##### Table of Contents

##### Index to Financial Statements





SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





(Mark One)

|x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------

For the Fiscal Year Ended December 31, 2008



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------

For the transition period from                      to

Commission File
No. 1-32955





HOUSTON AMERICAN ENERGY CORP.

(Exact name of registrant
specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 76-0675953                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

801 Travis Street, Suite 1425, Houston, Texas 77002

(Address of principal executive offices)(Zip code)

Issuers telephone number, including area code: (713) 222-6966

Securities registered pursuant to Section 12(b) of
the Act:



|                               |  |                                                  
|------------------------------ |  | -------------------------------------------------
|Title of each class            |  | Name of each exchange on which each is registered
|Common Stock, $0.001 par value |  | The Nasdaq Stock Market LLC                      

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act.    Yes   ̈    No  x

Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of accelerated filer, large accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer   ̈    Accelerated filer  x    Non-accelerated filer   ̈    Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).  Yes     ̈    No  x

The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant on June 30, 2008, based on the closing sales price of the registrants common stock on that date, was approximately $167,656,443. Shares of common stock held by each current executive officer and
director and by each person known by the registrant to own 5% or more of the outstanding common stock have been excluded from this computation in that such persons may be deemed to be affiliates.

The number of shares of the registrants common stock, $0.001 par value, outstanding as of February 28, 2009 was 28,000,772.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the
Companys Proxy Statement for its 2009 Annual Meeting are incorporated by reference into Part III of this Report.









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##### Index to Financial Statements

TABLE OF CONTENTS



|           |  |          |  |                                                                                                              |  |     
|---------- |  | -------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |          |  |                                                                                                              |  | Page
|PART I     |  |          |  |                                                                                                             
|           |  | Item 1.  |  | Business                                                                                                     |  | 3   
|           |  | Item 1A. |  | Risk Factors                                                                                                 |  | 11  
|           |  | Item 1B. |  | Unresolved Staff Comments                                                                                    |  | 19  
|           |  | Item 2.  |  | Properties                                                                                                   |  | 19  
|           |  | Item 3.  |  | Legal Proceedings                                                                                            |  | 19  
|           |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                          |  | 19  
|           |  |         
|PART II    |  |          |  |                                                                                                             
|           |  | Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities |  | 20  
|           |  | Item 6.  |  | Selected Financial Data                                                                                      |  | 22  
|           |  | Item 7.  |  | Managements Discussion and Analysis of Financial Conditions and Results of Operations                       |  | 23  
|           |  | Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 33  
|           |  | Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  | 33  
|           |  | Item 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  | 33  
|           |  | Item 9A. |  | Controls and Procedures                                                                                      |  | 34  
|           |  | Item 9B. |  | Other Information                                                                                            |  | 35  
|           |  |         
|PART III   |  |          |  |                                                                                                             
|           |  | Item 10. |  | Directors, Executive Officers and Corporate Governance                                                       |  | 36  
|           |  | Item 11. |  | Executive Compensation                                                                                       |  | 36  
|           |  | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 36  
|           |  | Item 13. |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 36  
|           |  | Item 14. |  | Principal Accountant Fees and Services                                                                       |  | 36  
|           |  |         
|PART IV    |  |          |  |                                                                                                             
|           |  | Item 15. |  | Exhibits and Financial Statement Schedules                                                                   |  | 37  
|           | 
|SIGNATURES |  | 39      



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##### Index to Financial Statements

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. These forwarding-looking statements include without limitation statements regarding our expectations and
beliefs about the market and industry, our goals, plans, and expectations regarding our properties and drilling activities and results, our intentions and strategies regarding future acquisitions and sales of properties, our intentions and
strategies regarding the formation of strategic relationships, our beliefs regarding the future success of our properties, our expectations and beliefs regarding competition, competitors, the basis of competition and our ability to compete, our
beliefs and expectations regarding our ability to hire and retain personnel, our beliefs regarding period to period results of operations, our expectations regarding revenues, our expectations regarding future growth and financial performance, our
beliefs and expectations regarding the adequacy of our facilities, and our beliefs and expectations regarding our financial position, ability to finance operations and growth and the amount of financing necessary to support operations. These
statements are subject to risks and uncertainties that could cause actual results and events to differ materially. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this
annual report on Form 10-K.

As used in this annual report on Form 10-K, unless the context otherwise requires, the terms we,
us, the Company, and Houston American refer to Houston American Energy Corp., a Delaware corporation.

PART I



|Item 1. | Business
|------- | --------

General

Houston American Energy Corp. is an oil and gas exploration and production company. Our oil and gas exploration and production activities are focused on properties
in the U.S. onshore Gulf Coast Region, principally Texas and Louisiana, and development of concessions in the South American country of Colombia. We seek to utilize the contacts and experience of our executive officers, particularly John F.
Terwilliger and James Jacobs, to identify favorable drilling opportunities, to use advanced seismic techniques to define prospects and to form partnerships and joint ventures to spread the cost and risks to us of drilling.

Exploration Projects

Our exploration projects are focused on existing
property interests, and future acquisition of additional property interests, in the onshore Texas Gulf Coast region, Colombia and Louisiana.

Each of
our exploration projects differs in scope and character and consists of one or more types of assets, such as 3-D seismic data, leasehold positions, lease options, working interests in leases, partnership or limited liability company interests or
other mineral rights. Our percentage interest in each exploration project (Project Interest) represents the portion of the interest in the exploration project we share with other project partners. Because each exploration project
consists of a bundle of assets that may or may not include a working interest in the project, our Project Interest simply represents our proportional ownership in the bundle of assets that constitute the exploration project. Therefore, our Project
Interest in an exploration project should not be confused with the working interest that we will own when a given well is drilled. Each exploration project represents a negotiated transaction between the project partners. Our working interest may be
higher or lower than our Project Interest.



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Our principal exploration projects as of December 31, 2008 consisted of the following:

- Domestic Exploration Properties:

Webster Parish,
Louisiana. In Webster Parish, Louisiana, we hold a 7.5% working interest at an 8.3% net revenue interest carried to point of sales for the first well in over 640 acres known as the South Sibley Prospect. Drilling of a 10,600-foot well on
the South Sibley Prospect, was completed in May 2005 with multiple pay sands identified. Sales from the well commenced June 28, 2005.

Acadia
Parish, Louisiana. In Acadia Parish, Louisiana, we hold a 3% working interest and a 2.25% net revenue interest until payout in a 620-acre leasehold known as the Crowley Prospect. Between 2004 and 2005, the Hoffpauer #1 (formerly the Baronet #1)
and the Baronet #2 wells were drilled and commenced production. The Baronet #2 was reworked in 2006 and in 2007; both the Hoffpauer #1 and the Baronet #2 were plugged and abandoned. The Baronet #3, a replacement well for the Baronet #2, was drilled
in the second quarter of 2007 and commercial production began in July 2007. We own a 17.5% working interest and 13.125% net revenue interest in the Baronet #3 well, which was scheduled for a re-work as of December 31, 2008 after the well sanded
up and ceased production.

Caddo Parish, Louisiana. In Caddo Parish, Louisiana, we hold a 33.5% working interest, subject to payment of
35% of the costs of the initial well, and a 25.125% net revenue interest in the 640-acre Caddo Lake Prospect with options to additional leases covering 4,400 acres. After payout, we will own a 27.25% working interest and 20.4375% net revenue
interest in the initial well and any additional wells. In November 2007, we drilled a 10,000-foot test well on the Caddo Lake Prospect. During the fourth quarter of 2008, pipeline construction and connection to the well was completed and several
completion attempts in the Cotton Valley formation were not successful. Currently a Bossier Shale test is planned subject to a unit and permit being granted.

Iberville Parish, Louisiana.In Iberville Parish, Louisiana, we hold a 4.81% working interest in the Home Run Prospect and a 24.12% working interest in the West Klondike prospect. We plan to drill both of these prospects during
calendar year 2009.

Vermillion Parish, Louisiana. In Vermillion Parish,
Louisiana, we hold a 10% working interest in the North Jade and Northwest Jade prospects. We plan to drill these prospects in the 4thquarter of 2009 and the
1stquarter of 2010.

Jim Hogg County, Texas. In Jim
Hogg County, Texas, we hold a 4.375% working interest, subject to payment of 5.8334% of costs to the casing point in the first well, in the 340 acre Hog Heaven Prospect. The Weil #1 well, a 6,200-foot test well, was drilled on the Hog Heaven
Prospect in November 2005. Electric log and sidewall core analysis indicated multiple pay sands in the Weil #1 well. The well was completed in January 2006 and production and sales commenced in March 2006. The Weil #2 was drilled as a dry hole
during 2007.

Hardeman County, Texas. In Hardeman County, Texas, we hold a 10% working interest with a 7.5% net revenue interest in the 91.375
acre West Turkey Prospect. The DDD-Evans #1, an 8,500-foot test well, was drilled on the West Turkey Prospect in April 2006 and production began in May 2006. At December 31, 2008, the DDD-Evans #1 was producing, but at non-commercial levels.

- Colombian Exploration Properties:

Llanos
Basin, Colombia. In the Llanos Basin, Colombia, at December 31, 2008, we held interests in (1) the Tambaqui Association Contract covering 4,400 acres in the State of Casanare, Colombia, (2) two concessions, the Dorotea Contract
and the Cabiona Contract, totaling over 137,000 acres, (3) the Surimena concession covering approximately 69,000 acres, (4) the Las Garzas concession covering approximately 103,000 acres, (5) the Leona concession covering
approximately



4



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##### Index to Financial Statements

70,343 acres, (6) the Camarita concession covering approximately 166,000 acres, and (7) the La Cuerva Contract covering approximately 48,000 acres. See
Sale of Caracara Assets.

Our interest in each of the described concessions and contracts in Colombia is held through an interest
in Hupecol, LLC and affiliated entities. We hold a 12.5% working interest in each of the prospects of Hupecol other than the Surimena concession, the Tambaqui Association Contract and the La Cuerva Contract. We hold a 6.25% working interest in the
Surimena concession, a 12.6% working interest, with an 11.31% net revenue interest, in the Tambaqui Association Contract and a 1.594674% working interest in the La Cuerva Contract.

Our working interest in the Tambaqui Association Contract is subject to an escalating royalty of 8% on the first 5,000 barrels of oil per day, increasing to 20% at
125,000 barrels of oil per day and is subject to reversionary interests of Ecopetrol, the state owned Colombian oil company, that could cause 50% of the working interest to revert to Ecopetrol after we have recouped four times our initial
investment. Our working interest in the additional concessions is subject to an escalating royalty ranging from 8% to 20% depending upon production volumes and pricing and an additional 6% to 10% per concession when 5,000,000 barrels of oil
have been produced on that concession.

In December 2003, we exercised our right to participate in the acquisition, through Hupecol, of over 3,000
kilometers of seismic data in Colombia covering in excess of 20 million acres. The seismic data is being utilized to map prospects in key areas with a view to delineating multiple drilling opportunities. We will hold a 12.5% interest in all
prospects developed by Hupecol arising from the acquired seismic data, including the Cabiona and Dorotea concessions acquired in the fourth quarter of 2004, the Surimena concession acquired in the second quarter of 2005, the Las Garzas concession
acquired in November 2005, the Jagueyes TEA acquired in May 2005 and the Simon TEA acquired in June 2005. During 2006 we acquired 3D seismic data on the Las Garzas contract, the Jagueyes TEA and the Simon TEA. As a result of seismic evaluation, the
Jagueyes TEA was converted to the Leona concession and the Simon TEA was converted to the Camarita concession during 2006.

- Other Holdings

In addition to our principal exploration projects, we hold various interests in producing wells in Plaquemines Parish, Louisiana, Matagorda
County, Texas, and Ellis County, Oklahoma. We have no present plans to conduct additional drilling activities on those prospects.



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Summary Leasehold Information

The following table sets forth certain information about our oil and gas holdings at December 31, 2008:



|                            |  |                                                     |  |                 |  |            |  |       |  
|--------------------------- |  | --------------------------------------------------- |  | --------------- |  | ---------- |  | ----- | -
|                            |  | Acres Leased or Under Option atDecember 31, 2008(1) |  | ProjectInterest | 
|Project Area                |  | ProjectGross                                        |  | Project Net     |  | CompanyNet | 
|TEXAS:                      |  |                                                     |  |                 |  |            |  |       |  
|Jim Hogg County             |  | 340.00                                              |  | 340.00          |  | 14.89      |  | 4.38  | %
|Hardeman County             |  | 91.38                                               |  | 91.38           |  | 9.14       |  | 10.00 | %
|Matagorda County            |  |                                                     |  |                 |  |            |  |       |  
|S.W. Pheasant Prospect      |  | 779.00                                              |  | 779.00          |  | 27.27      |  | 3.50  | %
|                            |  |                                                     |  |                 |  |            |  |       |  
|Texas Sub-Total             |  | 1,210.38                                            |  | 1,210.38        |  | 51.30      |  |       |  
|LOUISIANA:                  |  |                                                     |  |                 |  |            |  |       |  
|Webster Parish              |  | 640.00                                              |  | 640.00          |  | 48.00      |  | 7.50  | %
|Caddo Parish(2)             |  | 5,040.00                                            |  | 5,040.00        |  | 1,373.40   |  | 27.25 | %
|Iberville Parish            |  |                                                     |  |                 |  |            |  |       |  
|Home Run Prospect           |  | 1,146.00                                            |  | 1,146.00        |  | 55.15      |  | 4.81  | %
|W. Klondike Prospect        |  | 561.00                                              |  | 561.00          |  | 135.31     |  | 24.12 | %
|Vermilion Parish            |  |                                                     |  |                 |  |            |  |       |  
|LaFurs F-16 Well            |  | 830.00                                              |  | 830.00          |  | 18.68      |  | 2.25  | %
|N. Jade & NW Jade Prospects |  | 1,423.12                                            |  | 1,402.85        |  | 140.29     |  | 10.0  | %
|Acadia Parish               |  | 620.00                                              |  | 620.00          |  | 18.60      |  | 3.00  | %
|Plaquemines Parish          |  | 300.00                                              |  | 300.00          |  | 5.40       |  | 1.80  | %
|                            |  |                                                     |  |                 |  |            |  |       |  
|Louisiana Sub-Total         |  | 10,560.12                                           |  | 10,539.85       |  | 1,794.83   |  |       |  
|OKLAHOMA                    |  |                                                     |  |                 |  |            |  |       |  
|Jenny #1-14                 |  | 160.00                                              |  | 160.00          |  | 3.78       |  | 2.36  | %
|                            |  |                                                     |  |                 |  |            |  |       |  
|Oklahoma Sub-Total          |  | 160.00                                              |  | 160.00          |  | 3.78       |  |       |  
|COLOMBIA                    |  |                                                     |  |                 |  |            |  |       |  
|La Cuerva Contract          |  | 48,000.00                                           |  | 48,000.00       |  | 765.00     |  | 1.59  | %
|Tambaqui Assoc. Contract(3) |  | 4,403.00                                            |  | 4,403.00        |  | 555.00     |  | 12.60 | %
|Dorotea Concession          |  | 51,321.00                                           |  | 51,321.00       |  | 6,415.00   |  | 12.50 | %
|Cabiona Concession          |  | 86,066.00                                           |  | 86,066.00       |  | 10,758.00  |  | 12.50 | %
|Surimena Concession         |  | 69,189.00                                           |  | 69,189.00       |  | 4,324.00   |  | 6.25  | %
|Las Garzas Concession       |  | 103,784.00                                          |  | 103,784.00      |  | 12,973.00  |  | 12.50 | %
|Leona Concession            |  | 70,343.00                                           |  | 70,343.00       |  | 8,793.00   |  | 12.50 | %
|Camarita Concession         |  | 166,301.00                                          |  | 166,301.00      |  | 20,788.00  |  | 12.50 | %
|                            |  |                                                     |  |                 |  |            |  |       |  
|Colombia Sub-Total          |  | 599,407.00                                          |  | 599,407.00      |  | 65,371.00  |  |       |  
|                            |  |                                                     |  |                 |  |            |  |       |  
|Total                       |  | 611,337.50                                          |  | 611,317.23      |  | 67,220.91  |  |       |  
|                            |  |                                                     |  |                 |  |            |  |       |  



|(1) | Except as otherwise noted, all acreage is held under leases. Project Gross Acres refers to the number of acres within a project. Project Net Acres refers to leaseable acreage by tract.
Company Net Acres are either leased or under option in which we own an undivided interest. Company Net Acres were determined by multiplying the Project Net Acres leased or under option by our working interest therein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes an option to lease 4,360 Project Gross and Project Net Acres and 1,188.10 Company Net Acres. Upon exercise of the option, we will be obligated to pay $218,000 and to drill one well
every 180 days to maintain the lease.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The project interest is the working interest in the concession and not necessarily the working interest in the well.
|--- | --------------------------------------------------------------------------------------------------------------------



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Sale of Caracara Assets

In June 2008, we, through Hupecol Caracara LLC as owner/operator under the Caracara Association Contract, sold all of our interest in the Caracara Association Contract and related assets. Pursuant to our investment in Hupecol Caracara
LLC, we held a 1.594674% interest in the Caracara assets, covering approximately 232,500 acres, representing our principal, and initial, Colombian prospect. At December 31, 2007, the estimated proved reserves associated with these assets
totaled 787,742 barrels of oil, which represented 60.37% of our estimated proved oil and natural gas reserves.

As a result of the sale of the
Caracara assets, we received net proceeds, after deduction of fees and expenses of the transaction, of $11,546,510 (before amounts placed in escrow as discussed below), realized a gain on the sale of $7,615,236 and eliminated from oil and gas
properties costs subject to amortization associated with the Caracara assets totaling $3,977,907.

Pursuant to the terms of the sale of the Caracara
assets, on the closing date of the sale, a portion of the purchase price was deposited in escrow to settle post-closing adjustments under the purchase and sale agreement. The funds deposited in escrow will be released to us, or to the
purchaser, based on post-closing adjustments 12 months following closing. Our proportionate interest in the escrow deposit, totaling $1,673,551, has been recorded as Other Current Assets. The net proceeds and the gain realized from the sale of
the Caracara assets may be adjusted based on post-closing adjustments.

Production from the Caracara prospect accounted for $3,005,140 and $3,703,739
of our revenues during 2008 and 2007, respectively.

Drilling Activities

In 2008, we drilled 1 domestic well and 15 wells in Colombia, consisting of 9 exploratory and 7 developmental wells of which 11 were completed and 5 were dry holes.

The following table sets forth certain information regarding the actual drilling results for each of the years 2008 and 2007 as to wells drilled in each such
individual year:



|           |  |                       |  |                         |  |       |  |        
|---------- |  | --------------------- |  | ----------------------- |  | ----- |  | -------
|           |  | Exploratory Wells (1) |  | Developmental Wells (1)
|           |  | Gross                 |  | Net                     |  | Gross |  | Net    
|2007       |  |                       |  |                         |  |       |  |        
|Productive |  | 4                     |  | 0.53366                 |  | 14    |  | 0.43392
|Dry        |  | 7                     |  | 0.56607                 |  | 4     |  | 0.15848
|2008       |  |                       |  |                         |  |       |  |        
|Productive |  | 5                     |  | 0.62500                 |  | 6     |  | 0.75000
|Dry        |  | 4                     |  | 0.47500                 |  | 1     |  | 0.12500



|(1) | Gross wells represent the total number of wells in which we owned an interest; net wells represent the total of our net working interests owned in the wells.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

At December 31, 2008, two wells were being drilled in Colombia and one well was being drilled in the U.S.

Seismic Activity

During 2008, our operator in Colombia (1) acquired
approximately 65 miles of additional seismic and geological data relating primarily to prospects in which we hold a 12.5% working interest, (2) acquired additional seismic data on the La Cuerva prospect and (3) shot 32.824 square miles of
combined seismic on the Las Garzas and Leona contracts.



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Productive Well Summary

The following table sets forth certain information regarding our ownership as of December 31, 2008 of productive gas and oil wells in the areas indicated:



|          |  |       |  |       |  |       |  |      
|--------- |  | ----- |  | ----- |  | ----- |  | -----
|          |  | Gas   |  | Oil  
|          |  | Gross |  | Net   |  | Gross |  | Net  
|Texas     |  | 2     |  | 0.079 |  | 0     |  | 0.000
|Louisiana |  | 2     |  | 0.098 |  | 1     |  | 0.018
|Oklahoma  |  | 1     |  | 0.024 |  | 0     |  | 0.000
|Colombia  |  | 0     |  | 0.000 |  | 10    |  | 1.250
|          |  |       |  |       |  |       |  |      
|Total     |  | 5     |  | 0.201 |  | 11    |  | 1.268
|          |  |       |  |       |  |       |  |      

Volume, Prices and Production Costs

The following table sets forth certain information regarding the production volumes, average prices received (net of transportation costs) and average production costs associated with our sales of gas and oil for the periods
indicated:



|                                                  |  |                        |  |        
|------------------------------------------------- |  | ---------------------- |  | -------
|                                                  |  | Year EndedDecember 31,
|                                                  |  | 2007                   |  | 2008   
|Net Production:                                   |  |                        |  |        
|Gas (Mcf):                                        |  |                        |  |        
|North America                                     |  | 44,250                 |  | 24,748 
|South America                                     |  | 0                      |  | 0      
|Oil (Bbls):                                       |  |                        |  |        
|North America                                     |  | 2,078                  |  | 1,510  
|South America                                     |  | 69,127                 |  | 122,415
|Average sales price:                              |  |                        |  |        
|Gas ($ per Mcf)                                   |  | 6.90                   |  | 10.22  
|Oil ($ per Bbl)                                   |  | 65.61                  |  | 83.67  
|Average production expense and Taxes ($ per BOE): |  |                        |  |        
|North America                                     |  | 13.80                  |  | 10.40  
|South America                                     |  | 24.75                  |  | 27.03  

Natural Gas and Oil Reserves

The following table summarizes the estimates of our historical net proved reserves as of December 31, 2007 and 2008, and the present value attributable to these reserves at these dates. The reserve data and present values
were prepared by Aluko & Associates, Inc. and Lonquist & Co. LLC, independent petroleum engineering consultants for 2007 and 2008, respectively:



|                                                            |  |                 |            |      |   |          
|----------------------------------------------------------- |  | --------------- | ---------- | ---- | - | ---------
|                                                            |  | At December 31,
|                                                            |  | 2007            |            | 2008
|Net proved reserves(1):                                     |  |                 |            |      |   |          
|Natural gas (Mcf)                                           |  |                 | 135,649    |      |   | 18,774   
|Oil (Bbls)                                                  |  |                 | 1,285,239  |      |   | 213,416  
|Standardized measure of discounted future net Cash flows(2) |  | $               | 55,951,503 |      | $ | 3,151,493



|(1) | At December 31, 2008, net proved and proved developed reserves, by region, consisted of 211,475 barrels of oil in South America and 1,941 barrels of oil in North America; all natural gas
reserves were in North America.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | The standardized measure of discounted future net cash flows represents the present value of future net revenues after income tax discounted at 10% per annum and has been calculated in
accordance with SFAS No. 69, Disclosures About Oil and Gas Producing Activities (see Note 11Supplemental Information on Oil and Gas Exploration, Development and Production Activities (Unaudited)) and in accordance with
current SEC guidelines, and does not include estimated future cash inflows from hedging. The standardized measure of discounted future net cash flows attributable to our reserves was prepared using prices in effect at the end of the respective
periods presented, discounted at 10% per annum.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In accordance with applicable requirements of the Securities and Exchange
Commission, we estimate our proved reserves and future net cash flows using sales prices and costs estimated to be in effect as of the date we make the reserve estimates. We hold the estimates constant throughout the life of the properties, except
to the extent a contract specifically provides for escalation. Oil and gas prices, which have fluctuated widely in recent years, affect estimated quantities of proved reserves and future net cash flows. Any estimates of natural gas and oil reserves
and their values are inherently uncertain, including many factors beyond our control. The reserve data contained in this report represent only estimates. Reservoir engineering is a subjective process of estimating underground accumulations of
natural gas and oil that cannot be measured in an exact manner. The accuracy of reserve estimates is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates of different
engineers, including those we use, may vary. In addition, estimates of reserves may be revised based upon actual production, results of future development and exploration activities, prevailing natural gas and oil prices, operating costs and other
factors, which revision may be material. Accordingly, reserve estimates may be different from the quantities of natural gas and oil that we are ultimately able to recover and are highly dependent upon the accuracy of the underlying assumptions. Our
estimated proved reserves have not been filed with or included in reports to any federal agency.

