UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549














FORM 10-Q



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



For the quarterly period ended June 30, 2012



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



For the transition period from  
to



Commission File Number:  000-50906
















AMERICAN EAGLE ENERGY CORPORATION

(Exact name of registrant as specified in
its charter)



|Nevada                                                         | 20-0237026                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)





|2549 West Main Street, Suite 202, Littleton, Colorado | 80120      | 
|----------------------------------------------------- | ---------- | 
|(Address of principal executive offices)              | (Zip Code) | 



|(303) 798-5235                                      
|----------------------------------------------------
|(Registrant’s telephone number, including area code)



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

YesxNo ̈



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



(Check one):



|Large accelerated filer ̈ | Accelerated filer ̈        
|------------------------ | --------------------------
|                         |                           
|Non-accelerated filer ̈   | Smaller reporting companyx



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

Yes ̈Nox



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

45,842,782 shares of common stock issued and outstanding at
August 17, 2012.











INDEX



|A Note About Forward Looking Statements                                                                                                                             | 1  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---
|                                                                                                                                                                    |    
|PART I - FINANCIAL INFORMATION                                                                                                                                      |    
|                                                                                                                                                                    |    
|Item 1 – Condensed Consolidated Financial Statements (Unaudited)                                                                                                    | 2  
|                                                                                                                                                                    |    
|Condensed Consolidated Balance Sheets as of June 30, 2012 (Unaudited) and December 31, 2011                                                                         | F-2
|                                                                                                                                                                    |    
|Condensed Consolidated Statements of Income and Comprehensive Income for the Three-Month and Six-Month Periods Ended June
    30,     2012 and 2011     (Unaudited) | F-3
|                                                                                                                                                                    |    
|Condensed Consolidated Statements of Stockholders’ Equity for the Six-Month Period Ended June 30, 2012 and the Year
    Ended December 31, 2011 (Unaudited)         | F-5
|                                                                                                                                                                    |    
|Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2012 and 2011 (Unaudited)                                                  | F-6
|                                                                                                                                                                    |    
|Notes to the Condensed Consolidated Financial Statements (Unaudited)                                                                                                | F-7
|                                                                                                                                                                    |    
|Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations                                                                      | 3  
|                                                                                                                                                                    |    
|Item 4 - Controls and Procedures                                                                                                                                    | 20 
|                                                                                                                                                                    |    
|PART II - OTHER INFORMATION                                                                                                                                         |    
|                                                                                                                                                                    |    
|Item 6 – Exhibits                                                                                                                                                   | 21 
|                                                                                                                                                                    |    
|Signatures                                                                                                                                                          | 25 











A Note About Forward Looking Statements



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



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



1







PART I – FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



American Eagle Energy Corporation



Condensed Consolidated Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



2







American Eagle Energy Corporation



Index to the Condensed Consolidated
Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



|Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011 (Unaudited)                                                             | F-2
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ---
|                                                                                                                                                        |    
|Condensed Consolidated Statements of Income and Comprehensive Income for the Three-Month and Six-Month Periods Ended June 30, 2012 and 2011 (Unaudited) | F-3
|                                                                                                                                                        |    
|Condensed Consolidated Statements of Stockholders’ Equity for the Six-Month Period Ended June 30, 2012 and the Year Ended December 31, 2011 (Unaudited) | F-5
|                                                                                                                                                        |    
|Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2012 and 2011 (Unaudited)                                      | F-6
|                                                                                                                                                        |    
|Notes to the Consolidated Financial Statements (Unaudited)                                                                                              | F-7



F-1







American Eagle Energy Corporation



Condensed Consolidated Balance Sheets



As of June 30, 2012 and December
31, 2011



|                                                                                                                                                  |  | June 30, |            |   | December 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ---------- | - | ------------ | -
|                                                                                                                                                  |  | 2012     |            |   | 2011         |  
|Current assets:                                                                                                                                   |  |          |            |   |              |  
|Cash                                                                                                                                              |  | $        | 10,084,292 |   |              | $
|Trade receivables                                                                                                                                 |  |          | 12,063,519 |   |              |  
|Receivables from related parties                                                                                                                  |  |          | -          |   |              |  
|Prepaid expenses                                                                                                                                  |  |          | 60,872     |   |              |  
|                                                                                                                                                  |  |          |            |   |              |  
|Total current assets                                                                                                                              |  |          | 22,208,683 |   |              |  
|                                                                                                                                                  |  |          |            |   |              |  
|Equipment and leasehold improvements, net of accumulated depreciation and amortization of $173,872 and $156,744, respectively                     |  |          | 109,610    |   |              |  
|Oil and gas properties, under the full cost method – subject to amortization, net of accumulated depletion of $733,307 and $183,238, respectively |  |          | 23,572,737 |   |              |  
|Oil and gas properties, under the full cost method – not subject to amortization                                                                  |  |          | 9,667,990  |   |              |  
|Marketable securities                                                                                                                             |  |          | 1,126,324  |   |              |  
|Restricted cash                                                                                                                                   |  |          | 101,500    |   |              |  
|Deposits                                                                                                                                          |  |          | 5,345      |   |              |  
|                                                                                                                                                  |  |          |            |   |              |  
|Total assets                                                                                                                                      |  | $        | 56,792,189 |   |              | $
|                                                                                                                                                  |  |          |            |   |              |  
|Current liabilities:                                                                                                                              |  |          |            |   |              |  
|Accounts payable                                                                                                                                  |  | $        | 15,791,115 |   |              | $
|Amounts due to working interest partners                                                                                                          |  |          | 10,694,454 |   |              |  
|Accrued income taxes                                                                                                                              |  |          | 204,637    |   |              |  
|                                                                                                                                                  |  |          |            |   |              |  
|Total current liabilities                                                                                                                         |  |          | 26,690,206 |   |              |  
|                                                                                                                                                  |  |          |            |   |              |  
|Asset retirement obligations                                                                                                                      |  |          | 251,811    |   |              |  
|Deferred taxes                                                                                                                                    |  |          | 4,288,786  |   |              |  
|Total liabilities                                                                                                                                 |  |          | 31,230,803 |   |              |  
|                                                                                                                                                  |  |          |            |   |              |  
|Commitments and contingencies (Note 8)                                                                                                            |  |          |            |   |              |  
|                                                                                                                                                  |  |          |            |   |              |  
|Stockholders’ equity:                                                                                                                             |  |          |            |   |              |  
|Common stock, $.001 par value, 194,444,444 shares authorized, 45,842,782 and 45,588,948 shares outstanding, respectively                          |  |          | 45,843     |   |              |  
|Additional paid-in capital                                                                                                                        |  |          | 26,446,455 |   |              |  
|Accumulated other comprehensive income (loss)                                                                                                     |  |          | (9,200     | ) |              |  
|Accumulated deficit                                                                                                                               |  |          | (921,712   | ) |              |  
|                                                                                                                                                  |  |          |            |   |              |  
|Total stockholders’ equity                                                                                                                        |  |          | 25,561,386 |   |              |  
|                                                                                                                                                  |  |          |            |   |              |  
|Total liabilities and stockholders’ equity                                                                                                        |  | $        | 56,792,189 |   |              | $



The accompanying notes are an integral part
of the condensed consolidated financial statements.



F-2







American Eagle Energy Corporation



Condensed Consolidated Statements of
Income and Comprehensive Income



For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



|                                                                                  |  | For the Three-Month Period |            |   | For the Six-Month Period |  
|--------------------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------ | -
|                                                                                  |  | Ended June 30,             |            |   | Ended June 30,           |  
|                                                                                  |  | 2012                       |            |   | 2011                     |  
|Oil and gas sales                                                                 |  | $                          | 1,690,673  |   |                          | $
|                                                                                  |  |                            |            |   |                          |  
|Operating expenses:                                                               |  |                            |            |   |                          |  
|Oil and gas operating expenses                                                    |  |                            | 694,954    |   |                          |  
|General and administrative                                                        |  |                            | 867,008    |   |                          |  
|Depreciation, amortization and depletion expense                                  |  |                            | 270,400    |   |                          |  
|                                                                                  |  |                            |            |   |                          |  
|Total operating expenses                                                          |  |                            | 1,832,362  |   |                          |  
|                                                                                  |  |                            |            |   |                          |  
|Total operating loss                                                              |  |                            | (141,689   | ) |                          |  
|                                                                                  |  |                            |            |   |                          |  
|Interest income                                                                   |  |                            | 1,468      |   |                          |  
|Dividend income                                                                   |  |                            | 11,449     |   |                          |  
|Interest expense                                                                  |  |                            | (521       | ) |                          |  
|Gain on the sale of oil and gas properties, subject to amortization, net of costs |  |                            | -          |   |                          |  
|                                                                                  |  |                            |            |   |                          |  
|Income (loss) before taxes                                                        |  |                            | (129,293   | ) |                          |  
|                                                                                  |  |                            |            |   |                          |  
|Income tax benefit (expense)                                                      |  |                            | (17,860    | ) |                          |  
|                                                                                  |  |                            |            |   |                          |  
|Net income (loss)                                                                 |  | $                          | (147,153   | ) |                          | $
|                                                                                  |  |                            |            |   |                          |  
|Net income (loss) per common share:                                               |  |                            |            |   |                          |  
|Basic                                                                             |  | $                          | (0.00      | ) |                          | $
|Diluted                                                                           |  | $                          | (0.00      | ) |                          | $
|                                                                                  |  |                            |            |   |                          |  
|Weighted average number of shares outstanding -                                   |  |                            |            |   |                          |  
|Basic                                                                             |  |                            | 45,842,782 |   |                          |  
|Diluted                                                                           |  |                            | 45,842,782 |   |                          |  



The accompanying notes are an integral part
of the condensed consolidated financial statements.



F-3







American Eagle Energy Corporation



Condensed Consolidated Statements of
Income and Comprehensive Income



For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



|                                           |  | For the Three-Month Period |          |   | For the Six-Month Period |  
|------------------------------------------ |  | -------------------------- | -------- | - | ------------------------ | -
|                                           |  | Ended June 30,             |          |   | Ended June 30,           |  
|                                           |  | 2012                       |          |   | 2011                     |  
|Net income (loss)                          |  | $                          | (147,153 | ) |                          | $
|                                           |  |                            |          |   |                          |  
|Other comprehensive loss, net of tax:      |  |                            |          |   |                          |  
|Unrealized foreign exchange losses         |  |                            | (34,217  | ) |                          |  
|Unrealized losses on securities            |  |                            | (168,385 | ) |                          |  
|Total other comprehensive loss, net of tax |  |                            | (202,602 | ) |                          |  
|                                           |  |                            |          |   |                          |  
|Comprehensive income (loss)                |  | $                          | (349,755 | ) |                          | $



The accompanying notes are an integral part
of the condensed consolidated financial statements.



F-4







American Eagle Energy Corporation



Condensed Consolidated Statements
of Stockholders’ Equity



For the Six-Month Period Ended
June 30, 2012 and the Year Ended December 31, 2011



|                                             |  |              |            |  |         |   |        |               |  |   | Accumulated |  |  |              |          |   |        |  
|-------------------------------------------- |  | ------------ | ---------- |  | ------- | - | ------ | ------------- |  | - | ----------- |  |  | ------------ | -------- | - | ------ | -
|                                             |  |              |            |  |         |   |        | Additional    |  |   | Other       |  |  |              |          |   | Total  |  
|                                             |  | Common Stock |            |  | Paid-In |   |        | Comprehensive |  |   | Accumulated |  |  | Stockholders |         
|                                             |  | Shares       |            |  | Amount  |   |        | Capital       |  |   | Income      |  |  | Deficit      |          |   | Equity |  
|                                             |  |              |            |  |         |   |        |               |  |   |             |  |  |              |          |   |        |  
|Balance, December 31, 2010                   |  |              | 9,112,405  |  |         | $ | 9,112  |               |  | $ | 9,231,199   |  |  | $            | 415,463  |   |        | $
|                                             |  |              |            |  |         |   |        |               |  |   |             |  |  |              |          |   |        |  
|Shares issued during acquisition             |  |              | 36,476,543 |  |         |   | 36,477 |               |  |   | 16,686,498  |  |  |              | -        |   |        |  
|Stock based compensation                     |  |              | -          |  |         |   | -      |               |  |   | 30,614      |  |  |              | -        |   |        |  
|Unrealized loss on securities                |  |              | -          |  |         |   | -      |               |  |   | -           |  |  |              | (235,016 | ) |        |  
|Net income                                   |  |              | -          |  |         |   | -      |               |  |   | -           |  |  |              | -        |   |        |  
|                                             |  |              |            |  |         |   |        |               |  |   |             |  |  |              |          |   |        |  
|Balance, December 31, 2011                   |  |              | 45,588,948 |  |         |   | 45,589 |               |  |   | 25,948,311  |  |  |              | 180,447  |   |        |  
|                                             |  |              |            |  |         |   |        |               |  |   |             |  |  |              |          |   |        |  
|Stock based compensation                     |  |              | -          |  |         |   | -      |               |  |   | 353,773     |  |  |              | -        |   |        |  
|Shares issued in private placement           |  |              | 100,000    |  |         |   | 100    |               |  |   | 109,900     |  |  |              | -        |   |        |  
|Shares issued from exercise of stock options |  |              | 153,834    |  |         |   | 154    |               |  |   | 34,471      |  |  |              | -        |   |        |  
|Unrealized loss on securities                |  |              | -          |  |         |   | -      |               |  |   | -           |  |  |              | (189,647 | ) |        |  
|                                             |  |              |            |  |         |   |        |               |  |   |             |  |  |              |          |   |        |  
|Net loss                                     |  |              | -          |  |         |   | -      |               |  |   | -           |  |  |              | -        |   |        |  
|                                             |  |              |            |  |         |   |        |               |  |   |             |  |  |              |          |   |        |  
|Balance, June 30, 2012                       |  |              | 45,842,782 |  |         | $ | 45,843 |               |  | $ | 26,446,455  |  |  | $            | (9,200   | ) |        | $



The accompanying notes are an integral part
of the condensed consolidated financial statements.



