,267
    
    
    
    34,578Average oil price
    
    $
    64.11
    
    
    $
    54.79Oil revenue
    
    $
    1,107,054
    
    
    $
    1,894,386Gas sold (mcf)
    
    
    139,590
    
    
    
    48,149Average gas price
    
    $
    6.09
    
    
    $
    7.53Gas revenue
    
    $
    849,454
    
    
    $
    362,453Total oil and gas revenues
    
    $
    1,956,508
    
    
    $
    2,256,839Less lease operating expenses
    
    
    (646,000
    )
    
    
    (290,803
    )Less oil & gas amortization expense
    
    
    (1,021,817
    )
    
    
    (937,821
    )Less accretion of discount
    
    
    (23,767
    )
    
    
    (11,213
    )Less impairments
    
    
    
    
    
    
    (4,360,000
    )Plus gain on
sale of oil and gas properties
    
    
    
    
    
    
    7,159,470Income from oil and gas operations
    
    
    264,924
    
    
    
    3,816,472Less intangible asset amortization
    
    
    (180,000
    )
    
    
    (180,000
    )Less depreciation of office facilities
    
    
    (65,225
    )
    
    
    (35,412
    )Less general and administrative expenses
    
    
    (4,307,997
    )
    
    
    (4,009,019
    )Add service fee revenue and other revenues
    
    
    12,000
    
    
    
    1,530,000Income (loss) from operations
    
    $
    (4,276,298
    )
    
    $
    1,122,041Total barrels of oil equivalent (boe) sold
    
    
    40,532
    
    
    
    42,603Oil and gas revenue per boe sold
    
    $
    48.27
    
    
    $
    52.97Lease operating expense per boe sold
    
    $
    15.94
    
    
    $
    6.83Amortization expense per boe sold
    
    $
    25.21
    
    
    $
    22.01
 Impairments
   28




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##### Table of Contents



General and Administrative Expenses
  Service Fee Revenue in 2006
  Gains on Sales in 2006 of Oil and Gas Properties
  Big Sky
    
    
    Bear Creek
    
    
    Goliath
    
    
    TotalsContract sales price
    
    $
    11,500,000
    
    
    $
    1,080,000
    
    
    $
    6,165,520
    
    
    $
    18,745,520Effective date adjustments
    
    
    (821,496
    )
    
    
    
    
    
    
    
    
    
    
    (821,496
    )Adjusted sales price
    
    
    10,678,504
    
    
    
    1,080,000
    
    
    
    6,165,520
    
    
    
    17,924,024Allocated capitalized
costs using the relative
fair market value method
required under full cost
accounting
    
    
    (6,416,650
    )
    
    
    (648,443
    )
    
    
    (3,699,461
    )
    
    
    (10,764,554
    )Recognized gains on sales
of oil and gas properties
    
    $
    4,261,854
    
    
    $
    431,557
    
    
    $
    2,466,059
    
    
    $
    7,159,470
 Investment Income
  Income Taxes
   29




---



##### Table of Contents



Dividends
  Liquidity and Capital Resources
        30




---



##### Table of Contents



Net Cash Provided By Operating Activities
   Net Cash Used In Investing Activities
     Net Cash Provided By Financing Activities
   31




---



##### Table of Contents



Contractual Obligations as of December 31, 2008
  Payment due by periodTotal
    
    
    2009
    
    
    2010-2012
    
    
    2013-2014
    
    
    After 2014Long-term debt
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lease of office space
    
    
    
    
    
    
    1,450,168
    
    
    
    260,837
    
    
    
    1,041,061
    
    
    
    148,270
    
    
    
    Asset retirement obligations
    
    
    (a
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development of proved reserves
    
    
    (b
    )
    
    
    270,000
    
    
    
    270,000
    
    
    
    
    
    
    
    
    
    
    
    Other well drilling & completion
    
    
    (b
    )
    
    
    860,000
    
    
    
    860,000
    
    
    
    
    
    
    
    
    
    
    
    Equipment inventory orders
    
    
    (b
    )
    
    
    410,000
    
    
    
    410,000
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    $
    2,990,168
    
    
    $
    1,800,837
    
    
    $
    1,041,061
    
    
    $
    148,270
    
    
    $
    
 (a)
    
    The asset retirement obligations liability of $430,686 at December 31, 2008 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. Our
estimated total asset retirement obligations, without reduction for equipment salvage value, is
approximately $604,000 at current prices. The timing of the $604,000 is $0 in 2009, $344,000 in
the three year period 2010 through 2012, $79,000 in the two-year period 2013 to 2014 and $181,000
after 2014. In many cases, timing will change as factors (such as future changes in oil and gas
prices) change the economic lives of our wells.(b)
    
    These three categories show estimates of the costs of obligations at December 31, 2008 to
participate in (1) completion of wells with proved reserves, (2) the drilling or completion of
other wells in progress at December 31, 2008 and one well to be
drilled in 2009 and (3) the purchase of well casing and tubing to have
on hand for use in some of the other wells planned to be drilled in 2009. Critical Accounting Policies and Estimates
  Full Cost Accounting Method
   32




---



##### Table of Contents



Estimates of Proved Oil and Gas Reserves
  Estimates of Fair Values of Unevaluated and Evaluated Properties
   33




---



##### Table of Contents



Income Taxes
  Asset Retirement Obligation
  Natural Gas Imbalances
  Recently Issued Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Non-controlling Interests in Consolidated Financial
Statements  an amendment of ARB 51
  34




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##### Table of Contents



Business Combinations
 Disclosures about Derivative Instruments and Hedging
Activities  an Amendment of FASB Statement No. 133
  
 Item 7A: Quantitative and Qualitative Disclosures about Market Risk
 Commodity Price Risk
     35




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##### Table of Contents



Operating Cost Risk
    Interest Rate Risk
   36




---



##### 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, 2008 and 2007
    
    F-3Consolidated Statements of Operations for years ended
December 31, 2008, 2007 and 2006
    
    F-4Consolidated Statements of Cash Flows for years ended
December 31, 2008, 2007 and 2006
    
    F-5Consolidated Statements of Stockholders Equity and
Comprehensive Income for years ended December 31, 2008, 2007 and 2006
    
    F-6Notes to Consolidated Financial Statements
    
    F-7 to F-29
  F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal Control  Integrated Framework
 /s/ HEIN & ASSOCIATES LLP
 
  F-2




---



##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2008 AND 2007
 2008
    
    
    2007ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    23,269,725
    
    
    $
    2,388,219Short-term investments
    
    
    5,450,000
    
    
    
    18,302,900Accounts receivable
    
    
    1,186,749
    
    
    
    566,789Prepaid expenses
    
    
    133,360
    
    
    
    149,440Current deferred tax assets (net of valuation allowance, Note 7)
    
    
    
    
    
    
    347,658Total current assets
    
    
    30,039,834
    
    
    
    21,755,006PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including unevaluated
costs of $31,837,965 at 12/31/08 and $40,937,747 at 12/31/07)
    
    
    40,456,632
    
    
    
    56,987,732Other property and equipment
    
    
    366,354
    
    
    
    338,614Total property and equipment
    
    
    40,822,986
    
    
    