Leasehold Acreage

The following table sets forth as of December 31, 2008, the gross and net acres of proved developed and proved undeveloped and unproven gas and oil leases
which we hold or have the right to acquire:



|          |  |                  |  |                    |  |          |  |        |  |            |  |          
|--------- |  | ---------------- |  | ------------------ |  | -------- |  | ------ |  | ---------- |  | ---------
|          |  | Proved Developed |  | Proved Undeveloped |  | Unproven
|          |  | Gross            |  | Net                |  | Gross    |  | Net    |  | Gross      |  | Net      
|Texas     |  | 1,210.38         |  | 51.30              |  | 0.00     |  | 0.00   |  | 0.00       |  | 0.00     
|Louisiana |  | 2,390.00         |  | 90.68              |  | 0.00     |  | 0.00   |  | 8,170.12   |  | 1,704.15 
|Oklahoma  |  | 160.00           |  | 3.78               |  | 0.00     |  | 0.00   |  | 0.00       |  | 0.00     
|Colombia  |  | 1,600.00         |  | 200.00             |  | 1,920.00 |  | 240.00 |  | 595,887.00 |  | 64,931.00
|          |  |                  |  |                    |  |          |  |        |  |            |  |          
|Total     |  | 5,360.38         |  | 345.76             |  | 1,920.00 |  | 240.00 |  | 604,057.12 |  | 66,635.15
|          |  |                  |  |                    |  |          |  |        |  |            |  |          

During 2008, we acquired, through our 1.594674% interest in Hupecol Caracara LLC, an interest in the La
Cuerva Contract covering approximately 48,000 acres in Colombia.

During 2008, we also acquired interests in two additional prospects in South
Louisiana for which we advanced leasehold costs and delay rentals of approximately $231,403. We sold our interest in one of the prospectsthe North Henry Bayou prospectduring 2008, retaining a 4.5% carried interest in the prospect,
for which we received $60,301 and sold our interest in the second prospectthe Home Run prospectduring 2008 for which we received $213,395.



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##### Index to Financial Statements

Title to Properties

Title to properties is subject to royalty, overriding royalty, carried working, net profits, working and other similar interests and contractual arrangements customary in the gas and oil industry, liens for current taxes not yet due and
other encumbrances. As is customary in the industry in the case of undeveloped properties, little investigation of record title is made at the time of acquisition (other than preliminary review of local records).

Investigation, including a title opinion of local counsel, generally is made before commencement of drilling operations.

2009 Drilling and Operating Plans

As a result of the continued depressed
commodity price environment in the first quarter of 2009, Hupecol, the operator of our Colombian properties, made the determination in early March to temporarily shut-in production from the majority of our wells in Colombia. During the first quarter
of 2009, most of our Colombian wells remained profitable to operate; however, the Hupecol managing partners chose not to continue to produce what they considered valuable oil reserves at these low levels of profitability.

On March 14th, the Company was notified by Hupecol that the majority of its productive wells will be immediately restored to production.

As of January 1, 2009, we planned to drill a total of 11 wells during 2009, of which three wells are planned to be drilled on our domestic exploration
projects and eight wells are planned to be drilled on our Colombian exploration projects. The following table reflects planned drilling activities during 2009:



|                           |  |                       |  |                   
|-------------------------- |  | --------------------- |  | ------------------
|Location                   |  | Prospect Name         |  | # of Planned Wells
|Llanos Basin, Colombia     |  | La Cuerva Contract    |  | 2                 
|Llanos Basin, Colombia     |  | Dorotea Concession    |  | 2                 
|Llanos Basin, Colombia     |  | Las Garzas Concession |  | 1                 
|Llanos Basin, Colombia     |  | Leona Concession      |  | 1                 
|Llanos Basin, Colombia     |  | Camarita Concession   |  | 1                 
|Llanos Basin, Colombia     |  | Surimena Concession   |  | 1                 
|LouisianaVermilion Parish |  | North Jade            |  | 1                 
|LouisianaIberville Parish |  | W. Klondike           |  | 1                 
|LouisianaIberville Parish |  | Home Run              |  | 1                 

Our planned drilling activity is subject to change from time to time without notice. In particular, the
recent sharp decline in oil and gas prices may result in delays in, or abandonment of, planned drilling operations. Additional wells are expected to be drilled at locations to be determined based on the results of the planned drilling projects and
prevailing market conditions.

Marketing

At
January 1, 2009, we had no contractual agreements to sell our gas and oil production and all production was sold on spot markets.

Employees

As of March 1, 2009, we had 3 full-time employees and no part time employees. The employees are not covered by a collective bargaining agreement, and we do
not anticipate that any of our future employees will be covered by such agreements.



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|Item 1A. | Risk Factors
|-------- | ------------

Our business activities and the value of our securities
are subject to significant hazards and risks, including those described below. If any of such events should occur, our business, financial condition, liquidity and/or results of operations could be materially harmed, and holders and purchasers of
our securities could lose part or all of their investments.

A substantial or extended decline in oil and natural gas prices may adversely affect our business,
financial condition or results of operations and our ability to meet our capital expenditure obligations and financial commitments.

The price
we receive for our oil and natural gas production heavily influences our revenue, profitability, access to capital and future rate of growth. Oil and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in
response to relatively minor changes in supply and demand. Historically, the markets for oil and natural gas have been volatile. These markets will likely continue to be volatile in the future. The prices we receive for our production, and the
levels of our production, depend on numerous factors beyond our control. These factors include, but are not limited to, the following:



| |  |  | changes in global supply and demand for oil and natural gas;
| | - |  | ------------------------------------------------------------



| |  |  | the actions of the Organization of Petroleum Exporting Countries, or OPEC;
| | - |  | --------------------------------------------------------------------------



| |  |  | the price and quantity of imports of foreign oil and natural gas;
| | - |  | -----------------------------------------------------------------



| |  |  | political conditions, including embargoes, in or affecting other oil-producing activity;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | the level of global oil and natural gas exploration and production activity;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the level of global oil and natural gas inventories;
| | - |  | ----------------------------------------------------



| |  |  | weather conditions;
| | - |  | -------------------



| |  |  | technological advances affecting energy consumption; and
| | - |  | --------------------------------------------------------



| |  |  | the price and availability of alternative fuels.
| | - |  | ------------------------------------------------

Lower
oil and natural gas prices may not only decrease our revenues on a per unit basis but also may reduce the amount of oil and natural gas that we can produce economically. Lower prices will also negatively impact the value of our proved reserves. A
substantial or extended decline in oil or natural gas prices may materially and adversely affect our future business, financial condition, results of operations, liquidity or ability to finance planned capital expenditures.

We May Be Affected by General Economic Conditions

The disruption
experienced in U.S. and global credit markets during second half of 2008 has resulted in projected decreases in demand for oil and natural gas, resulting in a sharp drop in energy prices, and has affected the availability and cost of
capital. Prolonged negative changes in domestic and global economic conditions or disruptions of either or both of the financial and credit markets may have a material adverse effect on our results of operations, financial condition and
liquidity. At this time, it is unclear whether and to what extent the actions taken by the U.S. government, including, without limitation, the passage of the Emergency Economic Stabilization Act of 2008 and other measures currently being
implemented or contemplated, will mitigate the effects of the crisis. With respect to Houston American Energy, while we have no immediate need to access the credit markets in the foreseeable future, the impact of the current crisis on our
ability to obtain financing in the future, if needed, and the cost and terms of same, is unclear. From an operating standpoint, the current crisis has resulted in a steep decline in the price of oil and natural gas, a marked decline in the
value of our reserves, a determination in March 2009 to temporarily shut-in production from our Colombian wells



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##### Index to Financial Statements

and will result in reduced revenues and reduced profitability and, if prices continue to decline, may result in deterioration of our financial position.

A substantial percentage of our properties are undeveloped; therefore the risk associated with our success is greater than would be the case if the majority of our
properties were categorized as proved developed producing.

Because a substantial percentage of our properties are unproven or proved
undeveloped, we will require significant additional capital to prove and develop such properties before they may become productive. At December 31, 2008, approximately 58.1% of our proved reserves were producing. Further, because of the
inherent uncertainties associated with drilling for oil and gas, some of these properties may never be developed to the extent that they result in positive cash flow. Even if we are successful in our development efforts, it could take several years
for a significant portion of our undeveloped properties to be converted to positive cash flow.

While our current business plan is to fund the
development costs with funds on hand and cash flow from our other producing properties, if such funds are not sufficient we may be forced to seek alternative sources for cash, through the issuance of additional equity or debt securities, increased
borrowings or other means.

Drilling for and producing oil and natural gas are high risk activities with many uncertainties that could adversely affect our
business, financial condition or results of operations.

Our future success will depend on the success of our exploitation, exploration,
development and production activities. Our oil and natural gas exploration and production activities are subject to numerous risks beyond our control, including the risk that drilling will not result in commercially viable oil or natural gas
production. Our decisions to purchase, explore, develop or otherwise exploit prospects or properties will depend in part on the evaluation of data obtained through geophysical and geological analyses, production data and engineering studies, the
results of which are often inconclusive or subject to varying interpretations. Please read Reserve estimates depend on many assumptions that may turn out to be inaccurate (below) for a discussion of the uncertainty involved in
these processes. Our cost of drilling, completing and operating wells is often uncertain before drilling commences. Overruns in budgeted expenditures are common risks that can make a particular project uneconomical. Further, many factors may
curtail, delay or cancel drilling, including the following:



| |  |  | delays imposed by or resulting from compliance with regulatory requirements;
| | - |  | ----------------------------------------------------------------------------



| |  |  | pressure or irregularities in geological formations;
| | - |  | ----------------------------------------------------



| |  |  | shortages of or delays in obtaining equipment and qualified personnel;
| | - |  | ----------------------------------------------------------------------



| |  |  | equipment failures or accidents;
| | - |  | --------------------------------



| |  |  | adverse weather conditions;
| | - |  | ---------------------------



| |  |  | reductions in oil and natural gas prices;
| | - |  | -----------------------------------------



| |  |  | title problems; and
| | - |  | -------------------



| |  |  | limitations in the market for oil and natural gas.
| | - |  | --------------------------------------------------

If oil and
natural gas prices decrease, we may be required to take write-downs of the carrying values of our oil and natural gas properties, potentially negatively impacting the trading value of our securities.

Accounting rules require that we review periodically the carrying value of our oil and natural gas properties for possible impairment. Based on specific market
factors and circumstances at the time of



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##### Index to Financial Statements

prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, we have and may be required to
further write down the carrying value of our oil and natural gas properties. A write-down could constitute a non-cash charge to earnings. It is likely the cumulative effect of a write-down could also negatively impact the trading price of our
securities.

Reserve estimates depend on many assumptions that may turn out to be inaccurate. Any material inaccuracies in these reserve estimates or
underlying assumptions will materially affect the quantities and present value of our reserves.

The process of estimating oil and natural gas
reserves is complex. It requires interpretations of available technical data and many assumptions, including assumptions relating to economic factors. Any significant inaccuracies in these interpretations or assumptions could materially affect the
estimated quantities and present value of reserves shown in this report.

In order to prepare our estimates, we must project production rates and
timing of development expenditures. We must also analyze available geological, geophysical, production and engineering data. The extent, quality and reliability of this data can vary. The process also requires economic assumptions about matters such
as oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. Therefore, estimates of oil and natural gas reserves are inherently imprecise.

Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural
gas reserves most likely will vary from our estimates. Any significant variance could materially affect the estimated quantities and present value of our reserves. In addition, we may adjust estimates of proved reserves to reflect production
history, results of exploration and development, prevailing oil and natural gas prices and other factors, many of which are beyond our control. During the years ended December 31, 2007 and 2008, revisions to prior estimates resulted in
significant negative revisions to our proved reserves. Negative revisions during fiscal year 2007 amounted to 57.7% of prior year-end proved natural gas reserves and 40.2% of prior year-end proved oil reserves. Product sales and negative revisions
during fiscal year 2008 amounted to 86.2% of prior year-end proved gas reserves and 83.4% of prior year-end proved oil reserves.

You should not
assume that the present value of future net revenues from our proved reserves, as reported from time to time, is the current market value of our estimated oil and natural gas reserves. In accordance with SEC requirements, we generally base the
estimated discounted future net cash flows from our proved reserves on prices and costs on the date of the estimate. Actual future prices and costs may differ materially from those used in the present value estimate. If future values decline or
costs increase it could negatively impact our ability to finance operations, and individual properties could cease being commercially viable, affecting our decision to continue operations on producing properties or to attempt to develop properties.
All of these factors would have a negative impact on earnings and net income, and most likely the trading price of our securities.

We are dependent upon third
party operators of our oil and gas properties.

Under the terms of the Operating Agreements related to our oil and gas properties, third
parties act as the operator of our oil and gas wells and control the drilling activities to be conducted on our properties. Therefore, we have limited control over certain decisions related to activities on our properties, which could affect our
results of operations. Decisions over which we have limited control include:



| |  |  | the timing and amount of capital expenditures;
| | - |  | ----------------------------------------------



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##### Index to Financial Statements

| |  |  | the timing of initiating the drilling and recompleting of wells;
| | - |  | ----------------------------------------------------------------



| |  |  | the extent of operating costs; and
| | - |  | ----------------------------------



| |  |  | the level of ongoing production.
| | - |  | --------------------------------

Prospects that we decide to
drill may not yield oil or natural gas in commercially viable quantities.

Our prospects are properties on which we have identified what we
believe, based on available seismic and geological information, to be indications of oil or natural gas. Our prospects are in various stages of evaluation, ranging from a prospect that is ready to drill to a prospect that will require substantial
additional seismic data processing and interpretation. There is no way to predict in advance of drilling and testing whether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to
be economically viable. This risk may be enhanced in our situation, due to the fact that a significant percentage of our reserves are currently unproved reserves. The use of seismic data and other technologies and the study of producing fields in
the same area will not enable us to know conclusively prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in commercial quantities. We cannot assure you that the analogies we draw
from available data from other wells, more fully explored prospects or producing fields will be applicable to our drilling prospects.

We may incur substantial
losses and be subject to substantial liability claims as a result of our oil and natural gas operations.

We are not insured against all
risks. Losses and liabilities arising from uninsured and underinsured events could materially and adversely affect our business, financial condition or results of operations. Our oil and natural gas exploration and production activities are subject
to all of the operating risks associated with drilling for and producing oil and natural gas, including the possibility of:



| |  |  | environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater and
shoreline contamination;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | abnormally pressured formations;
| | - |  | --------------------------------



| |  |  | mechanical difficulties, such as stuck oil field drilling and service tools and casing collapse;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | fires and explosions;
| | - |  | ---------------------



| |  |  | personal injuries and death; and
| | - |  | --------------------------------



| |  |  | natural disasters.
| | - |  | ------------------

Any of these risks could adversely
affect our ability to conduct operations or result in substantial losses to our company. We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the risks presented. In addition, pollution and
environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, then it could adversely affect us.

We are subject to complex laws that can affect the cost, manner or feasibility of doing business.

Exploration,
development, production and sale of oil and natural gas are subject to extensive federal, state, local and international regulation. We may be required to make large expenditures to comply with governmental regulations. Matters subject to regulation
include:



| |  |  | discharge permits for drilling operations;
| | - |  | ------------------------------------------



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##### Index to Financial Statements

| |  |  | drilling bonds;
| | - |  | ---------------



| |  |  | reports concerning operations;
| | - |  | ------------------------------



| |  |  | the spacing of wells;
| | - |  | ---------------------



| |  |  | unitization and pooling of properties; and
| | - |  | ------------------------------------------



| |  |  | taxation.
| | - |  | ---------

Under these laws, we could be liable for
personal injuries, property damage and other damages. Failure to comply with these laws also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, these laws could
change in ways that substantially increase our costs. Any such liabilities, penalties, suspensions, terminations or regulatory changes could materially adversely affect our financial condition and results of operations.

Our operations may incur substantial liabilities to comply with the environmental laws and regulations.

Our oil and natural gas operations are subject to stringent federal, state and local laws and regulations relating to the release or disposal of materials into the
environment or otherwise relating to environmental protection. These laws and regulations may require the acquisition of a permit before drilling commences, restrict the types, quantities and concentration of substances that can be released into the
environment in connection with drilling and production activities, limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas, and impose substantial liabilities for pollution resulting from
our operations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, incurrence of investigatory or remedial obligations or the imposition of injunctive relief. Changes in
environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to maintain
compliance, and may otherwise have a material adverse effect on our results of operations, competitive position or financial condition as well as the industry in general. Under these environmental laws and regulations, we could be held strictly
liable for the removal or remediation of previously released materials or property contamination regardless of whether we were responsible for the release or if our operations were standard in the industry at the time they were performed.

Our operations in Colombia are subject to risks relating to political and economic instability.

We currently have interests in multiple oil and gas concessions in Colombia and anticipate that operations in Colombia will constitute a substantial element of our
strategy going forward. The political climate in Colombia is unstable and could be subject to radical change over a very short period of time. In the event of a significant negative change in the political or economic climate in Colombia, we may be
forced to abandon or suspend our operations in Colombia.

Our operations in Colombia are controlled by Hupecol which may carry out transactions affecting our
Colombian assets and operations without our consent.

We are an investor in Hupecol and our interest in the assets and operations of Hupecol
represent all of our assets and operations in Colombia and are our principal assets and operations. During 2008, Hupecol sold its interest in the Caracara Association Contract, the largest single prospect in terms of reserves and revenues in which
we then held an interest. Also, during 2008, Hupecol acquired an interest in the La Cuerva Contract. In early March 2009, Hupecol determined to temporarily shut-in production from our Colombian properties. It is possible that Hupecol will carry out
similar sales or acquisitions of prospects or make similar decisions in the future. Our management intends to closely



15



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##### Table of Contents

##### Index to Financial Statements

monitor the nature and progress of future transactions by Hupecol in order to protect our interests. However, we have no effective ability to alter or prevent a
transaction and are unable to predict whether or not any such transactions will in fact occur or the nature or timing of any such transaction.

Unless we
replace our oil and natural gas reserves, our reserves and production will decline, which would adversely affect our cash flows and income.

Unless we conduct successful development, exploitation and exploration activities or acquire properties containing proved reserves, our proved reserves will decline as those reserves are produced. Producing oil and natural gas reservoirs
generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Our future oil and natural gas reserves and production, and, therefore our cash flow and income, are highly dependent on
our success in efficiently developing and exploiting our current reserves and economically finding or acquiring additional recoverable reserves. If we are unable to develop, exploit, find or acquire additional reserves to replace our current and
future production, our cash flow and income will decline as production declines, until our existing properties would be incapable of sustaining commercial production.

Our success depends on our management team and other key personnel, the loss of any of whom could disrupt our business operations.

Our success will depend on our ability to retain John F. Terwilliger, our principal executive officer, and James Jacobs, our chief financial officer, and to attract other experienced management and non-management employees, including
engineers, geoscientists and other technical and professional staff. We will depend, to a large extent, on the efforts, technical expertise and continued employment of such personnel and members of our management team. If members of our management
team should resign or we are unable to attract the necessary personnel, our business operations could be adversely affected.

The unavailability or high cost
of drilling rigs, equipment, supplies, personnel and oil field services could adversely affect our ability to execute on a timely basis our exploration and development plans within our budget.

Shortages or the high cost of drilling rigs, equipment, supplies or personnel could delay or adversely affect our development and exploration operations. As the
price of oil and natural gas increases, the demand for production equipment and personnel will likely also increase, potentially resulting, at least in the near-term, in shortages of equipment and personnel. In addition, larger producers may be more
likely to secure access to such equipment by virtue of offering drilling companies more lucrative terms. If we are unable to acquire access to such resources, or can obtain access only at higher prices, not only would this potentially delay our
ability to convert our reserves into cash flow, but could also significantly increase the cost of producing those reserves, thereby negatively impacting anticipated net income.

If our access to markets is restricted, it could negatively impact our production, our income and ultimately our ability to retain our leases.

Market conditions or the unavailability of satisfactory transportation arrangements may hinder our access to oil and natural gas markets or delay our production.
The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for and supply of oil and natural gas and the proximity of reserves to pipelines and terminal facilities. Our ability to
market our production depends in substantial part on the availability and capacity of gathering systems, pipelines and processing facilities owned and operated by third parties. Our failure to obtain such services on acceptable terms could
materially harm our business.



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##### Index to Financial Statements

We may operate in areas with limited or no access to pipelines, thereby necessitating delivery by other means, such
as trucking, or requiring compression facilities. Such restrictions on our ability to sell our oil or natural gas have several adverse affects, including higher transportation costs, fewer potential purchasers (thereby potentially resulting in a
lower selling price) or, in the event we were unable to market and sustain production from a particular lease for an extended time, possibly causing us to lose a lease due to lack of production.

We may need additional financing to support operations and future capital commitments.

While we presently believe that our operating cash flows and funds on hand will support our ongoing operations and anticipated future capital requirements, a number of factors could result in our needing additional financing,
including reductions in oil and natural gas prices, declines in production, unexpected developments in operations that could decrease our revenues, increase our costs or require additional capital contributions and commitments to new acquisition or
drilling programs. We have no commitments to provide any additional financing, if needed, and may be limited in our ability to obtain the capital necessary to support operations, complete development, exploitation and exploration programs or carry
out new acquisition or drilling programs. We have not thoroughly investigated whether this capital would be available, who would provide it, and on what terms. If we are unable, on acceptable terms, to raise the required capital, our business may be
seriously harmed or even terminated.

Competition in the oil and natural gas industry is intense, which may adversely affect our ability to compete.

We operate in a highly competitive environment for acquiring properties, marketing oil and natural gas and securing trained personnel. Many of our
competitors possess and employ financial, technical and personnel resources substantially greater than ours, which can be particularly important in the areas in which we operate. Those companies may be able to pay more for productive oil and natural
gas properties and exploratory prospects and to evaluate, bid for and purchase a greater number of properties and prospects than our financial or personnel resources permit. Our ability to acquire additional prospects and to find and develop
reserves in the future will depend on our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. Also, there is substantial competition for capital available for investment in the oil
and natural gas industry. We may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital.

The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell common stock when you want or at prices you find attractive.

The price of our common stock constantly changes. We expect that the market price of our common stock will continue to fluctuate.

Our stock price may fluctuate as a result of a variety of factors, many of which are beyond our control. These factors include:



| |  |  | quarterly variations in our operating results;
| | - |  | ----------------------------------------------



| |  |  | operating results that vary from the expectations of management, securities analysts and investors;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | changes in expectations as to our future financial performance;
| | - |  | ---------------------------------------------------------------



| |  |  | announcements by us, our partners or our competitors of leasing and drilling activities;
| | - |  | ----------------------------------------------------------------------------------------



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##### Index to Financial Statements

| |  |  | the operating and securities price performance of other companies that investors believe are comparable to us;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | future sales of our equity or equity-related securities;
| | - |  | --------------------------------------------------------



| |  |  | changes in general conditions in our industry and in the economy, the financial markets and the domestic or international political situation;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | fluctuations in oil and gas prices;
| | - |  | -----------------------------------



| |  |  | departures of key personnel; and
| | - |  | --------------------------------



| |  |  | regulatory considerations.
| | - |  | --------------------------

In addition, in recent
years, the stock market in general has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons often unrelated to their operating
performance. These broad market fluctuations may adversely affect our stock price, regardless of our operating results.

The sale of a substantial number of
shares of our common stock may affect our stock price.

Future sales of substantial amounts of our common stock or equity-related securities
in the public market or privately, or the perception that such sales could occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related
securities. No prediction can be made as to the effect, if any, that future sales of shares of common stock or the availability of shares of common stock for future sale, will have on the trading price of our common stock.

Our charter and bylaws, as well as provisions of Delaware law, could make it difficult for a third party to acquire our company and also could limit the price that investors
are willing to pay in the future for shares of our common stock.

Delaware corporate law and our charter and bylaws contain provisions that
could delay, deter or prevent a change in control of our company or our management. These provisions could also discourage proxy contests and make it more difficult for our stockholders to elect directors and take other corporate actions without the
concurrence of our management or board of directors. These provisions:



| |  |  | authorize our board of directors to issue blank check preferred stock, which is preferred stock that can be created and issued by our board of directors, without
stockholder approval, with rights senior to those of our common stock;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide for a staggered board of directors and three-year terms for directors, so that no more than one-third of our directors could be replaced at any annual meeting;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide that directors may be removed only for cause; and
| | - |  | ---------------------------------------------------------



| |  |  | establish advance notice requirements for submitting nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a
meeting.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We are also subject to anti-takeover provisions under Delaware law, which could also delay or prevent a change of
control. Taken together, these provisions of our charter and bylaws, Delaware law may discourage transactions that otherwise could provide for the payment of a premium over prevailing market prices of our common stock and also could limit the price
that investors are willing to pay in the future for shares of our common stock.



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##### Table of Contents

##### Index to Financial Statements

Our management owns a significant amount of our common stock, giving them influence or control in corporate transactions and
other matters, and their interests could differ from those of other shareholders.