F-5







American Eagle Energy Corporation



Condensed Consolidated Statements of
Cash Flows



For the Six-Month Periods Ended
June 30, 2012 and 2011



|                                                                                         |  | 2012 |             |   | 2011 |  
|---------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | -
|Cash flows provided by operating activities:                                             |  |      |             |   |      |  
|Net income (loss)                                                                        |  | $    | (505,488    | ) |      | $
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |      |             |   |      |  
|Non-cash transactions:                                                                   |  |      |             |   |      |  
|Stock-based compensation                                                                 |  |      | 353,773     |   |      |  
|Depreciation, depletion and amortization                                                 |  |      | 567,197     |   |      |  
|Accretion of discount on asset retirement obligation                                     |  |      | 6,205       |   |      |  
|Provision for deferred income taxes                                                      |  |      | (264,078    | ) |      |  
|Foreign currency transaction gains                                                       |  |      | (10,236     | ) |      |  
|Gain on the sale of oil and gas properties, subject to amortization, net of costs        |  |      | -           |   |      |  
|Changes in operating assets and liabilities:                                             |  |      |             |   |      |  
|(Increase) decrease in prepaid expenses                                                  |  |      | (15,182     | ) |      |  
|(Increase) decrease in trade receivables                                                 |  |      | (8,643,919  | ) |      |  
|Increase in amounts due from American Eagle Energy Inc. (pre-merger)                     |  |      | -           |   |      |  
|Increase in accounts payable                                                             |  |      | 9,788,911   |   |      |  
|Increase in drilling pre-payments collected                                              |  |      | 8,461,187   |   |      |  
|Decrease in income taxes payable                                                         |  |      | (1,255,500  | ) |      |  
|                                                                                         |  |      |             |   |      |  
|Net cash provided by operating activities                                                |  |      | 8,482,870   |   |      |  
|                                                                                         |  |      |             |   |      |  
|Cash flows provided by (used for) investing activities:                                  |  |      |             |   |      |  
|Proceeds from the sale of oil and gas properties                                         |  |      | 227,661     |   |      |  
|Proceeds from the conveyance of working interests                                        |  |      | 1,349,204   |   |      |  
|Proceeds from the sale of equipment                                                      |  |      | -           |   |      |  
|Additions to oil and gas properties                                                      |  |      | (12,063,161 | ) |      |  
|Additions to office equipment and leasehold improvements                                 |  |      | (106,915    | ) |      |  
|Purchase of certificates of deposit                                                      |  |      | (50,000     | ) |      |  
|Purchase of marketable securities                                                        |  |      | (51,301     | ) |      |  
|                                                                                         |  |      |             |   |      |  
|Net cash provided by (used for) investing activities                                     |  |      | (10,694,512 | ) |      |  
|                                                                                         |  |      |             |   |      |  
|Cash flows provided by financing activities:                                             |  |      |             |   |      |  
|Proceeds from sale of stock to a director                                                |  |      | 110,000     |   |      |  
|Proceeds from the exercise of stock options                                              |  |      | 34,625      |   |      |  
|                                                                                         |  |      |             |   |      |  
|Net cash provided by financing activities                                                |  |      | 144,625     |   |      |  
|                                                                                         |  |      |             |   |      |  
|Net increase (decrease) in cash                                                          |  |      | (2,067,017  | ) |      |  
|                                                                                         |  |      |             |   |      |  
|Cash - beginning of period                                                               |  |      | 12,151,309  |   |      |  
|                                                                                         |  |      |             |   |      |  
|Cash - end of period                                                                     |  | $    | 10,084,292  |   |      | $



The accompanying notes are an integral part
of the condensed consolidated financial statements.



F-6







American Eagle Energy Corporation



Notes to the Condensed Consolidated
Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



| | 1. | Description of Business
| | -- | -----------------------



American Eagle Energy Corporation (the “Company”)
was incorporated in the state of Nevada in March 2003 under the name Golden Hope Resources. In July 2005, the Company changed its
name to Eternal Energy Corp. In December 2011, the Company changed its name to American Eagle Energy Corporation, in connection
with its acquisition of, and merger with, American Eagle Energy Inc. (“AEE Inc.”). See Note 3.



The Company engages in the acquisition, exploration,
development and producing of oil and gas properties. At June 30, 2012, the Company had entered into participation agreements related
to oil and gas exploration projects in the Spyglass Property and West Spyglass Prospect, located in Divide County, North Dakota,
and Sheridan County, Montana and the Hardy Property, located in southeastern Saskatchewan, Canada. In addition, the Company owns
working interests in mineral leases located in Richland, Roosevelt and Toole Counties in Montana.



| | 2. | Summary of Significant Accounting Policies
| | -- | ------------------------------------------



Basis of Presentation and Principles of Consolidation



The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, American Eagle Energy Inc., EERG Energy ULC (Canadian) and
AEE Canada Inc. (Canadian). All material intercompany accounts, transactions and profits have been eliminated.



These consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States for interim financial information and
with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 8 of SEC Regulation S-X.
The principles for interim financial information do not require the inclusion of all the information and footnotes required by
generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read
in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The consolidated financial
statements included herein are unaudited; however, in the opinion of management, they contain all normal recurring adjustments
necessary for a fair statement of the condensed results for the interim periods. Operating results for the three-month and six-month
periods ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31,
2012.



In December 2011, the Company announced a 1.0-for-4.5
reverse stock split. As a result, all share and per share information included in these consolidated financial statements has been
presented on a post-reverse-split basis.



F-7







American Eagle Energy Corporation



Notes to the Condensed Consolidated
Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



Certain amounts presented in the prior year financial
statements have been renamed or reclassified in order to conform to the current period presentation. Such reclassifications had
no effect on net loss.



Concentration of Credit Risk



At June 30, 2012, the Company had $9,325,522 on deposit
that exceeded the United States (FDIC) federally insurance limit of $250,000 per bank.



Foreign Currency Adjustments



The functional currency of the Company’s Canadian
subsidiaries is the US Dollar. All transactions are translated using historical exchange rates. Gains and losses resulting from
foreign currency transactions are included in the Company’s results of operations. The Company’s wholly-owned subsidiary,
EERG Energy ULC, which holds title to the Company’s Canadian assets and operates the Hardy Property wells, routinely conducts
transactions denominated in Canadian Dollars. The Company recognized exchange gains totaling $118,059 and $73,039 for the three-month
and six-month periods ended June 30, 2012, respectively, and losses totaling ($21,637) and $(28,584) for the three-month and six-month
periods ended June 30, 2011, respectively.



Restricted Cash



At June 30, 2012 and December 31, 2011, the Company
had $101,500 and $51,500 of restricted cash, respectively. The restricted cash consists of cash bonds required by the State of
North Dakota in order to pursue future drilling in the state. The cash is held in custody by the issuing bank in the form of certificates
of deposit and is restricted as to withdrawal or use. Interest income earned from the certificates of deposit is paid to the Company
upon maturation of the certificates of deposit. The certificates of deposit have six-month terms. However, it is the Company’s
intention to renew the certificates of deposit upon maturation and to leave the cash bond in place for the foreseeable future.
Accordingly, the restricted cash has been classified as a non-current asset.



Receivables



The Company’s accounts receivables consist
mainly of receivables from oil and gas purchasers and from joint interest owners on properties the Company operates. For receivables
from joint interest owners, the Company typically has the ability to withhold future revenue disbursements to recover non-payment
of joint interest billings. Receivables are evaluated for collectability based on the financial strength of the individual customers
or joint interest partners, as well as projected future production of the associated wells. At June 30, 2012, the Company has determined
that all receivable balances are fully collectible and, accordingly, no allowance for doubtful accounts has been recorded.



F-8







American Eagle Energy Corporation



Notes to the Condensed Consolidated
Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



Stock-Based Compensation



The Company measures compensation cost for all stock-based
awards at fair value on the date of grant and recognizes compensation expense in its statements of operations over the service
period that the awards are expected to vest. The Company has elected to recognize compensation cost for all options with graded
vesting on a straight-line basis over the vesting period of the entire option. The Company recognized stock-based compensation
expense of $188,096 and $353,773, for the three-month and six-month periods ended June 30, 2012. The Company did not recognize
any stock-based compensation expense for the three-month and six-month periods ended June 30, 2011.



Fair Value of Financial Instruments



Fair value is the price that would be received from
the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Hierarchy Levels 1,
2 or 3 are terms for the priority of inputs to valuation techniques used to measure fair value. Hierarchy Level 1 inputs are quoted
prices in active markets for identical assets or liabilities. Hierarchy Level 2 inputs are inputs other than quoted prices included
within Level 1 that are directly or indirectly observable for the asset or liability. Hierarchy Level 3 inputs are inputs that
are not observable in the market.



The fair value of the Company’s financial instruments,
measured on a recurring basis at June 30, 2012 and December 31, 2011, were as follows:



|                      |  | Level 1 |           |  | Level 2 |   |        | Level 3 |  |   | Total | 
|--------------------- |  | ------- | --------- |  | ------- | - | ------ | ------- |  | - | ----- | 
|June 30, 2012         |  |         |           |  |         |   |        |         |  |   |       | 
|Marketable securities |  | $       | 1,126,324 |  |         | $ | -      |         |  | $ | -     | 
|                      |  |         |           |  |         |   |        |         |  |   |       | 
|December 31, 2011     |  |         |           |  |         |   |        |         |  |   |       | 
|Marketable securities |  |         | 1,181,077 |  |         |   | 73,357 |         |  |   | -     | 



The Company
uses level 2 inputs to determine the fair value of certain warrants to purchase shares
of common stock of an entity that is traded on the Canadian National Stock Exchange. The warrants are valued using the Black Scholes
Option Pricing Model which includes a calculation of historical volatility of the stock.



F-9







American
Eagle Energy Corporation



Notes to the Condensed Consolidated
Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



Basic and Diluted Earnings (Loss) Per Share



Basic earnings (loss) per common share is computed
by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share is computed in the same way as basic earnings per common share except that the denominator
is increased to include the number of additional common shares that would be outstanding if all potential common shares had been
issued that were dilutive. Diluted loss per common share for the three-month and six-month periods ended June 30, 2012 is computed
in the same way as basic loss per common share, as the inclusion of additional common shares that would be outstanding if all potential
common shares had been issued would be anti-dilutive. See Note 9 for the calculation of basic and diluted weighted average common
shares outstanding for the three-month and six-month periods ended June 30, 2012 and 2011.



| | 3. | Acquisition of American Eagle Energy Inc.
| | -- | -----------------------------------------



On December 20, 2011, the Company finalized its merger
transaction with AEE Inc. Prior to the transaction, AEE Inc. operated as a publicly traded company with oil and gas holdings in
North Dakota, Texas and southeastern Saskatchewan, Canada and was a working interest partner to the Company with respect to its
Hardy Property and certain proved oil and gas properties and unproven oil and gas prospects located in North Dakota. The Company
acquired AEE Inc. in order to leverage the two companies’ respective oil and gas holdings.



Pursuant to the terms of the Merger Agreement, the
Company issued 36,476,543 shares of its common stock to acquire 100% of the then-outstanding shares of AEE Inc.’s common
stock, which resulted in AEE Inc. becoming a wholly owned subsidiary of the Company. Immediately subsequent to the transaction,
legacy AEE Inc. stockholders owned approximately 80% of the shares of the Company’s outstanding common stock, exclusive of
outstanding options to purchase shares of the Company’s common stock and shares of AEE Inc.’s common stock. The shares
of common stock that were issued in connection with the Company’s acquisition of AEE Inc. were registered with the SEC on
November 11, 2011.



Despite the fact the AEE Inc.’s legacy stockholders
held approximately 80% of the Company’s outstanding shares immediately following the merger, other factors present in the
structure of the transaction resulted in the Company being determined to be the legal and acquiring entity. Specific factors that
led to this conclusion included the fact that the majority of the merged company’s officers and Board of Directors membership
consists of legacy Eternal Energy Corp. officers and directors. In addition, there is no single stockholder or organized group
of stockholders of the former AEE Inc. that holds the largest minority voting interest in the merged company. Rather, the individual
who owns the largest number of shares of the merged company’s voting stock is a legacy Eternal Energy stockholder and was
a member of the Eternal Energy Corp.’s senior management and is a member of the merged company’s senior management
team.



The Company’s historical financial statements
have been prepared to give effect to the merger and to represent the historical operations of the Company through the merger date
and the consolidated results of operations for the period from the merger date through December 31, 2011. The merger was structured
to qualify as a “tax-free” transaction pursuant to Internal Revenue Service regulations.



F-10







American Eagle Energy Corporation



Notes to the Condensed Consolidated
Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



The following table summarizes the consideration
paid by the Company to acquire AEE Inc. and the net assets acquired:



|Consideration given:                                  |  |   |            |  
|----------------------------------------------------- |  | - | ---------- | -
|36,476,543 shares of the Company’s common stock       |  | $ | 16,722,975 |  
|                                                      |  |   |            |  
|Identifiable assets acquired and liabilities assumed: |  |   |            |  
|Financial assets acquired                             |  | $ | 6,032,799  |  
|Oil and gas properties acquired (amortizable)         |  |   | 12,781,348 |  
|Oil and gas properties acquired (non-amortizable)     |  |   | 7,290,500  |  
|Financial liabilities assumed                         |  |   | (9,381,672 | )
|Net assets acquired                                   |  | $ | 16,722,975 |  



The amounts presented above are
based on estimated fair market values and are subject to change as additional information becomes available. Because the common
stock of both companies is very thinly traded, the Company estimated the fair market value of the shares issued based on an independent
valuation.