    57,326,346Less accumulated depreciation, depletion and amortization
    
    
    (4,980,578
    )
    
    
    (3,694,805
    )Net property and equipment
    
    
    35,842,408
    
    
    
    53,631,541INTANGIBLE AND OTHER ASSETSGoodwill
    
    
    
    
    
    
    11,670,468Other intangible asset
    
    
    240,000
    
    
    
    420,000Drilling prepayments
    
    
    
    
    
    
    542,876Equipment inventory for use on new wells
    
    
    1,236,591
    
    
    
    40,904Deferred income tax assets (net of valuation allowance, Note 7)
    
    
    
    
    
    
    Other assets
    
    
    30,385
    
    
    
    30,385$
    67,389,218
    
    
    $
    88,091,180LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    4,286,618
    
    
    $
    1,568,806Income taxes payable
    
    
    104,000
    
    
    
    Preferred dividends payable
    
    
    
    
    
    
    261,648Total current liabilities
    
    
    4,390,618
    
    
    
    1,830,454LONG-TERM LIABILITIESAsset retirement obligations
    
    
    430,686
    
    
    
    323,369Deferred income taxes
    
    
    
    
    
    
    1,060,003Total long-term liabilities
    
    
    430,686
    
    
    
    1,383,372COMMITMENTS AND CONTINGENCIES(Note 13)STOCKHOLDERS EQUITYSeries AA preferred stock, $.001 par value, authorized 400,000
shares; issued and outstanding: None at 12/31/08 and 138,000
shares at 12/31/07; redemption value of $7,713,648 at 12/31/07
    
    
    
    
    
    
    138Common stock, $.001 par value, authorized 100,000,000 shares;
issued and outstanding shares: 47,875,899 at 12/31/08 and
46,434,063 at 12/31/07
    
    
    47,876
    
    
    
    46,434Additional paid-in capital
    
    
    91,275,557
    
    
    
    89,426,687Accumulated deficit
    
    
    (28,755,519
    )
    
    
    (4,595,905
    )Accumulated other comprehensive income
    
    
    
    
    
    
    Total equity
    
    
    62,567,914
    
    
    
    84,877,354$
    67,389,218
    
    
    $
    88,091,180
   F-3




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##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 2008
    
    
    2007
    
    
    2006REVENUESOil and gas sales
    
    $
    2,894,589
    
    
    $
    1,956,508
    
    
    $
    2,256,839Service fee and other revenues
    
    
    
    
    
    
    12,000
    
    
    
    1,530,000Total revenues
    
    
    2,894,589
    
    
    
    1,968,508
    
    
    
    3,786,839OPERATING EXPENSESLease operating and gas processing
    
    
    1,278,668
    
    
    
    646,000
    
    
    
    290,803General and administrative
    
    
    4,372,202
    
    
    
    4,307,997
    
    
    
    4,009,019Depletion, depreciation and amortization
    
    
    1,465,772
    
    
    
    1,267,042
    
    
    
    1,153,233Accretion of asset retirement obligation
    
    
    32,936
    
    
    
    23,767
    
    
    
    11,213Impairments of oil and gas properties
    
    
    24,310,000
    
    
    
    
    
    
    
    4,360,000Impairment of goodwill
    
    
    11,670,468
    
    
    
    
    
    
    
    Total operating expenses
    
    
    43,130,046
    
    
    
    6,244,806
    
    
    
    9,824,268GAIN ON SALE OF OIL & GAS PROPERTIES
    
    
    16,500,000
    
    
    
    
    
    
    
    7,159,470INCOME (LOSS) FROM OPERATIONS
    
    
    (23,735,457
    )
    
    
    (4,276,298
    )
    
    
    1,122,041OTHER INCOME (LOSS)Investment income
    
    
    511,599
    
    
    
    1,020,712
    
    
    
    392,930Impairment 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)
    
    
    (264,620
    )
    
    
    47,932
    
    
    
    392,930INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (24,000,077
    )
    
    
    (4,228,366
    )
    
    
    1,514,971Income tax expense current
    
    
    244,000
    
    
    
    
    
    
    
    Income tax expense (reduction) deferred
    
    
    (712,345
    )
    
    
    (1,484,984
    )
    
    
    303,748Income tax provision (reduction)
    
    
    (468,345
    )
    
    
    (1,484,984
    )
    
    
    303,748NET INCOME (LOSS)
    
    
    (23,531,732
    )
    
    
    (2,743,382
    )
    
    
    1,211,223Less dividends on preferred stock
    
    
    (327,882
    )
    
    
    (602,530
    )
    
    
    (1,080,000
    )Less deemed dividends on warrant
extensions
    
    
    (300,000
    )
    
    
    (450,000
    )
    
    
    NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS
    
    $
    (24,159,614
    )
    
    $
    (3,795,912
    )
    
    $
    131,223NET INCOME (LOSS) PER COMMON SHARE:Basic
    
    $
    (0.51
    )
    
    $
    (0.09
    )
    
    $
    0.00Diluted
    
    $
    (0.51
    )
    
    $
    (0.09
    )
    
    $
    0.00Weighted average common shares outstanding:Basic
    
    
    47,104,025
    
    
    
    44,383,861
    
    
    
    37,428,506Diluted
    
    
    47,104,025
    
    
    
    44,383,861
    
    
    
    38,142,011
   F-4




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##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    (23,531,732
    )
    
    $
    (2,743,382
    )
    
    $
    1,211,223Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:Gain on sales of oil and gas properties
    
    
    (16,500,000
    )
    
    
    
    
    
    
    (7,159,470
    )Impairments of oil and gas properties
    
    
    24,310,000
    
    
    
    
    
    
    
    4,360,000Impairment of goodwill
    
    
    11,670,468
    
    
    
    
    
    
    
    Service fee received in the form of a convertible note
    
    
    
    
    
    
    
    
    
    
    (1,530,000
    )Depletion, depreciation and amortization
    
    
    1,465,772
    
    
    
    1,267,042
    
    
    
    1,153,233Accretion of asset retirement obligation
    
    
    32,936
    
    
    
    23,767
    
    
    
    11,213Deferred income taxes
    
    
    (712,345
    )
    
    
    (1,484,984
    )
    
    
    303,748Share-based compensation
    
    
    904,006
    
    
    
    1,091,677
    
    
    
    1,522,219Unrealized loss on investment in securities
    
    
    300,000
    
    
    
    952,100
    
    
    
    Net loss on sales of securities
    
    
    369,172
    
    
    
    14,518
    
    
    
    Changes in current assets and current liabilities:Decrease
(increase) in accounts receivable
    
    
    (164,227
    )
    
    
    (230,601
    )
    
    
    1,145,355Decrease (increase) in inventory held as a current asset
    
    
    40,904
    
    
    
    
    
    
    
    Decrease (increase) in advances and prepaid expenses
    
    
    16,080
    
    
    
    252,847
    
    
    
    (245,812
    )Increase (decrease) in accounts payable and accrued
liabilities
    
    
    164,991
    
    
    
    (314,090
    )
    
    
    596,935Net cash provided (used) by operating activities
    
    
    (1,633,975
    )
    