At March 1, 2009, our directors and executive officers
owned approximately 46.6% of our outstanding common stock. As a result, our current directors and executive officers are in a position to significantly influence or control the outcome of matters requiring a shareholder vote, including the election
of directors, the adoption of any amendment to our certificate of incorporation or bylaws, and the approval of mergers and other significant corporate transactions. Such level of control of the company may delay or prevent a change of control on
terms favorable to the other shareholders and may adversely affect the voting and other rights of other shareholders.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------

Not applicable



|Item 2. | Properties
|------- | ----------

We currently lease approximately 4,739 square feet of
office space in Houston, Texas as our executive offices. Management anticipates that our space will be sufficient for the foreseeable future. The average monthly rental under the lease, which expires on May 31, 2012, is $6,682.

A description of our interests in oil and gas properties is included in Item 1. Business.



|Item 3. | Legal Proceedings
|------- | -----------------

We may from time to time be a party to lawsuits
incidental to our business. As of March 1, 2009, we were not aware of any current, pending, or threatened litigation or proceedings that could have a material adverse effect on our results of operations, cash flows or financial condition.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

Not applicable



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##### Table of Contents

##### Index to Financial Statements

PART II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------

Market Information

Our common stock is listed on the Nasdaq Global Market
(Nasdaq) under the symbol HUSA. The following table sets forth the range of high and low sale prices of our common stock for each quarter during the past two fiscal years.



|                   |  |                |  |      |       |     |   |     
|------------------ |  | -------------- |  | ---- | ----- | --- | - | ----
|                   |  |                |  | High |       | Low
|Calendar Year 2008 |  | Fourth Quarter |  | $    | 6.01  |     | $ | 2.05
|                   |  | Third Quarter  |  |      | 11.23 |     |   | 5.25
|                   |  | Second Quarter |  |      | 11.22 |     |   | 4.02
|                   |  | First Quarter  |  |      | 4.27  |     |   | 2.76
|                   |  |                | 
|Calendar Year 2007 |  | Fourth Quarter |  | $    | 4.44  |     | $ | 2.46
|                   |  | Third Quarter  |  |      | 6.10  |     |   | 2.29
|                   |  | Second Quarter |  |      | 6.14  |     |   | 4.71
|                   |  | First Quarter  |  |      | 7.35  |     |   | 3.23

At March 12, 2009, the closing price of the common stock on Nasdaq was $2.33.

Holders

As of March 4, 2009, there were approximately 947
shareholders of record of our common stock.

Dividends

Commencing in the third quarter of 2008 and continuing in the fourth quarter of 2008, we declared and paid a quarterly cash dividend of $0.02 per share on our common stock.

The payment of future cash dividends will depend upon, among other things, our financial condition, funds from operations, the level of our capital and development
expenditures, our future business prospects, contractual restrictions and any other factors considered relevant by the Board of Directors.

Securities Authorized
for Issuance Under Equity Compensation Plans

The following table provides information as of December 31, 2008 with respect to the shares of
our common stock that may be issued under our existing equity compensation plans.



|                                                           |  |                                                                                            |  |                                                                             |      |                                                                                                                                        |          
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------- | ---------
|Plan Category                                              |  | Number of securitiesto be issued uponexercise ofoutstanding options,warrants andrights (a) |  | Weighted-averageexercise price ofoutstanding options,warrants andrights (b) |      | Number of securitiesremaining available forfuture issuance underequity compensation plans(excluding securitiesreflected in column
(a))
|Equity compensation plans approved by security holders(1)  |  | 1,392,333                                                                                  |  | $                                                                           | 6.21 |                                                                                                                                        | 1,307,667
|Equity compensation plans not approved by security holders |  |                                                                                           |  |                                                                             |     |                                                                                                                                        |         
|                                                           |  |                                                                                            |  |                                                                             |      |                                                                                                                                        |          
|Total                                                      |  | 1,392,333                                                                                  |  | $                                                                           | 6.21 |                                                                                                                                        | 1,307,667
|                                                           |  |                                                                                            |  |                                                                             |      |                                                                                                                                        |          



|(1) | Consists of 500,000 shares reserved for issuance under the Houston American Energy Corp. 2005 Stock Option Plan and 2,200,000 shares reserved for issuance under the Houston American Energy
2008 Equity Incentive Plan.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

##### Index to Financial Statements

Performance Graph

The
following performance graph and related information shall not be deemed soliciting material or to be filed with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future
filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.

The following performance graph compares the change in the cumulative total return of Houston American Energys common stock, the Dow Jones U.S. Exploration
and Production Index, and the S&P 500 Index for the five years ended December 31, 2008. The graph assumes that $100 was invested in the Companys common stock and each index on December 31, 2003.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN AMONG

HOUSTON AMERICAN ENERGY CORPORATION, THE S&P 500 INDEX

AND DJ U.S. EXPL & PROD. INDEX

LOGO



|                                    |  |              |     |      |   |      |  |      |     |      |   |       |  |   |     |  |   |      
|----------------------------------- |  | ------------ | --- | ---- | - | ---- |  | ---- | --- | ---- | - | ----- |  | - | --- |  | - | -----
|                                    |  | December 31,
|                                    |  | 2003         |     | 2004 |   | 2005 |  | 2006 |     | 2007 |   | 2008 
|Houston American Energy Corporation |  | $            | 100 |      | $ | 215  |  | $    | 288 |      | $ | 2,165 |  | $ | 897 |  | $ | 1,006
|S&P 500 Index                       |  | $            | 100 |      | $ | 140  |  | $    | 230 |      | $ | 241   |  | $ | 344 |  | $ | 344  
|DJ U.S. Expl. & Prod. Index         |  | $            | 100 |      | $ | 109  |  | $    | 112 |      | $ | 128   |  | $ | 132 |  | $ | 132  



21



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##### Table of Contents

##### Index to Financial Statements

|Item 6. | Selected Financial Data
|------- | -----------------------

The following table sets forth a summary of
selected historical financial information for each of the years in the five-year period ended December 31, 2008. This information is derived from our Financial Statements and the notes thereto. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data.



|                                           |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|------------------------------------------ |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | - |  | ---- | ---------- | - |  | - | --------- | -
|                                           |  | Year Ended December 31, |           
|                                           |  | 2008                    |            |   | 2007 |   |            | 2006 |  |   | 2005        |   |  | 2004 |           
|Statement of Operations Data:              |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Revenue:                                   |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Oil and gas revenue                        |  | $                       | 10,622,050 |   |      | $ | 4,977,172  |      |  | $ | 3,202,731   |   |  | $    | 2,780,457  |   |  | $ | 1,182,063 |  
|Commissions                                |  |                         |           |   |      |   |           |      |  |   |            |   |  |      | 60,000     |   |  |   |          |  
|                                           |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Total revenues                             |  |                         | 10,622,050 |   |      |   | 4,977,172  |      |  |   | 3,202,731   |   |  |      | 2,840,457  |   |  |   | 1,182,063 |  
|                                           |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Expenses of operations:                    |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Lease operating expense and severance tax  |  |                         | 3,366,740  |   |      |   | 1,841,119  |      |  |   | 1,017,440   |   |  |      | 953,624    |   |  |   | 413,723   |  
|Joint venture expense                      |  |                         | 183,510    |   |      |   | 149,200    |      |  |   | 167,023     |   |  |      | 61,500     |   |  |   | 41,944    |  
|Depreciation and depletion                 |  |                         | 5,816,691  |   |      |   | 1,099,826  |      |  |   | 887,911     |   |  |      | 363,196    |   |  |   | 211,759   |  
|Impairment of oil and gas properties       |  |                         | 5,621,106  |   |      |   | 348,019    |      |  |   |            |   |  |      |           |   |  |   |          |  
|General and administrative expense         |  |                         | 3,152,930  |   |      |   | 1,568,228  |      |  |   | 1,231,079   |   |  |      | 835,829    |   |  |   | 333,412   |  
|Gain on sale of oil and gas properties     |  |                         | (7,615,236 | ) |      |   |           |      |  |   |            |   |  |      |           |   |  |   |          |  
|                                           |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Total operating expenses                   |  |                         | 10,525,741 |   |      |   | 5,006,392  |      |  |   | 3,303,453   |   |  |      | 2,214,149  |   |  |   | 1,000,838 |  
|                                           |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Income (loss) from operations              |  |                         | 96,309     |   |      |   | (29,220    | )    |  |   | (100,722    | ) |  |      | 626,308    |   |  |   | 181,225   |  
|Other (income) expense:                    |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Interest income                            |  |                         | (295,375   | ) |      |   | (649,742   | )    |  |   | (496,490    | ) |  |      | (34,191    | ) |  |   | (6,058    | )
|Interest expense                           |  |                         |           |   |      |   |           |      |  |   | 57,278      |   |  |      | 111,920    |   |  |   |          |  
|Interest expenserelated party             |  |                         |           |   |      |   |           |      |  |   | 20,440      |   |  |      | 72,000     |   |  |   | 72,000    |  
|Interest expensederivative                |  |                         |           |   |      |   |           |      |  |   | 37,773      |   |  |      | 319,714    |   |  |   |          |  
|Loss on change in fair value of derivative |  |                         |           |   |      |   |           |      |  |   | 170,949     |   |  |      | 402,628    |   |  |   |          |  
|Financing costs                            |  |                         |           |   |      |   |           |      |  |   | 110,787     |   |  |      | 16,816     |   |  |   |          |  
|                                           |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Total other (income) expense               |  |                         | (295,375   | ) |      |   | (649,742   | )    |  |   | (99,263     | ) |  |      | 888,887    |   |  |   | 65,942    |  
|                                           |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Net income (loss) before income taxes      |  |                         | 391,684    |   |      |   | 620,572    |      |  |   | (1,459      | ) |  |      | (262,579   | ) |  |   | 115,283   |  
|Income tax expense (benefit)               |  |                         | (73,261    | ) |      |   | 127,116    |      |  |   | 510,637     |   |  |      | 239,201    |   |  |   |          |  
|                                           |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Net income (loss)                          |  | $                       | 464,945    |   |      | $ | 493,456    |      |  | $ | (512,096    | ) |  | $    | (501,780   | ) |  | $ | 115,283   |  
|                                           |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Basic net income (loss) per share          |  | $                       | 0.02       |   |      | $ | 0.02       |      |  | $ | (0.02       | ) |  | $    | (0.03      | ) |  | $ | 0.01      |  
|                                           |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Diluted net income (loss) per share        |  | $                       | 0.02       |   |      | $ | 0.02       |      |  | $ | (0.02       | ) |  | $    | (0.03      | ) |  | $ | 0.01      |  
|                                           |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Cash dividends paid per share              |  | $                       | 0.04       |   |      | $ |           |      |  | $ |            |   |  | $    |           |   |  | $ |          |  
|                                           |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Cash Flow Data:                            |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Cash flow from operating activities        |  | $                       | 1,452,054  |   |      | $ | 1,801,481  |      |  | $ | 1,239,446   |   |  | $    | 694,581    |   |  | $ | 297,995   |  
|Cash flow from investing activities        |  |                         | 8,787,853  |   |      |   | (1,792,671 | )    |  |   | (17,507,371 | ) |  |      | (1,589,594 | ) |  |   | (590,247  | )
|Cash flow from financing activities        |  |                         | (747,031   | ) |      |   |           |      |  |   | 14,952,833  |   |  |      | 1,897,500  |   |  |   | 350,443   |  
|                                           |  |                         |            |   |     
|Balance Sheet Data (at end of period):     |  |                         |            |   |      |   |            |      |  |   |             |   |  |      |            |   |  |   |           |  
|Working capital (deficit)                  |  | $                       | 10,536,834 |   |      | $ | 10,358,502 |      |  | $ | 14,202,160  |   |  | $    | (1,041,453 | ) |  | $ | 771,392   |  
|Property, plant and equipment, net         |  |                         | 5,263,131  |   |      |   | 10,017,045 |      |  |   | 5,248,272   |   |  |      | 2,631,245  |   |  |   | 1,403,551 |  
|Total assets                               |  |                         | 22,637,054 |   |      |   | 20,714,797 |      |  |   | 19,985,883  |   |  |      | 5,052,483  |   |  |   | 2,458,419 |  
|Long-term debt, less current portion       |  |                         |           |   |      |   |           |      |  |   |            |   |  |      | 975,416    |   |  |   | 1,000,000 |  
|Total stockholders equity                 |  |                         | 21,048,248 |   |      |   | 20,243,447 |      |  |   | 19,414,783  |   |  |      | 728,227    |   |  |   | 1,178,110 |  



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##### Index to Financial Statements

|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

General

Houston American Energy was incorporated in April 2001 for the purposes of seeking oil and gas exploration and development
prospects. Since inception, we have sought out prospects utilizing the expertise and business contacts of John F. Terwilliger, our founder and principal executive officer. Through the third quarter of 2002, the acquisition targets were in the Gulf
Coast region of Texas and Louisiana, where Mr. Terwilliger has been involved in oil and gas exploration for over 30 years. In the fourth quarter 2002, we initiated international efforts through a Colombian joint venture more fully described
below. Domestically and internationally, the strategy is to be a non-operating partner with exploration and production companies that have much larger resources and operations.

Overview of Operations

Our operations are exclusively devoted to natural gas and oil exploration and production.

Our focus, to date and for the foreseeable future, is the identification of oil and gas drilling prospects and participation in the drilling and
production of prospects. We typically identify prospects and assemble various drilling partners to participate in, and fund, drilling activities. We may retain an interest in a prospect for our services in identifying and assembling prospects
without any contribution on our part to drilling and completion costs or we may contribute to drilling and completion costs based on our proportionate interest in a prospect.

We derive our revenues from our interests in oil and gas production sold from prospects in which we own an interest, whether through royalty interests, working
interest or other arrangements. Our revenues vary directly based on a combination of production volumes from wells in which we own an interest, market prices of oil and natural gas sold and our percentage interest in each prospect.

Our well operating expenses vary depending upon the nature of our interest in each prospect. We may bear no interest or a proportionate interest in the costs of
drilling, completing and operating prospects on which we own an interest. Other than well drilling, completion and operating expenses, our principal operating expenses relate to our efforts to identify and secure prospects, comply with our various
reporting obligations as a publicly held company and general overhead expenses.

Business Developments During 2008 and 2009

Drilling Activity

During 2008, we drilled 15 international wells in
Colombia, as follows:



| |  |  | 13 wells were drilled on concessions in which we hold a 12.5% working interest; of which, at December 31, 2008, 10 were in production and 3 were dry holes.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | One well was drilled on concessions in which we hold a 6.25% working interest and was deemed a dry hole.
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | One well was drilled on a concession in which we hold a 1.6% working interest, was sold as part of the Caracara transaction and was in production at the time of that sale.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During 2008, one domestic well, (the N. Bayou Henry Prospect) was drilled and was deemed a dry hole.

The Caddo Lake prospect was drilled during the fourth quarter of 2007. During the fourth quarter of 2008, pipeline construction and connection to the well was
completed and several completion attempts in the Cotton Valley formation were not successful. Currently a Bossier Shale test is planned subject to a unit and permit being granted.



23



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##### Index to Financial Statements

At December 31, 2008, two wells were being drilled in Colombia and one well was being drilled in the U.S.

Sale of Caracara Assets

In June 2008, we, through Hupecol
Caracara LLC as owner/operator under the Caracara Association Contract, sold all of our interest in the Caracara Association Contract and related assets. Pursuant to our investment in Hupecol Caracara LLC, we held a 1.594674% working interest
in the Caracara assets, covering approximately 232,500 acres, representing our principal, and initial, Colombian prospect. At December 31, 2007, the estimated proved reserves associated with these assets totaled 787,742 barrels of oil, which
represented 60.37% of our estimated proved oil and natural gas reserves.

As a result of the sale of the Caracara assets, we received net proceeds,
after deduction of fees and expenses of the transaction, of $11,546,510, realized a gain on the sale of $7,615,236 and eliminated from oil and gas properties costs subject to amortization associated with the Caracara assets totaling $3,977,907.

Pursuant to the terms of the sale of the Caracara assets, on the closing date of the sale, a portion of the purchase price was deposited in escrow
to settle post-closing adjustments under the purchase and sale agreement. The funds deposited in escrow will be released to us, or to the purchaser, based on post-closing adjustments 12 months following closing. Our proportionate interest
in the escrow deposit, totaling $1,673,551, has been recorded as Other Current Assets. The net proceeds and the gain realized from the sale of the Caracara assets may be adjusted based on post-closing adjustments.

Colombian taxes attributable to the sale of the Caracara assets, totaling $4,394,575, were recorded and paid at the time of closing.

Production from the Caracara prospect accounted for $3,005,140 and $3,703,739 of our revenues during 2008 and 2007, respectively.

Lease operating expense from the Caracara prospect accounted for $458,240 and $641,583 of our lease operating expense during 2008 and 2007, respectively.

Leasehold Activity

During 2008, we acquired, through our
1.594674% interest in Hupecol Caracara LLC, an interest in the La Cuerva Contract covering approximately 48,000 acres in Colombia.

During 2008, we
acquired interests in two additional prospects in South Louisiana for which we advanced leasehold costs and delay rentals of approximately $231,403. We sold our interest in one of the prospectsthe North Henry Bayou prospectduring
2008, retaining a 4.5% carried interest in the prospect, for which we received $60,301 and sold our interest in the second prospectthe Home Run prospectduring 2008 for which we received $213,395.

Seismic Activity

During 2008, our operator in Colombia acquired
approximately 65 miles of additional seismic and geological data. The additional data relates primarily to prospects in which we hold a 12.5% working interest. Our share of the costs of such data acquisition was $309,061. The operator also
acquired additional seismic data on the La Cuerva prospect. Our share of this cost was $41,030.



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##### Index to Financial Statements

During 2008 we shot an additional 32.824 square miles combined of seismic on the Las Garzas and Leona contracts.

Executive CompensationRestricted Stock, Stock Options and Bonus Payments

During 2008, we recognized compensation expense, in addition to salaries, to our two executive officers consisting of (1) $400,320 attributable to grants of 55,600 shares of restricted stock, (2) payment of cash
bonuses totaling $750,000, which bonuses were contingent on the completion of the sale of the Caracara assets and were paid in June 2008, and (3) $670,045 attributable to grants of stock options.

Dividends

During the third and fourth quarters of 2008, we declared and
paid cash dividends to our shareholders of $0.02 per share, or an aggregate of $1,122,031.

Macroeconomic Impact on Oil and Natural Gas Prices

Late in the third quarter of 2008 and accelerating during the fourth quarter of 2008, the United States and global economies suffered a severe disruption in credit
and financial markets that have been accompanied by economic contraction and a sharp drop in the price of oil and natural gas due to a projected decline in demand for oil and natural gas. We have not historically entered into hedging
transactions to reduce our exposure to commodity price risks. As a result of such macroeconomic conditions and our unhedged position, the prices at which we sell oil and natural gas declined markedly during the fourth quarter of 2008 and are
expected to remain at substantially lower levels for the foreseeable future. Our total revenues and profitability declined during the fourth quarter of 2008 as a result of the decline in oil and natural gas prices and a reduction in our production
and are expected to continue to be adversely affected for the foreseeable future.

Determination to Temporarily Shut-in Colombian Production

As a result of the continued depressed commodity price environment in the first quarter of 2009, Hupecol, the operator of our Colombian properties, made the
determination to temporarily shut-in production from the majority of our wells in Colombia. During the first quarter of 2009, most of our Colombian wells remained profitable to operate; however, the Hupecol managing partners chose not to continue to
produce what they considered valuable oil reserves at these low levels of profitability.

On March 14th, the Company was notified by Hupecol that the
majority of its productive wells will be immediately restored to production.

Critical Accounting Policies

The following describes the critical accounting policies used in reporting our financial condition and results of operations. In some cases, accounting standards
allow more than one alternative accounting method for reporting. Such is the case with accounting for oil and gas activities described below. In those cases, our reported results of operations would be different should we employ an alternative
accounting method.

Full Cost Method of Accounting for Oil and Gas Activities. We follow the full cost method of accounting for oil and gas
property acquisition, exploration and development activities. Under this method, all productive and nonproductive costs incurred in connection with the exploration for and



25



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##### Table of Contents

##### Index to Financial Statements

development of oil and gas reserves are capitalized. Capitalized costs include lease acquisition, geological and geophysical work, delay rentals, costs of drilling,
completing and equipping successful and unsuccessful oil and gas wells and related internal costs that can be directly identified with acquisition, exploration and development activities, but does not include any cost related to production, general
corporate overhead or similar activities. Gain or loss on the sale or other disposition of oil and gas properties is not recognized unless significant amounts of oil and gas reserves are involved. No corporate overhead has been capitalized as of
December 31, 2008. The capitalized costs of oil and gas properties, plus estimated future development costs relating to proved reserves are amortized on a units-of-production method over the estimated productive life of the reserves.
Unevaluated oil and gas properties are excluded from this calculation. The capitalized oil and gas property costs, less accumulated amortization, are limited to an amount (the ceiling limitation) equal to the sum of: (a) the present value of
estimated future net revenues from the projected production of proved oil and gas reserves, calculated at prices in effect as of the balance sheet date and a discount factor of 10%; (b) the cost of unproved and unevaluated properties excluded
from the costs being amortized; (c) the lower of cost or estimated fair value of unproved properties included in the costs being amortized; and (d) related income tax effects. Excess costs are charged to proved properties impairment
expense.

Unevaluated Oil and Gas Properties. Unevaluated oil and gas properties consist principally of our cost of acquiring and evaluating
undeveloped leases, net of an allowance for impairment and transfers to depletable oil and gas properties. When leases are developed, expire or are abandoned, the related costs are transferred from unevaluated oil and gas properties to depletable
oil and gas properties. Additionally, we review the carrying costs of unevaluated oil and gas properties for the purpose of determining probable future lease expirations and abandonments, and prospective discounted future economic benefit
attributable to the leases. We record an allowance for impairment based on a review of present value of future cash flows. Any resulting charge is made to operations and reflected as a reduction of the carrying value of the recorded asset.
Unevaluated oil and gas properties not subject to amortization include the following at December 31, 2007 and 2008:



|                  |  |                    |         |                    |   |          
|----------------- |  | ------------------ | ------- | ------------------ | - | ---------
|                  |  | AtDecember 31,2007 |         | AtDecember 31,2008
|Acquisition costs |  | $                  | 192,843 |                    | $ | 221,253  
|Evaluation costs  |  |                    | 719,102 |                    |   | 1,815,122
|Retention costs   |  |                    | 86,861  |                    |   | 28,191   
|                  |  |                    |         |                    |   |          
|Total             |  | $                  | 998,806 |                    | $ | 2,064,566
|                  |  |                    |         |                    |   |          

The carrying value of unevaluated oil and gas prospects include $480,532 and $88,681 expended for properties
in South America at December 31, 2007 and December 31, 2008, respectively. We are maintaining our interest in these properties and development has or is anticipated to commence within the next twelve months.

Subordinated Convertible Notes and WarrantsDerivative Financial Instruments. The Subordinated Convertible Notes and Warrants issued during 2005 have
been accounted for in accordance with SFAS 133 and EITF No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock.

We identified the following instruments and derivatives requiring evaluation and accounting under the relevant guidance applicable to financial derivatives:



| |  |  | Subordinated Convertible Notes
| | - |  | ------------------------------



| |  |  | Conversion feature
| | - |  | ------------------



| |  |  | Conversion price reset feature
| | - |  | ------------------------------



26



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##### Table of Contents

##### Index to Financial Statements

| |  |  | Companys optional redemption right
| | - |  | -----------------------------------



| |  |  | Warrants
| | - |  | --------



| |  |  | Warrants exercise price reset feature
| | - |  | -------------------------------------

We identified the
conversion feature; the conversion price reset feature and our optional early redemption right within the Convertible Notes to represent embedded derivatives. These embedded derivatives were bifurcated from their respective host debt contracts and
accounted for as derivative liabilities in accordance with EITF 00-19. The conversion feature, the conversion price reset feature and our optional early redemption right within the Convertible Notes were bundled together as a single hybrid compound
instrument in accordance with SFAS No. 133 Derivatives Implementation Group Implementation Issue No. B-15, Embedded Derivatives: Separate Accounting for Multiple Derivative Features Embedded in a Single Hybrid Instrument.

We identified the common stock warrant to be a detachable derivative. The warrant exercise price reset provision was identified as an embedded
derivative within the common stock warrant. The common stock warrant and the embedded warrant exercise price reset provision were accounted for as a separate single hybrid compound instrument.

The single compound embedded derivatives within Subordinated Convertible Notes and the derivative liability for Warrants were recorded at fair value at the date of
issuance (May 4, 2005); and were marked-to-market each quarter with changes in fair value recorded to our income statement as Net change in fair value of derivative liabilities. We utilized a third party valuation firm to fair value the
single compound embedded derivatives under the following methods: a layered discounted probability-weighted cash flow approach for the single compound embedded derivatives within Subordinated Convertible Notes; and the Black-Scholes model for the
derivative liability for Warrants based on a probability weighted exercise price.