The financial assets acquired included
cash and cash equivalents of $5,598,916, trade and other receivables totaling $351,558, prepaid expenses totaling $7,468, marketable
securities of a related party totaling $73,357 and restricted cash totaling $1,500.



The financial liabilities assumed
consisted of trade payables and accrued liabilities totaling $3,300,491, amounts due to the Company totaling $251,081 and long-term
asset retirement obligations totaling $17,314 and current income taxes payable totaling $975,000. In addition, the Company recorded
a deferred tax liability in the amount of $4,837,786, which represents the future tax effects of the fair market value adjustments
applied to the assets of AEE Inc. upon acquisition.



Supplemental Pro Forma
Information (Unaudited)



The following pro forma financial
information for the three-month and six-month periods ended June 30, 2012 is presented as if the merger transaction had occurred
on January 1, 2011 (unaudited):



|                                         |  | Revenue |        |  | Net Earnings (Loss) |  
|---------------------------------------- |  | ------- | ------ |  | ------------------- | -
|For the three-months ended June 30, 2011 |  | $       | 24,139 |  |                     | $
|                                         |  |         |        |  |                     |  
|For the six-months ended June 30, 2011   |  | $       | 99,282 |  |                     | $



F-11







American Eagle Energy Corporation



Notes to the Condensed Consolidated
Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



The following assumptions were
used to prepare the supplemental pro forma financial information presented above:



| | · | No adjustments were made to reflect economies of scale or other potential cost savings that may have been achieved had the
merger occurred on January 1, 2011.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | No adjustments were made relative to alternative financing strategies that may have been implemented on a combined entity basis.
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | · | The estimated fair market value of AEE Inc.’s oil and gas properties, subject to amortization,
is based on the net present value of future cash flows from proven reserves as of December 31, 2011, as calculated by an independent,
third-party engineering firm.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The estimated fair market values of AEE Inc.’s oil and gas properties, not subject to amortization,
were determined based onprevailing lease prices associated with acreage located in close
proximity to the acquired properties and/or the Company’s recent acreage purchase transactions as of or near to December
20, 2011.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | Marketable Securities
| | -- | ---------------------



Available-for-sale marketable securities at June 30,
2012 and December 31, 2011 consist of the following:



|                                               |  |           |           |  | Gains in      |   |         | Losses in     | 
|---------------------------------------------- |  | --------- | --------- |  | ------------- | - | ------- | ------------- | 
|                                               |  |           |           |  | Accumulated   |   |         | Accumulated   | 
|                                               |  | Estimated |           |  | Other         |   |         | Other         | 
|                                               |  | Fair      |           |  | Comprehensive |   |         | Comprehensive | 
|                                               |  | Value     |           |  | Income        |   |         | Income        | 
|June 30, 2012                                  |  |           |           |  |               |   |         |               | 
|Noncurrent assets:                             |  |           |           |  |               |   |         |               | 
|Common stock                                   |  | $         | 1,126,324 |  |               | $ | 101,962 |               | 
|Total available-for-sale marketable securities |  | $         | 1,126,324 |  |               | $ | 101,962 |               | 
|                                               |  |           |           |  |               |   |         |               | 
|December 31, 2011                              |  |           |           |  |               |   |         |               | 
|Noncurrent assets:                             |  |           |           |  |               |   |         |               | 
|Common stock and warrants                      |  | $         | 1,254,434 |  |               | $ | 281,371 |               | 
|Total available-for-sale marketable securities |  | $         | 1,254,434 |  |               | $ | 281,371 |               | 



F-12







American Eagle Energy Corporation



Notes to the Condensed Consolidated
Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



The fair value of substantially all securities is
determined by quoted market prices. The estimated fair value of securities for which there are no quoted market prices is based
on similar types of securities that are traded in the market.



In June 2012, the
Company exercised warrants to purchase 1,000,000 shares of common stock of Passport Energy Ltd. at an exercise price of approximately
$0.05 per share. Cash consideration paid to exercise the warrants totaled $51,301. There were no sales of marketable securities
during the six-month periods ended June 30, 2012 and 2011.



| | 5. | Equipment and Leasehold Improvements
| | -- | ------------------------------------



The following is a summary of equipment and improvements
as of June 30, 2012 and December 31, 2011:



|                                                |  | June 30, |          |   | December 31, |  
|----------------------------------------------- |  | -------- | -------- | - | ------------ | -
|                                                |  | 2012     |          |   | 2011         |  
|Office equipment                                |  | $        | 129,701  |   |              | $
|Computer equipment                              |  |          | 103,906  |   |              |  
|Leasehold improvements                          |  |          | 49,875   |   |              |  
|                                                |  |          |          |   |              |  
|Total equipment and improvements                |  |          | 283,482  |   |              |  
|Less: accumulated depreciation and amortization |  |          | (173,872 | ) |              |  
|Equipment and improvements, net                 |  | $        | 109,610  |   |              | $



Depreciation and amortization expense for the three-month
and six-month periods ended June 30, 2012 was $10,805 and $17,217, respectively, and $1,879 and $11,801 for the three-month and
six-month periods ended June 30, 2011, respectively.



F-13







American
Eagle Energy Corporation



Notes to the Condensed Consolidated
Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



| | 6. | Oil and Gas Properties
| | -- | ----------------------



As of June 30, 2012 and December 31, 2011, net costs
included in the Company’s full-cost pool cost centers are as follows:



|              |  | June 30, 2012 |            |  | December 31, 2011 |  
|------------- |  | ------------- | ---------- |  | ----------------- | -
|              |  | Amortizable   |            |  | Non-Amortizable   |  
|United States |  | $             | 11,160,024 |  |                   | $
|Canada        |  |               | 12,412,713 |  |                   |  
|Total         |  | $             | 23,572,737 |  |                   | $



Hardy Property



As of June 30, 2012, the Company owns a 50%
working interest in approximately 4,300 net acres held by 6 leases, each of which is scheduled to expire on April 1, 2014.



Spyglass Property



As of June 30, 2012, the Company owns a consolidated
50% working interest in approximately 11,883 net acres within the Spyglass Property, which is held by approximately 429 leases,
with expiration dates ranging from August 2012 to February 2017.



Benrude Property



As
of June 30, 2012, the Company owns a 100% working interest in approximately 743 net acres located in Roosevelt County, Montana.
The acreage is held by 32 leases, with expiration dates ranging from December 2012 to July 2015. The Company is planning to conduct
a 3-D seismic study of the Benrude Property during 2012, the results of which will be used to determine the Company’s strategy
for pursuing the proved reserves assigned to the Benrude Property.



Exploratory
Prospects



As
of June 30, 2012, the Company has entered into participation agreements in a number of exploratory oil and gas prospects, all
which are located within the continental United States. Unproven exploratory prospects are excluded from the amortizable cost
pools. Each prospect’s costs are transferred into the amortization base on an ongoing basis as the prospect is evaluated
and proved reserves are established or impairment is determined. The Company paid certain amounts upon execution of the agreements
and is obligated to share in the drilling costs of certain exploratory wells being drilled in the prospects. The capitalized costs
of the exploratory prospects are not subject to amortization because, to date, no proved reserves have been assigned to
the individual prospects. The nature of the capitalized costs of the unproven prospects is as follows:



F-14







American Eagle Energy Corporation



Notes to the Condensed Consolidated
Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



|                                                 |  | YTD      |           |   |      |   |            | Aggregate |  |   |            |  
|------------------------------------------------ |  | -------- | --------- | - | ---- | - | ---------- | --------- |  | - | ---------- | -
|                                                 |  | June 30, |           |   |      |   |            | Through   |  |   |            |  
|                                                 |  | 2012     |           |   | 2011 |   |            | 2010      |  |   | Total      |  
|                                                 |  |          |           |   |      |   |            |           |  |   |            |  
|Acquisition costs                                |  | $        | 2,600,436 |   |      | $ | 9,442,209  |           |  | $ | 2,362,741  |  
|Exploration costs                                |  |          | -         |   |      |   | 520,967    |           |  |   | 206,203    |  
|Reclassifications to the amortizable pool        |  |          | -         |   |      |   | (758,723   | )         |  |   | -          |  
|Impairments and sales                            |  |          | (227,661  | ) |      |   | (2,499,605 | )         |  |   | (1,978,577 | )
|Total capitalized costs of exploratory prospects |  | $        | 2,372,775 |   |      | $ | 6,704,848  |           |  | $ | 590,367    |  



Glacier Prospect



As of June 30, 2012, the Company owns an undivided
33% working interest in approximately 25,000 net acres located in Toole County, Montana. The acreage is held by approximately 400
leases, with expiration dates ranging from ______ to June 2015.



Because no proved reserves have yet been identified,
the Glacier Prospect has been assigned to the full-cost pool that is not subject to amortization. Management is currently in the
process of developing its exploration strategy relative to the Glacier Prospect. The Company is evaluating the results of nearby
wells drilled by other companies in order to make a determination on the future of the Glacier Prospect. The Glacier Prospect is
evaluated for impairment during each reporting period. There were no impairments evident as of June 30, 2012.



Sidney North Prospect



As of June 30, 2012, the Company owns a 100% working
interest in oil and gas leases on approximately 399 net acres located in Richland County, Montana (the “Sidney North Prospect”).
The acreage is held by approximately 14 leases, with expiration dates ranging from July 2013 to October 2015. The Company’s
management is currently evaluating this prospect. No formal determination of the ultimate viability of this prospect is expected
during the next twelve months. Management has reviewed the carrying value of this property and determined that no impairment exists
as of June 30, 2012.



West Spyglass Prospect



As of June 30, 2012, the Company owns a 25% working
interest in approximately 12,032 net acres located within the West Spyglass Prospect. The net acres are held by 288 leases, with
expiration dates ranging from February 2013 to February 2017. The Company’s management is currently evaluating this prospect.
No formal determination of the ultimate viability of this prospect is expected during the next twelve months. Management has reviewed
the carrying value of this property and determined that no impairment exists as of June 30, 2012.



F-15







American Eagle Energy Corporation



Notes to the Condensed Consolidated
Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



Exploratory Prospect Cost Summary



The following table summarizes the costs of the Company’s
aggregate exploratory activities for all unproven prospects for the three-month period ended June 30, 2012 and the year ended December
31, 2011:



|                                       |  | June 30, |           |   | December 31, |  
|-------------------------------------- |  | -------- | --------- | - | ------------ | -
|                                       |  | 2012     |           |   | 2011         |  
|                                       |  |          |           |   |              |  
|Balance at the beginning of the period |  | $        | 7,295,215 |   |              | $
|Additions to exploratory costs         |  |          | 2,600,436 |   |              |  
|Disposals                              |  |          | (227,661  | ) |              |  
|Reassignments to the amortizable pool  |  |          | -         |   |              |  
|Balance at the end of the period       |  | $        | 9,667,990 |   |              | $



| | 7. | Asset Retirement Obligations
| | -- | ----------------------------



The Company has recorded estimated asset retirement
obligations for the future plugging and abandonment of wells that it operates within the Hardy and Spyglass Properties. As of June
30, 2012 and December 31, 2011, the discounted value of the asset retirement obligations was $251,811 and $34,628, respectively.



The Company recognized
accretion expense of $5,333 and $6,205 for the three-month and six-month periods ended June 30, 2012, respectively, and $358 and
$707 for the three-month and six-month periods ended June 30, 2011, associated with its asset retirement obligations. The projected
plugging dates for the Company’s existing operated wells range from December 2020 to June 2036.



| | 8. | Commitments and Contingencies
| | -- | -----------------------------



Drilling Obligations



The Company has the option to participate in the drilling
of future, non-operated exploratory wells related to its working interest in the Spyglass Property, should any such wells be proposed
by the other working interest owners. As of June 30, 2012, the Company has elected to participate in 34 non-operated wells located
within the Spyglass Property. As such, the Company is currently obligated to fund its non-operating working interest portion of
the drilling and future operations costs of these wells. The Company’s working interests in the Spyglass wells range from
0.03% to 22.87%. Additional wells could be proposed in the future, at which time the Company may or may not elect to participate
in such wells.



F-16







American Eagle Energy Corporation





Notes
to the Condensed Consolidated Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



During the six-month period ended June 30, 2012, the
Company drilled and completed three oil wells within the Spyglass Property. The Company intends to drill and operate additional
horizontal and/or vertical wells within the Spyglass Property over the next year and has contracted for the use of a drilling rig
for the foreseeable future. The Company is obligated to pay all costs related to the use of the drilling rig in connection with
the drilling of 7 wells, 1 of which is currently being completed, 1 of which is currently being drilled and 5 wells that are waiting
to be spud.



Employment Agreement



In January 2012, the Company amended its three-year
employment agreements with its President and Chief Operating Officer and entered into new, two-year employment agreement with its
Chief Financial Officer. In addition to employment benefits commensurate with their positions, the President, Chief Operating Officer
and Chief Financial Officer will receive annual compensation totaling $204,000, $204,000 and $150,000, respectively. The employment
agreements contain certain buy-out provisions should the Company experience a change of control prior to the expiration of their
respective terms.