    
    (1,171,106
    )
    
    
    1,368,644CASH FLOWS FROM INVESTING ACTIVITIESCash proceeds from sales of oil and gas properties
    
    
    31,695,279
    
    
    
    777,461
    
    
    
    16,066,563Cash purchases of short-term investments in securities
    
    
    
    
    
    
    (28,750,000
    )
    
    
    Cash proceeds from redemption of short-term investments
    
    
    11,500,000
    
    
    
    
    
    
    
    Cash proceeds from sale of short-term investments
    
    
    683,728
    
    
    
    12,360,482
    
    
    
    Cash paid for oil and gas properties
    
    
    (20,612,267
    )
    
    
    (15,841,067
    )
    
    
    (15,913,075
    )Cash paid for office equipment and software
    
    
    (27,740
    )
    
    
    (43,129
    )
    
    
    (229,178
    )Cash paid for equipment inventory
    
    
    (780,157
    )
    
    
    
    
    
    
    Drilling prepayments and other long-term assets
    
    
    
    
    
    
    (330,203
    )
    
    
    (10,000
    )Net cash provided (used) by investing activities
    
    
    22,458,843
    
    
    
    (31,826,456
    )
    
    
    (85,690
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from short-term borrowings
    
    
    10,925,900
    
    
    
    
    
    
    
    Repayment of short-term borrowings
    
    
    (10,925,900
    )
    
    
    
    
    
    
    Proceeds from sale of common stock
    
    
    
    
    
    
    28,506,602
    
    
    
    Cash paid for stock offering and issuance costs
    
    
    
    
    
    
    (1,956,465
    )
    
    
    (2,283
    )Proceeds from warrant exercise
    
    
    56,638
    
    
    
    705,025
    
    
    
    55,508Proceeds from employee stock option exercise
    
    
    
    
    
    
    642,145
    
    
    
    24,800Proceeds from stock option exercises by a consultant
    
    
    
    
    
    
    
    
    
    
    104,673Net cash provided by financing activities
    
    
    56,638
    
    
    
    27,897,307
    
    
    
    182,698NET INCREASE (DECREASE) IN CASH
    
    
    20,881,506
    
    
    
    (5,100,255
    )
    
    
    1,465,652CASH, BEGINNING OF YEAR
    
    
    2,388,219
    
    
    
    7,488,474
    
    
    
    6,022,822CASH, END OF YEAR
    
    $
    23,269,725
    
    
    $
    2,388,219
    
    
    $
    7,488,474
   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, 2008, 2007 AND 2006
 Additional
    
    
    Comprehensive IncomePreferred
    
    
    Stock
    
    
    Common
    
    
    Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Accumulated
    
    
    TotalShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Other Income
    
    
    EquityDecember 31, 2005 Balances
    
    
    250,000
    
    
    $
    250
    
    
    
    36,476,202
    
    
    $
    36,476
    
    
    $
    43,225,408
    
    
    $
    (931,216
    )
    
    
    
    
    
    $
    42,330,918Accrued dividends, Series AA Pref.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,080,000
    )
    
    
    
    
    
    
    (1,080,000
    )Series AA preferred stock dividends
paid in common stock
    
    
    
    
    
    
    
    
    
    
    239,493
    
    
    
    240
    
    
    
    1,079,760
    
    
    
    
    
    
    
    
    
    
    
    1,080,000Shares issued for oil and gas properties
    
    
    
    
    
    
    
    
    
    
    2,050,000
    
    
    
    2,050
    
    
    
    13,074,667
    
    
    
    
    
    
    
    
    
    
    
    13,076,717Shares to new employees
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    20
    
    
    
    96,280
    
    
    
    
    
    
    
    
    
    
    
    96,300Stock option exercised by employee
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    10
    
    
    
    24,790
    
    
    
    
    
    
    
    
    
    
    
    24,800Stock options exercised by consultant
    
    
    
    
    
    
    
    
    
    
    32,010
    
    
    
    32
    
    
    
    104,641
    
    
    
    
    
    
    
    
    
    
    
    104,673Warrants exercised
    
    
    
    
    
    
    
    
    
    
    46,004
    
    
    
    46
    
    
    
    55,462
    
    
    
    
    
    
    
    
    
    
    
    55,508Shares issued for consulting services
    
    
    
    
    
    
    
    
    
    
    26,405
    
    
    
    26
    
    
    
    123,285
    
    
    
    
    
    
    
    
    
    
    
    123,311Deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    27,000
    
    
    
    27
    
    
    
    (27
    )
    
    
    
    
    
    
    
    
    
    
    Deferred compensation recognized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,820
    
    
    
    
    
    
    
    
    
    
    
    71,820Stock option compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,230,788
    
    
    
    
    
    
    
    
    
    
    
    1,230,788Warrant issued for properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,000
    
    
    
    
    
    
    
    
    
    
    
    88,000Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,211,223Unrealized gain on short-term
investment, net of $2,172,785 tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,673,615Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,884,838December 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 income (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 income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,531,732
    )
    
    
    
    
    
    
    (23,531,732
    )December 31, 2008 Balances
    
    
    
    
    
    $
    
    
    
    
    47,875,899
    
    
    $
    47,876
    
    
    $
    91,275,557
    
    
    $
    (28,755,519
    )
    
    $
    
    
    
    $
    62,567,914
   F-6




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##### Table of Contents



AMERICAN OIL & GAS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 as of December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006
 NOTE 1  ORGANIZATION AND BASIS OF PRESENTATION
 ORGANIZATION
      BASIS OF PRESENTATION
  
    
    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
 
    
    the assumption required by GAAP that proved reserves and generally proved reserve
value for measuring capitalized cost impairment be based on the prices of oil and gas
at the end of the reporting period.
   F-7




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##### Table of Contents



NOTE 2  SIGNIFICANT ACCOUNTING POLICIES
 CASH AND CASH EQUIVALENTS 
 FAIR VALUE 
 SHORT-TERM INVESTMENTS 
 ACCOUNTS RECEIVABLE AND CREDIT POLICIES 
  ASSET RETIREMENT OBLIGATIONS 
  2008
    
    
    2007Asset retirement obligation beginning of year
    
    $
    323,369
    
    
    $
    235,268Liabilities incurred
    
    
    101,638
    
    
    
    162,733Liabilities settled
    
    
    (51,996
    )
    
    
    (22,898
    )Accretion
    
    
    32,936
    
    
    
    23,767Revisions in estimated liabilities
    
    
    24,739
    
    
    
    (75,501
    )Asset retirement obligation end of year
    
    $
    430,686
    
    
    $
    323,369Current portion of obligation end of year
    
    $
    
    
    
    $
    
  F-8




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##### Table of Contents



OIL AND GAS PROPERTIES 
  th ths
  OTHER PROPERTY AND EQUIPMENT 
 IMPAIRMENT  Accounting for the
Impairment and Disposal of Long-Lived Assets,
  F-9