The fair value of the derivative liabilities was subject to the
changes in the trading value of our common stock. As a result, our financial statements were subject to fluctuations from quarter-to-quarter based on factors, such as the price of our stock at the balance sheet date, the amount of shares converted
by note holders and/or exercised by warrant holders. Consequently, our financial position and results of operations varied from quarter-to-quarter based on conditions other than our operating revenues and expenses.

In May 2006, each of the Subordinated Convertible Notes and Warrants accounted for as derivative financial instruments was converted or exercised. Accordingly, for
subsequent periods, we have no derivative financial instruments requiring account under SFAS 133.

Stock-Based Compensation. We account for
stock-based compensation in accordance with the provisions of SFAS 123(R). We use the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions. These assumptions include estimating the volatility of our common
stock price over the vesting term, dividend yield, an appropriate risk-free interest rate and the number of options that will ultimately not complete their vesting requirements (forfeitures). Changes in the subjective assumptions can
materially affect the estimated fair value of stock-based compensation and consequently, the related amount recognized on the Statements of Operations.

Results
of Operations

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Oil and Gas Revenues. Total oil and gas revenues increased $5,644,878, or 113.4%, to $10,622,050 in fiscal 2008 compared to $4,977,172 in fiscal 2007.



27



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##### Table of Contents

##### Index to Financial Statements

The increase in oil and gas revenue is principally due to increased production resulting from the development of
the Colombian fields, particularly fields in which we hold a higher working interest (12.5%), and higher oil prices during the first three quarters of 2008, partially offset by the sale of 34 producing wells as part of the Caracara transaction
during the second quarter of 2008. During 2008, we had interests in 45 producing wells in Colombia, including the 34 Caracara wells, and 6 producing wells in the U.S as compared to 39 producing wells in Colombia and 7 producing wells in the U.S.
during 2007.

Oil and gas revenues from the Caracara prospect totaled $3,005,140 and $3,703,739 during 2008 and 2007, respectively.

The following table sets forth a comparison of hydrocarbon prices for 2008 and 2007:



|                             |  |      |       |      |   |      
|---------------------------- |  | ---- | ----- | ---- | - | -----
|                             |  | 2008 |       | 2007
|Hydrocarbon prices:          |  |      |       |      |   |      
|OilAverage price per barrel |  | $    | 83.67 |      | $ | 65.61
|GasAverage price per mcf    |  | $    | 10.22 |      | $ | 6.90 

As a result of the sharp worldwide economic decline during the second half of 2008, our average prices
realized from the sale of oil and gas declined markedly in the fourth quarter of 2008 to $59.26 per barrel of oil and $6.20 per mcf of gas. That decline in prices continued into 2009 and, as a result of such decline and the determination to
temporarily shut-in production from our wells in Colombia during March of 2009, 2009 revenues are expected to decline.

The following table sets
forth a comparison of oil and gas sales by region during 2008 and 2007.



|                  |  |      |            |      |   |          
|----------------- |  | ---- | ---------- | ---- | - | ---------
|Sales:            |  | 2008 |            | 2007
|Oil      Colombia |  | $    | 10,211,579 |      | $ | 4,531,640
|US                |  |      | 157,492    |      |   | 140,313  
|                  |  |      |            |      |   |          
|TotalOil         |  | $    | 10,369,071 |      | $ | 4,671,953
|                  |  |      |            |      |   |          
|Gas   Colombia    |  | $    | 0          |      | $ | 0        
|US                |  |      | 252,979    |      |   | 305,219  
|                  |  |      |            |      |   |          
|TotalGas         |  | $    | 252,979    |      | $ | 305,219  
|                  |  |      |            |      |   |          

Natural Gas production was down in 2008 due to production declines related to our domestic wells.

Lease Operating Expenses. Lease operating expenses, excluding joint venture expenses relating to our Colombia operations discussed below,
increased 82.9% to $3,366,740 in 2008 from $1,841,119 in 2007.

The increase in lease operating expenses was attributable to the increase in the
number of wells operated during 2008 and increased activities on prospects in which we hold a higher working interest (12.5%) during 2008 as compared to 2007, partially offset by the elimination of lease operating expenses on the Caracara
assets following the sale of the assets in June 2008.

Following is a summary comparison of lease operating expenses, by region, for 2008 and 2007:



|                          |  |      |           |      |   |          
|------------------------- |  | ---- | --------- | ---- | - | ---------
|                          |  | 2008 |           | 2007
|Lease Operating Expenses: |  |      |           |      |   |          
|Colombia                  |  | $    | 3,232,213 |      | $ | 1,710,689
|U.S.                      |  |      | 134,527   |      |   | 130,430  
|                          |  |      |           |      |   |          
|Total                     |  | $    | 3,366,740 |      | $ | 1,841,119
|                          |  |      |           |      |   |          



28



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##### Table of Contents

##### Index to Financial Statements

Joint Venture Expenses. Joint venture expenses totaled $183,510 in 2008 compared to $149,200 in 2007. The
joint venture expenses represent our allocable share of the indirect field operating and region administrative expenses billed by the operator of the Colombian concessions. The increase in joint venture expenses was attributable to an increase in
drilling activity in concessions in which we own a higher working interest.

Depreciation and Depletion Expense.Depreciation and
depletion expense increased by 428.9% to $5,816,691 in 2008 from $1,099,826 in 2007. This significant increase was due to a 37.6% increase in the depletable cost pool attributable to the drilling results on prospects in which we hold a higher
interest, as well as a significant decrease in our proved reserve estimates at year end; partially offset by the sale of our interest in the Caracara prospect.

Impairment Expense.During 2008, we recorded a provision for impairments of $5,621,106, most of which was attributable to our South American properties. Impairments related to reduced commodity prices at year end and
lower reserve estimates for our Colombian wells, as well as reduced reserve estimates for our U.S. properties as a result of lower commodity prices and lower then expected production volumes, as well as the lack of commercial production on our Caddo
Lake prospect.

During 2007, we recorded a provision for impairments of $348,019, all of which was attributable to our North American properties.
Impairments related to the termination, during 2007, of operations of seven wells in the U.S. and the fact that, as of December 31, 2007, well testing had not yet been conducted on, and no reserves had been attributed to, the well drilled
during 2007 on our Caddo Lake Prospect.

General and Administrative Expenses. General and administrative expense increased by 101% to
$3,152,930 in 2008 from $1,568,228 in 2007. The increase in general and administrative expense was primarily attributable to increases in compensation expense relating to one time restricted stock grants ($400,320), cash bonuses payable on
closing of the Caracara sale ($750,000) and stock options grants ($686,567).

Gain on sale of oil & gas properties.The sale of our
Caracara assets resulted in a gain of $7,615,236 during 2008. The gain realized may be subject to adjustment based on post-closing adjustments.

Other Income. Other income consists of interest income earned on cash balances and marketable securities.

Interest income decreased
54.5% to $295,375 during 2008 from $649,792 during 2007. The decrease in interest income was attributable to reduced interest rates on short term cash investments and slightly reduced cash and cash equivalent amounts held through the year.

Income Tax Expense. Income tax expense decreased to a benefit of ($73,261) in 2008 from income tax expense of $127,116 in 2007. The decrease
in income tax expense was attributable to the overall decrease to net income, due to the book impairment write-down on oil and gas properties, as well as the tax gain on the sale of the Caracara property. A deferred income tax benefit in the amount
of $5,273,567 was attributable to the US and income tax expense in the amount of $5,200,306 was attributable to Colombia. Income tax expense during 2007 was entirely attributable to operations in Colombia. No U.S. income tax liability was
recorded in 2007. At December 31, 2008, we had foreign tax credit carryovers of $2,019,488.



29



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##### Table of Contents

##### Index to Financial Statements

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Oil and Gas Revenues. Total oil and gas revenues increased $1,774,441, or 55.4%, to $4,977,172 in fiscal 2007 compared to $3,202,731 in fiscal 2006. The
increase in revenue is due to (a) increased production resulting from the development of the Colombian fields and (b) increases in oil and natural gas prices, partially offset by declines in U.S. production. We had interests in 39
producing wells in Colombia and 7 producing wells in North America during 2007 as compared to 22 producing wells in Colombia and 11 producing wells in North America during 2006. Average prices from sales were $65.61 per barrel of oil and $6.90 per
mcf of gas during 2007 as compared to $55.55 per barrel of oil and $6.75 per mcf of gas during 2006. Following is a summary comparison, by region, of oil and gas sales for the periods.



|                |  |          |           |               |   |         |  |   |          
|--------------- |  | -------- | --------- | ------------- | - | ------- |  | - | ---------
|                |  | Colombia |           | North America |   | Total  
|Year ended 2007 |  |          |           |               |   |         |  |   |          
|Oil sales       |  | $        | 4,531,640 |               | $ | 140,313 |  | $ | 4,671,953
|Gas sales       |  |          | 0         |               |   | 305,219 |  |   | 305,219  
|Year ended 2006 |  |          |           |               |   |         |  |   |          
|Oil sales       |  | $        | 2,565,105 |               | $ | 95,363  |  | $ | 2,660,468
|Gas sales       |  |          | 0         |               |   | 542,263 |  |   | 542,263  

Lease Operating Expenses. Lease operating expenses, excluding joint venture expenses relating to our
Colombia operations discussed below, increased 81% to $1,841,119 in 2007 from $1,017,440 in 2006. The increase in lease operating expenses was attributable to the increase in the number of wells operated during 2007 (46 wells as compared to 33
wells) partially offset by improved operating efficiencies. Additionally operations have increased in workovers as well as in the Dorotea and Cabiona areas where we have a higher working interest (12.5%), which increased the amount of operating
expense we incurred during the period.

Following is a summary comparison of lease operating expenses for the years ended December 31, 2007 and
2006.



|                |  |          |           |               |   |         |  |   |          
|--------------- |  | -------- | --------- | ------------- | - | ------- |  | - | ---------
|                |  | Colombia |           | North America |   | Total  
|Year ended 2007 |  | $        | 1,710,689 |               | $ | 130,430 |  | $ | 1,841,119
|Year ended 2006 |  |          | 819,273   |               |   | 198,167 |  |   | 1,017,440

Joint Venture Expenses. Joint venture expenses totaled $149,200 in 2007 compared to $167,023 in 2006.
The joint venture expenses represent our allocable share of the indirect field operating and region administrative expenses billed by the operator of the Colombian concessions. The decrease in joint venture expenses was attributable to the operator
reducing the personnel working on undrilled contract areas.

Depreciation and Depletion Expense. Depreciation and depletion expense increased
by 23.9% to $1,099,826 in fiscal 2007 when compared to $887,911 in 2006. The increase in depreciation and depletion expense was primarily attributable to increases in Colombian production and an 82% increase in the depletable cost pool.

Impairment Expense.During 2007, we recorded a provision for impairments of $348,019, all of which was attributable to our North American properties.
Impairments related to the termination, during 2007, of operations of seven wells in the U.S. and the fact that, as of December 31, 2007, well testing had not yet been conducted on, and no reserves had been attributed to, the well drilled
during 2007 on our Caddo Lake Prospect.



30



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##### Table of Contents

##### Index to Financial Statements

General and Administrative Expenses. General and administrative expense (excluding stock based compensation)
increased by 31.0% to $1,233,020 during 2007 from $941,324 in 2006. The increase in general and administrative expense was primarily attributable to an increase in salary to our president in mid-2006, payment of a full years salary to our
chief financial officer hired during 2006, increases in base salary of our president and chief financial officer during the third quarter of 2007 and payment of bonuses to our president and chief financial officer during 2007.

Stock based compensation expense included in general and administrative expenses increased by 15.7% to $335,208 in 2007 as compared to $289,755 in 2006. The
increase in stock-based compensation expense was attributable to the 2006 grant of stock options in connection with the hiring of our chief financial officer and the grants of options to our directors during 2007.

Other Income, Net. Other income, net, consists of interest income, net of financing costs in the nature of interest and deemed interest associated with
outstanding shareholder loans and convertible notes and warrants issued in May 2005 and outstanding during part of 2006. Certain features of the convertible notes and warrants resulted in the recording of a deemed derivative liability on the balance
sheet and periodic interest associated with the deemed derivative liabilities and changes in the fair market value of those deemed liabilities.

Other income, net, totaled $649,792 in 2007 compared to $99,263 in 2006. The improvement in other income, net, was attributable to interest earned on funds received from the 2006 private placement and the absence of interest expense,
financing fees and derivative related expense during 2007 attributable to the retirement or conversion during 2006 of all outstanding shareholder loans and convertible notes.

Income Tax Expense (Benefit). Income tax expense decreased to $127,116 in 2007 from $510,637 in 2006. The decrease in income tax expense during 2007 was
attributable to a gain of $662,668 associated with the reallocation by Hupecol of certain Colombian tax credits among the members of the various Hupecol entities, partially offset by an increase in revenue and an effective tax rate increase in
Colombia. Income tax expense during 2007 and 2006 was entirely attributable to operations in Colombia. We recorded no U.S. income tax liability in 2007 or 2006. At December 31, 2007, we had net operating loss carry forward of approximately
$832,821 and foreign tax credits of approximately $875,873.

Financial Condition

Liquidity and Capital Resources. At December 31, 2008, we had a cash balance of $9,910,694 and working capital of $10,536,834 compared to a cash balance of $417,818 and working capital of $10,358,502 at
December 31, 2007. The increase in working capital during the period was attributable to the sale proceeds from the Caracara sale offset by increased drilling activity in Colombia and lower product prices.

Cash Flows. Operations provided cash during 2008 totaling $1,452,054 as compared to $1,801,481 of cash provided by operations during 2007. The decrease
in cash flows from operations was primarily a result of cash taxes paid in Colombia.

Investing activities provided $8,787,853 during 2008 compared
to $1,792,672 used during 2007. The funds provided by investing activities reflect the receipt of proceeds from the sale of the Caracara assets ($9,878,797) and the Home Run and North Henry Bayou prospects ($273,696), as well as the net sale of
marketable securities of ($9,650,000) during 2008 and ($4,350,000) during 2007. Funds used in investing activities consisted primarily of investments in oil and gas properties and assets of ($10,841,353) during 2008 and ($6,142,672) during
2007.



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##### Table of Contents

##### Index to Financial Statements

Financing activities used $747,031 during 2008, consisting of cash dividends paid in the amount of $1,122,031,
partially offset by the receipt of $375,000 from the exercise of outstanding warrants. We had no financing activities during 2007.

Long-Term
Liabilities. At December 31, 2008, we had long-term liabilities of $205,524 as compared to $135,267 at December 31, 2007. Long-term liabilities at December 31, 2008 and December 31, 2007 consisted of a reserve for plugging
costs and deferred rent liability. The increase in 2008 of long-term liabilities was a result of increased plugging cost from drilling in Colombia.

Capital and Exploration Expenditures and Commitments. Our principal capital and exploration expenditures relate to our ongoing efforts to acquire, drill and complete prospects. We expect that future capital and exploration
expenditures will be funded principally through funds generated from operations and funds on hand, including funds generated from the sale of our interest in the Caracara prospect.

During 2008, we invested approximately $10,841,353 for the acquisition and development of oil and gas properties, consisting of (1) drilling of 15 wells in
Colombia ($9,212,662), (2) seismic and geological costs in Colombia ($700,427), (3) delay rentals on U.S. properties ($40,977), (4) leasehold costs on U.S. properties ($188,550) and (5) capital expenditures on U.S. wells
($698,737).

At December 31, 2008, our only material contractual obligation requiring determinable future payments on our part was our lease
relating to our executive offices.

The following table details our contractual obligations as of December 31, 2008:



|                 |  |                        |  |        |  |        |  |        |  |       
|---------------- |  | ---------------------- |  | ------ |  | ------ |  | ------ |  | ------
|                 |  | Payments due by period
|                 |  | Total                  |  | 2009   |  | 2010   |  | 2011   |  | 2012  
|Operating leases |  | 289,474                |  | 81,945 |  | 84,315 |  | 86,684 |  | 36,530
|                 |  |                        |  |        |  |        |  |        |  |       
|Total            |  | 289,474                |  | 81,945 |  | 84,315 |  | 86,684 |  | 36,530
|                 |  |                        |  |        |  |        |  |        |  |       

In addition to the contractual obligations requiring that we make fixed payments, in conjunction with our
efforts to secure oil and gas prospects, financing and services, we have, from time to time, granted overriding royalty interests (ORRI) in various properties, and may grant ORRIs in the future, pursuant to which we will be obligated to pay a
portion of our interest in revenues from various prospects to third parties.

2009 Planned Drilling, Leasehold and Other Activities. As of
December 31, 2008, we planned to drill a total of 11 wells during 2009, of which three wells are planned to be drilled on our domestic exploration projects and eight wells are planned to be drilled on our Colombian exploration projects. The
following table reflects planned drilling activities during 2009:



|                           |  |                       |  |                   
|-------------------------- |  | --------------------- |  | ------------------
|Location                   |  | Prospect Name         |  | # of Planned Wells
|Llanos Basin, Colombia     |  | La Cuerva Contract    |  | 2                 
|Llanos Basin, Colombia     |  | Dorotea Concession    |  | 2                 
|Llanos Basin, Colombia     |  | Las Garzas Concession |  | 1                 
|Llanos Basin, Colombia     |  | Leona Concession      |  | 1                 
|Llanos Basin, Colombia     |  | Camarita Concession   |  | 1                 
|Llanos Basin, Colombia     |  | Surimena Concession   |  | 1                 
|LouisianaVermilion Parish |  | North Jade            |  | 1                 
|LouisianaIberville Parish |  | W. Klondike           |  | 1                 
|LouisianaIberville Parish |  | Home Run              |  | 1                 



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##### Table of Contents

##### Index to Financial Statements

Additional wells are expected to be drilled at locations to be determined based on the results of the planned
drilling projects. Our planned drilling activity is subject to change from time to time without notice. In particular, the recent sharp decline in oil and gas prices may result in delays in, or abandonment of, planned drilling operations.

We also plan to selectively evaluate and acquire interests in additional drilling prospects.

At December 31, 2008, our acquisition and drilling budget for 2009 totaled approximately $2,950,000, consisting of (1) $1,850,000 for drilling of eight
wells in Colombia, (2) $1,000,000 for drilling of three domestic wells, and (3) $100,000 for infrastructure construction related cost in Colombia. Our acquisition and drilling budget has historically been subject to substantial fluctuation
over the course of a year based upon successes and failures in drilling and completion of prospects and the identification of additional prospects during the course of a year.

Management anticipates that our current financial resources will meet our anticipated objectives and business operations, including our planned property
acquisitions and drilling activities, for at least the next 12 months without the need for additional capital. Management continues to evaluate producing property acquisitions as well as a number of drilling prospects. It is possible, although not
anticipated, that the Company may require and seek additional financing if additional drilling prospects are pursued beyond those presently under consideration.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements or guarantees of third party obligations at December 31,
2008.

Inflation

We believe that inflation has not had a
significant impact on our operations since inception.



|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------

Commodity Price Risk

The price we receive for our oil and gas production heavily influences our revenue, profitability, access to capital and future rate of growth.
Crude oil and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil and gas have been volatile, and these markets
will likely continue to be volatile in the future. The prices we receive for production depends on numerous factors beyond our control.

We have not
historically entered into any hedges or other derivative commodity instruments or transactions designed to manage, or limit exposure to oil and gas price volatility.



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

Our financial statements
appear immediately after the signature page of this report. See Index to Financial Statements on page 35 of this report.



|Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

Previously disclosed. See Form 8-K, filed April 19, 2007.



33



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##### Table of Contents

##### Index to Financial Statements

|Item 9A. | Controls and Procedures
|-------- | -----------------------

Evaluation of Disclosure Controls and Procedures

Under the supervision and the participation of our management, including our principal executive officer and principal financial officer, we
conducted an evaluation as of December 31, 2008 of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2008.

Managements Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as that term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with generally accepted accounting principles (GAAP). Our
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial
statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its
inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting
also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However,
these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. In addition, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

In order to evaluate the effectiveness of our internal control over financial reporting as of December 31, 2008, as required by Section 404 of the
Sarbanes-Oxley Act of 2002, our management conducted an assessment, including testing, based on the criteria set forth in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the
COSO Framework). A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of our annual or interim financial statements will not be
prevented or detected. Based on our assessment, management has concluded that our internal control over financial reporting at December 31, 2008 were effective.

The effectiveness of our internal control over financial reporting as of December 31, 2008 has been audited by GBH CPAs, PC, an independent registered public accounting firm, as stated in their report which is included
herein.



34



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##### Table of Contents

##### Index to Financial Statements

Changes in Internal Control over Financial Reporting

At September 30, 2008, we identified deficiencies in segregation of duties as a weakness in internal controls. During the fourth quarter of 2008 we increased
the involvement of members of management and other personnel in the financial processes in order to provide for the segregation of duties. As a result of such changes, we determined that the previously identified weakness no longer existed at
December 31, 2008.

Except as noted above, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934) occurred during the fourth quarter of fiscal 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



|Item 9B. | Other Information
|-------- | -----------------

Not applicable



35



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##### Table of Contents

##### Index to Financial Statements

PART III



|Item 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------

The information
required by this Item will be included in a definitive proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days after the close of our fiscal year. Such information is incorporated herein by reference.

Executive Officers

Our executive officers as of December 31, 2008,
and their ages and positions as of that date, are as follows:



|                    |  |     |  |                                                
|------------------- |  | --- |  | -----------------------------------------------
|Name                |  | Age |  | Position                                       
|John F. Terwilliger |  | 61  |  | President, Chief Executive Officer and Chairman
|James J. Jacobs     |  | 31  |  | Chief Financial Officer                        

John F. Terwilliger has served as our President, CEO and Chairman since our inception in April 2001.

James J. Jacobs has served as our Chief Financial Officer since July 2006. From April 2003 until joining the Company, Mr. Jacobs served
as an Associate and as Vice PresidentEnergy Investment Banking at Sanders Morris Harris, Inc., an investment banking firm, where he specialized in energy sector financing and transactions. Previously, Mr. Jacobs was an Energy Finance
Analyst at Duke Capital Partners, LLC from June 2001 to April 2003 and a Tax Consultant at Deloitte & Touché, LLP. Mr. Jacobs holds a Masters of Professional Accounting from the University of Texas and is a Certified Public
Accountant.

There are no family relationships among the executive officers and directors. Except as otherwise provided in employment agreements,
each of the executive officers serves at the discretion of the Board.



|Item 11. | Executive Compensation
|-------- | ----------------------

The information required by this Item will be
included in a definitive proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days after the close of our fiscal year. Such information is incorporated herein by reference.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------

The information required by this Item will be included in a definitive proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days after the
close of our fiscal year. Such information is incorporated herein by reference.

Equity compensation plan information is set forth in Part II,
Item 5 of this Form 10-K.



|Item 13. | Certain Relationships and Related Transactions, and Director Independence
|-------- | -------------------------------------------------------------------------

The information required by this Item will be included in a definitive proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days after the close of our fiscal year. Such information is incorporated herein by
reference.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------

The information required by
this Item will be included in a definitive proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days after the close of our fiscal year. Such information is incorporated herein by reference.