Lease Obligation



The Company currently leases office space pursuant
to the terms of a three-year lease agreement. The original lease agreement was scheduled to expire on December 31, 2011. In September
2011, the Company amended the original lease agreement and extended the term of the lease through December 31, 2014. Effective
July 1, 2012, the Company amended the lease-agreement to include additional square footage. Future lease payments related to the
Company’s office and equipment leases as of June 30, 2012 are as follows:



|                 |  | Amount |        
|---------------- |  | ------ | -------
|2012 (remainder) |  | $      | 51,617 
|2013             |  |        | 105,880
|2014             |  |        | 111,174
|Total            |  | $      | 268,671



Rent expense for the three-month
and six-month periods ended June 30, 2012 totaled $18,053 and $42,891, respectively, and $19,418 and $36,960 for the three-month
and six-month periods ended June 30, 2011, respectively.



| | 9. | Earnings (Loss) Per Share
| | -- | -------------------------



Because the Company recognized a net loss for three-month
and six-month periods ended June 30, 2012, diluted loss per common share for the periods is computed in the same way as basic loss
per common share, as the inclusion of additional common shares that would be outstanding if all potential common shares had been
issued would be anti-dilutive. The following is a reconciliation of the number of shares used in the calculation of basic and diluted
loss per share for the three-month and six-month periods ended June 30, 2012 and 2011:



F-17











American Eagle Energy Corporation





Notes
to the Condensed Consolidated Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011





|                                                                       |  | For the Three-Month Period |            |   | For the Six-Month Period |  
|---------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------ | -
|                                                                       |  | Ended June 30,             |            |   | Ended June 30,           |  
|                                                                       |  | 2012                       |            |   | 2011                     |  
|Net income (loss)                                                      |  | $                          | (147,153   | ) |                          | $
|                                                                       |  |                            |            |   |                          |  
|Weighted average number of common shares outstanding                   |  |                            | 45,842,782 |   |                          |  
|Incremental shares from the assumed exercise of dilutive stock options |  |                            | -          |   |                          |  
|Diluted common shares outstanding                                      |  |                            | 45,842,782 |   |                          |  
|                                                                       |  |                            |            |   |                          |  
|Earnings (loss) per share – basic                                      |  | $                          | (0.00      | ) |                          | $
|Earnings (loss) per share – diluted                                    |  | $                          | (0.00      | ) |                          | $



| | 10. | Carry Agreement
| | --- | ---------------



On April 16, 2012,
the Company entered into a Carry Agreement with a third-party working interest partner, pursuant to which (i) that partner agreed
to fund 100% of the Company’s working interest share of the drilling and completion costs of up to six new oil and gas wells
within our Spyglass Property and (ii) the Company will convey, for a limited duration, 50% of its working interest in the pre-payout
revenues of each carried well to that partner. If payout has not occurred within two years of the commencement date for such well,
then the temporary assignment is to increase to 100% for years three through payout. Once payout has occurred (112% of the costs
on a well-by-well basis), the respective working interests in the revenues from each carried well will revert to the original working
interests in each such well. The Carry Agreement relieves the Company of approximately $12 million in what the working interest
share of the drilling and completion costs of such six wells would have been. The Company expects that it will significantly strengthen
its working capital position and allow it to pursue our short-term drilling program vigorously.



As of the date
of closing, the Company had incurred drilling costs associated with the first two wells to be covered under the Carry Agreement
totaling $1,349,204. Upon execution of the Carry Agreement, these costs were removed from the Company’s books and an offsetting
receivable was created. Pursuant to accounting rules, the assignment of a portion of the Company’s working interests in certain
existing and future wells under the Carry Agreement has been treated as a conveyance of the working interests. The Company has
disclosed the transfer of the drilling costs to the financing partner as a source of cash from investing activities on its consolidated
statement of cash flows for the six-month period ended June 30, 2012.



As of June 30,
2012, the Company has received $6,778,134 of funding under the Carry Agreement. Proceeds received pursuant to the terms of the
Carry Agreement, subsequent to the closing, are applied against the drilling and completion costs to which they relate. Additions
to oil and gas properties that occurred subsequent to the closing of the Carry Agreement are presented net of proceeds received
under the Carry Agreement on the consolidated statement of cash flows. Funds received pursuant to the Carry Agreement, prior to
the incurrence of related drilling costs, are presented as amounts due to working interest partners on the consolidated balance
sheet.



F-18











American Eagle Energy Corporation





Notes
to the Condensed Consolidated Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011





| | 11. | Equity Transactions
| | --- | -------------------



Reverse Stock Split



In December
2011, the Company declared a 1.0-for-4.5 reverse stock split. All historical share and per-share information presented below has
been restated and presented on a post-reverse-split basis.



Stock Issuances



In January
2011, the Company issued 100,000 shares of its common stock to one of its directors in exchange for cash consideration totaling
$110,000.



In March
2011, the Company issued 153,834 shares of its common stock to one of its directors in connection with the exercise of stock options.
Cash consideration received upon the exercise of the stock options totaled $34,625.



Stock Options



In January 2012, the Company granted 390,000 options
to purchase shares of its common stock to certain employees. The stock options were valued using the Black-Scholes option pricing
model and had a fair market value of $391,962 at the time of grant. The assumptions used in the Black-Scholes option pricing model
for the stock options granted in January 2012 were as follows:



|Risk-free interest rate                               |  |   | 0.28    | %
|----------------------------------------------------- |  | - | ------- | -
|Expected volatility of common stock                   |  |   | 101     | %
|Dividend yield                                        |  | $ | 0.00    |  
|Expected life of options                              |  |   | 5 years |  
|Weighted average fair market value of options granted |  | $ | 0.79    |  



As of the date of merger, AEE Inc. had 1,732,990 options
to purchase shares of AEE Inc.’s common stock. The options were originally issued in December 2010 and had a five-year life.
In April 2012, these options were exchanged for options to purchase shares of the Company’s common stock at a price of $0.74
per share. The options are scheduled to expire in December 2015.



A summary of stock option activity for the six-month
period ended June 30, 2012 and the year ended December 31, 2011 is presented below:



F-19









American Eagle Energy Corporation





Notes
to the Condensed Consolidated Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011



|                                 |  |         |           |   |          |   |      | Weighted  | 
|-------------------------------- |  | ------- | --------- | - | -------- | - | ---- | --------- | 
|                                 |  |         |           |   | Weighted |   |      | Average   | 
|                                 |  |         |           |   | Average  |   |      | Remaining | 
|                                 |  |         |           |   | Exercise |   |      | Contract  | 
|                                 |  | Options |           |   | Price    |   |      | Term      | 
|                                 |  |         |           |   |          |   |      |           | 
|Outstanding at December 31, 2010 |  |         | 820,444   |   |          | $ | 0.23 |           | 
|                                 |  |         |           |   |          |   |      |           | 
|Options granted                  |  |         | 975,000   |   |          |   | 1.18 |           | 
|Options exercised                |  |         | -         |   |          |   | -    |           | 
|Options expired                  |  |         | -         |   |          |   | -    |           | 
|Options forfeited                |  |         | -         |   |          |   | -    |           | 
|                                 |  |         |           |   |          |   |      |           | 
|Outstanding at December 31, 2011 |  |         | 1,795,444 |   |          | $ | 0.74 |           | 
|                                 |  |         |           |   |          |   |      |           | 
|AEE Inc. options converted       |  |         | 1,732,990 |   |          |   | 0.74 |           | 
|Options granted                  |  |         | 390,000   |   |          |   | 1.18 |           | 
|Options exercised                |  |         | (153,834  | ) |          |   | 0.05 |           | 
|Options expired                  |  |         | -         |   |          |   | -    |           | 
|Options forfeited                |  |         | -         |   |          |   | -    |           | 
|                                 |  |         |           |   |          |   |      |           | 
|Outstanding at June 30, 2012     |  |         | 3,764,600 |   |          | $ | 0.77 |           | 
|                                 |  |         |           |   |          |   |      |           | 
|Exercisable at June 30, 2012     |  |         | 2,399,600 |   |          | $ | 0.58 |           | 



Options outstanding
as of June 30, 2012 and December 31, 2011 that have an exercise price that is lower than the prevailing market price were deemed
to have an intrinsic value of $0.70 and $1.08 per share, resulting in an aggregate intrinsic value of $316,640 and $886,080, respectively.



The Company
recognized stock-based compensation expense of $188,096 and $353,773 for the three-month and six-month periods ended June 30, 2012,
respectively, related to stock options that were granted during December 2011 and January 2012. The Company did not recognize any
stock-based compensation expense for the three-month and six-month periods ended June 30, 2011 as all options outstanding during
that period had fully vested previously.



Shares Reserved for Future Issuance



As of June 30, 2012 and December 31, 2011, the Company
had reserved 3,764,600 and 1,795,444 shares, respectively, for future issuance upon exercise of outstanding options.



| | 12. | Related Party Transactions
| | --- | --------------------------



The Company routinely obtains legal services from
a firm for whom one of its directors serves as a principal. Fees paid to this firm totaled $10,367 and $6,618 for the six-month
periods ended June 30, 2012 and 2011, respectively.



F-20











American Eagle Energy Corporation





Notes
to the Condensed Consolidated Financial Statements



As of June 30, 2012, December
31, 2011 and

For the Three-Month and Six-Month
Periods Ended June 30, 2012 and 2011







Prior to its acquisition by the Company, AEE Inc.
entered into an agreement with Synergy Energy Resources LLC (“Synergy”) for it to provide monthly geological consulting
services to AEE Inc. One of the Company’s current directors and one current officer own material ownership interests in Synergy.
The Company purchased $84,000 and $68,000 of consulting fees from Synergy during the six-month periods ended June 30, 2012 and
2011, respectively



| | 13. | Subsequent Events
| | --- | -----------------



Effective July 15, 2012, the Company amended the
Carry Agreement (described in Note 10) with the third-party to include an additional four oil and gas wells. The amendment relieves
the Company of approximately $8 million of estimated future drilling related costs associated with the additional four wells.



F-21







ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS



THE FOLLOWING PRESENTATION OF OUR MANAGEMENT'S DISCUSSION AND
ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS
REPORT.



A Note About Forward-Looking Statements



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



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



Industry Outlook



The petroleum industry is highly competitive
and subject to significant volatility due to numerous market forces. Crude oil and natural gas prices are affected by market fundamentals
such as weather, inventory levels, competing fuel prices, overall demand, and the availability of supply.



Worldwide oil prices reached historical
highs during the last half of 2008, before tumbling amid worldwide economic crisis. Oil prices stabilized during 2009 and remained
stable throughout 2010. Since December 31, 2010, oil prices increased rapidly, topping $100 per barrel in mid-March 2011 and again
in March 2012 before settling back into the mid-eighties at the end of the second quarter.



3







Oil prices cannot be predicted with any
certainty and have significantly affected profitability and returns for upstream producers. Historically, crude oil prices have
averaged approximately $85 per barrel over the past five years, per the New York Mercantile Exchange (“NYMEX”). However,
during that time, oil prices have experienced wide fluctuations in prices, ranging from $37 per barrel to $145 per barrel, with
the median price of $85 per barrel. Oil prices averaged approximately $93 and $98 during the three-month and six-month periods
ended June 30, 2012, compared to $103 and $99 for the three-month and six-month periods ended June 30, 2011.



While local supply/demand fundamentals are
a decisive factor affecting domestic natural gas prices over the long term, day-to-day prices may be more volatile in the futures
markets, such as on the NYMEX and other exchanges, making it difficult to forecast prices with any degree of confidence.



Company Overview



The address of our principal executive office
is 2549 W. Main Street, Suite 202, Littleton, Colorado, 80120. Our telephone number is 303-798-5235.



Our common stock is quoted on the OTC Bulletin
Board and the OTC Markets Group Inc.’s OTCQX tier under the symbol “AMZG.”



Our Company was incorporated in the State
of Nevada under the name “Golden Hope Resources Corp.” on July 25, 2003 and is engaged in the acquisition, exploration,
and development of natural resource properties of merit. On November 7, 2005, we filed documents with the Nevada Secretary of State
to change our name to “Eternal Energy Corp.” by way of a merger with our wholly-owned subsidiary, Eternal Energy Corp.,
which was formed solely to facilitate the name change. In December 2011, we again filed documents with the Nevada Secretary of
state to change our name to “American Eagle Energy Corporation” in conjunction with our acquisition of, and merger
with, American Eagle Energy Inc. (“AEE Inc.”).



Since our inception, we have entered into
participation agreements related to oil and gas exploration projects throughout the continental United States, including Colorado,
Montana, Nevada, North Dakota, Texas, and Utah, as well as in the province of Saskatchewan, Canada, and areas located in the North
Sea. As of June 30, 2012, we are actively engaged in exploration activities within the Spyglass Property, located in Divide County,
North Dakota, within the Benrude Property, located in Roosevelt County, Montana and within the Hardy Property, located in southeastern
Saskatchewan, Canada. In addition, we own undeveloped acreage interests in the Glacier Prospect, located in Toole County, Montana,
the Sidney North Prospect, located in Richland County, Montana and the West Spyglass Prospect, located in an area adjacent to our
Spyglass Property in Divide County, North Dakota and Sheridan County, Montana.



Our current operations consist of eleven
full-time employees and two paid consultants, who provide accounting and land management services on a contract basis.



4







Oil & Gas Wells



Since November 2010, we have elected to
participate as a non-operating working interest partner in the drilling of 25 wells within the Spyglass Property and areas within
Divide Country, North Dakota. Our consolidated working interest ownership in the wells ranges from 0.03% to 22.87%.



During this same time period, we have drilled and completed
six wells, in which we own significant working interests, and for which we serve as the Operator. Two of the wells were drilled
within our Hardy Property, located in southeastern Saskatchewan, Canada, while the other four wells were drilled within our Spyglass
Property. In addition, we reworked an existing well, located within the Hardy Property, and anticipate drilling and completing
six more wells within the Spyglass Property during the remainder of 2012. Our working interests in these wells ranges from 6.43%
to 85.00%.