---



##### Table of Contents



BUSINESS COMBINATIONS Business Combinations
 GOODWILL Goodwill and Other Intangible
Assets
 OTHER INTANGIBLE ASSETS
 INCOME TAXES Accounting
for Income Taxes
 REVENUE RECOGNITION AND GAS BALANCING
 Major
Customers:
 NET INCOME (LOSS) PER SHARE
 CONCENTRATION OF CREDIT RISK 
 SHARE-BASED COMPENSATION  Share-Based
Payment
 OFF BALANCE SHEET ARRANGEMENTS 
  F-10




---



##### Table of Contents



PRINCIPLES OF CONSOLIDATION 
 SEGMENT REPORTING  Disclosure about Segments of an Enterprise and Related
Information
 RECLASSIFICATION 
 RECENT ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Non-controlling Interests in Consolidated Financial
Statements  an amendment of ARB 51
 Business Combinations
 Disclosures about Derivative Instruments and Hedging
Activities  an Amendment of FASB Statement No. 133
   F-11




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##### Table of Contents



NOTE 3  PROPERTY AND EQUIPMENT
  2008
    
    
    2007Oil and gas properties, full cost methodUnevaluated
costs, not yet subject to amortization
    
    $
    31,837,965
    
    
    $
    40,937,747Evaluated costs
    
    
    8,268,815
    
    
    
    15,774,514Asset retirement costs
    
    
    349,852
    
    
    
    275,47140,456,632
    
    
    
    56,987,732Furniture, equipment and software
    
    
    366,354
    
    
    
    338,61440,822,986
    
    
    
    57,326,346Less accumulated depreciation, depletion and
amortization
    
    
    (4,980,578
    )
    
    
    (3,694,805
    )Property and equipment
    
    $
    35,842,408
    
    
    $
    53,631,541
 Unevaluated Oil and Gas Properties
  Net CostsYear Incurred
    
    IncurredYear ended December 31, 2008
    
    $
    6,662,088Year ended December 31, 2007
    
    
    4,100,451Year ended December 31, 2006
    
    
    12,458,843Year ended December 31, 2005
    
    
    8,287,001Prior to 2006
    
    
    329,582$
    31,837,965
    Capitalized Costs (in millions)
    
    
    Approximate Acres 12/31/08 (Unaudited)Project (State)
    
    12/31/07
    
    
    Net Change
    
    
    12/31/08
    
    
    Gross
    
    
    Lease Net*
    
    
    Our Net *Fetter Project, Powder River Basin (WY)
    
    $
    14.5
    
    
    
    0.2
    
    
    
    14.7
    
    
    
    48,592
    
    
    
    44,856
    
    
    
    31,995Goliath Project, Williston Basin (ND)
    
    
    7.0
    
    
    
    0.7
    
    
    
    7.7
    
    
    
    79,155
    
    
    
    63,421
    
    
    
    31,665Bigfoot
    
    
    0.8
    
    
    
    2.5
    
    
    
    3.3
    
    
    
    174,841
    
    
    
    151,353
    
    
    
    111,912Krejci Oil Project, Powder River Basin (WY)
    
    
    9.1
    
    
    
    (6.7
    )
    
    
    2.4
    
    
    
    126,996
    
    
    
    121,937
    
    
    
    51,699Other unevaluated costs
    
    
    2.7
    
    
    
    1.1
    
    
    
    3.8
    
    
    
    103,799
    
    
    
    92,493
    
    
    
    31,698West Douglas (WY), sold in 2008
    
    
    4.2
    
    
    
    (4.2
    )
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Douglas Project (WY), sold in 2008
    
    
    0.9
    
    
    
    (.9
    )
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Narraguinnep (CO), sold in 2008
    
    
    1.7
    
    
    
    (1.7
    )
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total unevaluated costs and acres
    
    $
    40.9
    
    
    
    (9.0
    )
    
    
    31.9
    
    
    
    533,383
    
    
    
    474,060
    
    
    
    258,969
 *
    
    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-12




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##### Table of Contents



th th
 Sales of Oil & Gas Properties
     F-13




---



##### Table of Contents



Property Acquisition, Exploration and Development Costs
  2008
    
    
    2007
    
    
    2006Property acquisition costs, unproved properties
    
    $
    6,275,102
    
    
    $
    4,395,467
    
    
    $
    19,887,879Property acquisition costs, proved properties
    
    
    
    
    
    
    
    
    
    
    163,569Exploration costs
    
    
    13,563,077
    
    
    
    11,364,497
    
    
    
    9,285,354Asset retirement costs
    
    
    74,381
    
    
    
    73,516
    
    
    
    86,649Development costs
    
    
    3,042,469
    
    
    
    
    
    
    
    691,626$
    22,955,029
    
    
    $
    15,833,480
    
    
    $
    30,115,077
  Impairment of Oil and Gas Properties
   Amortization Rate
   F-14




---



##### Table of Contents



2008
    
    
    2007
    
    
    2006Amortization of costs for evaluated oil and gas properties
    
    $
    1,210,000
    
    
    $
    1,021,817
    
    
    $
    937,821Depreciation of office equipment, furniture and software
    
    
    75,772
    
    
    
    65,225
    
    
    
    35,412Amortization of Other Intangible Asset (Note 6)
    
    
    180,000
    
    
    
    180,000
    
    
    
    180,000Total DD&A expense
    
    $
    1,465,772
    
    
    $
    1,267,042
    
    
    $
    1,153,233
  NOTE 4  SHORT-TERM INVESTMENTS
  As of December 31,2008
    
    
    2007ARPS at fair value
    
    $
    5,450,000
    
    
    $
    17,325,000PetroHunter common stock (at fair value)
    
    
    
    
    
    
    977,900Total, short-term investments
    
    $
    5,450,000
    
    
    $
    18,302,900
     
    
    Filings in 2008 by four Calamos closed-end funds (in which we hold $2,325,000 of
ARPS) requesting the SEC to grant exemptive relief to allow the funds to use debt to
redeem all remaining outstanding ARPS, particularly the amended filing of December 18,
2008 citing the October 23, 2008 SEC order granting exemptive relief in response to a
very similar request by Eaton Vance closed-end funds,
 
    
    Various other public statements in 2008 by Calamos management showing a goal and
desire to provide remaining ARPS holders liquidity at par value as soon as possible,
 
    
    Pre 12/31/08 announcements of the January 2, 2009 redemptions at par value of
$175,000 of ARPS we held in funds other than the Calamos funds,
 
    
    A third-party appraisal as to the December 15, 2008 fair value of approximately $3
million of the non-Calamos ARPS we held on December 15, 2008,
 
    
    The Calamos amended filing of January 14, 2009, the February 10, 2009 SEC order
granting the
requested exemptive relief, and the February 13, 2009 Calamos statement regarding the SEC
order, and
 
    
    February 3 and 6, 2009 letters from the Securities Industry and Financial Markets
Association (calling for federal assistance to allow ARPS, such as those we hold, to be
liquidated at par value as soon as possible) sent to Federal Reserve Chairman Bernanke,
to Treasury Secretary Geithner and to the Chairman of the US House of Representatives
Committee on Financial Services.
 F-15