36



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##### Index to Financial Statements

PART IV



|Item 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------



| | 1. | Financial statements. See Index to Financial Statements on page 30 of this report.
| | -- | ------------------------------------------------------------------------------------



| | 2. | Exhibits
| | -- | --------



|              |  |                                                                                                                                                                                            |  |                           |  |          |  |        |  |              
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- |  | -------- |  | ------ |  | -------------
|              |  |                                                                                                                                                                                            |  | Incorporated by Reference |  |         
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                        |  | Form                      |  | Date     |  | Number |  | FiledHerewith
|              |  |                                                                                                                                                                                            |  |                          
|3.1           |  | Certificate of Incorporation of Houston American Energy Corp. filed April 2, 2001                                                                                                          |  | SB-2                      |  | 8/3/01   |  | 3.1    |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|3.2           |  | Amended and Restated Bylaws of Houston American Energy Corp. adopted November 26, 2007                                                                                                     |  | 8-K                       |  | 11/29/07 |  | 3.1    |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|3.3           |  | Certificate of Amendment to the Certificate of Incorporation of Houston American Energy Corp. filed September 25, 2001                                                                     |  | SB-2                      |  | 10/01/01 |  | 3.4    |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|4.1           |  | Text of Common Stock Certificate of Houston American Energy Corp.                                                                                                                          |  | SB-2                      |  | 8/3/01   |  | 4.1    |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|10.1          |  | Form of Registration Rights Agreement, dated May 4, 2005                                                                                                                                   |  | 8-K                       |  | 5/10/05  |  | 4.3    |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|10.2          |  | Houston American Energy Corp. 2005 Stock Option Plan*                                                                                                                                      |  | 8-K                       |  | 8/16/05  |  | 10.1   |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|10.3          |  | Form of Director Stock Option Agreement*                                                                                                                                                   |  | 8-K                       |  | 8/16/05  |  | 10.2   |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|10.4          |  | Form of Placement Agent Warrant, dated April 28, 2006                                                                                                                                      |  | 8-K                       |  | 4/28/06  |  | 4.1    |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|10.5          |  | Form of Registration Rights Agreement, dated April 28, 2006                                                                                                                                |  | 8-K                       |  | 4/28/06  |  | 4.2    |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|10.6          |  | Form of Subscription Agreement, dated April 2006 relating to the sale of shares of common stock                                                                                            |  | 8-K                       |  | 4/28/06  |  | 10.1   |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|10.7          |  | Form of Lock-Up Agreement, dated April 2006                                                                                                                                                |  | 8-K                       |  | 4/28/06  |  | 10.2   |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|10.8          |  | Houston American Energy Corp. 2008 Equity Incentive Plan*                                                                                                                                  |  | Sch 14A                   |  | 4/28/08  |  | Ex A   |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|10.9          |  | Form of Restricted Stock Agreement with John Terwilliger and James J. Jacobs*                                                                                                              |  | Sch 14A                   |  | 4/28/08  |  | Ex B   |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|10.10         |  | Letter Agreement, dated February 3, 2009, between Houston American Energy Corp., Yazoo Pipeline Co., L.P., Sterling Exploration & Production Co., L.L.C., and Matagorda Operating
Company. |  | 8-K                       |  | 2/05/09  |  | 10.1   |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|14.1          |  | Code of Ethics for CEO and Senior Financial Officers                                                                                                                                       |  | 10-KSB                    |  | 3/26/04  |  | 14.1   |  |              
|              |  |                                                                                                                                                                                            |  |                           | 
|23.1          |  | Consent of Thomas Leger & Co. L.L.P.                                                                                                                                                       |  |                           |  |          |  |        |  | X            



37



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##### Index to Financial Statements

|              |  |                                  |  |                           |  |        |  |        |  |              
|------------- |  | -------------------------------- |  | ------------------------- |  | ------ |  | ------ |  | -------------
|              |  |                                  |  | Incorporated by Reference |  |       
|ExhibitNumber |  | Exhibit Description              |  | Form                      |  | Date   |  | Number |  | FiledHerewith
|23.2          |  | Consent of Malone & Bailey, P.C. |  |                           |  |        |  |        |  | X            
|              |  |                                  |  |                           | 
|23.3          |  | Consent of GBH CPAs, P.C.        |  |                           |  |        |  |        |  | X            
|              |  |                                  |  |                           | 
|31.1          |  | Section 302 Certification of CEO |  |                           |  |        |  |        |  | X            
|              |  |                                  |  |                           | 
|31.2          |  | Section 302 Certification of CFO |  |                           |  |        |  |        |  | X            
|              |  |                                  |  |                           | 
|32.1          |  | Section 906 Certification of CEO |  |                           |  |        |  |        |  | X            
|              |  |                                  |  |                           | 
|32.2          |  | Section 906 Certification of CFO |  |                           |  |        |  |        |  | X            
|              |  |                                  |  |                           | 
|99.1          |  | Code of Business Ethics          |  | 8-K                       |  | 7/7/06 |  | 99.1   |  |              



|* | Compensatory plan or arrangement.
|- | ---------------------------------



38



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##### Index to Financial Statements

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



|                      |  |                               |  |     |                               |                           
|--------------------- |  | ----------------------------- |  | --- | ----------------------------- | --------------------------
|                      |  | HOUSTON AMERICAN ENERGY CORP.
|Dated: March 16, 2009 |  |                               |  |    
|                      |  |                               | 
|                      |  |                               |  | By: |                               | /s/    JOHN F. TERWILLIGER
|                      |  |                               |  |     | John F. Terwilliger President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                               |  |                                                                                         |  |               
|---------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                                   |  | Date          
|/s/    JOHN F. TERWILLIGER John F. Terwilliger |  | Chairman, Chief Executive Officer, President and Director (Principal Executive Officer) |  | March 16, 2009
|                                               |  |                                                                                        
|/s/    O. LEE TAWES,
III O. Lee Tawes, III     |  | Director                                                                                |  | March 16, 2009
|                                               |  |                                                                                        
|/s/    EDWIN BROUN
III Edwin Broun III         |  | Director                                                                                |  | March 16, 2009
|                                               |  |                                                                                        
|/s/    STEPHEN
HARTZELL Stephen Hartzell       |  | Director                                                                                |  | March 16, 2009
|                                               |  |                                                                                        
|/s/    JOHN P.
BOYLAN John P. Boylan           |  | Director                                                                                |  | March 16, 2009
|                                               |  |                                                                                        
|/s/    JAMES J.
JACOBS James J. Jacobs         |  | Chief Financial Officer (Principal Accounting and Financial Officer)                    |  | March 16, 2009



39



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##### Index to Financial Statements

HOUSTON AMERICAN ENERGY CORP.

INDEX TO FINANCIAL STATEMENTS



|                                                                                           |  |    
|------------------------------------------------------------------------------------------ |  | ---
|Report of Independent Registered Public Accounting Firm                                    |  | F-1
|                                                                                           | 
|Report of Independent Registered Public Accounting Firm                                    |  | F-2
|                                                                                           | 
|Report of Independent Registered Public Accounting Firm                                    |  | F-3
|                                                                                           | 
|Report of Independent Registered Public Accounting Firm                                    |  | F-4
|                                                                                           | 
|Consolidated Balance Sheets as of December 31, 2008 and December 31, 2007                  |  | F-5
|                                                                                           | 
|Consolidated Statements of Operations for the Years ended December 31, 2008, 2007 and 2006 |  | F-6
|                                                                                           | 
|Statement of Shareholders Equity for the Years ended December 31, 2008, 2007 and 2006     |  | F-7
|                                                                                           | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006 |  | F-8
|                                                                                           | 
|Notes to Consolidated Financial Statements                                                 |  | F-9



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##### Table of Contents

##### Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Houston American Energy Corp.

Houston, Texas

We have audited Houston American Energy Corp.s (the
Company) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in
Managements Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the effectiveness of the Companys internal control over financial reporting based upon our
audit.

We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
companys internal control over financial reporting is a process designed by, or under the supervision of, the Companys principal executive and principal financial officers, or persons performing similar functions, and effected by the
Companys board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles, and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Companys
assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, Houston American Corp. maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based upon the COSO criteria.

We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Houston American Energy Corp. as of December 31, 2008, and the related consolidated statements of operations, shareholders equity, and cash flows
for the year then ended, and our report dated March 16, 2009 expressed an unqualified opinion thereon.

GBH CPAs, PC

www.gbhcpas.com

Houston, Texas

March 16, 2009



F-1



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##### Table of Contents

##### Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Houston American Energy Corp.

Houston, Texas

We have audited the accompanying consolidated balance sheet of
Houston American Energy Corp. (the Company) as of December 31, 2008 and the related consolidated statements of operations, shareholders equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of Houston American Energy Corp. as of December 31, 2008, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Houston American
Energy Corp.s internal control over financial reporting as of December 31, 2008 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 16, 2009 expressed an unqualified opinion thereon.

GBH CPAs, PC

www.gbhcpas.com

Houston, Texas

March 16, 2009



F-2



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##### Table of Contents

##### Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Houston American Energy Corp.

Houston, Texas

We have audited the accompanying balance sheet of Houston
American Energy Corp. as of December 31, 2007 and the related statements of operations, shareholders equity, and cash flows for the year ended December 31, 2007. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for purposes of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Houston American Energy Corp. as of December 31, 2007, and the results of its operations and its cash flows for the year ended December 31, 2007, in conformity with
accounting principles generally accepted in the United States of America.

/s/ Malone & Bailey, PC

www.malone-bailey.com

Houston, Texas

March 27, 2008, except for Note 4, to which the date is March 16, 2009



F-3



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##### Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Houston American Energy Corp.

Houston, Texas

We have audited the statements of operations, shareholders
equity, and cash flows of Houston American Energy Corp. for the year ended December 31, 2006. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the over-all financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.

In our opinion, the statements of operations, shareholders equity, and cash flows
referred to above present fairly, in all material respects, the results of the operations of Houston American Energy Corp. for the year ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of
America.

/s/ Ham, Langston & Brezina, L.L.P.

(Formerly Thomas
Leger & Co., L.L.P.)

March 26, 2007

Houston, Texas



F-4



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##### Table of Contents

##### Index to Financial Statements

HOUSTON AMERICAN ENERGY CORP.

CONSOLIDATED BALANCE SHEETS



|                                                                                       |  |              |             |   |      |   |            |  
|-------------------------------------------------------------------------------------- |  | ------------ | ----------- | - | ---- | - | ---------- | -
|                                                                                       |  | December 31, |            
|                                                                                       |  | 2008         |             |   | 2007 |  
|ASSETS                                                                                 |  |              |             |   |      |   |            |  
|CURRENT ASSETS                                                                         |  |              |             |   |      |   |            |  
|Cash                                                                                   |  | $            | 9,910,694   |   |      | $ | 417,818    |  
|Marketable securities                                                                  |  |              |            |   |      |   | 9,650,000  |  
|Accounts receivableOil and gas sales                                                  |  |              | 315,631     |   |      |   | 577,512    |  
|Escrow receivable                                                                      |  |              | 1,673,551   |   |      |   |           |  
|Prepaid expenses and other current assets                                              |  |              | 20,240      |   |      |   | 49,255     |  
|                                                                                       |  |              |             |   |      |   |            |  
|TOTAL CURRENT ASSETS                                                                   |  |              | 11,920,116  |   |      |   | 10,694,585 |  
|                                                                                       |  |              |             |   |      |   |            |  
|PROPERTY, PLANT AND EQUIPMENT                                                          |  |              |             |   |      |   |            |  
|Oil and gas properties, full cost method                                               |  |              |             |   |      |   |            |  
|Costs subject to amortization                                                          |  |              | 17,550,268  |   |      |   | 12,714,669 |  
|Costs not being amortized                                                              |  |              | 2,064,566   |   |      |   | 998,806    |  
|Office equipment                                                                       |  |              | 11,878      |   |      |   | 11,878     |  
|                                                                                       |  |              |             |   |      |   |            |  
|Total                                                                                  |  |              | 19,626,712  |   |      |   | 13,725,353 |  
|                                                                                       |  |             
|Accumulated depletion, depreciation, amortization, and impairment                      |  |              | (14,363,581 | ) |      |   | (3,708,308 | )
|                                                                                       |  |              |             |   |      |   |            |  
|PROPERTY, PLANT AND EQUIPMENT, NET                                                     |  |              | 5,263,131   |   |      |   | 10,017,045 |  
|                                                                                       |  |              |             |   |      |   |            |  
|Deferred Tax Asset                                                                     |  |              | 5,277,354   |   |      |   |           |  
|Other assets                                                                           |  |              | 176,453     |   |      |   | 3,167      |  
|                                                                                       |  |              |             |   |      |   |            |  
|TOTAL ASSETS                                                                           |  | $            | 22,637,054  |   |      | $ | 20,714,797 |  
|                                                                                       |  |              |             |   |      |   |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                   |  |              |             |   |      |   |            |  
|CURRENT LIABILITIES                                                                    |  |              |             |   |      |   |            |  
|Accounts payable                                                                       |  | $            | 1,363,827   |   |      | $ | 260,222    |  
|Accrued expenses                                                                       |  |              | 9,264       |   |      |   | 1,720      |  
|Foreign income taxes payable                                                           |  |              | 10,191      |   |      |   | 74,141     |  
|                                                                                       |  |              |             |   |      |   |            |  
|TOTAL CURRENT LIABILITIES                                                              |  |              | 1,383,282   |   |      |   | 336,083    |  
|                                                                                       |  |              |             |   |      |   |            |  
|LONG-TERM DEBT                                                                         |  |              |             |   |      |   |            |  
|Reserve for plugging and abandonment costs                                             |  |              | 185,910     |   |      |   | 115,061    |  
|Deferred rent obligation                                                               |  |              | 19,614      |   |      |   | 20,206     |  
|                                                                                       |  |              |             |   |      |   |            |  
|TOTAL LONG-TERM DEBT                                                                   |  |              | 205,524     |   |      |   | 135,267    |  
|                                                                                       |  |              |             |   |      |   |            |  
|SHAREHOLDERS EQUITY                                                                   |  |              |             |   |      |   |            |  
|Common stock, par value $.001;                                                         |  |              |             |   |      |   |            |  
|100,000,000 shares authorized, 28,000,772 and 27,920,172 shares issued and outstanding |  |              | 28,001      |   |      |   | 27,920     |  
|Additional paid-in capital                                                             |  |              | 22,631,773  |   |      |   | 22,377,832 |  
|Treasury stock, at cost; 100,000 shares                                                |  |              |            |   |      |   | (85,834    | )
|Accumulated deficit                                                                    |  |              | (1,611,526  | ) |      |   | (2,076,471 | )
|                                                                                       |  |              |             |   |      |   |            |  
|TOTAL SHAREHOLDERS EQUITY                                                             |  |              | 21,048,248  |   |      |   | 20,243,447 |  
|                                                                                       |  |              |             |   |      |   |            |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                             |  | $            | 22,637,054  |   |      | $ | 20,714,797 |  
|                                                                                       |  |              |             |   |      |   |            |  

The accompanying notes are an integral part of these financial statements



F-5



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##### Table of Contents

##### Index to Financial Statements

HOUSTON AMERICAN ENERGY CORP.

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEARS ENDED
DECEMBER 31, 2008, 2007 AND 2006



|                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                       |  | 2008 |            |   | 2007 |   |            | 2006 | 
|Oil and gas revenue                                    |  | $    | 10,622,050 |   |      | $ | 4,977,172  |      |  | $ | 3,202,731  |  
|                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|EXPENSES OF OPERATIONS                                 |  |      |            |   |      |   |            |      |  |   |            |  
|Lease operating expense and severance tax              |  |      | 3,366,740  |   |      |   | 1,841,119  |      |  |   | 1,017,440  |  
|Joint venture expense                                  |  |      | 183,510    |   |      |   | 149,200    |      |  |   | 167,023    |  
|Depreciation and depletion                             |  |      | 5,816,691  |   |      |   | 1,099,826  |      |  |   | 887,911    |  
|Impairment of oil and gas properties                   |  |      | 5,621,106  |   |      |   | 348,019    |      |  |   |           |  
|Gain on sale of oil and gas properties                 |  |      | (7,615,236 | ) |      |   |           |      |  |   |           |  
|General and administrative expense                     |  |      | 3,152,930  |   |      |   | 1,568,228  |      |  |   | 1,231,079  |  
|                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Total expenses                                         |  |      | 10,525,741 |   |      |   | 5,006,392  |      |  |   | 3,303,453  |  
|                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Income (Loss) from operations                          |  |      | 96,309     |   |      |   | (29,220    | )    |  |   | (100,722   | )
|                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|OTHER (INCOME) EXPENSE                                 |  |      |            |   |      |   |            |      |  |   |            |  
|Interest income                                        |  |      | (295,375   | ) |      |   | (649,792   | )    |  |   | (496,490   | )
|Interest expense-derivative                            |  |      |           |   |      |   |           |      |  |   | 37,773     |  
|Loss on change in fair value of derivative liabilities |  |      |           |   |      |   |           |      |  |   | 170,949    |  
|Interest expense                                       |  |      |           |   |      |   |           |      |  |   | 57,278     |  
|Interest expenserelated party                         |  |      |           |   |      |   |           |      |  |   | 20,440     |  
|Financing costs                                        |  |      |           |   |      |   |           |      |  |   | 110,787    |  
|                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Total other income                                     |  |      | (295,375   | ) |      |   | (649,792   | )    |  |   | (99,263    | )
|                                                       |  |      |           
|Net Income (loss) before taxes                         |  |      | 391,684    |   |      |   | 620,572    |      |  |   | (1,459     | )
|                                                       |  |      |           
|Income tax expense (benefit)                           |  |      | (73,261    | ) |      |   | 127,116    |      |  |   | 510,637    |  
|                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Net income (loss)                                      |  | $    | 464,945    |   |      | $ | 493,456    |      |  | $ | (512,096   | )
|                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Basic net income (loss) per share                      |  | $    | 0.02       |   |      | $ | 0.02       |      |  | $ | (0.02      | )
|                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Diluted net income (loss) per share                    |  | $    | 0.02       |   |      | $ | 0.02       |      |  | $ | (0.02      | )
|                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Basic weighted average shares                          |  |      | 27,992,808 |   |      |   | 27,920,172 |      |  |   | 25,087,847 |  
|                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Diluted weighted average shares                        |  |      | 28,038,847 |   |      |   | 28,132,375 |      |  |   | 25,087,847 |  
|                                                       |  |      |            |   |      |   |            |      |  |   |            |  

The accompanying notes are an integral part of these financial statements



F-6



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##### Table of Contents

##### Index to Financial Statements

HOUSTON AMERICAN ENERGY CORP.

STATEMENT OF SHAREHOLDERS EQUITY

For the Years
Ended December 31, 2008, 2007 and 2006



|                                                                            |  |              |   |  |                |        |   |                   |   |            |        |  |          |        |  |   |           |   |  |   |            |   |  |   |            |  
|--------------------------------------------------------------------------- |  | ------------ | - |  | -------------- | ------ | - | ----------------- | - | ---------- | ------ |  | -------- | ------ |  | - | --------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                            |  | Common Stock |   |  | Treasury Stock |        |   | AccumulatedEquity |   |            | Total  | 
|                                                                            |  | Shares       |   |  | Amount         |        |   | Paid-inCapital    |   |            | Shares |  |          | Amount |  |   | (Deficit) |   | 
|Balance at December 31, 2005                                                |  | 19,970,589   |   |  | $              | 19,971 |   |                   | $ | 2,851,921  |        |  | (100,000 | )      |  | $ | (85,834   | ) |  | $ | (2,057,831 | ) |  | $ | 728,227    |  
|                                                                            |  |              |   |  |                |        |  
|Stock issued for -                                                          |  |              |   |  |                |        |   |                   |   |            |        |  |          |        |  |   |           |   |  |   |            |   |  |   |            |  
|Cash                                                                        |  | 5,533,333    |   |  |                | 5,533  |   |                   |   | 15,356,050 |        |  |         |        |  |   |          |   |  |   |           |   |  |   | 15,361,583 |  
|Convertible notes                                                           |  | 2,125,000    |   |  |                | 2,125  |   |                   |   | 2,122,875  |        |  |         |        |  |   |          |   |  |   |           |   |  |   | 2,125,000  |  
|Warrant exercise                                                            |  | 291,250      |   |  |                | 291    |   |                   |   | 490,959    |        |  |         |        |  |   |          |   |  |   |           |   |  |   | 491,250    |  
|Options issued to director                                                  |  |             |   |  |                |       |   |                   |   | 70,200     |        |  |         |        |  |   |          |   |  |   |           |   |  |   | 70,200     |  
|Options issued to employee                                                  |  |             |   |  |                |       |   |                   |   | 219,555    |        |  |         |        |  |   |          |   |  |   |           |   |  |   | 219,555    |  
|Reclassification of derivative liabilities and discount on convertible note |  |             |   |  |                |       |   |                   |   | 931,064    |        |  |         |        |  |   |          |   |  |   |           |   |  |   | 931,064    |  
|                                                                            |  |              |   |  |                |        |  
|Net Loss                                                                    |  |             |   |  |                |       |   |                   |   |           |        |  |         |        |  |   |          |   |  |   | (512,096   | ) |  |   | (512,096   | )
|                                                                            |  |              |   |  |                |        |   |                   |   |            |        |  |          |        |  |   |           |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2006                                                |  | 27,920,172   |   |  |                | 27,920 |   |                   |   | 22,042,624 |        |  | (100,000 | )      |  |   | (85,834   | ) |  |   | (2,569,927 | ) |  |   | 19,414,783 |  
|                                                                            |  |              |   |  |                |        |   |                   |   |            |        |  |          |        |  |   |           |   |  |   |            |   |  |   |            |  
|Stock issued for -                                                          |  |              |   |  |                |        |   |                   |   |            |        |  |          |        |  |   |           |   |  |   |            |   |  |   |            |  
|Options issued to director                                                  |  |             |   |  |                |       |   |                   |   | 143,100    |        |  |         |        |  |   |          |   |  |   |           |   |  |   | 143,100    |  
|Options issued to employee                                                  |  |             |   |  |                |       |   |                   |   | 192,108    |        |  |         |        |  |   |          |   |  |   |           |   |  |   | 192,108    |  
|                                                                            |  |              |   |  |                |        |  
|Net Income                                                                  |  |             |   |  |                |       |   |                   |   |           |        |  |         |        |  |   |          |   |  |   | 493,456    |   |  |   | 493,456    |  
|                                                                            |  |              |   |  |                |        |   |                   |   |            |        |  |          |        |  |   |           |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2007                                                |  | 27,920,172   |   |  |                | 27,920 |   |                   |   | 22,377,832 |        |  | (100,000 | )      |  |   | (85,834   | ) |  |   | (2,076,471 | ) |  |   | 20,243,447 |  
|                                                                            |  |              |   |  |                |        |   |                   |   |            |        |  |          |        |  |   |           |   |  |   |            |   |  |   |            |  
|Retired treasury stock                                                      |  | (100,000     | ) |  |                | (100   | ) |                   |   | (85,734    | )      |  | 100,000  |        |  |   | 85,834    |   |  |   |           |   |  |   |           |  
|                                                                            |  |              |   |  |                |        |  
|Stock issued for -                                                          |  |              |   |  |                |        |   |                   |   |            |        |  |          |        |  |   |           |   |  |   |            |   |  |   |            |  
|Employees                                                                   |  | 55,600       |   |  |                | 56     |   |                   |   | 400,264    |        |  |         |        |  |   |          |   |  |   |           |   |  |   | 400,320    |  
|Warrant Exercise                                                            |  | 125,000      |   |  |                | 125    |   |                   |   | 374,875    |        |  |         |        |  |   |          |   |  |   |           |   |  |   | 375,000    |  
|Options issued to director                                                  |  |             |   |  |                |       |   |                   |   | 15,113     |        |  |         |        |  |   |          |   |  |   |           |   |  |   | 15,113     |  
|Options issued to employee                                                  |  |             |   |  |                |       |   |                   |   | 671,454    |        |  |         |        |  |   |          |   |  |   |           |   |  |   | 671,454    |  
|Dividends paid                                                              |  |             |   |  |                |       |   |                   |   | (1,122,031 | )      |  |         |        |  |   |          |   |  |   |           |   |  |   | (1,122,031 | )
|                                                                            |  |              |   |  |                |        |  
|Net Income                                                                  |  |             |   |  |                |       |   |                   |   |           |        |  |         |        |  |   |          |   |  |   | 464,945    |   |  |   | 464,945    |  
|                                                                            |  |              |   |  |                |        |   |                   |   |            |        |  |          |        |  |   |           |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2008                                                |  | 28,000,772   |   |  |                | 28,001 |   |                   |   | 22,631,773 |        |  |         |        |  |   |          |   |  |   | (1,611,526 | ) |  |   | 21,048,248 |  
|                                                                            |  |              |   |  |                |        |   |                   |   |            |        |  |          |        |  |   |           |   |  |   |            |   |  |   |            |  