We evaluate our oil and gas properties for potential impairment
on an annual basis. There were no impairments evident as of June 30, 2012.



A summary of the Company’s working
interest in the Spyglass wells and the status of each well as of June 30, 2012 is as follows:



|Well Name               |  | Operator                          |  | Working Interest |       |   | Actual or Anticipated Spud Date |                  | Current Status
|----------------------- |  | --------------------------------- |  | ---------------- | ----- | - | ------------------------------- | ---------------- | --------------
|Aarestad 4-34H-160N-97W |  | North Plains Energy, LLC          |  |                  | 0.63  | % |                                 | November 1, 2010 |               
|Adams 2-18H-163N-100W   |  | SM Energy Company                 |  |                  | 18.52 | % |                                 | April 20, 2012   |               
|Anton 3-4-163N-101W (1) |  | American Eagle Energy Corporation |  |                  | 22.87 | % |                                 | June 15, 2012    |               
|Autumn 4-26HN           |  | SM Energy Company                 |  |                  | 5.96  | % |                                 | August 15, 2012  |               
|Bagley 4-30-163N-100W   |  | SM Energy Company                 |  |                  | 3.87  | % |                                 | April 3, 2011    |               
|Baja 15-22              |  | Samson  Company                   |  |                  | 0.63  | % |                                 | June 12, 2012    |               
|Baja 1522-5H            |  | SM Energy Company                 |  |                  | 0.63  | % |                                 | July 7, 2012     |               



5







|Well Name                |  | Operator                          |  | Working Interest |       |   | Actual or Anticipated Spud Date |                    | Current Status
|------------------------ |  | --------------------------------- |  | ---------------- | ----- | - | ------------------------------- | ------------------ | --------------
|Blazer 2-11-163N-98W     |  | Samson Resources Company          |  |                  | 0.94  | % |                                 | February 12, 2011  |               
|Christianson 15-12 (1)   |  | American Eagle Energy Corporation |  |                  | 17.81 | % |                                 | January 11, 2012   |               
|Cody 16-11 (1)           |  | American Eagle Energy Corporation |  |                  | 18.09 | % |                                 | March 22, 2012     |               
|Coplan 1-3 (1)           |  | American Eagle Energy Corporation |  |                  | 7.00  | % |                                 | April 25, 2012     |               
|Denali 13-21-163N-98W    |  | Samson Resources Company          |  |                  | 0.03  | % |                                 | December 23, 2010  |               
|Elizabeth 3-4 (1)        |  | American Eagle Energy Corporation |  |                  | 19.63 | % |                                 | August 1, 2012     |               
|Gerhardsen 1-10-163N-97W |  | Continental Resources, Inc.       |  |                  | 2.37  | % |                                 | January 12, 2011   |               
|Gulbranson 2-11H-        |  | SM Energy Company                 |  |                  | 11.34 | % |                                 | May 25, 2012       |               
|Haagenson 3-2-163N-101W  |  | American Eagle Energy Corporation |  |                  | 17.64 | % |                                 | September 30, 2012 |               
|Jurasin 32-29-162N-100W  |  | Crescent Point Energy Corp.       |  |                  | 0.61  | % |                                 | October 15, 2011   |               
|Lancaster 2-1-162N-102W  |  | Crescent Point Energy Corp.       |  |                  | 6.23  | % |                                 | July 1, 2011       |               
|Legaard 4-25H-163N-101W  |  | SM Energy Company                 |  |                  | 3.69  | % |                                 | July 19, 2011      |               



6







|Well Name                  |  | Operator                          |  | Working Interest |       |   | Actual or Anticipated Spud Date |                   | Current Status
|-------------------------- |  | --------------------------------- |  | ---------------- | ----- | - | ------------------------------- | ----------------- | --------------
|Megan 14-12-163N101W       |  | American Eagle Energy Corporation |  |                  | 17.81 | % |                                 | September 5, 2012 |               
|Mona Johnson 1-3-163N-101W |  | American Eagle Energy Corporation |  |                  | 10.50 | % |                                 | November 2, 2012  |               
|Montclair 1-12-163N99W     |  | Samson Resources Company          |  |                  | 1.60  | % |                                 | November 7, 2011  |               
|Mustang 7-6-163N-98W       |  | Samson Resources Company          |  |                  | 0.32  | % |                                 | April 25, 2011    |               
|Muzzy 15-33-163N-101W      |  | American Eagle Energy Corporation |  |                  | 22.87 | % |                                 | November 10, 2012 |               
|Nielsen 1-12-160N-97W      |  | Continental Resources, Inc.       |  |                  | 0.46  | % |                                 | December 21, 2010 |               
|Nomad 6-7-163N-99W         |  | Samson Resources Company          |  |                  | 14.47 | % |                                 | October 26, 2011  |               
|Nomad 0607-05H             |  | Samson Resources Company          |  |                  | 14.41 | % |                                 | June 5, 2012      |               
|Nomad 0607-6TFH            |  | Samson Resources Company          |  |                  | 14.41 | % |                                 | June 5, 2012      |               
|Olson 15-22-162N-100W      |  | Baytex Energy USA                 |  |                  | 0.78  | % |                                 | August 11, 2011   |               
|Reistad 1-1-162N-102W      |  | Murex Petroleum Corporation       |  |                  | 4.47  | % |                                 | February 28, 2011 |               



7







|Well Name                |  | Operator                          |  | Working Interest |       |   | Actual or Anticipated Spud Date |                   | Current Status
|------------------------ |  | --------------------------------- |  | ---------------- | ----- | - | ------------------------------- | ----------------- | --------------
|Ridgeway 25-36-163N-101W |  | Crescent Point Energy Corp.       |  |                  | 1.88  | % |                                 | August 15, 2011   |               
|Riede 4-14-163N-100W     |  | SM Energy Company                 |  |                  | 0.34  | % |                                 | January 30, 2011  |               
|Silas 3-2-163N-101W (1)  |  | American Eagle Energy Corporation |  |                  | 12.61 | % |                                 | August 31, 2012   |               
|Thomte 8-5-163N-99W      |  | Samson Resources Company          |  |                  | 3.18  | % |                                 | August 22, 2011   |               
|Titan 36-25-163N-99W     |  | Samson Resources Company          |  |                  | 0.81  | % |                                 | October 8, 2011   |               
|Torgeson 1-15H-163N-100W |  | SM Energy Company                 |  |                  | 4.38  | % |                                 | March 6, 2011     |               
|Wolter 1-28H-163N-100W   |  | SM Energy Company                 |  |                  | 1.30  | % |                                 | November 27, 2010 |               
|Wolter 13-9H-163N-100W   |  | SM Energy Company                 |  |                  | 5.92  | % |                                 | June 26, 2011     |               
|Wolter 15-8-163N-100W    |  | SM Energy Company                 |  |                  | 1.54  | % |                                 | November 20, 2011 |               
|Yukon 12-1-163N-98W      |  | Samson Resources Company          |  |                  | 1.25  | % |                                 | February 28, 2011 |               



| | (1) | This well is included in the Carry Agreement to which we are a party as of June 30,
                                                                                2012. Our working interest in this well is subject to change depending on the length of time it takes for the well to pay out.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Well Summary



The following tables
summarize the Company’s wells and drilling activity for the six-month period ended June 30, 2012 and the year ended December
31, 2011:



8







|                         |  | Six-Months Ended |       |  | Year Ended        | 
|------------------------ |  | ---------------- | ----- |  | ----------------- | 
|                         |  | June 30, 2012    |       |  | December 31, 2011 | 
|                         |  | U.S.             |       |  | Canada            | 
|Gross exploratory wells: |  |                  |       |  |                   | 
|                         |  |                  |       |  |                   | 
|Beginning of period      |  |                  | -     |  |                   | 
|Purchased / acquired     |  |                  | -     |  |                   | 
|Drilled                  |  |                  | -     |  |                   | 
|Abandoned                |  |                  | -     |  |                   | 
|End of period            |  |                  | -     |  |                   | 
|                         |  |                  |       |  |                   | 
|Gross development wells: |  |                  |       |  |                   | 
|                         |  |                  |       |  |                   | 
|Beginning of period      |  |                  | 21.00 |  |                   | 
|Purchased / acquired     |  |                  | -     |  |                   | 
|Drilled                  |  |                  | 6.00  |  |                   | 
|Abandoned                |  |                  | -     |  |                   | 
|End of period            |  |                  | 27.00 |  |                   | 



|                       |  | Six-Months Ended |      |  | Year Ended        | 
|---------------------- |  | ---------------- | ---- |  | ----------------- | 
|                       |  | June 30, 2012    |      |  | December 31, 2011 | 
|                       |  | U.S.             |      |  | Canada            | 
|Net exploratory wells: |  |                  |      |  |                   | 
|                       |  |                  |      |  |                   | 
|Beginning of period    |  |                  | -    |  |                   | 
|Purchased / acquired   |  |                  | -    |  |                   | 
|Drilled                |  |                  | -    |  |                   | 
|Abandoned              |  |                  | -    |  |                   | 
|End of period          |  |                  | -    |  |                   | 
|                       |  |                  |      |  |                   | 
|Net development wells: |  |                  |      |  |                   | 
|                       |  |                  |      |  |                   | 
|Beginning of period    |  |                  | 0.50 |  |                   | 
|Purchased / acquired   |  |                  | -    |  |                   | 
|Drilled                |  |                  | 0.79 |  |                   | 
|Abandoned              |  |                  | -    |  |                   | 
|End of period          |  |                  | 1.29 |  |                   | 



The Company did not drill any dry exploratory or developmental
wells during the six-month period ended June 30, 2012 or the year ended December 31, 2011.



Acquisition of AEE Inc.



In December 2011, we finalized our merger
with AEE Inc., at which time we formed a wholly-owned subsidiary into which AEE Inc. was merged. On December 20, 2011, the trading
of the common stock of the combined company commenced.



9







Results of Operations for the Three-Month Period Ended June
30, 2012 vs. 2011



The consolidated results of operations for
the three-month period ended June 30, 2012 include the results of operations of both American Eagle Energy Corporation and AEE
Inc. and their respective subsidiaries. For financial reporting purposes, the consolidated results of operations for AEE Inc. for
the period January 1, 2011 through December 20, 2011, the date of our merger, are excluded from our reportable 2011 results of
operations due to accounting rules applicable to business combinations. However, for analysis purposes only, the following discussion
includes references, where appropriate, to pro forma amounts, which represent the combined results of operations for the three-month
period ended June 30, 2011.



We recognized a net loss of $147,153 for
the three-month period ended June 30, 2012, compared to net income of $2,912,909 for the three-month period ended June 30, 2011.
Our basic and diluted loss per share for the three-month period ended June 30, 2012 was ($0.00), compared to $0.32 and $0.30 for
the three-month period ended June 30, 2011. The 2011 earnings per share figures have been adjusted to reflect the effects of the
1.0-to-4.5 reverse stock split that occurred in December 2011. A discussion of the key components of our statements of operations
and material fluctuations for the three-month period ended June 30, 2012 and 2011 is provided below.



Revenues associated with the sale of oil
and gas totaled $1,690,673 for the three-month period ended June 30, 2012, compared to $13,702 for the three-month period ended
June 30, 2011. Oil and gas sales consist of our working interests in sales from both US and Canadian wells, which we operate, as
well as sales from various US wells in which we own non-operating, working interests. A comparison of the 2012 and 2011 oil and
gas sales is as follows:



| | · | Sales from our Hardy 4-16 well totaled $350,100 for the three-month
period ended June 30, 2012. The Hardy 4-16 well was drilled and cased in May 2011 and put on production in September 2011. Accordingly,
we did not recognize any oil sales from the Hardy 4-16 well during the three-month period ended June 30, 2011.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Sales from our Hardy 7-9 well totaled $21,354 and $7,377 for the three-month
period ended June 30, 2012 and 2011, respectively. Due to various mechanical issues, the Hardy 7-9 well was shut-in during May
and June 2012.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In April 2012, we completed the Christianson 15-12 well, our first
operated well within our Spyglass Property. Sales from the Christianson 15-12 well totaled $182,804 for the three-month period
ended June 30, 2012.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In May 2012, we completed the Cody 15-11 well, also within our Spyglass
Property. Sales from the Cody 15-11 well totaled $88,950 for the three-month period ended June 30, 2012.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Beginning in April 2011, we began recognizing revenues from our various
working interests in a number of non-operated wells located within the Spyglass Property. Revenues related to Spyglass non-operated
wells totaled $960,284 for the three-month period ended June 30, 2012, compared to $6,328 for the three-month period ended June
30, 2011. The majority of our 2012 Spyglass oil sales is attributable to the Wolter 13-9 ($116,068), the Legaard 4-25 ($95,557),
the Torgeson 1-15 ($101,794), the Thomte 8-5 ($202,237), the Nomad 6-7 ($192,644), the Bagley 4-30 ($68,747), the Gerhardsen 1-10
($15,418), the Montclair 1-12 ($44,018) and the Jurasin 32-29 ($32,008) wells. The Wolter 13-9, Legaard 4-25, Torgeson 1-15 and
Bagley 4-30 wells are operated by SM Energy Company. The Thomte 8-5, Nomad 6-7 and Montclair 1-12 wells are operated by Samson
Resources Company. The Gerhardsen 1-10 well is operated by Continental Resources, Inc.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10







| | · | On a pro forma basis, oil and gas sales for the three-month period
ended June 30, 2011 would have totaled $24,139.
| | - | ------------------------------------------------------------------------------------------------------------------