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##### Table of Contents



NOTE 5  FAIR VALUE MEASUREMENTS
   
    
    Level 1  Quoted prices in active markets for identical assets or liabilities
 
    
    Level 2  Quoted prices in active markets for similar assets and liabilities, quoted
prices for identical or similar instruments in markets that are not active or in
markets in which little information is released publicly, and model-derived valuations
whose inputs are observable or whose significant value drivers are observable
 
    
    Level 3  Significant inputs to the valuation model which are unobservable.
  Total atDecember 31,
    
    
    Level 1
    
    
    Level 2
    
    
    Level 32008
    
    
    Inputs
    
    
    inputs
    
    
    inputsFinancial Assets:Short-term investments available for sale:Auction Rate Preferred Shares (See Note
4)
    
    $
    5,450,000
    
    
    $
    
    
    
    $
    
    
    
    $
    5,450,000
  2008
    
    
    2007
    
    
    2006Beginning balance
    
    $
    
    
    
    $
    
    
    
    $
    Transfers in (out) of Level 3
    
    
    5,750,000
    
    
    
    
    
    
    
    Net purchases (sales)
    
    
    
    
    
    
    
    
    
    
    Net decrease in value
    
    
    300,000
    
    
    
    
    
    
    
    Ending balance
    
    $
    5,450,000
    
    
    $
    
    
    
    $
    
  F-16




---



##### Table of Contents




    
    Recognition that the ARPS we own pay dividends every 7 or 28 days at variable
short-term rates that approximate 150% of 30-day LIBOR US rates,
    
    The assumption that the $2,325,000 of Calamos ARPS we owned would be redeemed at
par value sometime in 2009 whereby their estimated fair value at December 31, 2009,
was their $2,325,000 par value,
    
    The redemption of $125,000 of ARPS on January 2, 2009 at par value,
    
    The other ARPS ($3,300,000 par value) we owned at December 31, 2008 could be
redeemed or sold at par value by 2011, and the expected future dividend rates (most
set a premium or multiple of 30-day LIBOR or 30-day commercial paper) would increase
from 1.28% at December 31, 2008 to approximately 3% to 4% on average prior to
liquidity at par value, whereby their fair value at December 31, 2008 would
approximate 90% of par value due to the expected inability to liquidate the ARPS at
par value until 2011, offset in part by the dividend yield varying at a premium to
benchmark rates of short-term instruments.
 NOTE 6  GOODWILL AND OTHER INTANGIBLE ASSET
 Goodwill and Other Intangible Assets
   NOTE 7  INCOME TAXES
 Accounting for Income
Taxes,
  F-17




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##### Table of Contents



2008
    
    
    2007
    
    
    2006Current taxes
    
    $
    244,000
    
    
    $
    
    
    
    $
    Deferred taxes
    
    
    (5,464,653
    )
    
    
    (1,484,984
    )
    
    
    303,748Valuation allowance
    
    
    4,752,308
    
    
    
    
    
    
    
    Income tax expense (reduction)
    
    $
    (468,345
    )
    
    $
    (1,484,984
    )
    
    $
    303,748Income (loss) before income taxes
    
    $
    (24,000,077
    )
    
    $
    (4,228,366
    )
    
    $
    1,514,971Effective income tax rate
    
    
    2.0
    %
    
    
    35.1
    %
    
    
    20.0
    %
  2008
    
    
    2007
    
    
    2006Federal statutory income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes
    
    
    1.6
    %
    
    
    1.5
    %
    
    
    3.1
    %Permanent differences:Goodwill impairment
    
    
    (17.8
    %)
    
    
    
    
    
    
    Compensation using qualified stock options
    
    
    (0.5
    %)
    
    
    (3.3
    %)Excess percentage depletion
    
    
    2.0
    %
    
    
    1.5
    %
    
    
    (22.0
    %)Change in valuation allowance
    
    
    (19.8
    %)
    
    
    
    
    
    
    Change in average state tax rate
    
    
    0.0
    %
    
    
    0.3
    %
    
    
    (3.8
    %)Other
    
    
    1.5
    %
    
    
    0.1
    %
    
    
    7.7
    %Effective income tax rate
    
    
    2.0
    %
    
    
    35.1
    %
    
    
    20.0
    %
  2008
    
    
    2007
    
    
    2006Current deferred tax asset (liability):Unrealized gain (loss) on short-term investments
    
    $
    109,749
    
    
    $
    347,658
    
    
    $
    (2,172,785
    )Less asset valuation allowance
    
    
    (109,749
    )
    
    
    
    
    
    
    Current deferred tax asset (liability)
    
    $
    
    
    
    $
    347,658
    
    
    $
    (2,172,785
    )Long-term deferred tax assets (liabilities):Deferred tax assets:Oil & gas property costs tax basis in excess of
basis for financial reporting
    
    $
    4,073,868
    
    
    $
    
    
    
    $
    Oil and gas property amortization
    
    
    51,373
    
    
    
    454,771
    
    
    
    753,000Federal and state net operating loss carryovers
    
    
    171,696
    
    
    
    5,731,713
    
    
    
    1,219,868Compensation using non-qualified stock options and
stock grants
    
    
    364,887
    
    
    
    341,452
    
    
    
    118,369Other
    
    
    
    
    
    
    
    
    
    
    88,0804,661,824
    
    
    
    6,527,936
    
    
    
    2,179,317Less: valuation allowance
    
    
    (4,642,559
    )
    
    
    
    
    
    
    Long-term deferred tax asset
    
    $
    19,265
    
    
    $
    6,527,936
    
    
    $
    2,179,317Deferred tax liabilities:Oil and gas property costs carrying value for
financial reporting in excess of tax basis
    
    $
    
    
    
    $
    (7,572,033
    )
    
    $
    (4,376,646
    )Other
    
    
    (19,265
    )
    
    
    (15,906
    )
    
    
    Total long-term deferred tax liabilities
    
    
    (19,265
    )
    
    
    (7,587,939
    )
    
    
    (4,376,646
    )Long-term deferred tax asset
    
    
    19,265
    
    
    
    6,527,936
    
    
    
    2,179,317Net long-term deferred tax asset (liability)
    
    $
    
    
    
    $
    (1,060,003
    )
    
    $
    (2,197,329
    )
  F-18




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##### Table of Contents



F-19




---



##### Table of Contents



Accounting for
Uncertainty in Income Taxes
  NOTE 8  SUPPLEMENTAL INFORMATION TO THE STATEMENTS OF CASH FLOWS
 2008
    
    
    2007
    
    
    2006Supplemental Schedule of Cash Flow InformationCash paid for interest expense
    
    $
    107,047
    
    
    $
    6,162
    
    
    $
    Cash paid for income taxes incurred
    
    $
    140,000
    
    
    $
    
    
    
    $
    Supplemental Disclosures of Non-Cash ActivitiesConversion of preferred stock into common stock
    
    $
    7,452,000
    
    
    $
    6,048,000
    
    
    $
    770,500Share-based compensation expense
    
    $
    904,006
    
    
    $
    1,091,677
    
    
    $
    1,522,219Preferred stock dividends paid in common stock
    
    $
    589,530
    
    
    $
    820,224
    
    
    $
    1,080,000Net increase in payables for capital expenditures
    
    $
    2,200,387
    
    
    
    134,807
    
    
    