The accompanying notes are an integral part of these financial statements



F-7



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##### Table of Contents

##### Index to Financial Statements

HOUSTON AMERICAN ENERGY CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED
DECEMBER 31, 2008, 2007 AND 2006



|                                                                              |  |      |             |   |      |   |            |      |  |   |             |  
|----------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                                                              |  | 2008 |             |   | 2007 |   |            | 2006 | 
|CASH FLOW FROM OPERATING ACTIVITIES                                           |  |      |             |   |      |   |            |      |  |   |             |  
|Net income (loss)                                                             |  | $    | 464,945     |   |      | $ | 493,456    |      |  | $ | (512,096    | )
|                                                                              |  |      |            
|Adjustments to reconcile net income (loss) to net cash provided by operations |  |      |             |   |      |   |            |      |  |   |             |  
|Depreciation and depletion                                                    |  |      | 5,816,691   |   |      |   | 1,099,826  |      |  |   | 887,911     |  
|Stock based compensation                                                      |  |      | 1,086,887   |   |      |   | 335,208    |      |  |   | 289,755     |  
|Impairment of oil and gas properties                                          |  |      | 5,621,106   |   |      |   | 348,019    |      |  |   |            |  
|Amortization of debt discount and deferred financing costs                    |  |      |            |   |      |   |           |      |  |   | 148,557     |  
|Change in fair value of derivatives                                           |  |      |            |   |      |   |           |      |  |   | 170,949     |  
|Deferred Tax Asset                                                            |  |      | (5,277,354  | ) |      |   |            |      |  |   |             |  
|Accretion of asset retirement obligation                                      |  |      | 17,501      |   |      |   | 2,299      |      |  |   |            |  
|Amortization of deferred rent                                                 |  |      | (592        | ) |      |   | 20,206     |      |  |   |            |  
|Gain on sale of oil and gas properties                                        |  |      | (7,615,236  | ) |      |   |           |      |  |   |            |  
|Decrease (increase) in accounts receivable                                    |  |      | 278,716     |   |      |   | (281,401   | )    |  |   | 247,786     |  
|Decrease in prepaid expense                                                   |  |      | 12,191      |   |      |   | (19,931    | )    |  |   | 9,965       |  
|(Decrease) increase in accounts payable and accrued liability                 |  |      | 1,047,199   |   |      |   | (196,201   | )    |  |   | (3,381      | )
|                                                                              |  |      |             |   |      |   |            |      |  |   |             |  
|Net cash provided by operations                                               |  |      | 1,452,054   |   |      |   | 1,801,481  |      |  |   | 1,239,446   |  
|                                                                              |  |      |             |   |      |   |            |      |  |   |             |  
|CASH FLOW FROM INVESTING ACTIVITIES                                           |  |      |             |   |      |   |            |      |  |   |             |  
|Purchases of marketable securities                                            |  |      | (3,000,000  | ) |      |   | (3,150,000 | )    |  |   | (17,000,000 | )
|Sales of marketable securities                                                |  |      | 12,650,000  |   |      |   | 7,500,000  |      |  |   | 3,000,000   |  
|Acquisition of oil and gas properties and assets                              |  |      | (10,841,353 | ) |      |   | (6,142,671 | )    |  |   | (3,507,371  | )
|Proceeds from sale of Colombian properties, net of expenses                   |  |      | 9,878,797   |   |      |   |           |      |  |   |            |  
|Proceeds from sale of USA properties, net of expenses                         |  |      | 273,696     |   |      |   |           |      |  |   |            |  
|Increase in other assets                                                      |  |      | (173,287    | ) |      |   |           |      |  |   |            |  
|                                                                              |  |      |             |   |      |   |            |      |  |   |             |  
|Net cash provided by (used in) investing activities                           |  |      | 8,787,853   |   |      |   | (1,792,671 | )    |  |   | (17,507,371 | )
|                                                                              |  |      |             |   |      |   |            |      |  |   |             |  
|CASH FLOW FROM FINANCING ACTIVITIES                                           |  |      |             |   |      |   |            |      |  |   |             |  
|Sale of common stocknet of costs                                             |  |      |            |   |      |   |           |      |  |   | 15,361,583  |  
|Exercise of warrants                                                          |  |      | 375,000     |   |      |   |           |      |  |   | 491,250     |  
|Repayment of debtrelated party                                               |  |      |            |   |      |   |           |      |  |   | (900,000    | )
|Dividends Paid                                                                |  |      | (1,122,031  | ) |      |   |           |      |  |   |            |  
|                                                                              |  |      |             |   |      |   |            |      |  |   |             |  
|Net cash provided by (used in) financing activities                           |  |      | (747,031    | ) |      |   |           |      |  |   | 14,952,833  |  
|                                                                              |  |      |             |   |      |   |            |      |  |   |             |  
|INCREASE (DECREASE) IN CASH                                                   |  |      | 9,492,876   |   |      |   | 8,810      |      |  |   | (1,315,092  | )
|Cash, beginning of year                                                       |  |      | 417,818     |   |      |   | 409,008    |      |  |   | 1,724,100   |  
|                                                                              |  |      |             |   |      |   |            |      |  |   |             |  
|Cash, end of year                                                             |  | $    | 9,910,694   |   |      | $ | 417,818    |      |  | $ | 409,008     |  
|                                                                              |  |      |             |   |      |   |            |      |  |   |             |  
|SUPPLEMENTAL CASH FLOW INFORMATION:                                           |  |      |             |   |      |   |            |      |  |   |             |  
|Interest paid                                                                 |  | $    |            |   |      | $ |           |      |  | $ | 77,718      |  
|Taxes paid                                                                    |  | $    | 5,200,306   |   |      | $ | 849,586    |      |  | $ | 261,891     |  
|                                                                              |  |      |            
|SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES          |  |      |             |   |      |   |            |      |  |   |             |  
|Conversion of convertible notes to common stock                               |  |      |            |   |      |   |           |      |  | $ | 2,445,345   |  
|Exercise of warrants                                                          |  |      |            |   |      |   |           |      |  | $ | 610,719     |  
|Asset retirement obligation revision                                          |  |      | 99,981      |   |      |   | 39,221     |      |  |   |            |  
|Retired treasury stock                                                        |  |      | 85,834      |   |      |   |           |      |  |   |            |  
|Cash proceeds from sale of oil and gas properties escrowed                    |  |      | 1,673,551   |   |      |   |           |      |  |   |            |  

The accompanying notes are an integral part of these financial statements



F-8



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##### Table of Contents

##### Index to Financial Statements

NOTE 1NATURE OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Houston American Energy Corp. (a Delaware Corporation)
(the Company or HUSA) was incorporated on April 2, 2001. The Company is engaged, as a non-operating joint owner, in the exploration, development, and production of natural gas, crude oil, and condensate from properties
located principally in the Gulf Coast area of the United States and international locations with proven production, which to date has focused on Colombia, South America.

Consolidation

The accompanying consolidated financial statements include all accounts of HUSA and its subsidiaries. All
significant inter-company balances and transactions have been eliminated in consolidation.

General Principles and Use of Estimates

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing financial
statements, Management makes informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period.
On an ongoing basis, Management reviews its estimates, including those related to such potential matters as litigation, environmental liabilities, income taxes, determination of proved reserves of oil and gas and asset retirement obligations.
Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.

Reclassification

Certain amounts for prior periods have been reclassified to conform to the current presentation.

Oil and Gas Revenues

The Company recognizes sales revenues, net of royalties and net profits interests, based on
the amount of gas, oil and condensate sold to purchasers when delivery to the purchaser has occurred and title has transferred. This occurs when production has been delivered to a pipeline. The Company follows the sales method to account for natural
gas imbalances. Sales may result in more or less than the Companys share of pro-rata production from certain wells. When natural gas sales volumes exceed the Companys entitled share and the accumulated overproduced balance exceeds the
Companys share of the remaining estimated proved natural gas reserves for a given property, the Company will record a liability. Historically, sales volumes have not materially differed from the Companys entitled share of natural
gas production and the Company did not have a material imbalance position in terms of volumes or values at December 31, 2008 or 2007.

Oil and Gas
Properties

The Company uses the full cost method of accounting for exploration and development activities as defined by the SEC. Under this
method of accounting, the costs for unsuccessful, as well as successful, exploration and development activities are capitalized as oil and gas properties. Capitalized costs include lease acquisition, geological and geophysical work, delay rentals,
costs of drilling, completing and equipping the wells and any internal costs that are directly related to acquisition, exploration and development activities but does not include any costs related to production, general corporate overhead or similar
activities. Gain or loss on the sale or other disposition of oil and gas properties is not recognized, unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves of oil and natural gas
attributable to a country.



F-9



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##### Table of Contents

##### Index to Financial Statements

The Company categorizes its full costs pools as costs subject to amortization and costs not being amortized. The
sum of net capitalized costs subject to amortization, including estimated future development and abandonment costs, are amortized using the unit-of-production method.

Depletion and amortization for oil and gas properties was $5,816,691, $1,099,826 and $887,911 at December 31, 2008, 2007 and 2006, respectively and accumulated amortization, depreciation and impairment was $14,363,581 at
December 31, 2008.

Costs Excluded

Oil and gas
properties include costs that are excluded from capitalized costs being amortized. These amounts represent costs of investments in unproved properties. The Company excludes these costs on a country-by-country basis until proved reserves are found or
until it is determined that the costs are impaired. All costs excluded are reviewed quarterly to determine if impairment has occurred. The amount of any impairment is transferred to the costs subject to amortization.

Ceiling Test

Under the full cost method of accounting, a ceiling
test is performed each quarter. The full cost ceiling test is an impairment test prescribed by SEC Regulation S-X. The ceiling test determines a limit, on a country-by-country basis, on the book value of oil and gas properties. The capitalized costs
of proved oil and gas properties, net of accumulated depreciation, depletion, amortization and impairment (DD&A) and the related deferred income taxes, may not exceed the estimated future net cash flows from proved oil and gas
reserves, using prices in effect at the end of the period with consideration of price change only to the extent provided by contractual arrangement, discounted at 10%, net of related tax effects. If capitalized costs exceed this limit, the excess is
charged to expense and reflected as additional accumulated DD&A.

Unevaluated oil and gas properties not subject to amortization at
December 31, 2008 include the following:



|                                                        |  |              |  |              |  |          
|------------------------------------------------------- |  | ------------ |  | ------------ |  | ---------
|                                                        |  | NorthAmerica |  | SouthAmerica |  | Total    
|Leasehold acquisition costs                             |  | 221,253      |  |             |  | 221,253  
|Geological, geophysical, screening and evaluation costs |  | 1,379,692    |  | 435,431      |  | 1,815,123
|Leasehold retention costs                               |  | 28,191       |  |             |  | 28,191   
|                                                        |  |              |  |              |  |          
|Total                                                   |  | 1,629,136    |  | 435,431      |  | 2,064,567
|                                                        |  |              |  |              |  |          

Furniture and Equipment

Office equipment is stated at original cost and is depreciated on the straight-line basis over the useful life of the assets, which ranges from three to five years.

Depreciation expense for office equipment was $0, $1,944 and $2,300 at December 31, 2008, 2007 and 2006, respectively and accumulated depreciation was $11,878
at December 31, 2008.

Asset Retirement Obligations

The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, which addresses accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset



F-10



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##### Table of Contents

##### Index to Financial Statements

retirement costs. For the Company, asset retirement obligations (ARO) represent the systematic, monthly accretion and depreciation of future abandonment
costs of tangible assets such as platforms, wells, service assets, pipelines, and other facilities. SFAS 143 requires that the fair value of a liability for an assets retirement obligation be recorded in the period in which it is incurred if a
reasonable estimate of fair value can be made, and that the corresponding cost is capitalized as part of the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost
is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, an adjustment is made to the full cost pool, with no gain or loss recognized, unless the adjustment would
significantly alter the relationship between capitalized costs and proved reserves. Although the Companys domestic policy with respect to ARO is to assign depleted wells to a salvager for the assumption of abandonment obligations before the
wells have reached their economic limits, as required under SFAS No. 143, the Company has estimated its future ARO obligation with respect to its domestic operations. With the adoption of SFAS 143, the ARO assets, which are carried on the
balance sheet as part of the full cost pool, have been included in our amortization base for the purposes of calculating depreciation, depletion and amortization expense. For the purposes of calculating the ceiling test, the future cash outflows
associated with settling the ARO liability have been included in the computation of the discounted present value of estimated future net revenues.

The following table describes changes in our asset retirement liability during each of the years ended December 31, 2008 and 2007. The ARO liability in the table below includes amounts classified as both current and long-term at
December 31, 2008 and 2007.



|                                   |  |                                     |         |                                     |      |   |        |  |   |         |   |  |   |        |  
|---------------------------------- |  | ----------------------------------- | ------- | ----------------------------------- | ---- | - | ------ |  | - | ------- | - |  | - | ------ | -
|                                   |  | North AmericaYears EndedDecember 31 |         | South AmericaYears EndedDecember 31 |     
|                                   |  | 2008                                |         |                                     | 2007 |   | 2008   |  |   | 2007    |  
|ARO liability at January 1         |  | $                                   | 24,038  |                                     |      | $ |       |  | $ | 91,023  |   |  | $ | 38,816 |  
|Accretion expense                  |  |                                     | 1,659   |                                     |      |   |       |  |   | 15,842  |   |  |   | 2,299  |  
|Liabilities incurred from drilling |  |                                     |        |                                     |      |   | 7,360  |  |   | 152,326 |   |  |   | 32,006 |  
|Liabilities settledassets sold    |  |                                     |        |                                     |      |   |       |  |   | (46,633 | ) |  |   | (4,641 | )
|Changes in estimates               |  |                                     | (16,218 | )                                   |      |   | 16,678 |  |   | (36,127 | ) |  |   | 22,543 |  
|                                   |  |                                     |         |                                     |      |   |        |  |   |         |   |  |   |        |  
|ARO liability at December 31,      |  | $                                   | 9,479   |                                     |      | $ | 24,038 |  | $ | 176,431 |   |  | $ | 91,023 |  
|                                   |  |                                     |         |                                     |      |   |        |  |   |         |   |  |   |        |  

Joint Venture Expense

Joint venture expense reflects the indirect field operating and regional administrative expenses billed by the operator of the Colombian concessions.

Income Taxes

Deferred income taxes are provided on a liability method whereby deferred tax assets and liabilities are
established for the difference between the financial reporting and income tax basis of assets and liabilities as well as operating loss and tax credit carry forwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. At
December 31, 2008, the Company recognized a deferred tax asset of $5,277,354.



F-11



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##### Table of Contents

##### Index to Financial Statements

Preferred Stock

The Company has authorized 10,000,000 shares of preferred stock with a par value of $.001. The Board of Directors shall determine the designations, rights, preferences, privileges and voting rights of the preferred stock as well as any
restrictions and qualifications thereon. No shares of preferred stock have been issued.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposits and cash investments with initial maturity dates of less than three months.

Marketable Securities

Holdings of marketable securities qualify
as available-for-sale or trading securities and are recorded at fair value. The Companys marketable securities consist of asset-backed securities and municipal bonds with original maturities beyond 90 days. As the Company views all securities
as representing the investment of funds available for current operations, the short-term investments are classified as current assets. The Companys policy is to protect the value of its investment portfolio and minimize principal risk by
earning returns based on current interest rates. All of the Companys marketable securities are classified as available-for-sale securities in accordance with the provisions of SFAS No. 115, Accounting For Certain Investments in Debt
and Equity Securities and are carried at fair market value with unrealized gains and losses, net of taxes, reported as a separate component of stockholders equity. Realized gains and losses and declines in value of securities judged to
be other then temporary are included in interest income, net, based on the specific identification method.

At December 31, 2007, the
Companys available for sale securities of $9,650,000 consisted of (1) $900,000 in AAA rated asset-backed auction rate notes maturing December 2032, and (2) $8,750,000 in AAA rated municipal bonds maturing December 2032. Each of these
investments paid interest monthly and had regular roll-over or auction dates at which time the interest rates were reset or the securities were redeemed for cash. There were no unrealized gains or losses associated with these marketable securities
at December 31, 2007.

During the year ending December 31, 2008, the Company sold all of its marketable securities.

Net Income (Loss) Per Share

Pursuant to SFAS No. 128,
Earnings Per Share, basic net income per share is computed by dividing the net income attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is
computed by dividing the net income attributable to common shareholders by the weighted-average number of common and common equivalent shares outstanding during the period. Common share equivalents included in the diluted computation represent
shares issuable upon assumed exercise of stock options, warrants, and convertible notes using the treasury stock and if converted method. For periods in which net losses are incurred, weighted average shares outstanding is the same for
basic and diluted loss per share calculations, as the inclusion of common share equivalents would have an anti-dilutive effect.

For the year ended
December 31, 2008, 1,392,333 options and 190,000 warrants to purchase common stock resulted in weighted average diluted shares outstanding of 28,038,847 based upon the treasury method, which resulted in $0.02 diluted earnings per share. For the
year ended December 31, 2007, 339,000 options and 315,000 warrants to purchase common stock resulted in weighted average diluted shares outstanding of 28,132,375 based upon the treasury stock method, which resulted in



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##### Index to Financial Statements

$0.02 diluted earnings per share. For the year ended December 31, 2006, 309,000 options and 315,000 warrants to purchase common stock were excluded from the
calculation of diluted net loss per share because they were anti-dilutive.

Concentration of Risk

The Company is dependent upon the industry skills and contacts of John F. Terwilliger, the chief executive officer, to identify potential acquisition targets in the
onshore coastal Gulf of Mexico region of Texas and Louisiana. Further, as a non-operator oil and gas exploration and production company and through its interest in a limited liability company (Hupecol) and its concessions in the South
American country of Colombia, the Company is dependent on the personnel, management and resources of Hupecol to operate efficiently and effectively.

As a non-operating joint interest owner, the Company has a right of investment refusal on specific projects and the right to examine and contest its division of costs and revenues determined by the operator.

The Company currently has interests in concessions in Colombia and expects to be active in Colombia for the foreseeable future. The political climate in Colombia
is unstable and could be subject to radical change over a very short period of time. In the event of a significant negative change in political and economic stability in the vicinity of the Companys Colombian operations, the Company may be
forced to abandon or suspend their efforts. Either of such events could be harmful to the Companys expected business prospects.

At
December 31, 2008, 74.13% of the Companys net oil and gas property investment and 96.1% of its revenue was with or derived from Hupecol.

The majority of the oil production for 2008 from the Companys mineral interests was sold to an international integrated oil company (99.8%). The gas production is sold to U.S. natural gas marketing companies based on the highest bid.
There were no other product sales of more than 10% to a single buyer.

The Company reviews accounts receivable balances when circumstances indicate a
balance may not be collectible. Historically, the Company has not experienced any uncollectible accounts receivable. Based upon the Companys review, no allowance for uncollectible accounts was deemed necessary at December 31, 2008 and
2007, respectively.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk include cash, cash equivalent and marketable securities. The Company had cash deposits of approximately $9,660,694 in excess of FDIC insured limits
at the period end. The Company has not experienced any losses on its deposits of cash and cash equivalents, or its short-term investments.

Subordinated
Convertible Notes and Warrants- Derivative Financial Instruments

The convertible subordinated notes (the Convertible Notes) and
warrants (the Warrants) issued in May 2005 were accounted for in accordance with Emerging Issues Task Force (EITF) No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock, EITF 05-02 Meaning of Conventional Convertible Debt Instrument in Issue No. 00-19, and EIFT 05-04 The Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject
to Issue No. 00-19.



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##### Index to Financial Statements

The Company identified the conversion feature; the conversion price reset feature and the Companys optional
early redemption right within the Convertible Notes to represent embedded derivatives. These embedded derivatives were bifurcated from their respective host debt contracts and accounted for as derivative liabilities because they were subject to a
registration rights agreement. The conversion feature, the conversion price reset feature and the Companys optional early redemption right within the Convertible Notes were bundled together as a single hybrid compound instrument in accordance
with SFAS No. 133 Derivatives Implementation Group Implementation Issue No. B-15, Embedded Derivatives: Separate Accounting for Multiple Derivative Features Embedded in a Single Hybrid Instrument.

The Company identified the common stock warrant as a detachable derivative. The warrant exercise price reset provision is an embedded derivative within the common
stock warrant. The common stock warrant and the embedded warrant exercise price reset provision were accounted for as a separate single hybrid compound instrument.

The Single Compound Embedded Derivatives within Convertible Notes and the Derivative Liability for Warrants were recorded at fair value at the date of issuance (May 4, 2005) and marked-to-market each quarter with changes in
fair value recorded to the Companys income statement as Net change in fair value of derivative liabilities. The Company utilized a third party valuation firm to fair value both single compound embedded derivatives under the
following methods: a layered discounted probability-weighted cash flow approach for the Single Compound Embedded Derivatives within Convertible Notes; and the Black-Scholes model for the Derivative Liability for Warrants based on a probability
weighted exercise price.

The fair value of the derivative liabilities was subject to the changes in the trading value of the Companys common
stock. As a result, the Companys financial statements fluctuated from quarter-to-quarter based on factors, such as the price of the Companys stock at the balance sheet date, the amount of shares converted by note holders and/or exercised
by warrant holders. Consequently, our financial position and results of operations varied from quarter-to-quarter based on conditions other than our operating revenues and expenses.

In May 2006, the Convertible Notes were converted to common stock and the Warrants were exercised resulting in the reclassification of all derivative liabilities
associated with the Convertible Notes and Warrants. See Note 2Notes PayableSubordinated Convertible Notes and Warrants.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted the provisions of SFAS 123R Share Based
Payment for its stock based compensation plans. The Company previously accounted for these plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, (APB 25) and related interpretations and disclosure requirements established by SFAS 123, Accounting for Stock-Based Compensation.

Under APB 25, the Company recognized stock based compensation using the intrinsic value method and, thus, generally no compensation expense was recognized for stock options as they were generally granted at the market value on
the date of grant. SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date
fair value of those awards, in the financial statements over the requisite service period.



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##### Index to Financial Statements

Recent Accounting Developments

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141(R)), a replacement of SFAS No. 141, Business Combinations. SFAS No. 141(R)
modifies the accounting for business combinations under SFAS No. 141 and will apply to the Company prospectively for future business combinations with an acquisition date on or after January 1, 2009. SFAS No. 141(R) expands the scope
of what will qualify as a business combination by expanding the definition of what qualifies as a business. Additionally, for already completed business combinations, SFAS No. 141(R) nullifies EITF Issue No. 93-7, Uncertainties
Related to Income Taxes in a Purchase Business Combination, such that future changes in estimates of income tax uncertainties that existed at the time of, or arose in connection with past purchase business combinations, will no longer be
accounted for as adjustments to goodwill, but instead will be accounted for as adjustments to current income.

In September 2006, the FASB issued
Statement of Financial Accounting Standards No. 157 Fair Value Measurements, which provides expanded guidance for using fair value to measure assets and liabilities. SFAS 157 establishes a hierarchy for data used to value assets and
liabilities, and requires additional disclosures about the extent to which a company measures assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. Implementation of
SFAS 157 is required on January 1, 2008. The adoption of SFAS 157 did not have a significant impact on the Companys financial statements.

In February 2007, the FASB issued SFAS No. 159, the Fair Value Option for Financial Assets and Financial Liabilitiesincluding an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose
to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS 159 is
effective for the Company January 1, 2008. The adoption of SFAS No. 159 did not have a material impact on the Companys consolidated financial position or results of operations.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parents
ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the non-controlling owners. This standard is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the effect, if any, that SFAS No. 160
will have on the financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No. 133. SFAS 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments,
as well as any details of credit-risk-related contingent features contained within derivatives. SFAS 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial
statements, how the provisions of SFAS 133 has been applied, and the impact that hedges have on an entitys financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008, with early application encouraged. The Company currently does not anticipate the adoption of SFAS 161 will have a material impact on the disclosures already provided.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities (FSP EITF 03-6-1). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating



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##### Index to Financial Statements

securities prior to vesting and, therefore, need to be included in computing earnings per share under the two-class method described in SFAS No. 128,
Earnings Per Share. FSP EITF 03-6-1 is effective for the Company as of January 1, 2009 and in accordance with its requirements it will be applied retrospectively. The Company does not expect the adoption of FSP EITF 03-6-1 to have a
material impact on its consolidated financial statements.

On December 31, 2008, the SEC published the final rules and interpretations updating its
oil and gas reporting requirements. Many of the revisions are updates to definitions in the existing oil and gas rules to make them consistent with the petroleum resource management system, which is a widely accepted standard for the management of
petroleum resources that was developed by several industry organizations. Key revisions include changes to the pricing used to estimate reserves utilizing a 12-month average price rather than a single day spot price which eliminates the ability to
utilize subsequent prices to the end of a reporting period when the full cost ceiling was exceeded and subsequent pricing exceeds pricing at the end of the reporting period, the ability to include nontraditional resources in reserves, the use of new
technology for determining reserves, and permitting disclosure of probable and possible reserves. The SEC will require companies to comply with the amended disclosure requirements for registration statements filed after January 1, 2010, and for
annual reports on Form 10-K for fiscal years ending on or after December 15, 2009. Early adoption is not permitted. The Company is currently assessing the impact that the adoption will have on the Companys disclosures, operating
results, financial position and cash flows.

NOTE 2NOTES PAYABLE AND RELATED DERIVATIVE LIABILITIES

Note PayableRelated Party

Shareholder loans, in the
principal amount of $900,000, were repaid in full from the proceeds of the April 2006 private placement.

Subordinated Convertible Notes

On May 4, 2005, the Company entered into purchase agreements with multiple investors pursuant to which the Company sold $2,125,000 of 8% subordinated
convertible notes due 2010.

The Convertible Notes provided for interest at 8% with semi-annual interest payments and had a maturity date of
May 1, 2010. The notes were convertible, at the option of the holders, into common stock of the Company at a price of $1.00 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a
reset provision whereby the conversion price could be adjusted downward to a lower price per share if the Company issued its common stock to others below the stated conversion price. The notes were subject to automatic conversion in the event the
Company conducted an underwritten public offering of its common stock from which the Company received at least $5 million and the public offering price was at least 150% of the then applicable conversion price. The Company had the right to cause the
notes to be converted into common stock after May 1, 2006 if the price of the Companys common stock exceeded 200% of the then applicable conversion price on the date of conversion and for at least 20 trading days over the preceding 30
trading days. The Company had the right to repurchase the Notes after May 1, 2007 at 103% of the face amount during 2007, 102% of the face amount during 2008, 101% of the face amount during 2009 and 100% of the face amount thereafter. The notes
were unsecured general obligations of the Company and were subordinated to all other indebtedness of the Company unless the other indebtedness was expressly made subordinate to the notes. The conversion feature, the conversion price, reset provision
and the Companys optional early redemption right in the Convertible Notes were bundled together as a single compound embedded derivative liability, and using a layered discounted probability-weighted cash flow approach, were initially fair
valued at $2,368,485 at May 4, 2005.