Oil and gas operating expenses totaled $694,954
for the three-month period ended June 30, 2012, compared to $67,508 for the same period in 2011. Current year oil and gas operating
expenses represented approximately 37.7% of oil and gas revenues. A comparison of the 2012 and 2011 oil and gas operating expense
is as follows:



| | · | Lease operating expenses associated with our Hardy 4-16 well totaled
$207,775 for the three-month period ended June 30, 2012, representing 23.0% of net revenues. Because the well had not yet been
completed at the time, we did not recognized any lease operating expenses for the Hardy 4-16 for the three-month period ended June
30, 2011.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Lease operating expenses associated with our Hardy 7-9 well totaled
$225,670 and $67,508 for the three-month periods ended June 30, 2012 and 2011, respectively. Historically, the Hardy 7-9 well has
incurred higher than normal operating expenses and repair costs in order to maintain production. Well supervision, contract services
and trucking expenses related to the Hardy 7-9 totaled $34,877, $72,855 and $34,245 respectively.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Lease operating expenses associated with our Christianson 15-12 well
totaled $21,279 for the three-month period ended June 30, 2012, representing 11.6% of net revenues. The Christianson 15-12 well
was completed in April 2012.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Lease operating expenses associated with our Cody 15-11 well totaled
$10,361 for the three-month period ended June 30, 2012, representing 11.8% of net revenues. The Cody 15-11 well was completed in
May 2012.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Lease operating expenses associated with our non-operating working
interests in the various Spyglass wells totaled $173,923 and $6,328 for the three-month periods ended June 30, 2012 and 2011, respectively.
The majority of the non-operated wells in which we own working interests were placed on production subsequent to June 30, 2011.
Lease operating expenses for the three-month period ended June 30, 2012 totaled $15,160 for Wolter 13-9 (13.1% of net revenues),
$10,921 for the Legaard 4-25 (11.4% of net revenues), $32,445 for the Torgeson 1-15 (31.9% of net revenues) $23,850 for the Thomte
8-5 (11.8% of net revenues), $22,154 for the Nomad 6-7 (11.5% of net revenues), $22,520 for the Bagley 4-30 (32.8% of net revenues
sales), $5,046 for the Gerhardsen 1-10 (32.7% of net revenues) and $5,062 for the Montclair 1-12 (11.5% of net revenues) wells.
Total lease operating expense for our other non-operated wells totaled $55,238 for the three-month period ended June 30, 2012.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



11







| | · | On a pro forma basis, oil and gas operating expenses would have totaled
$138,200 for the three-month period ended June 30, 2011.
| | - | --------------------------------------------------------------------------------------------------------------------------------



General and administrative expenses totaled
$867,008 for the three-month period ended June 30, 2012, compared to $438,436 for the three-month period ended June 30, 2011. While
the merger with AEE Inc. has led to increases in our general and administrative costs, such increases are primarily limited to
payroll and employee benefit related expenses, as well as increased professional fees, such as legal, accounting and consulting
fees. A discussion of the key components of our general and administrative expenses for the three-month periods ended June 30,
2012 and 2011 is as follows:



| | · | Salaries and related payroll expenses totaled $308,142 for the three-month
period ended June 30, 2012, compared to $46,193 for the same period in 2011. Our staff consisted of 11 full-time employees as of
June 30, 2012, compared to two full-time employees at June 30, 2011. Pro-forma payroll expense for the six-month period ended June
30, 2011 would have been $139,163.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We incurred legal fees totaling $112,540 during the three-month period
ended June 30, 2012, compared to $153,449 for the same period in 2011. The majority of our 2011 legal fees were non-recurring and
related to the then-proposed merger with AEE Inc., which closed in December 2011. Pro-forma legal fees for the six-month period
ended June 30, 2011 would have been $279,680.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | During the three-month period ended June 30, 2012, we paid consulting
fees to a related party (Synergy Resources LLC) totaling $42,000. We incurred no such costs during the same period in 2011. Our
consulting arrangement with Synergy Resources is a legacy arrangement from AEE Inc., which was entered into prior the merger of
the two companies. Pro-forma consulting fees paid to Synergy Resources for the three-month period ended June 30, 2011 totaled $38,000.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We incurred accounting fees totaling $104,039 during the three-month
period ended June 30, 2012, compared to $46,002 for the same period in 2011. Pro-forma accounting fees for the three-month period
ended June 30, 2011 would have been $78,793.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In December 2011, we granted 975,000 stock options to members of our
management and operational teams, as well as two directors and one independent contractor. During the six-month period ended June
30, 2012, we granted 390,000 stock options to a director and other employees. As a result, we recognized stock-based compensation
expense of $188,096 for the three-month period ended June 30, 2012. We did not recognize any stock-based compensation expense during
the three-month period ended June 30, 2011, as all outstanding options during that period had previously vested fully.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12







| | · | We incurred insurance expenses totaling $51,058 during the three-month
period ended June 30, 2012, compared to $29,261 for the same period in 2011. The increase is primarily due to obtaining tail coverage
for our Directors & Officers insurance for the three-year period prior to the merger with AEE Inc., as well as obtaining well
insurance for the wells that we are operating or anticipate drilling in the coming year.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Though our functional and reporting currency is the US Dollar, the
majority of our transactions related to our Hardy Property are transacted in Canadian Dollars. During the three-month period ended
June 30, 2012, we recognized a foreign exchange gains totaling $118,059 versus foreign exchange losses of $6,947 for the same period
in 2011.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We incurred travel and entertainment related expenses totaling $8,736
during the three-month period ended June 30, 2012, compared to $4,069 for the same period in 2011. Pro-forma travel and entertainment
expenses for the three-month period ended June 30, 2011 would have been $25,108.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We incurred computer related expenses totaling $29,835 for the three-month
period ended June 30, 2012, compared to $4,205 for the same period in 2011. The increase is largely due to various computer software
licenses that were obtained, as well as access to various oil and gas production and investor relations information services. Pro-forma
computer expenses for the three-month period ended June 30, 2011 would have been $26,275.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We incurred land management fees totaling $46,923 for the three-month
period ended June 30, 2012, compared to $17,364 for the same period in 2011. The increase is primarily due to the fact that our
land management consultant worked full-time for us in 2012, versus part-time in 2011. Pro-forma land management fees for the six-month
period ended June 30, 2011 would have been $64,681.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On a pro-forma basis, aggregate general and administrative expenses
would have been $793,225 for the three-month period ended June 30, 2011.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



Depletion expense related to our Canadian
oil and gas properties totaled $142,159 for the three-month period ended June 30, 2012, compared to $11,679 for the same period
in 2011. Depletion expense related to our US oil and gas properties totaled $134,563 for the three-month period ended June 30,
2012. We did not recognize any US depletion expense during the three-month period ended June 30, 2011, as none of our non-operated
wells was producing materially at that time.



We routinely receive dividends from our
equity investment in shares of Crescent Point Energy Corp.’s common stock. Dividend income totaled $11,449 for the three-month
period ended June 30, 2012, compared to $19,476 for the same period in 2011.



Despite incurring a net loss for the period,
we recognized an estimated income tax expense of $17,860 for the three-month period ended June 30, 2012 relating to the effect
of such losses on our deferred tax liabilities, compared to income tax expense of $4,429 for the same period in 2011.



13







Results of Operations for the Six-Month Period Ended June
30, 2012 vs. 2011



The consolidated results of operations for
the six-month period ended June 30, 2012 include the results of operations of both American Eagle Energy Corporation and AEE Inc.
and their respective subsidiaries. For financial reporting purposes, the consolidated results of operations for AEE Inc. for the
period January 1, 2011 through December 20, 2011, the date of our merger, are excluded from our reportable 2011 results of operations
due to accounting rules applicable to business combinations. However, for analysis purposes only, the following discussion includes
references, where appropriate, to pro forma amounts, which represent the combined results of operations for the six-month period
ended June 30, 2011.



We recognized a net loss of $505,488 for
the six-month period ended June 30, 2012, compared to net income of $2,348,363 for the six-month period ended June 30, 2011. Our
basic and diluted loss per share for the six-month period ended June 30, 2012 was ($0.01), compared to $0.26 and $0.24 for the
six-month period ended June 30, 2011. The 2011 earnings per share figures have been adjusted to reflect the effects of the 1.0-to-4.5
reverse stock split that occurred in December 2011. A discussion of the key components of our statements of operations and material
fluctuations for the six-month period ended June 30, 2012 and 2011 is provided below.



Revenues associated with the sale of oil
and gas totaled $2,916,252 for the six-month period ended June 30, 2012, compared to $52,805 for the six-month period ended June
30, 2011. Oil and gas sales consist of our working interests in sales from both US and Canadian wells (Canadian), which we operate,
as well as sales from various US wells in which we own non-operating, working interests. A comparison of the 2012 and 2011 oil
and gas sales is as follows:



| | · | Sales from our Hardy 4-16 well totaled $903,312 for the six-month
period ended June 30, 2012. The Hardy 4-16 well was drilled and cased in May 2011 and put on production in September 2011. Accordingly,
we did not recognize any oil sales from the Hardy 4-16 well during the six-month period ended June 30, 2011.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Sales from our Hardy 7-9 well totaled $115,243 and $46,480 for the
six-month period ended June 30, 2012 and 2011, respectively. Due to various mechanical issues, the Hardy 7-9 well produced on and
off during 2011. In January 2011, the well encountered mechanical problems and was taken off of production due to a parted rod
string. The well was repaired and returned to production in March 2011. The well went off of production in mid-April due to mechanical
issues. The well bore was repaired in May 2011; but, the well remained shut-in through June 30, 2011 due to inclement weather conditions
and widespread flooding in the area. The Hardy 7-9 was returned to production in July 2011 and produced oil during five of the
last six months of 2011 and the first six months of 2012.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In April 2012, we completed the Christianson 15-12 well, our first
operated well within our Spyglass Property. Sales from the Christianson 15-12 well totaled $182,804 for the six-month period ended
June 30, 2012.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14







| | · | In May 2012, we completed the Cody 15-11 well, also within our Spyglass
Property. Sales from the Cody 15-11 well totaled $88,950 for the six-month period ended June 30, 2012.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Beginning in April 2011, we began recognizing revenues from our various
working interests in a number of non-operated wells located within the Spyglass Property. Revenues related to Spyglass non-operated
wells totaled $1,639,441 for the six-month period ended June 30, 2012, compared to $6,328 for the six-month period ended June 30,
2011. The majority of our 2012 Spyglass oil sales is attributable to the Wolter 13-9 ($367,935), the Legaard 4-25 ($250,172), the
Torgeson 1-15 ($204,253), the Thomte 8-5 ($202,237), the Nomad 6-7 ($192,644), the Bagley 4-30 ($112,937), the Gerhardsen 1-10
($43,303) and the Montclair 1-12 ($44,018) wells.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On a pro forma basis, oil and gas sales for the six-month period ended
June 30, 2011 would have totaled $99,282.
| | - | ----------------------------------------------------------------------------------------------------------------



Oil and gas operating expenses totaled $1,101,510,
compared to $115,691 for the same period in 2011. Current year oil and gas operating expenses represented approximately 37.7% of
oil and gas revenues. A comparison of the 2012 and 2011 oil and gas operating expense is as follows:



| | · | Lease operating expenses associated with our Hardy 4-16 well totaled
$348,249 for the six-month period ended June 30, 2012, representing 38.5% of net revenues. Because the well had not yet been completed
at the time, we did not recognized any lease operating expenses for the Hardy 4-16 for the six-month period ended June 30, 2011.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Lease operating expenses associated with our Hardy 7-9 well totaled
$377,521 and $115,691 for the six-month periods ended June 30, 2012 and 2011, respectively. Historically, the Hardy 7-9 well has
incurred higher than normal operating expenses and repair costs in order to maintain production. Well supervision, contract services
and trucking expenses related to the Hardy 7-9 totaled $53,312, $93,716 and $101,920 respectively.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Lease operating expenses associated with our Christianson 15-12 well
totaled $21,279 for the six-month period ended June 30, 2012, representing 11.6% of net revenues. The Christianson 15-12 well was
completed in April 2012.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Lease operating expenses associated with our Cody 15-11 well totaled
$10,464 for the six-month period ended June 30, 2012, representing 11.8% of net revenues. The Cody 15-11 well was completed in
May 2012.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15







| | · | Lease operating expenses associated with our non-operating working
interests in the various Spyglass wells totaled $279,438 and $6,328 for the six-month periods ended June 30, 2012 and 2011, respectively.
The majority of the non-operated wells in which we own working interests were placed on production subsequent to June 30, 2011.
Lease operating expenses for the six-month period ended June 30, 2010 totaled $52,228 for Wolter 13-9 (14.2% of net revenues),
$30,116 for the Legaard 4-25 (12.0% of net revenues), $49,061 for the Torgeson 1-15 (24.0% of net revenues) $24,112 for the Thomte
8-5 (11.9% of net revenues), $22,154 for the Nomad 6-7 (11.5% of net revenues), $28,140 for the Bagley 4-30 (24.9% of net revenues
sales), $8,293 for the Gerhardsen 1-10 (19.2% of net revenues) and $5,062 for the Montclair 1-12 (11.5% of net revenues) wells.
Total lease operating expense for our other non-operated wells totaled $60,272 for the six-month period ended June 30, 2012.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On a pro forma basis, oil and gas operating expenses would have totaled
$233,367 for the six-month period ended June 30, 2011.
| | - | ------------------------------------------------------------------------------------------------------------------------------