    Net drilling prepayments applied to incurred drilling costs
    
    $
    542,876
    
    
    
    
    
    
    
    410,427Common stock issued to acquire oil and gas properties
    
    $
    
    
    
    $
    
    
    
    $
    13,079,000Service fee received in the form of a convertible note
    
    $
    
    
    
    $
    
    
    
    $
    1,530,000Oil and gas properties sold in exchange for a convertible note
    
    $
    
    
    
    $
    
    
    
    $
    1,080,000Notes converted into PetroHunter common stock
    
    $
    
    
    
    $
    
    
    
    $
    2,610,000Oil and gas interests exchanged for PetroHunter common stock
    
    $
    
    
    
    $
    270,000
    
    
    $
    Warrant issued to acquire oil and gas properties
    
    $
    
    
    
    $
    
    
    
    $
    88,000
 NOTE 9  STOCKHOLDERS EQUITY
 PREFERRED STOCK
  Series A Convertible Preferred Stock
  Series AA Convertible Preferred Stock
   F-20




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##### Table of Contents



COMMON STOCK
  WARRANTS
    Common
    
    
    Exercise
    
    
    ExpirationIssue Date
    
    Shares
    
    
    Price
    
    
    DateApril 16, 2008
    
    
    50,000
    
    
    $
    7.00
    
    
    April 16, 2013July 22, 2005
    
    
    835,626
    
    
    $
    6.00
    
    
    September 30, 2009885,626
   Common
    
    
    Exercise
    
    
    ExpirationIssue Date
    
    Shares
    
    
    Price
    
    
    DateJuly 22, 2005
    
    
    554,376
    
    
    $
    6.00
    
    
    June 30, 2008July 22, 2005
    
    
    281,250
    
    
    $
    6.00
    
    
    July 21, 2008September 15, 2003
    
    
    20,000
    
    
    $
    1.15
    
    
    September 15, 2008July 23, 2003 to September 24, 2003
    
    
    54,850
    
    
    $
    0.75
    
    
    July 24, 2008 to September 24, 2008910,476
   F-21




---



##### Table of Contents



STOCK OPTIONS
   Stock Options as of December 31, 2008
 Commitments and Contingencies
  Number of
    
    
    Weighted Avg.Shares
    
    
    Exercise PriceOptions outstanding  December 31, 2005 (640,009 exercisable)
    
    
    1,459,010
    
    
    $
    2.94Options granted during 2006
    
    
    769,000
    
    
    $
    4.83Less options exercised during 2006
    
    
    (42,010
    )
    
    $
    3.27Options 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
    
    
    $
    2.42
    F-22




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##### Table of Contents



Exercise
    
    
    Remainingprice
    
    
    contractual
    
    
    Number of sharesper share
    
    
    life (years)
    
    
    Outstanding
    
    
    Exercisable$
    1.25
    
    
    
    1.4
    
    
    
    403,000
    
    
    
    403,000$
    2.00
    
    
    
    8.0
    
    
    
    1,768,000
    
    
    
    0$
    2.38
    
    
    
    4.6
    
    
    
    100,000
    
    
    
    100,000$
    3.29
    
    
    
    6.3
    
    
    
    100,000
    
    
    
    25,000$
    3.34
    
    
    
    6.6
    
    
    
    6,000
    
    
    
    0$
    3.37
    
    
    
    5.3
    
    
    
    30,000
    
    
    
    0$
    3.66
    
    
    
    3.8
    
    
    
    500,000
    
    
    
    333,333$
    6.03
    
    
    
    4.1
    
    
    
    130,000
    
    
    
    130,0003,037,000
    
    
    
    991,333Weighted average exercise price per share
    
    
    
    
    
    
    
    
    
    $
    2.42
    
    
    $
    2.85Weighted Ave. remaining contractual life
    
    
    
    
    
    
    
    
    
    6.1 years
        
    3.0 yearsAggregate intrinsic value, December 31, 2008
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    
   2008
    
    2007
    
    2006Primary Model (Both Black-Scholes and modified binomial were used in
    
    Modified
    
    Modified
    
    Black-2008 and 2007.)
    
    Binomial
    
    Binomial
    
    ScholesOption life (in years)
    
    4 to 5
    
    4 to 5
    
    5-8Expected annual volatility over option life
    
    45%
    
    35%
    
    33% to 63%Risk-free interest rate
    
    2.3% to 2.5%
    
    4.7% to 5.1%
    
    4.5% to 5.2%Pre-vesting forfeiture rate
    
    10% to 12%
    
    0%
    
    0%Dividend yield
    
    0%
    
    0%
    
    0%Intrinsic Value /share that urges exercise
    
    $2.00
    
    $2.00 to $2.16
    
    n/a for model
   F-23




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##### Table of Contents



SHARE-BASED COMPENSATION EXPENSE
  2008
    
    
    2007
    
    
    2006Share-based compensation expense:For stock option grants
    
    $
    735,286
    
    
    $
    914,300
    
    
    $
    1,230,788For stock granted but in escrow or unvested
    
    
    168,720
    
    
    
    148,177
    
    
    
    71,846For stock granted with immediate vesting
    
    
    
    
    
    
    29,200
    
    
    
    219,585Total
    
    $
    904,006
    
    
    $
    1,091,677
    
    
    $
    1,522,219Total share-based compensation for income tax
returns
    
    $
    17,720
    
    
    $
    771,424
    
    
    $
    52,700
  
    
    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, 2008, 16,000
shares were not vested.
    
    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.
   NOTE 10  EARNINGS PER SHARE
  2008
    
    
    2007
    
    
    2006Net income
(loss) to common stockholders
    
    $
    (24,159,614
    )
    
    $
    (3,795,912
    )
    
    $
    131,223Adjustments for dilution
    
    
    
    
    
    
    
    
    
    
    Net income (loss) adjusted for effects of dilution
    
    $
    (24,159,614
    )
    
    $
    (3,795,912
    )
    
    $
    131,223Basic Weighted Ave. Common Shares
    
    
    47,104,025
    
    
    
    44,383,861
    
    
    
    37,428,506Add dilutive effects of options and warrants
    
    
    
    
    
    
    
    
    
    
    713,505Add dilutive effects of convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    Diluted Weighted Ave. Common Shares Outstanding
    
    
    47,104,025
    
    
    
    44,383,861
    
    
    
    38,142,011Net income per common share  basic
    
    $
    (0.51
    )
    
    $
    (0.09
    )
    
    $
    0.00Net income per common share  diluted
    
    $
    (0.51
    )
    
    $
    (0.09
    )
    
    $
    0.00
  F-24




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##### Table of Contents



NOTE 11  EMPLOYEE BENEFIT PLANS
  NOTE 12  RELATED PARTY TRANSACTIONS
  NOTE 13  COMMITMENTS AND CONTINGENCIES
  North Finn Option
     F-25