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##### Index to Financial Statements

At inception the excess of the unamortized discount over the notional amount of the Convertible Note in the amount
of $285,547 was charged to expense in the Companys statement of operations. For the period from inception of the Convertible Notes (May 4, 2005) through December 31, 2005, the amortization of unamortized discount on the Convertible Notes
was $34,167, which was classified as interest expense in the accompanying statement of operation. The mark to market adjustment to increase the derivative liability for the period from inception to December 31, 2005 was $15,561.

On May 2, 2006, the Convertible Notes were satisfied in full upon the conversion of the same to common stock. As a result of conversion of the Convertible
Notes, the compound embedded derivative liability of $2,373,405 at that date was reclassified as additional paid in capital, and the unamortized discount, in the amount of $2,053,060, was credited as a reduction of additional paid in capital for the
year ended December 31, 2006. The mark to market adjustment to decrease the derivative liability from December 31, 2005 to the conversion date was $10,640.

Warrants

On May 4, 2005, in connection with the issuance of the Convertible Notes, the Company entered into the Warrants,
three year warrant agreements, with nine parties whereby 191,250 warrants were issued at an exercise price of $1.00 per share, subject to a reset provision whereby the exercise price would be adjusted downward in the event the Company issued its
common stock to others at a price below the initial warrant exercise price. This reset provision represented an embedded derivative, which was not bifurcated from the host warrant contract (as both were derivatives) and was a derivative liability at
its fair value at date of inception utilizing the Black-Scholes method with a probability weighted exercise price. This fair value model comprised multiple probability-weighted scenarios under various assumptions reflecting the economics of the
warrants, such as risk free interest rate, expected Company stock price and volatility, likelihood of exercise, and timely registration. The assumptions used at December 31, 2005 were a risk-free interest rate of 3.08%, volatility of 40%,
expected term of 2.3 years, dividend yield of 0.00% and a probability weighted exercise price of $.983. The common stock warrants and the embedded warrant price reset provision were initially fair valued at $42,063 at May 4, 2005 and charged to
expense in the Companys statement of operations. The mark to market adjustment for the period from inception to December 31, 2005 was $387,067.

The Warrants were exercised in full in May 2006. As a result of exercise of the warrants, the derivative liability associated with the warrants, in the amount of $610,719, was reclassified as additional paid in capital for the year ended
December 31, 2006. The mark to market adjustment to increase the liability from December 31, 2005 to the date of exercise was $181,589.

NOTE
3RELATED PARTIES

In conjunction with the Companys efforts to secure oil and gas prospects, financing and services, in lieu of salary
or other forms of compensation, during 2005, the Company granted to John F. Terwilliger, Chief Executive Officer, and Orrie L. Tawes, a principal shareholder and Director, overriding royalty interests in select mineral properties of the Company.
During 2008 and 2007, Mr. Terwilliger received royalty payments relating to those properties totaling $141,883 and $50,580, respectively, and Mr. Tawes received royalty payments relating to those properties totaling $139,935 and $48,528,
respectively.

John Terwilliger periodically loaned funds to support the Companys operations. At December 31, 2005, loans from
Mr. Terwilliger totaled $904,400, including accrued interest. Loans from Mr. Terwilliger accrued interest at 7.2% and were due January 1, 2007. The loans from Mr. Terwilliger were repaid in full in May 2006. Interest paid to
Mr. Terwilliger totaled $20,440 during 2006.



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##### Index to Financial Statements

NOTE 4INCOME TAXES

The following table sets forth a reconciliation of the statutory federal income tax for the year ended December 31, 2008 and 2007.



|                                              |  |      |            |   |            |   |          |      |  |   |         |  
|--------------------------------------------- |  | ---- | ---------- | - | ---------- | - | -------- | ---- |  | - | ------- | -
|                                              |  | 2008 |            |   | 2007       |   |          | 2006 | 
|                                              |  |      |            |   | (restated) |   |          |      | 
|Income before income taxes                    |  | $    | 391,684    |   |            | $ | 620,572  |      |  | $ | (1,459  | )
|                                              |  |      |            |   |            |   |          |      |  |   |         |  
|Income tax computed at statutory rates        |  | $    | 133,173    |   |            | $ | 210,994  |      |  | $ | (496    | )
|Derivative expense                            |  |      |           |   |            |   |         |      |  |   | 70,982  |  
|Effect of foreign taxes                       |  |      |           |   |            |   |         |      |  |   | 173,616 |  
|Permanent differences, nondeductible expenses |  |      | 2,960      |   |            |   | 1,828    |      |  |   | 40,330  |  
|Current Colombian tax expense                 |  |      | 5,200,306  |   |            |   | 788,724  |      |  |   |        |  
|Refund of prior Colombian taxes               |  |      |           |   |            |   | (662,688 | )    |  |   |        |  
|Increase (decrease) in valuation allowance    |  |      | (284,561   | ) |            |   | 621,378  |      |  |   | 219,567 |  
|Return to Accrual Items                       |  |      | 99,330     |   |            |   | (833,833 | )    |  |   |        |  
|Foreign Tax Credit                            |  |      | (5,201,387 | ) |            |   |         |      |  |   |        |  
|State (net of federal benefit)                |  |      | (23,082    | ) |            |   | 713      |      |  |   |        |  
|Other                                         |  |      |           |   |            |   |         |      |  |   | 6,638   |  
|                                              |  |      |            |   |            |   |          |      |  |   |         |  
|Tax provision                                 |  | $    | (73,261    | ) |            | $ | 127,116  |      |  | $ | 510,637 |  
|                                              |  |      |            |   |            |   |          |      |  |   |         |  
|Total Provision                               |  |      |            |   |            |   |          |      |  |   |         |  
|Current State                                 |  | $    | 3,787      |   |            | $ | 1,080    |      |  | $ |        |  
|Deferred Federal                              |  |      | (5,251,772 | ) |            |   |         |      |  |   |        |  
|Deferred State                                |  |      | (25,582    | ) |            |   |         |      |  |   |        |  
|Foreign                                       |  |      | 5,200,306  |   |            |   | 126,036  |      |  |   | 510,637 |  
|                                              |  |      |            |   |            |   |          |      |  |   |         |  
|Total provision                               |  | $    | (73,261    | ) |            | $ | 127,116  |      |  | $ | 510,637 |  
|                                              |  |      |            |   |            |   |          |      |  |   |         |  

The Company has a state net operating loss carry forward of $645,989 which will expire in 2027. The Company
also has approximately $2,019,488 of foreign tax credit carry forwards which will expire in 2018.

Management believes it is more likely than not
that it will realize the benefit of its net deferred tax assets except for the foreign tax credit carry forward. No valuation allowance is placed on the portion of the foreign tax credit that the tax payer can elect to take as a deduction on future
tax returns. A valuation allowance has been established on the remaining foreign tax credit carryover.

During the preparation of our 2008 Annual
Report, we identified an error in the income tax footnote presented in the Form 10-K/A filed with the SEC on December 10, 2008. The error reported a $719,884 tax provision for 2007. This error was a result of a clerical error, which was
overlooked when the amended Form 10-K/A was filed. The original Form 10-K for the fiscal year ended December 31, 2007, which was filed with the SEC on March 28, 2008 reflected the correct numbers. The restated tax provision
reconciliation presented here reflects the corrected numbers as contained in the Form 10-K filed on March 28, 2008.



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##### Index to Financial Statements

The tax effects of the temporary differences between financial statement income and taxable income are recognized
as a deferred tax asset and liability. Significant components of the deferred tax asset and liability as of December 31, 2008 and 2007 are set out below.



|                                                                                            |  |      |            |   |      |   |            |  
|------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                            |  | 2008 |            |   | 2007 |  
|Non-Current Deferred tax assets:                                                            |  |      |            |   |      |   |            |  
|Net operating loss carryforwards                                                            |  | $    |           |   |      | $ | 283,159    |  
|Foreign tax credit carryforwards                                                            |  |      | 2,019,488  |   |      |   | 875,873    |  
|Asset retirement obligation                                                                 |  |      | 13,197     |   |      |   | 13,197     |  
|Deferred State Tax                                                                          |  |      | 25,582     |   |      |   | 61,369     |  
|Stock Compensation                                                                          |  |      | 347,403    |   |      |   | 113,971    |  
|Book over Tax depreciation, depletion, and capitalization methods on oil and gas properties |  |      | 3,715,865  |   |      |   |           |  
|Other                                                                                       |  |      | 315,065    |   |      |   | 353,027    |  
|Colombia Future Tax Obligations                                                             |  |      | 173,616    |   |      |   | 173,616    |  
|                                                                                            |  |      |            |   |      |   |            |  
|Total Non-Current Deferred tax assets                                                       |  |      | 6,610,216  |   |      |   | 1,874,212  |  
|Non-Current Deferred tax liabilities:                                                       |  |      |            |   |      |   |            |  
|Tax over Book depreciation, depletion and capitalization methods on oil and gas properties  |  |      |           |   |      |   | (256,789   | )
|                                                                                            |  |      |            |   |      |   |            |  
|Total Non-Current tax liabilities                                                           |  |      |           |   |      |   | (256,789   | )
|Valuation Allowance                                                                         |  |      | (1,332,862 | ) |      |   | (1,617,423 | )
|                                                                                            |  |      |            |   |      |   |            |  
|Net deferred tax asset                                                                      |  | $    | 5,277,354  |   |      | $ |           |  
|                                                                                            |  |      |            |   |      |   |            |  

Foreign Income Taxes

The Company owns an interest in four limited liability companies that operate and have activities in Colombia, through various entities controlled by Hupecol. Colombias tax rate is 33%. Based on information provided by
the manager of Hupecol, the Company has determined its share of the Colombia tax liability for 2008 will be $5,200,306. This amount has been accrued during the year and will be funded by withholdings from the 2008 revenue and from revenue received
in 2009.

In 2007, the Company was advised that Hupecol would be adjusting the division of interests among the members of the various Hupecol
entities to reflect revised Colombian tax allocations among the various Hupecol entities. Specifically, Hupecol advised that Colombian tax attributes were allocated among the Hupecol entities without taking into account the specific contributions of
each individual entity resulting in an improper shifting of tax expenses and benefits among the Hupecol entities and, in turn, the members of each of the Hupecol entities, including the Company.

As a result of the adjustment by Hupecol, during 2007, the Company received a net credit from Hupecol for excess Colombian taxes allocated to it in the amount of
$662,688. This credit was reflected in the financial statements in 2007 as a credit to income tax expense.

NOTE 5STOCK BASED COMPENSATION

On August 12, 2005, the Companys Board of Directors adopted the Houston American Energy Corp. 2005 Stock Option Plan (the 2005 Plan). The
terms of the 2005 Plan allow for the issuance of up to 500,000 options to purchase 500,000 shares of the Companys common stock. During 2006 the



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##### Index to Financial Statements

Company granted 20,000 options to the members of the Board of Directors and 200,000 to a key employee. During 2007 the Company granted 30,000 options to the members of
the Board of Directors and 66,667 previously granted options vested to company employees.

The fair value of the options granted to directors in
2006, which vested immediately, was valued on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions, risk-free interest rate 4.82%, expected life in years 10, expected stock volatility
81%, expected dividends 0.0%. Using this model yielded a value of $70,200 which was charged to expense in 2006.

The fair value of the options
granted to a key employee, which vested over two years, was valued on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions, risk-free interest rate 5.24%, expected life in years 10,
expected stock volatility 77%, expected dividends 0.0%. The total value of the options was $494,000. During 2006, $219,555 was expensed as employee compensation.

The options granted to the directors during 2007, which vested immediately, were valued on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions, risk-free interest
rate 5.24%, expected life in years 10, expected stock volatility 88%, expected dividends 0.0%. Using this model yielded a value of $143,100 which was charged to expense in 2007.

In 2008, the Companys Board of Directors adopted the Houston American Energy Corp. 2008 Equity Incentive Plan (the 2008 Plan and, together with
the 2005 Plan, the Plans). The terms of the 2008 Plan allow for the issuance of up to 2,200,000 shares of the Companys common stock pursuant to the grant of stock options and restricted stock. Persons eligible to participate in the
Plans are key employees, consultants and directors of the Company. During 2008 the Company granted 3,333 options to the members of the Board of Directors, 1,050,000 options to employees, 55,600 shares of restricted stock and all of the 200,000
previously granted options were vested at December 31, 2008.

The options granted to the directors vested immediately, have a ten year life and
were valued on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions, risk-free interest rate 3.875%, expected life in years 5.0, expected stock volatility 73.81754%, expected dividends
0.0%. The Company determined the options qualify as plain vanilla under the provisions of SAB 107 and the simplified method was used to estimate the expected option life. Using this model yielded a value of $15,113 which was charged to
expense in 2008.

The options granted to employees have a ten year life and 150,000 of the options vest ratably over three years and 900,000 of the
options vest ratably over six years. The options were valued on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions, risk-free interest rate 3.875%, expected life in years of 6 and 6.75,
expected stock volatility 73.81754%, expected dividends 0.0%. The Company determined the options qualify as plain vanilla under the provisions of SAB 107 and the simplified method was used to estimate the expected option life. The total
value of the options was $5,299,214. The options are being expensed over the vesting period. During 2008, $586,361 was expensed as employee compensation.



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##### Index to Financial Statements

Option activity during 2008 is as follows:



|                                 |  |           |  |                              |      |                                                   |      |                         |   |        
|-------------------------------- |  | --------- |  | ---------------------------- | ---- | ------------------------------------------------- | ---- | ----------------------- | - | -------
|                                 |  | Options   |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualTerm (inYears) |      | AggregateIntrinsicValue
|Outstanding at beginning of year |  | 339,000   |  | $                            | 3.12 |                                                   |      |                         |   |        
|Granted                          |  | 1,053,333 |  | $                            | 7.20 |                                                   |      |                         |   |        
|Exercised                        |  |          |  |                              |      |                                                   |      |                         |   |        
|Forfeited                        |  |          |  |                              |      |                                                   |      |                         |   |        
|                                 |  |           |  |                              |      |                                                   |      |                         |   |        
|Outstanding at end of year       |  | 1,392,333 |  |                              | 6.21 |                                                   | 8.92 |                         | $ | 165,120
|                                 |  |           |  |                              |      |                                                   |      |                         |   |        

No options were exercised for the year ended December 31, 2008. Unvested options at December 31,
2008 totaled 1,050,000 with a weighted average exercise price of $7.20, aggregate intrinsic value of $0 and a weighted average remaining term of 9.42.

As of December 31, 2008, total unrecognized stock-based compensation expense related to non-vested stock options was $4,712,852. As of December 31, 2008 there were 1,307,667 shares of common stock available for issuance pursuant
to future stock option grants under the Plans.

During 2008, the Companys shareholders approved and the Company granted 55,600 shares of
restricted common stock with immediate vesting to the Companys two principal officers. The Company recognized compensation expense of $400,320 based upon the stock price at the grant date attributable to these grants, which were
originally approved, subject to stockholder approval, in 2007 by the Companys Board of Directors and then later approved by the Companys stockholders and issued in June 2008.

The following table reflects share-based compensation recorded by the Company for 2008, 2007 and 2006:



|                                                                        |  |      |           |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                        |  | 2008 |           |   | 2007 |   |         | 2006 | 
|Share-based compensation expense included in reported net income (loss) |  | $    | 1,086,887 |   |      | $ | 335,208 |      |  | $ | 289,755 |  
|Earnings per share effect of share-based compensation expense           |  | $    | (0.04     | ) |      | $ | (0.01   | )    |  | $ | (0.01   | )
|                                                                        |  |      |           |   |      |   |         |      |  |   |         |  

NOTE 6COMMON STOCK

April 2006 Private Placement

On April 28, 2006, the Company entered into Subscription Agreements (the Purchase
Agreements) with multiple investors pursuant to which the Company sold 5,533,333 shares of common stock (the Shares) for $16,599,999.

The Shares were offered and sold in a private placement transaction pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. Each investor was an
accredited investor as defined in Rule 501 promulgated under the Securities Act.

Pursuant to the terms of the Subscription Agreements,
the Company and the investors entered into Registration Rights Agreements under which the Company agreed to file with the SEC, within 60 days, a registration statement covering the Shares. In conjunction with the placement of the Shares,



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##### Index to Financial Statements

John Terwilliger, O. Lee Tawes III and Edwin Broun III each entered into lock-up agreements pursuant to which each agreed not to offer or sell any shares of the
Companys common stock until the earlier of the effective date of the registration statement relating to the Shares or one year from the sale of the Shares.

The Company paid commissions totaling $1,162,000 and issued a warrant (the Placement Agent Warrant) to the placement agent in the offering to purchase 415,000 shares of common stock at $3.00 per share. The
Registration Rights Agreements provide that the shares of common stock underlying the Placement Agent Warrant are to be included in the registration statement, which was filed and declared effective on June 16, 2006.

Conversion of 8% Subordinated Convertible Notes

During 2006, the
Company notified the holders of its Convertible Notes of its election to convert the Convertible Notes into shares of the Companys common stock. As a result of such election, the full principal amount of the Convertible Notes of $2,125,000 was
satisfied by conversion of the same into 2,125,000 shares of common stock.

The shares of common stock issued on conversion of the Convertible Notes
were offered and issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933. Each of the investors is an accredited investor, as defined in Rule 501 promulgated under the Securities
Act.

Exercise of Warrants

During 2006, the holders
of the Warrants exercised all 191,250 warrants and were issued an aggregate of 191,250 shares of common stock for aggregate consideration of $191,250.

The shares of common stock issued on exercise of the warrants were offered and issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933. Each of the investors is an accredited
investor, as defined in Rule 501 promulgated under the Securities Act.

During 2006, the placement agent exercised 100,000 of the 415,000
Placement Agent Warrants, and was issued 100,000 shares for an aggregate consideration of $300,000. During 2008, the placement agent exercised 125,000 of the Placement Agent Warrants, and was issued 125,000 shares for an aggregate consideration of
$375,000. At December 31, 2008, the Company had the remaining 190,000 warrants outstanding with a remaining contractual life of 2.33 years.

The
weighted average exercise price for all remaining outstanding warrants was $3.00. At December 31, 2008, based upon the closing price of the Companys common stock, the outstanding warrants had an intrinsic value of $66,500.

Dividends

During the third and fourth quarters of 2008, we
declared and paid cash dividends to our shareholders of $0.02 per share, or an aggregate of $1,122,031.



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##### Table of Contents

##### Index to Financial Statements

NOTE 7COMMITMENTS AND CONTINGENCIES

Lease Commitment

The Company leases office facilities under an operating lease agreement that expires May 31, 2012. The
lease agreement requires future payments as follows:



|      |  |        
|----- |  | -------
|Year  |  | Amount 
|2009  |  | 81,945 
|2010  |  | 84,315 
|2011  |  | 86,684 
|2012  |  | 36,530 
|      |  |        
|Total |  | 289,474
|      |  |        

Total rental expense was $74,455 in 2008, $76,578 in 2007 and $43,704 in 2006. The Company does not have any
capital leases or other operating lease commitments.

Legal Contingencies

The Company is subject to legal proceedings, claims and liabilities that arise in the ordinary course of its business. The Company accrues for losses associated with legal claims when such losses are probable and can be
reasonably estimated. These accruals are adjusted as further information develops or circumstances change.

Environmental Contingencies

The Companys oil and natural gas operations are subject to stringent federal, state and local laws and regulations relating to the release or disposal of
materials into the environment or otherwise relating to environmental protection. These laws and regulations may require the acquisition of a permit before drilling commences, restrict the types, quantities and concentration of substances that can
be released into the environment in connection with drilling and production activities, limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas, and impose substantial liabilities for
pollution resulting from our operations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, incurrence of investigatory or remedial obligations or the imposition of
injunctive relief. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require the Company to make
significant expenditures to maintain compliance, and may otherwise have a material adverse effect on its results of operations, competitive position or financial condition as well as the industry in general. Under these environmental laws and
regulations, the Company could be held strictly liable for the removal or remediation of previously released materials or property contamination regardless of whether the Company was responsible for the release or if its operations were standard in
the industry at the time they were performed. The Company maintains insurance coverage, which it believes is customary in the industry, although the Company is not fully insured against all environmental risks

Development Commitments

During the ordinary course of oil and gas
prospect development, the Company commits to a proportionate share for the cost of acquiring mineral interest, drilling exploratory or development wells and acquiring seismic and geological information.



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##### Index to Financial Statements

Employment Arrangements

In October 2004, the Company began paying an annual salary of $180,000 to its Chief Executive Officer. Effective June 1, 2006, the salary of the Chief Executive Officer was increased to $300,000 annually.

In July 2006, the Company appointed James Jay Jacobs as Chief Financial Officer and fixed Mr. Jacobs compensation as follows: (1) base
salary of $125,000; and (2) a stock option to purchase 200,000 shares of common stock at $2.98 per share, the closing price on first day of employment, vesting over a 2 year period and exercisable over a period of ten years.

During 2007, the Companys compensation committee engaged a compensation consultant, as called for by the terms of employment of the Companys chief
financial officer, to review the compensation arrangements of the Companys senior executives with a view to adjusting such compensation to reflect industry compensation practices. Following that review, the compensation committee approved
increases in base salary of the Companys chief executive officer to $315,000 annually and chief financial officer to $150,000 annually, the payment of one-time cash bonuses of $50,000 to the Companys chief executive officer and $30,000
to the chief financial officer and the grant of 41,700 shares of restricted stock to the Companys chief executive officer and 13,900 shares to the chief financial officer, which grants were subject to approval of the same by the Companys
shareholders.

NOTE 8SALE OF OIL AND GAS PROPERTIES

Gain on
Sale of Oil and Gas Properties

In June 2008, the Company, through Hupecol Caracara LLC as owner/operator under the Caracara Association
Contract, sold all of its interest in the Caracara Association Contract and related assets for a total cash consideration of $11,917,418. At December 31, 2007, the estimated proved reserves associated with these assets totaled 787,742
barrels of oil, which represented 60.37% of our estimated proved oil and natural gas reserves. Sales of oil and gas properties under the full cost method of accounting are accounted for as adjustments of capitalized costs with no gain or loss
recognized, unless the adjustment significantly alters the relationship between capitalized costs and reserves. Since the sale of these oil and gas properties would significantly alter the relationship, we recognized a gain on the sale of
$7,615,236 computed as follows:



|                                                        |  |   |            |  
|------------------------------------------------------- |  | - | ---------- | -
|Proceeds from the sale                                  |  | $ | 11,917,418 |  
|Add: Transfer of asset retirement and other obligations |  |   | 46,633     |  
|Less: Transaction costs                                 |  |   | (370,908   | )
|Carrying value of oil and gas properties                |  |   | (3,977,907 | )
|Carrying value of other assets                          |  |   |           |  
|                                                        |  |   |            |  
|Net gain on sale                                        |  | $ | 7,615,236  |  

The carrying value of the properties sold was computed by allocating total capitalized costs within the
non-U.S. full cost pool between properties sold and properties retained based upon the ratio of proved reserves sold and those proved reserves retained to total estimated proved reserves prior to the sale.



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##### Table of Contents

##### Index to Financial Statements

The following table presents pro forma data that reflects revenue, income from continuing operations, net income
and income per share for 2008 and 2007 as if the Caracara transaction had occurred at the beginning of the periods and excludes the related gain on sale.



|                                |  |                          |            |   |      |   |            |  
|------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- | -
|                                |  | Years Ended December 31, |           
|                                |  | 2008                     |            |   | 2007 |  
|Pro-Forma Information           |  |                          |            |   |      |   |            |  
|Oil and gas revenue             |  | $                        | 7,616,910  |   |      | $ | 1,273,433  |  
|Loss from operations            |  |                          | (9,748,235 | ) |      |   | (2,325,255 | )
|Net income (loss)               |  | $                        | (4,436,584 | ) |      | $ | (1,546,373 | )
|Basic income (loss) per share   |  | $                        | (0.16      | ) |      | $ | (0.06      | )
|Diluted Income (loss) per share |  | $                        | (0.16      | ) |      | $ | (0.06      | )
|                                |  |                          |            |   |      |   |            |  

Other Current Assets

Pursuant to the terms of the sale of the Caracara assets, on the closing date of the sale, a portion of the purchase price was deposited in escrow to settle post-closing adjustments under the purchase and sale
agreement. The funds deposited in escrow will be released to the Company, or to the purchaser, based on post-closing adjustments 12 months following closing. The Companys proportionate interest in the escrow deposit, totaling
$1,673,551, has been recorded as Escrow Receivable.