General and administrative expenses totaled
$2,045,700 for the six-month period ended June 30, 2012, compared to $994,767 for the six-month period ended June 30, 2011. A discussion
of the key components of our general and administrative expenses for the six-month periods ended June 30, 2012 and 2011 is as follows:



| | · | Salaries and related payroll expenses totaled $625,733 for the six-month
period ended June 30, 2012, compared to $118,075 for the same period in 2011. Our staff consisted of 11 full-time employees as
of June 30, 2012, compared to two full-time employees during the first half of 2011. Pro-forma payroll expense for the six-month
period ended June 30, 2011 would have been $226,425.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We incurred legal fees totaling $234,641 during the six-month period
ended June 30, 2012, compared to $390,266 for the same period in 2011. The majority of our 2011 legal fees were non-recurring and
related to the then-proposed merger with AEE Inc., which closed in December 2011. Pro-forma legal fees for the six-month period
ended June 30, 2011 would have been $683,349.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We incurred consulting fees totaling $100,746 during the six-month
period ended June 30, 2012, compared to $153,192 for the same period in 2011. The 2012 consulting fees included fees associated
with the recruitment of new employees totaling $32,500, fees associated with our rebranding totaling $32,782 and fees associated
with obtaining our most recent reserve report, totaling $30,435. Included in the 2011 consulting fees were costs associated with
obtaining a fairness opinion related to our then-proposed merger with AEE Inc., totaling $126,051. Pro-forma consulting fees for
the six-month period ended June 30, 2011 would have been $169,190.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | During the six-month period ended June 30, 2012, we paid consulting
fees to a related party (Synergy Resources LLC) totaling $84,000. We incurred no such costs during the same period in 2011. Our
consulting arrangement with Synergy Resources is a legacy arrangement from AEE Inc., which was entered into prior the merger of
the two companies. Pro-forma consulting fees paid to Synergy Resources for the six-month period ended June 30, 2011 totaled $68,000.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We incurred accounting fees totaling $158,534 during the six-month
period ended June 30, 2012, compared to $105,696 for the same period in 2011. Pro-forma accounting fees for the six-month period
ended June 30, 2011 would have been $178,992.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16







| | · | In December 2011, we granted 975,000 stock options to members of our
management and operational teams, as well as two directors and one independent contractor. During the six-month period ended June
30, 2012, we granted 390,000 stock options to a director and other employees. As a result, we recognized stock-based compensation
expense of $353,773 for the six-month period ended June 30, 2012. We did not recognize any stock-based compensation expense during
the six-month period ended June 30, 2011, as all outstanding options during that period had previously vested fully.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We incurred insurance expenses totaling $159,362 during the six-month
period ended June 30, 2012, compared to $49,834 for the same period in 2011. The increase is primarily due to obtaining tail coverage
for our Directors & Officers insurance for the three-year period prior to the merger with AEE Inc., as well as obtaining well
insurance for the wells that we are operating or anticipate drilling in the coming year.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Though our functional and reporting currency is the US Dollar, the
majority of our transactions related to our Hardy Property are transacted in Canadian Dollars. During the six-month period ended
June 30, 2012, we recognized a foreign exchange gains totaling $73,039 versus foreign exchange losses of $28,584, for the same
period in 2011.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We incurred travel and entertainment related expenses totaling $51,071
during the six-month period ended June 30, 2012, compared to $13,578 for the same period in 2011. During March 2012, our Chairman
and President traveled to various financial centers within the US to raise public awareness of our Company. Pro-forma travel and
entertainment expenses for the six-month period ended June 30, 2011 would have been $38,835.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We incurred computer related expenses totaling $81,673 for the six-month
period ended June 30, 2012, compared to $5,988 for the same period in 2011. The increase is largely due to various computer software
licenses that were obtained, as well as access to various oil and gas production and investor relations information services. Pro-forma
computer expenses for the six-month period ended June 30, 2011 would have been $34,837.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We incurred land management fees totaling $93,320 for the six-month
period ended June 30, 2012, compared to $35,592 for the same period in 2011. The increase is primarily due to the fact that our
land management consultant only worked part-time for us in 2011, versus full-time in 2012. Pro-forma land management fees for the
six-month period ended June 30, 2011 would have been $116,452.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On a pro-forma basis, aggregate general and administrative expenses
would have been $1,720,922 for the six-month period ended June 30, 2011.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



17







Depletion expense related to our Canadian
oil and gas properties totaled $332,377 for the six-month period ended June 30, 2012, compared to $24,712 for the same period in
2011. Depletion expense related to our US oil and gas properties totaled $234,820 for the six-month period ended June 30, 2012.
We did not recognize any US depletion expense during the six-month period ended June 30, 2011, as none of our non-operated wells
was producing materially at that time.



We routinely receive dividends from our
equity investment in shares of Crescent Point Energy Corp.’s common stock. Dividend income totaled $28,730 for the six-month
period ended June 30, 2012, compared to $34,532 for the same period in 2011.



We recognized an estimated income tax benefit
in the amount of $259,769 for the six-month period ended June 30, 2012 relating to our net losses for the period and the effect
of such losses on our deferred tax liabilities. We did not recognize any income tax expense or benefit during the six-month period
ended June 30, 2011, as we had available net-operating-loss carryforwards to offset any such expense. Our deferred tax liabilities
relate primarily to our merger with AEE Inc., which occurred in December 2011.



Liquidity and Capital Resources



As of June 30, 2012, our assets totaled
$56,792,189, which included, among other items, cash balances totaling $10,084,292, trade receivables totaling $12,063,519 and
marketable securities valued at $1,126,324. As of June 30, 2012, we had a working capital deficit of $4,481,523, exclusive of our
marketable securities, which, due to their nature, are presented as non-cash assets on our June 30, 2012 balance sheet. Our working
capital deficit is primarily the result of accelerating drilling activities ahead of anticipated corresponding revenues.



In April 2012, we entered into a Carry Agreement
with a third-party working interest partner, pursuant to which (i) that partner agreed to fund 100% of our working interest share
of the drilling and completion costs of up to six new oil and gas wells within our Spyglass Property, up to 120% of the anticipated
cost of the wells and (ii) we will convey, for a limited duration, 50% of our working interest in the pre-payout revenues of each
carried well to that partner. If payout has not occurred within two years of the commencement date for such well, then the temporary
assignment is to increase to 100% for years three through payout. Once payout has occurred (112% of the costs on a well-by-well
basis), our respective working interests in the revenues from each carried well will revert to our original working interests in
each such well. The Carry Agreement relieves us of approximately $12 million in what our working interest share of the drilling
and completion costs of such six wells would have been. We expect that it will significantly strengthen our working capital position
and allow us to pursue our short-term drilling program vigorously. As of June 30, 2012, we have received $6,778,134 of funding
under the Carry Agreement. In July 2012, we executed an amendment to the Carry Agreement that extended the terms of the Carry Agreement
to another four operated wells.



Historically, we have successfully raised
additional operating capital through private equity funding sources and from the sale of various oil and gas prospects and properties.
However, no assurances can be given that we will be able to obtain sufficient operating capital through the sale of common stock
and/or borrowing or that the development and implementation of our business plan will generate sufficient future revenues to sustain
ongoing operations.



18







Litigation



As of June 30, 2012, we are not subject
to any known or threatened litigation.



Off-Balance Sheet Arrangements



We have no off-balance sheet arrangements.



19











ITEM 4. CONTROLS
AND PROCEDURES



The Company, under the supervision and with the participation
of its management, including the Chief Executive Officer and the Principal Accounting Officer, evaluated the effectiveness of the
design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report.  Based on that evaluation,
the Chief Executive Officer and the Principal Accounting Officer concluded that the Company’s disclosure controls and procedures
were effective as of June 30, 2012.  There has been no change in the Company’s internal control over financial
reporting during the quarter ended June 30, 2012, that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.



20







PART II – OTHER INFORMATION



ITEM 6. EXHIBITS.



|Exhibit |  | Description of Exhibit                                                                                                                                                                                                                                           
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1     |  | Agreement and Plan of Merger among Eternal Energy Corp., Eternal Sub Corp. and American Eagle Energy Inc., dated April 8, 2011. (Incorporated by reference to Exhibit 2.1 of our Registration Statement on Form S-4 filed May 4, 2011.)                          
|2.1(a)  |  | First Amendment to Agreement and Plan of Merger among Eternal Energy Corp., Eternal Sub Corp. and American Eagle Energy Inc., dated September 28, 2011. (Incorporated by reference to Exhibit 2.1(a) of our Current Report on Form 8-K filed September 28, 2011.)
|3(i).1  |  | Articles of Incorporation filed with the Nevada Secretary of State on July 25, 2003. (Incorporated by reference to Exhibit 3.1 of our Form 10-SB filed August 18, 2004.)                                                                                         
|3(i).2  |  | Certificate of Change filed with the Nevada Secretary of State effective November 7, 2005. (Incorporated by reference to Exhibit 3(i).2 of our Current Report on Form 8-K filed November 9, 2005.)                                                               
|3(i).3  |  | Articles of Merger filed with the Nevada Secretary of State effective November 7, 2005. (Incorporated by reference to Exhibit 3(i).3 of our Current Report on Form 8-K filed November 9, 2005.)                                                                  
|3(i).4  |  | Articles of Merger filed with the Nevada Secretary of State effective November 30, 2011. (Incorporated by reference to Exhibit 3(i).4 of our Current Report on Form 8-K filed December 20, 2011.)                                                                
|3(i).5  |  | Articles of Merger filed with the Nevada Secretary of State effective November 30, 2011. (Incorporated by reference to Exhibit 3(i).5 of our Current Report on Form 8-K filed December 20, 2011.)                                                                
|3(i).6  |  | Certificate of Change filed with the Nevada Secretary of State effective November 30, 2011. (Incorporated by reference to Exhibit 3(i).6 of our Current Report on Form 8-K filed December 20, 2011.)                                                             
|3(ii).1 |  | Bylaws, adopted July 18, 2003. (Incorporated by reference to Exhibit 3.2 of our Form 10-SB filed August 18, 2004.)                                                                                                                                               
|3(ii).2 |  | Amendment No. 1 to Bylaws, adopted November 4, 2005. (Incorporated by reference to Exhibit 3(ii) of our Current Report on Form 8-K filed November 9, 2005.)                                                                                                      
|3(ii).3 |  | Amendment No. 2 to Bylaws, adopted February 22, 2011. (Incorporated by reference to Exhibit 3(ii).3 of our Current Report on Form 8-K filed February 23, 2011.)                                                                                                  
|4.1     |  | American Eagle Energy Corporation 2012 Equity Incentive Plan. (Incorporated by reference to Exhibit 4.1 of our Registration Statement on Form S-8 filed February 28, 2012.)                                                                                      
|4.2     |  | Non-qualified Stock Option Agreement, dated as of October 30, 2009, by and between the Registrant and Bradley M. Colby. (Incorporated by reference to Exhibit 4.2 of our Registration Statement on Form S-8 filed February 28, 2012.)                            
|4.3     |  | Non-qualified Stock Option Agreement, dated as of October 30, 2009, by and between the Registrant and John Anderson. (Incorporated by reference to Exhibit 4.3 of our Registration Statement on Form S-8 filed February 28, 2012.)                               
|4.4     |  | Non-qualified Stock Option Agreement, dated as of October 30, 2009, by and between the Registrant and Paul E. Rumler. (Incorporated by reference to Exhibit 4.4 of our Registration Statement on Form S-8 filed February 28, 2012.)                              
|4.5     |  | Non-qualified Stock Option Agreement, dated as of December 30, 2010, by and between the Registrant and Bradley M. Colby. (Incorporated by reference to Exhibit 4.5 of our Registration Statement on Form S-8 filed February 28, 2012.)                           
|4.6     |  | Non-qualified Stock Option Agreement, dated as of December 30, 2010, by and between the Registrant and Thomas G. Lantz. (Incorporated by reference to Exhibit 4.6 of our Registration Statement on Form S-8 filed February 28, 2012.)                            
|4.7     |  | Reserved for future use.                                                                                                                                                                                                                                         
|4.8     |  | Non-qualified Stock Option Agreement, dated as of December 30, 2010, by and between the Registrant and Richard Findley. (Incorporated by reference to Exhibit 4.8 of our Registration Statement on Form S-8 filed February 28, 2012.)                            
|4.9     |  | Non-qualified Stock Option Agreement, dated as of December 28, 2011, by and between the Registrant and Paul E. Rumler. (Incorporated by reference to Exhibit 4.9 of our Registration Statement on Form S-8 filed February 28, 2012.)                             
|4.10    |  | Non-qualified Stock Option Agreement, dated as of December 28, 2011, by and between the Registrant and John Anderson. (Incorporated by reference to Exhibit 4.10 of our Registration Statement on Form S-8 filed February 28, 2012.)                             
|4.11    |  | Reserved for future use.                                                                                                                                                                                                                                         
|4.12    |  | Non-qualified Stock Option Agreement, dated as of December 28, 2011, by and between the Registrant and Kirk Stingley. (Incorporated by reference to Exhibit 4.12 of our Registration Statement on Form S-8 filed February 28, 2012.)                             
|4.13    |  | Reserved for future use.                                                                                                                                                                                                                                         
|4.14    |  | Reserved for future use.                                                                                                                                                                                                                                         
|4.15    |  | Reserved for future use.                                                                                                                                                                                                                                         
|4.16    |  | Reserved for future use.                                                                                                                                                                                                                                         