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##### Table of Contents



Office Lease
 th
 Annual RentalYear
    
    Amount2009
    
    $
    260,8372010
    
    $
    340,7902011
    
    $
    347,0202012
    
    $
    353,2512013
    
    $
    148,270Thereafter
    
    $
    
 Delay Rentals and Lease Extension Fees
   Delay
    
    
    ExtensionRentals
    
    
    Fees
    
    
    Total2009
    
    $
    191,765
    
    
    $
    416,742
    
    
    $
    608,5072010
    
    $
    194,358
    
    
    $
    133,385
    
    
    $
    327,7432011
    
    $
    131,247
    
    
    $
    328,107
    
    
    $
    459,3542012
    
    $
    79,335
    
    
    $
    29,314
    
    
    $
    108,6492013
    
    $
    50,861
    
    
    $
    0
    
    
    $
    50,8612014
    
    $
    39,015
    
    
    $
    15,300
    
    
    $
    54,315Thereafter
    
    $
    70,860
    
    
    $
    0
    
    
    $
    70,860
  NOTE 14  INFORMATION REGARDING PROVED OIL AND GAS RESERVES (UNAUDITED)
      F-26




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##### Table of Contents



December 31, 2008
    
    Oil (BBLS)
    
    
    NGL (BBLS)
    
    
    Gas (MCF)Beginning of year
    
    
    96,399
    
    
    
    53,933
    
    
    
    1,307,159Revisions of previous quantity estimates
    
    
    (48,242
    )
    
    
    (43,832
    )
    
    
    (580,707
    )Extensions, discoveries and improved
recoveries
    
    
    46,674
    
    
    
    7,221
    
    
    
    556,652Sales of reserves 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
  December 31, 2007
    
    Oil (BBLS)
    
    
    NGL (BBLS)
    
    
    Gas (MCF)Beginning of year
    
    
    91,850
    
    
    
    
    
    
    
    809,847Revisions of previous quantity estimates
    
    
    (32,906
    )
    
    
    23,937
    
    
    
    28,388Extensions, discoveries and improved
recoveries
    
    
    54,722
    
    
    
    30,307
    
    
    
    608,514Sales of reserves in place
    
    
    
    
    
    
    
    
    
    
    Production
    
    
    (17,267
    )
    
    
    (311
    )
    
    
    (139,590
    )End of year
    
    
    96,399
    
    
    
    53,933
    
    
    
    1,307,159Proved developed reserves at end of year
    
    
    91,106
    
    
    
    53,933
    
    
    
    1,277,755
   December 31, 2006
    
    Oil (BBLS)
    
    
    Gas (MCF)Beginning of year
    
    
    554,702
    
    
    
    378,213Revisions of
previous quantity estimates
    
    
    (35,347
    )
    
    
    136,378Extensions, discoveries and improved
recoveries
    
    
    76,347
    
    
    
    505,832Sales of reserves in place
    
    
    (469,274
    )
    
    
    (162,387
    )Production
    
    
    (34,578
    )
    
    
    (48,189
    )End of year
    
    
    91,850
    
    
    
    809,847Proved developed reserves at end of year
    
    
    86,361
    
    
    
    713,236
   F-27




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##### Table of Contents



STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
  2008
    
    
    2007
    
    
    2006Future cash inflows
    
    $
    8,102,093
    
    
    $
    19,840,019
    
    
    $
    10,421,519Future costs:Production
    
    
    (3,156,973
    )
    
    
    (5,792,739
    )
    
    
    (3,276,852
    )Development
    
    
    (269,420
    )
    
    
    (319,922
    )
    
    
    (716,000
    )Future income tax expense
    
    
    (19,953
    )
    
    
    (101,000
    )
    
    
    (230,912
    )Future net cash flows
    
    
    4,655,747
    
    
    
    13,626,358
    
    
    
    6,197,75510% discount factor
    
    
    (1,710,878
    )
    
    
    (5,321,559
    )
    
    
    (1,599,755
    )Standardized measure of
discounted future net cash
flows relating to proved
reserves
    
    $
    2,944,869
    
    
    $
    8,304,799
    
    
    $
    4,598,000
  2008
    
    
    2007
    
    
    2006Beginning balance
    
    $
    8,304,799
    
    
    $
    4,598,000
    
    
    $
    13,709,930Sales and transfers of oil and gas produced
    
    
    (1,615,291
    )
    
    
    (1,310,508
    )
    
    
    (1,966,036
    )Net changes in prices and production costs
    
    
    (2,970,196
    )
    
    
    1,228,973
    
    
    
    (1,637,000
    )Sales of minerals in place
    
    
    
    
    
    
    
    
    
    
    (10,800,000
    )Extensions and discoveries
    
    
    2,055,573
    
    
    
    4,549,423
    
    
    
    3,814,000Development costs incurred during the year
    
    
    57,000
    
    
    
    716,000
    
    
    
    519,000Changes in estimated future development
costs
    
    
    130,663
    
    
    
    
    
    
    
    Revisions in previous quantity estimates
    
    
    (3,754,276
    )
    
    
    (1,917,123
    )
    
    
    821,000Accretion of discount
    
    
    684,515
    
    
    
    409,034
    
    
    
    161,000Change in income taxes
    
    
    52,082
    
    
    
    31,000
    
    
    
    (6,200
    )Change in other
    
    
    
    
    
    
    
    
    
    
    (17,694
    )Ending balance
    
    $
    2,944,869
    
    
    $
    8,304,799
    
    
    $
    4,598,000
   F-28




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##### Table of Contents



Standardized Measure Changes in 2008.
    Standardized Measure Changes in 2007.
 Standardized Measure Changes in 2006.
 NOTE 15  SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
 2008
    
    First
    
    
    Second
    
    
    Third
    
    
    FourthRevenues
    
    $
    507,804
    
    
    
    937,361
    
    
    
    1,159,621
    
    
    
    289,803Income (loss) from operations
    
    $
    (1,498,768
    )
    
    
    (951,908
    )
    
    
    (19,333,989
    )
    
    
    (1,950,792
    )Net income (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
    )
 2007
    
    First
    
    
    Second
    
    
    Third
    
    
    FourthRevenues
    
    $
    395,500
    
    
    $
    416,090
    
    
    $
    780,963
    
    
    $
    375,955Loss from operations
    
    $
    (1,130,305
    )
    
    $
    (1,146,316
    )
    
    $
    (856,508
    )
    
    $
    (1,143,169
    )Net loss
    
    $
    (709,949
    )
    
    $
    (546,043
    )
    
    $
    (268,360
    )
    
    $
    (1,219,030
    )Loss per common share:Basic
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.04
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.04
    )
   F-29




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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
 
    
    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.
  37




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##### Table of Contents



Internal
Control  Integrated Framework.
   Changes in Internal Control over Financial Reporting
    38




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated Framework Managements Annual Report on Internal Control Over Financial Reporting
  (a) (b) (c)
  Internal
Control  Integrated Framework
  /s/ HEIN & ASSOCIATES LLP
 
  39




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##### Table of Contents



Item 9B: Other Information
  
 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
  
 Item 13: Certain Relationships and Related Transactions, and Director Independence
  
 Item 14: Principal Accountant Fees and Services
  
 PART IV
 
 Item 15: Exhibits, Financial Statement Schedules
  Form 10-KPageReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated
Balance Sheets as of December 31, 2008 and 2007
    