The net proceeds and the gain realized from the sale of the Caracara assets may be adjusted
based on post-closing adjustments.

Colombian Taxes

Colombian taxes attributable to the sale of the Caracara assets, totaling $4,394,575, were recorded and paid at the time of closing. Total cash Colombian taxes paid for the year amounted to $5,200,306.

NOTE 9GEOGRAPHICAL INFORMATION

The Company currently has
operations in two geographical areas, the United States and Colombia. Revenues for the twelve months ended December 31, 2008 and Long Lived Assets as of December 31, 2008 attributable to each geographical area are presented below:



|              |  |                              |            |                              |           |                              |   |                       |  |          |            |                       |   |           |  |   |          
|------------- |  | ---------------------------- | ---------- | ---------------------------- | --------- | ---------------------------- | - | --------------------- |  | -------- | ---------- | --------------------- | - | --------- |  | - | ---------
|              |  | Year Ended December 31, 2008 |            | Year Ended December 31, 2007 |           | Year Ended December 31, 2006
|              |  | Revenues                     |            | Long LivedAssets, Net        |           | Revenues                     |   | Long LivedAssets, Net |  | Revenues |            | Long LivedAssets, Net
|North America |  |                              | 410,471    |                              | 1,708,617 |                              | $ | 445,532               |  | $        | 2,182,857  |                       | $ | 637,625   |  | $ | 1,164,423
|South America |  |                              | 10,211,579 |                              | 3,554,514 |                              |   | 4,531,640             |  |          | 7,834,188  |                       |   | 2,565,106 |  |   | 4,081,905
|              |  |                              |            |                              |           |                              |   |                       |  |          |            |                       |   |           |  |   |          
|Total         |  | $                            | 10,622,050 |                              | 5,263,131 |                              | $ | 4,977,172             |  | $        | 10,017,045 |                       | $ | 3,202,731 |  | $ | 5,246,328

NOTE 10SUBSEQUENT EVENTS

As a result of the continued depressed commodity price environment in the first quarter of 2009, Hupecol, the operator of our Colombian properties, made the determination to temporarily shut-in production from the majority of
our wells in Colombia. During the first quarter of 2009, most of our Colombian wells remained profitable to operate; however, the Hupecol managing partners chose not to continue to produce what they considered valuable oil reserves at these low
levels of profitability.



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##### Index to Financial Statements

On March 14th, the Company was notified by Hupecol that the majority of its productive wells will be immediately
restored to production.

NOTE 11SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED)

This footnote provides unaudited information required by Statement of Financial Accounting Standards No. 69, Disclosures about Oil and gas Producing
Activities.

Geographical Data

The following
table shows the Companys oil and gas revenues and lease operating expenses, which excludes the joint venture expenses incurred in South America, by geographic area:



|                |  |      |            |      |   |           |  |   |          
|--------------- |  | ---- | ---------- | ---- | - | --------- |  | - | ---------
|                |  | 2008 |            | 2007 |   | 2006     
|Revenues        |  |      |            |      |   |           |  |   |          
|North America   |  | $    | 410,471    |      | $ | 445,532   |  | $ | 637,625  
|South America   |  |      | 10,211,579 |      |   | 4,531,640 |  |   | 2,565,106
|                |  |      |            |      |   |           |  |   |          
|                |  | $    | 10,622,050 |      | $ | 4,977,172 |  | $ | 3,202,731
|                |  |      |            |      |   |           |  |   |          
|Production Cost |  |      |            |      |   |           |  |   |          
|North America   |  | $    | 134,527    |      | $ | 130,430   |  | $ | 198,167  
|South America   |  |      | 3,232,213  |      |   | 1,710,689 |  |   | 819,273  
|                |  |      |            |      |   |           |  |   |          
|                |  | $    | 3,366,740  |      | $ | 1,841,119 |  | $ | 1,017,440
|                |  |      |            |      |   |           |  |   |          

Capital Costs

Capitalized costs and accumulated depletion relating to the Companys oil and gas producing activities as of December 31, 2008, all of which are onshore properties located in the United States and Colombia, South America are
summarized below:



|                                                                           |  |              |   |  |              |   |  |             |  
|-------------------------------------------------------------------------- |  | ------------ | - |  | ------------ | - |  | ----------- | -
|                                                                           |  | NorthAmerica |   |  | SouthAmerica |   |  | Total       |  
|Unproved properties not being amortized                                    |  | 1,629,136    |   |  | 435,431      |   |  | 2,064,567   |  
|Proved properties being amortized                                          |  | 3,420,247    |   |  | 14,130,021   |   |  | 17,550,268  |  
|Accumulated depreciation, depletion, amortization and valuation allowances |  | (3,340,766   | ) |  | (11,010,938  | ) |  | (14,351,704 | )
|                                                                           |  |              |   |  |              |   |  |             |  
|Net capitalized costs                                                      |  | 1,708,617    |   |  | 3,554,514    |   |  | 5,263,131   |  
|                                                                           |  |              |   |  |              |   |  |             |  

During 2008, the Company recorded a provision for impairments of $5,621,106, of which $467,209 were
attributable to North American properties and $5,153,897 were attributable to South American properties.

Amortization Rate

The amortization rate per unit based on barrel equivalents was $114.64 for North America and $42.24 for South America.



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##### Table of Contents

##### Index to Financial Statements

Acquisition, Exploration and Development Costs Incurred

Costs incurred in oil and gas property acquisition, exploration and development activities as of December 31, 2008 and 2007 are summarized below:



|                            |  |               |           |               |   |           
|--------------------------- |  | ------------- | --------- | ------------- | - | ----------
|                            |  | 2007         
|                            |  | North America |           | South America
|Property acquisition costs: |  |               |           |               |   |           
|Proved                      |  | $             | 880,779   |               | $ | 355,000   
|Unproved                    |  |               | 191,477   |               |   |          
|Exploration costs           |  |               | 2,249,679 |               |   |          
|Development                 |  |               | 1,088,535 |               |   | 8,948,005 
|                            |  |               |           |               |   |           
|Total costs incurred        |  | $             | 4,410,470 |               | $ | 9,303,005 
|                            |  |               |           |               |   |           
|                            | 
|                            |  | 2008         
|                            |  | North America |           | South America
|Property acquisition costs: |  |               |           |               |   |           
|Proved                      |  |               | 879,465   |               |   | 317,500   
|Unproved                    |  |               | 221,254   |               |   |          
|Exploration costs           |  |               | 2,477,554 |               |   | 2,935,431 
|Development costs           |  |               | 1,471,108 |               |   | 11,312,522
|                            |  |               |           |               |   |           
|Total costs incurred        |  |               | 5,049,381 |               |   | 14,565,453
|                            |  |               |           |               |   |           

Reserve Information and Related Standardized Measure of Discounted Future Net Cash Flows

The supplemental unaudited presentation of proved reserve quantities and related standardized measure of discounted future net cash flows provides estimates only
and does not purport to reflect realizable values or fair market values of the Companys reserves. Volumes reported for proved reserves are based on reasonable estimates. These estimates are consistent with current knowledge of the
characteristics and production history of the reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly,
significant changes to these estimates can be expected as future information becomes available.

Proved reserves are those estimated reserves of
crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment, and operating methods.



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##### Index to Financial Statements

These estimates are made by an independent reservoir engineers. Reserve definitions and pricing requirements
prescribed by the SEC were used. Total estimated proved developed and undeveloped reserves by product type and the changes therein are set forth below for the years indicated.



|                             |  |               |   |  |               |   |  |           |  |            |   |  |           |   |  |            |  
|---------------------------- |  | ------------- | - |  | ------------- | - |  | --------- |  | ---------- | - |  | --------- | - |  | ---------- | -
|                             |  | North America |   |  | South America |   |  | Total     | 
|                             |  | Gas (mcf)     |   |  | Oil (bbls)    |   |  | Gas (mcf) |  | Oil (bbls) |   |  | Gas (mcf) |   |  | Oil (bbls) |  
|Total proved reserves        |  |               |   |  |               |   |  |           |  |            |   |  |           |   |  |            |  
|Balance December 31, 2005    |  | 850,650       |   |  | 2,800         |   |  |          |  | 270,621    |   |  | 850,650   |   |  | 273,421    |  
|Extensions and discoveries   |  | 3             |   |  | 141           |   |  |          |  | 277,155    |   |  | 3         |   |  | 277,296    |  
|Revisions of prior estimates |  | (346,807      | ) |  | 1,656         |   |  |          |  | (110,273   | ) |  | (346,807  | ) |  | (108,617   | )
|Production                   |  | (78,096       | ) |  | (1,687        | ) |  |          |  | (48,057    | ) |  | (78,096   | ) |  | (49,744    | )
|                             |  |               |   |  |               |   |  |           |  |            |   |  |           |   |  |            |  
|                             |  |               |   |  |               |  
|Balance December 31, 2006    |  | 425,750       |   |  | 2,910         |   |  |          |  | 389,446    |   |  | 425,750   |   |  | 392,356    |  
|                             |  |               |   |  |               |  
|Extensions and discoveries   |  | 1             |   |  | 13            |   |  |          |  | 1,121,765  |   |  | 1         |   |  | 1,121,778  |  
|Revisions of prior estimates |  | (245,853      | ) |  | 3,168         |   |  |          |  | (160,857   | ) |  | (245,853  | ) |  | (157,689   | )
|Production                   |  | (44,249       | ) |  | (2,079        | ) |  |          |  | (69,127    | ) |  | (44,249   | ) |  | (71,206    | )
|                             |  |               |   |  |               |   |  |           |  |            |   |  |           |   |  |            |  
|Balance December 31, 2007    |  | 135,649       |   |  | 4,012         |   |  |          |  | 1,281,227  |   |  | 135,649   |   |  | 1,285,239  |  
|                             |  |               |   |  |               |   |  |           |  |            |   |  |           |   |  |            |  
|Extensions and discoveries   |  |              |   |  |              |   |  |          |  | 211,310    |   |  |          |   |  | 211,310    |  
|Revisions to prior estimates |  | (92,127       | ) |  | (560          | ) |  |           |  | (401,350   | ) |  | (92,127   | ) |  | (401,910   | )
|Sales of minerals in place   |  |              |   |  |              |   |  |          |  | (757,605   | ) |  |          |   |  | (757,605   | )
|Production                   |  | (24,748       | ) |  | (1,511        | ) |  |          |  | (122,107   | ) |  | (24,748   | ) |  | (123,618   | )
|                             |  |               |   |  |               |   |  |           |  |            |   |  |           |   |  |            |  
|Balance December 31, 2008    |  | 18,774        |   |  | 1,941         |   |  |          |  | 211,475    |   |  | 18,774    |   |  | 213,416    |  
|                             |  |               |   |  |               |   |  |           |  |            |   |  |           |   |  |            |  
|Proved developed reserves    |  |               |   |  |               |   |  |           |  |            |   |  |           |   |  |            |  
|at December 31, 2007         |  | 135,649       |   |  | 4,012         |   |  |          |  | 1,281,227  |   |  | 135,649   |   |  | 1,285,239  |  
|                             |  |               |   |  |               |   |  |           |  |            |   |  |           |   |  |            |  
|at December 31, 2008         |  | 18,774        |   |  | 1,941         |   |  |          |  | 211,475    |   |  | 18,774    |   |  | 213,416    |  
|                             |  |               |   |  |               |   |  |           |  |            |   |  |           |   |  |            |  

During 2006, 2007 and 2008, the Company recorded extensions and discoveries resulting principally from its
ongoing drilling operations in Colombia.

The Company experienced downward revisions in estimated proved natural gas and oil reserves in both 2007
and 2008. The revisions to natural gas reserves during 2007 and 2008 were primarily attributable to a downward revision in volumes of natural gas reserves based on updated well performance from the Companys North American properties. The
revisions to oil reserves during 2007 and 2008 were primarily attributable to downward revisions in the volumes of oil reserves based on updated well performance from the Companys South American properties.

Sales of reserves in place during 2008 represent the June 2008 transaction whereby the Company, through Hupecol Caracara LLC as owner/operator under the Caracara
Association Contract, sold all of its interest in the Caracara Association Contract in Colombia.

The standardized measure of discounted future net
cash flows relating to proved oil and gas reserves is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil
and gas reserves, less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated related future income tax expenses (based on year-end statutory tax rates, with
consideration of future tax rates already legislated), and assuming continuation of existing economic conditions. Future income tax expenses give effect to permanent differences and tax credits but do not reflect the impact of continuing operations
including property acquisitions and exploration. The estimated future cash flows are then discounted using a rate of ten percent a year to reflect the estimated timing of the future cash flows.



F-28



---

##### Table of Contents

##### Index to Financial Statements

Standard measure of discounted future net cash flows at December 31, 2006



|                                                                                            |  |              |            |   |              |   |            |       |  |   |            |  
|------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ------------ | - | ---------- | ----- |  | - | ---------- | -
|                                                                                            |  | NorthAmerica |            |   | SouthAmerica |   |            | Total | 
|Future net cash flow                                                                        |  | $            | 2,927,620  |   |              | $ | 18,479,216 |       |  | $ | 21,406,836 |  
|Future production cost                                                                      |  |              | (1,303,900 | ) |              |   | (6,993,899 | )     |  |   | (8,297,799 | )
|Future income tax                                                                           |  |              |           |   |              |   | (2,862,863 | )     |  |   | (2,862,863 | )
|                                                                                            |  |              |            |   |              |   |            |       |  |   |            |  
|Future net cash flow                                                                        |  |              | 1,623,720  |   |              |   | 8,622,454  |       |  |   | 10,246,174 |  
|10% annual discount for timing of cash flow                                                 |  |              | 567,170    |   |              |   | 1,596,667  |       |  |   | 2,163,837  |  
|                                                                                            |  |              |            |   |              |   |            |       |  |   |            |  
|Standard measure of discounted future net cash flow relating to proved oil and gas reserves |  | $            | 1,056,550  |   |              | $ | 7,025,787  |       |  | $ | 8,082,337  |  
|                                                                                            |  |              |            |   |              |   |            |       |  |   |            |  
|Changes in standardized measure:                                                            |  |              |            |   |              |   |            |       |  |   |            |  
|Change due to current year operations                                                       |  |              |            |   |              |   |            |       |  |   |            |  
|Sales, net of production costs                                                              |  |              |            |   |              |   |            |       |  | $ | (2,185,290 | )
|Change due to revisions in standardized variables:                                          |  |              |            |   |              |   |            |       |  |   |            |  
|Income taxes                                                                                |  |              |            |   |              |   |            |       |  |   | 727,245    |  
|Accretion of discount                                                                       |  |              |            |   |              |   |            |       |  |   | 637,560    |  
|Net change in sales and transfer price, net of production costs                             |  |              |            |   |              |   |            |       |  |   | 2,426,491  |  
|Revision and others                                                                         |  |              |            |   |              |   |            |       |  |   | (3,672,014 | )
|Discoveries                                                                                 |  |              |            |   |              |   |            |       |  |   | 4,590,226  |  
|Changes in production rates and other                                                       |  |              |            |   |              |   |            |       |  |   | (817,481   | )
|                                                                                            |  |              |            |   |              |   |            |       |  |   |            |  
|Net                                                                                         |  |              |            |   |              |   |            |       |  |   | 1,706,737  |  
|Beginning of year                                                                           |  |              |            |   |              |   |            |       |  |   | 6,375,600  |  
|                                                                                            |  |              |            |   |              |   |            |       |  |   |            |  
|End of year                                                                                 |  |              |            |   |              |   |            |       |  | $ | 8,082,337  |  
|                                                                                            |  |              |            |   |              |   |            |       |  |   |            |  



F-29



---

##### Table of Contents

##### Index to Financial Statements

|                                                                                            |  |              |           |   |              |   |             |       |  |   |             |  
|------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ------------ | - | ----------- | ----- |  | - | ----------- | -
|                                                                                           
|Standard measure of discounted future net cash flows at December 31, 2007                   | 
|                                                                                            |  | NorthAmerica |           |   | SouthAmerica |   |             | Total | 
|Future net cash flow                                                                        |  | $            | 1,312,392 |   |              | $ | 111,909,478 |       |  | $ | 113,221,870 |  
|Future production cost                                                                      |  |              | (530,096  | ) |              |   | (18,540,428 | )     |  |   | (19,070,524 | )
|Future development costs                                                                    |  |              |          |   |              |   | (2,537,694  | )     |  |   | (2,537,694  | )
|Future income tax                                                                           |  |              |          |   |              |   | (21,039,554 | )     |  |   | (21,039,554 | )
|10% annual discount for timing of cash flow                                                 |  |              | (172,260  | ) |              |   | (14,450,335 | )     |  |   | (14,622,595 | )
|                                                                                            |  |              |           |   |              |   |             |       |  |   |             |  
|Standard measure of discounted future net cash flow relating to proved oil and gas reserves |  | $            | 610,036   |   |              | $ | 55,341,467  |       |  | $ | 55,951,503  |  
|                                                                                            |  |              |           |   |              |   |             |       |  |   |             |  
|Changes in standardized measure:                                                            |  |              |           |   |              |   |             |       |  |   |             |  
|Change due to current year operations                                                       |  |              |           |   |              |   |             |       |  |   |             |  
|Sales, net of production costs                                                              |  |              | (315,102  | ) |              |   | (2,820,951  | )     |  |   | (3,136,053  | )
|Change due to revisions in standardized variables:                                          |  |              |           |   |              |   |             |       |  |   |             |  
|Income taxes                                                                                |  |              |          |   |              |   | (13,727,868 | )     |  |   | (13,727,868 | )
|Accretion of discount                                                                       |  |              | 105,655   |   |              |   | 939,591     |       |  |   | 1,045,246   |  
|Net change in sales and transfer price, net of production costs                             |  |              | 925,252   |   |              |   | 12,928,542  |       |  |   | 13,853,794  |  
|Previously estimated development costs incurred during the period                           |  |              | (977,700  | ) |              |   | (440,961    | )     |  |   | (1,418,661  | )
|Changes in estimated future developments costs                                              |  |              |           |   |              |   | 460,061     |       |  |   | 460,061     |  
|Revision and others                                                                         |  |              | (580,126  | ) |              |   | (8,969,769  | )     |  |   | (9,549,895  | )
|Discoveries                                                                                 |  |              |           |   |              |   | 59,728,838  |       |  |   | 59,728,838  |  
|Changes in production rates and other                                                       |  |              | 395,507   |   |              |   | 218,196     |       |  |   | 613,703     |  
|                                                                                            |  |              |           |   |              |   |             |       |  |   |             |  
|Net                                                                                         |  |              |           |   |              |   |             |       |  |   | 47,869,166  |  
|Beginning of year                                                                           |  |              |           |   |              |   |             |       |  |   | 8,082,337   |  
|                                                                                            |  |              |           |   |              |   |             |       |  |   |             |  
|End of year                                                                                 |  |              |           |   |              |   |             |       |  | $ | 55,951,503  |  
|                                                                                            |  |              |           |   |              |   |             |       |  |   |             |  



F-30



---

##### Table of Contents

##### Index to Financial Statements

Standard measure of discounted future net cash flows at December 31, 2008



|                                                                                            |  |              |          |   |              |   |             |       |  |   |             |  
|------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ------------ | - | ----------- | ----- |  | - | ----------- | -
|                                                                                            |  | NorthAmerica |          |   | SouthAmerica |   |             | Total | 
|Future net cash flow                                                                        |  | $            | 176,794  |   |              | $ | 8,989,877   |       |  | $ | 9,166,671   |  
|Future production cost                                                                      |  |              | (73,188  | ) |              |   | (4,743,369  | )     |  |   | (4,816,557  | )
|Future development cost                                                                     |  |              |         |   |              |   | (733,493    | )     |  |   | (733,493    | )
|Future income tax                                                                           |  |              |         |   |              |   |            |       |  |   |            |  
|10% annual discount for timing of cash flow                                                 |  |              | (24,125  | ) |              |   | (441,003    | )     |  |   | (465,128    | )
|                                                                                            |  |              |          |   |              |   |             |       |  |   |             |  
|Standard measure of discounted future net cash flow relating to proved oil and gas reserves |  | $            | 79,481   |   |              | $ | 3,072,012   |       |  | $ | 3,151,493   |  
|                                                                                            |  |              |          |   |              |   |             |       |  |   |             |  
|Changes in standardized measure:                                                            |  |              |          |   |              |   |             |       |  |   |             |  
|Change due to current year operations Sales, net of production costs                        |  |              | (275,944 | ) |              |   | (6,979,366  | )     |  |   | (7,255,310  | )
|Change due to revisions in standardized variables:                                          |  |              |          |   |              |   |             |       |  |   |             |  
|Income taxes                                                                                |  |              |         |   |              |   | 13,727,868  |       |  |   | 13,727,868  |  
|Accretion of discount                                                                       |  |              | 61,004   |   |              |   | 6,949,779   |       |  |   | 7,010,783   |  
|Net change in sales and transfer price, net of production costs                             |  |              | (93,355  | ) |              |   | (11,454,408 | )     |  |   | (11,547,736 | )
|Previously estimated development costs incurred during the period                           |  |              |         |   |              |   | 1,830,066   |       |  |   | 1,830,066   |  
|Changes in estimated future developments costs                                              |  |              |         |   |              |   | (641,440    | )     |  |   | (641,440    | )
|Revision and others                                                                         |  |              | (614,417 | ) |              |   | (4,423,721  | )     |  |   | (5,038,138  | )
|Discoveries                                                                                 |  |              |         |   |              |   | 733,190     |       |  |   | 733,190     |  
|Sales of reserves in place                                                                  |  |              |          |   |              |   | (41,074,257 | )     |  |   | (41,074,257 | )
|Changes in production rates and other                                                       |  |              | 392,157  |   |              |   | (10,937,166 | )     |  |   | (10,545,009 | )
|                                                                                            |  |              |          |   |              |   |             |       |  |   |             |  
|Net                                                                                         |  |              |          |   |              |   |             |       |  |   | (52,800,010 | )
|Beginning of year                                                                           |  |              |          |   |              |   |             |       |  |   | 55,951,503  |  
|                                                                                            |  |              |          |   |              |   |             |       |  |   |             |  
|End of year                                                                                 |  |              |          |   |              |   |             |       |  |   | 3,151,493   |  
|                                                                                            |  |              |          |   |              |   |             |       |  |   |             |  



F-31



---

##### Table of Contents

##### Index to Financial Statements

NOTE 12SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)



|                                                   |  |                    |           |   |          |   |           |           |  |   |           |   |  |   |            |  
|-------------------------------------------------- |  | ------------------ | --------- | - | -------- | - | --------- | --------- |  | - | --------- | - |  | - | ---------- | -
|                                                   |  | Three Months Ended |          
|                                                   |  | March 31,          |           |   | June 30, |   |           | Sept. 30, |  |   | Dec. 31,  |  
|2008                                               |  |                    |           |   |          |   |           |           |  |   |           |   |  |   |            |  
|Operating revenue                                  |  | $                  | 2,937,137 |   |          | $ | 3,328,951 |           |  | $ | 2,350,782 |   |  | $ | 2,005,182  |  
|Income from operations                             |  |                    | 1,350,211 |   |          |   | 7,614,307 |           |  |   | 803,108   |   |  |   | (9,671,317 | )
|Net income                                         |  |                    | 871,721   |   |          |   | 3,199,802 |           |  |   | 798,832   |   |  |   | (4,405,410 | )
|                                                   |  |                    |           |  
|Earnings common per share                          |  | $                  | 0.03      |   |          | $ | 0.11      |           |  | $ | 0.03      |   |  | $ | (0.16      | )
|Earnings common per share assuming dilution        |  |                    | 0.03      |   |          |   | 0.11      |           |  |   | 0.03      |   |  |   | (0.16      | )
|                                                   |  |                    |           |  
|2007                                               |  |                    |           |   |          |   |           |           |  |   |           |   |  |   |            |  
|Operating revenue                                  |  | $                  | 1,025,422 |   |          | $ | 959,662   |           |  | $ | 1,168,829 |   |  | $ | 1,823,259  |  
|Income (loss ) from operations                     |  |                    | (46,182   | ) |          |   | (484,137  | )         |  |   | (235,910  | ) |  |   | 737,009    |  
|Net income (loss)                                  |  |                    | (623      | ) |          |   | (436,591  | )         |  |   | 275,190   |   |  |   | 655,480    |  
|                                                   |  |                    |           |  
|Earnings (loss) common per share                   |  | $                  | 0.00      |   |          | $ | (0.02     | )         |  | $ | 0.01      |   |  | $ | 0.02       |  
|Earnings (loss) common per share assuming dilution |  |                    | 0.00      |   |          |   | (0.02     | )         |  |   | 0.01      |   |  |   | 0.02       |  



F-32