21







|4.17  |  | Reserved for future use.                                                                                                                                                                                                                                                                                                                
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.18  |  | Reserved for future use.                                                                                                                                                                                                                                                                                                                
|4.19  |  | Non-qualified Stock Option Agreement, dated as of February 21, 2012, by and between the Registrant and Andrew P. Calerich. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed February 21, 2012.)                                                                                                       
|4.20  |  | Reserved for future use.                                                                                                                                                                                                                                                                                                                
|10.1  |  | Agreement and Plan of Merger between Golden Hope Resources Corp. (renamed Eternal Energy Corp.) and Eternal Energy Corp., filed with the Nevada Secretary of State effective November 7, 2005. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed November 9, 2005.)                                    
|10.2  |  | Purchase and Sale Agreement by and between Eternal Energy Corp., PNP Petroleum I, LP., Cibolo Energy Operating, Inc. and Century Assets Corporation, dated June 25, 2010. (Incorporated by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q filed August 16, 2010.)                                                       
|10.3  |  | Purchase and Sale Agreement between Eternal Energy Corp. and American Eagle Energy Inc. dated June 18, 2010. (Incorporated by reference to Exhibit 10.3 of our Quarterly Report on Form 10-Q filed August 16, 2010.)                                                                                                                    
|10.4  |  | Reserved for future use.                                                                                                                                                                                                                                                                                                                
|10.5  |  | Reserved for future use.                                                                                                                                                                                                                                                                                                                
|10.6  |  | Letter Agreement by and between Eternal Energy Corp. and International Frontier Resources Corporation. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed December 5, 2005.)                                                                                                                            
|10.7  |  | Reserved for future use.                                                                                                                                                                                                                                                                                                                
|10.8  |  | Reserved for future use.                                                                                                                                                                                                                                                                                                                
|10.9  |  | Letter Agreement by and between Eternal Energy Corp. and International Frontier Resources Corporation Relating to Quad 41 and Quad 42 dated January 30, 2006. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed February 3, 2006.)                                                                     
|10.10 |  | Amended and Restated Letter Agreement by and between Eternal Energy Corp. and International Frontier Resources Corporation Relating to Quad 14 dated January 30, 2006. (Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed February 3, 2006.)                                                            
|10.11 |  | Amended and Restated Employment Agreement by and between the Registrant and Bradley M. Colby effective July 1, 2011. (Incorporated by reference to Exhibit 10.11 of our Annual Report on Form 10-K filed April 16, 2012.)                                                                                                               
|10.12 |  | Employment Agreement by and between the Registrant and Thomas G. Lantz, effective November 30, 2011. (Incorporated by reference to Exhibit 10.12 of our Annual Report on Form 10-K filed April 16, 2012.)                                                                                                                               
|10.13 |  | Employment Agreement by and between the Registrant and Kirk Stingley, effective January 1, 2012. (Incorporated by reference to Exhibit 10.13 of our Annual Report on Form 10-K filed April 16, 2012.)                                                                                                                                   
|10.14 |  | Consulting Agreement by and between the Registrant and Richard Findley, effective November 30, 2011. (Incorporated by reference to Exhibit 10.41 of our Annual Report on Form 10-K filed April 16, 2012.)                                                                                                                               
|10.15 |  | Reserved for future use.                                                                                                                                                                                                                                                                                                                
|10.16 |  | Letter Agreement effective as of May 19, 2006, by and among Eternal Energy Corp., International Frontier Resources Corporation, Palace Exploration Company Limited, Oilexco Incorporated, and Challenger Minerals (North Sea) Limited. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed May 23, 2006.)
|10.17 |  | Letter Agreement dated October 15, 2006, by and among Eternal Energy Corp., Fairway Exploration, LLC, Prospector Oil, Inc., and 0770890 B.C. Ltd. (Incorporated by reference to Exhibit 10.17 of our Annual Report on Form 10-KSB filed April 16, 2007.)                                                                                
|10.18 |  | Letter Agreement dated October 26, 2006, by and among Eternal Energy Corp., Fairway Exploration, LLC, Prospector Oil, Inc., 0770890 B.C. Ltd., and Rover Resources Inc. (Incorporated by reference to Exhibit 10.18 of our Annual Report on Form 10-KSB filed April 16, 2007.)                                                          
|10.19 |  | Letter Agreement dated February 28, 2007, by and among Eternal Energy Corp., Pebble Petroleum Inc., Emerald Bay Holdings Ltd., and Heartland Resources Inc. (Incorporated by reference to Exhibit 10.19 of our Annual Report on Form 10-KSB filed April 16, 2007.)                                                                      
|10.20 |  | Agreement To Terminate DGWS Option (Incorporated by reference to Exhibit 10.20 of our Quarterly Report on Form 10-Q filed May 15, 2009.)                                                                                                                                                                                                
|10.21 |  | Employment Agreement by and between Eternal Energy Corp. and Craig Phelps dated August 1, 2007. (Incorporated by reference to Exhibit 10.21 of our Quarterly Report on Form 10-Q filed May 15, 2009.)                                                                                                                                   
|10.22 |  | Employment Agreement by and between Eternal Energy Corp. and Kirk A. Stingley dated June 2, 2008. (Incorporated by reference to Exhibit 10.22 of our Quarterly Report on Form 10-Q filed May 15, 2009.)                                                                                                                                 
|10.23 |  | Amended and Restated Employment Agreement by and between Eternal Energy Corp. and Bradley M. Colby dated November 1, 2009. (Incorporated by reference to Exhibit 10.23 of our Quarterly Report on Form 10-Q filed November 23, 2009.)                                                                                                   
|10.24 |  | First Amendment to the Amended and Restated Employment Agreement by and between Eternal Energy Corp. and Craig H. Phelps dated August 1, 2009. (Incorporated by reference to Exhibit 10.24 of our Quarterly Report on Form 10-Q filed November 23, 2009.)                                                                               
|10.25 |  | First Amendment to the Employment Agreement by and between Eternal Energy Corp. and Kirk A. Stingley dated October 30, 2009. (Incorporated by reference to Exhibit 10.25 of our Quarterly Report on Form 10-Q filed November 23, 2009.)                                                                                                 
|10.26 |  | Reserved for future use.                                                                                                                                                                                                                                                                                                                



22







|10.27   |  | Lease Agreement dated January 1, 2009 by and between Eternal Energy Corp. and Oakley Ventures, LLC. (Incorporated by reference to Exhibit 10.27 of our Annual Report on Form 10-K filed March 23, 2010.)                                                                                                                                                                                                        
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.27a  |  | Lease Addendum, dated October 1, 2011 by and between Eternal Energy Corp. and Oakley Ventures, LLC, and Exhibit A thereto. (Incorporated by Reference to Exhibit 10.27a of our Annual Report on Form 10-K filed March 23, 2010.)                                                                                                                                                                                
|10.27b* |  | Lease Addendum, dated July 1, 2012 by and between American Eagle Energy and Oakley Ventures, LLC, and Exhibit A thereto.                                                                                                                                                                                                                                                                                        
|10.28   |  | Purchase and Sale Agreement by and between Eternal Energy Corp. and Ryland Oil Corporation dated March 26, 2010.  (Incorporated by reference to Exhibit 10.28 of our Current Report on Form 8-K filed March 29, 2010.)                                                                                                                                                                                          
|10.29   |  | Purchase of Royalty Agreement by and between Eternal Energy Corp. and Ryland Oil Corporation dated March 26, 2010. (Incorporated by reference to Exhibit 10.29 of our Current Report on Form 8-K filed March 29, 2010.)                                                                                                                                                                                         
|10.29a  |  | Amending Agreement to the Ryland / Eternal Royalty Purchase Agreement by and between Eternal Energy Corp. and Ryland Oil Corporation dated April 20, 2010. (Incorporated by reference to Exhibit 10.29a of our Current Report on Form 8-K filed March 29, 2010.)                                                                                                                                                
|10.30   |  | Termination Agreement (of the US Pebble Acquisition Agreement) by and between Eternal Energy Corp., Fairway Exploration LLC, Prospector Oil, Inc. Pebble Petroleum Inc. and Rover Resources Inc. dated April 29, 2010. (Incorporated by reference to Exhibit 10.30 of our Quarterly Report on form 10-Q filed May 17, 2010.)                                                                                    
|10.31   |  | Termination Agreement (of the Canadian Pebble Acquisition Agreement) by and between Eternal Energy Corp., Fairway Exploration LLC, Prospector Oil, Inc. and Pebble Petroleum Inc. dated April 29, 2010. (Incorporated by reference to Exhibit 10.31 of our Quarterly Report on form 10-Q filed May 17, 2010.)                                                                                                   
|10.32   |  | Termination Agreement (of the US Prospect Acquisition Agreement) by and between Eternal Energy Corp., Fairway Exploration LLC, Prospector Oil, Inc., Pebble Petroleum Inc., Rover Resources Inc., Steven Swanson, Richard L. Findley, Thomas G. Lantz and Ryland Oil Corporation dated May 11, 2010. (Incorporated by reference to Exhibit 10.33 of our Quarterly Report on Form 10-Q filed May 17, 2010.)      
|10.33   |  | Termination Agreement (of the Canadian Prospect Acquisition Agreement) by and between Eternal Energy Corp., Fairway Exploration LLC, Prospector Oil, Inc., Pebble Petroleum Inc., Rover Resources Inc., Steven Swanson, Richard L. Findley, Thomas G. Lantz and Ryland Oil Corporation dated May 11, 2010. (Incorporated by reference to Exhibit 10.33 of our Quarterly Report on form 10-Q filed May 17, 2010.)
|10.34   |  | Termination of Management Services Agreement by and between Eternal Energy Corp., Ryland Oil Corporation and Brad Colby dated December 1, 2009. (Incorporated by reference to Exhibit 10.34 of our Quarterly Report on form 10-Q filed May 17, 2010.)                                                                                                                                                           
|10.35   |  | Amendment to the Consulting Agreement by and between Eternal Energy Corp., Rover Resources Inc., and Brad Colby dated April 1, 2010. (Incorporated by reference to Exhibit 10.35 of our Quarterly Report on form 10-Q filed May 17, 2010.)                                                                                                                                                                      
|10.36   |  | Letter of Intent between Eternal Energy Corp. and American Eagle Energy Inc. dated February 22, 2011. (Incorporated by reference to Exhibit 10.36 of our Annual Report on Form 10-K filed March 23, 2011.)                                                                                                                                                                                                      
|10.37   |  | Engagement Letter for Professional Services between Eternal Energy Corp. and C.K. Cooper & Company, dated February 25, 2011. (Incorporated by reference to Exhibit 10.37 of our Annual Report on Form 10-K filed March 23, 2011.)                                                                                                                                                                               
|10.38   |  | Participation and Operating Agreement among Eerg Energy Ulc, AEE Canada Inc., and Passport Energy Inc., dated April 15, 2011. (Incorporated by reference to Exhibit 10.38 of our Registration Statement on Form S-4 filed May 4, 2011.)                                                                                                                                                                         
|10.38a  |  | Amending Agreement to the Participation and Operating Agreement among Eerg Energy Ulc, Aee Canada Inc., and Passport Energy Inc., dated February 1, 2012. (Incorporated by reference to Exhibit 10.38a of our Annual Report on Form 10-K filed April 16, 2012.)                                                                                                                                                 
|10.39^  |  | Purchase and Sale Agreement among Eternal Energy Corp., American Eagle Energy Inc. and NextEra Energy Gas Producing, LLC, dated May 17, 2011. (Incorporated by reference to Exhibit 10.39 of our Amended Quarterly Report on Form 10-Q/A filed October 11, 2011.)                                                                                                                                               
|10.40^  |  | Purchase and Sale Agreement among Eternal Energy Corp., American Eagle Energy Inc. and NextEra Energy Gas Producing, LLC, dated May 17, 2011. (Incorporated by reference to Exhibit 10.40 of our Amended Quarterly Report on Form 10-Q/A filed October 11, 2011.)                                                                                                                                               
|10.40a  |  | First Amendment to Purchase and Sale Agreement among Eternal Energy Corp., American Eagle Energy Inc. and NextEra Energy Gas Producing, LLC, dated June 14, 2011. (Incorporated by reference to Exhibit 10.40a of our Quarterly Report on Form 10-Q filed August 18, 2011.)                                                                                                                                     
|10.40b  |  | Second Amendment to Purchase and Sale Agreement among Eternal Energy Corp., American Eagle Energy Inc. and NextEra Energy Gas Producing, LLC, dated July 25, 2011. (Incorporated by reference to Exhibit 10.40b of our Quarterly Report on Form 10-Q filed August 18, 2011.)                                                                                                                                    
|10.41^  |  | Purchase and Sale Agreement among Eternal Energy Corp., American Eagle Energy Inc. and NextEra Energy Gas Producing, LLC, dated November 15, 2011. (Incorporated by reference to Exhibit 10.41 of our Annual Report on Form 10-K filed April 16, 2012.)                                                                                                                                                         
|10.42*^ |  | Carry Agreement by and among American Eagle Energy Corporation, American Eagle Energy Inc., and NextEra Energy Gas Producing, LLC, dated as of April 16, 2012, and Exhibit C thereto.                                                                                                                                                                                                                           



23







|10.43*^ |  | First Amendment to Carry Agreement by and among American Eagle Energy Corporation, American Eagle Energy Inc., and NextEra Energy Gas Producing, LLC, dated as of July 15, 2012.
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|21.1    |  | List of Subsidiaries. (Incorporated by reference to Exhibit 21.1 of our Annual Report on Form 10-K filed April 16, 2012.)                                                       
|31.1*   |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                             
|31.2*   |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                             
|32.1*   |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                 
|32.2*   |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                 












| | * | Filed herewith.
| | - | ---------------

| | ^ | Portions omitted pursuant to a request for confidential
treatment.
| | - | ------------------------------------------------------------------



24







SIGNATURES



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



|AMERICAN EAGLE ENERGY CORPORATION |                                      
|--------------------------------- | -------------------------------------
|                                  |                                      
|(Registrant)                      |                                      
|                                  |                                      
|August 20, 2012                   | /s/ Bradley M. Colby                 
|                                  | Bradley M. Colby                     
|                                  | President and Chief Executive Officer



25