    F-3Consolidated Statements of Operations for years ended
December 31, 2008, 2007 and 2006
    
    F-4Consolidated Statements of Cash Flows for years ended
December 31, 2008, 2007 and 2006
    
    F-5Consolidated Statements of Stockholders Equity and
Comprehensive Income for years ended December 31, 2008,
2007 and 2006
    
    F-6Notes to Consolidated Financial Statements
    
    F-7 to F-29
  40




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##### Table of Contents



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 from 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.)10
   (i)*

    
    2004 Stock Option Plan. (Incorporated by reference from the
Companys Definitive Proxy Statement, filed on June 16, 2004.)10
   (ii)
    
    Form of Warrant Certificate issued as part of the private
placement completed on July 22, 2005. (Incorporated by
reference from the Companys Registration Statement on Form
S-3, filed on October 4, 2005.)10
   (iii)
    
    Form of Placement Agent Warrant Certificate issued in
connection with the private placement completed on July 22,
2005. (Incorporated by reference from the Companys
Registration Statement on Form S-3, filed on October 4, 2005.)10
   (iv)
    
    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.)10
    (v)
    
    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
   (vi)

    
    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
   (vii)*
    
    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.)
  41




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##### Table of Contents



Exhibit No.
    
    Description10
    (viii)*
    
    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
    (ix)*
    
    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
    (x)*
    
    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
    (xi)
    
    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
    (xii)*
    
    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
    (xiii)*
    
    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
    (xiv)
    
    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
    (xv)
    
    Registration Rights Agreement, dated September 1, 2006, by and

among the Company and the investors listed therein.
(Incorporated by reference from the Companys Current Report on
Form 8-K filed on September 6, 2006.)10
    (xvi)
    
    Purchase and Sale Agreement dated March 31, 2006 by and between
the Company and Enerplus Resources (USA) Corporation.
(Incorporated by reference from the Companys Quarterly Report
on Form 10-QSB for the period ended September 30, 2006.)10    (xvii)
    
    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
(xviii)*
    
    2006 Stock Incentive Plan. (Incorporated by reference to the
Companys Definitive Proxy Statement, as amended, filed on July
26, 2006.)10
(xix)*
    
    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
(xx)
    
    Placement Agency Agreement dated April 11, 2007 by and between
the Company and A.G. Edwards & Sons, Inc. and C.K. Cooper &
Company. (Incorporated by reference to the Companys Current
Report on Form 8-K filed on April 12, 2007.)10
(xxi)
    
    Form of Subscription Agreement. (Incorporated by reference to
the Companys Current Report on Form 8-K filed on April 12,
2007.)
  42




---



##### Table of Contents



Exhibit No.
    
    Description10
   (xxii)*
    
    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.)10
   (xxiii)
    
    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
   (xxiv)
    
    Promissory Note and Security Agreement dated March 14, 2008 by
and between the Company and Jefferies Group, Inc. (Incorporated
by reference to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2007.)10
   (xxv)
    
    Letter Agreement dated August 22, 2008 for the property sale
closed October 27, 2008. (Incorporated by reference to the
Companys Current Report on Form 8-K filed on October 28,
2008.)21
    (i)
    
    Subsidiary List.23
    (i)
    
    Consent of Independent Petroleum Engineers and Geologists.23
   (ii)
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    
    Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
 *
    
    Management contracts or compensatory plans or arrangements  43




---



##### Table of Contents



SIGNATURES
  American Oil & Gas, Inc./s/ Andrew P. CalerichAndrew P. CalerichPresident  Signature
    
    Title
    
    Date/s/ Patrick D. OBrien

Patrick D. OBrien
    
    Chief Executive Officer and Chairman
(Principal
Executive Officer)
    
    March 13, 2009/s/ Andrew P. Calerich

Andrew P. Calerich
    
    President and Director
    
    March 13, 2009/s/ Joseph B. Feiten

Joseph B. Feiten
    
    Chief Financial Officer 
(Principal
Financial Officer)
    
    March 13, 2009/s/ Nick DeMare

Nick DeMare
    
    Director
    
    March 13, 2009/s/ C. Scott Hobbs

Scott Hobbs
    
    Director
    
    March 13, 2009/s/ Jon R. Whitney
    
    Director
    
    March 13, 2009Jon R. Whitney
  44




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##### Table of Contents



Exhibit Index
 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 from 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.)10
   (i)*

    
    2004 Stock Option Plan. (Incorporated by reference from the
Companys Definitive Proxy Statement, filed on June 16, 2004.)10
   (ii)
    
    Form of Warrant Certificate issued as part of the private
placement completed on July 22, 2005. (Incorporated by
reference from the Companys Registration Statement on Form
S-3, filed on October 4, 2005.)10
   (iii)
    
    Form of Placement Agent Warrant Certificate issued in
connection with the private placement completed on July 22,
2005. (Incorporated by reference from the Companys
Registration Statement on Form S-3, filed on October 4, 2005.)10
   (iv)
    
    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.)10
    (v)
    
    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
   (vi)
    
    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
   (vii)*
    
    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
    (viii)*
    
    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.)
  45




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##### Table of Contents



Exhibit No.
    
    Description10
    (ix)*
    
    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
    (x)*
    
    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
    (xi)
    
    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
    (xii)*
    
    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
    (xiii)*
    
    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
    (xiv)
    
    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
    (xv)
    
    Registration Rights Agreement, dated September 1, 2006, by and

among the Company and the investors listed therein.
(Incorporated by reference from the Companys Current Report on
Form 8-K filed on September 6, 2006.)10
    (xvi)
    
    Purchase and Sale Agreement dated March 31, 2006 by and between
the Company and Enerplus Resources (USA) Corporation.
(Incorporated by reference from the Companys Quarterly Report
on Form 10-QSB for the period ended September 30, 2006.)10    (xvii)
    
    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
(xviii)*
    
    2006 Stock Incentive Plan. (Incorporated by reference to the
Companys Definitive Proxy Statement, as amended, filed on July
26, 2006.)10
(xix)*
    
    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
(xx)
    
    Placement Agency Agreement dated April 11, 2007 by and between
the Company and A.G. Edwards & Sons, Inc. and C.K. Cooper &
Company. (Incorporated by reference to the Companys Current
Report on Form 8-K filed on April 12, 2007.)10
(xxi)
    
    Form of Subscription Agreement. (Incorporated by reference to
the Companys Current Report on Form 8-K filed on April 12,
2007.)
  46




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##### Table of Contents



Exhibit No.
    
    Description10
   (xxii)*
    
    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.)10
   (xxiii)
    
    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
   (xxiv)
    
    Promissory Note and Security Agreement dated March 14, 2008 by
and between the Company and Jefferies Group, Inc. (Incorporated
by reference to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2007.)10
   (xxv)
    
    Letter Agreement dated August 22, 2008 for the property sale
closed October 27, 2008. (Incorporated by reference to the
Companys Current Report on Form 8-K filed on October 28,
2008.)21
    (i)
    
    Subsidiary List.23
    (i)
    
    Consent of Independent Petroleum Engineers and Geologists.23
   (ii)
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    
    Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
 *
    
    Management contracts or compensatory plans or arrangements  47